Balti District Heating Project

Translated version of this PSD: Romanian

Project Description

The EBRD is considering a sovereign loan of up to €7 million to the Government of Moldova. The proceeds of the loan will be used to finance a Priority Investment Programme to modernise and upgrade the district heating services in the municipality of Balti. The investment is expected to reduce coal and gas consumption, reduce CO2 emissions, help CET-Nord JSC (the Company) maintain its customer base and ensure sustainability of its services. The Programme is expected to result in significant energy efficiency improvements and water savings as a result of customer controlled heat supply, improved efficiency of generation capacity, electricity co-generation and reduced losses in the distribution network.

The Project is expected to have a positive impact on Moldova’s energy security and balance of trade. It will also be the first project expected to make use of the Eastern Europe Energy Efficiency and Environmental Partnership (E5P) facility.

Transition Impact

The project will be the Bank’s first district heating project in the Balti municipality and the first one outside Moldova’s capital city focusing on less developed regions. The Transition Impact will primarily be derived from:

(i) Demonstration effect of successful restructuring. The project, focused on energy efficiency, is expected to optimise operating costs and improve the Company’s financial performance, and through demand-side investments to further reduce the use of imported fuels namely gas. A production facility will be converted to use biomass fuel which will have a positive demonstration effect on the use of new and sustainable technologies. A Corporate Development Support Programme is also envisaged to provide substantial training for key staff enabling commercial skills transfer.

(ii) Framework for markets: The project will help strengthen commercial operating principles and strengthen the governance of the Company through the introduction of key performance indicators for the Company’s management to promote a more consumer-oriented operating model in line with best industry practices. The project will further promote tariff reform, with the aim of achieving full cost recovery tariffs.

The Client

The Borrower will be the Government of Moldova represented by the Ministry of Finance.

The end beneficiary will be CET-Nord JSC (the Company), a provider of district heating services in the municipality of Balti. The Company is owned by the Ministry of Economy of Moldova. It operates one of the three major combined heat and power generation plants (CHP) in Moldova with over 100 km of network serving 93 per cent of Balti’s population connected to the district heating system, and a coal-fired Heat Only Boiler.

EBRD Finance

EBRD expects to provide an up to €7 million sovereign loan, to be on-lent to the Company.

The project is expected to be supported by a grant of up to €3 million from the Eastern Europe Energy Efficiency and Environmental Partnership (E5P) facility and a grant of up to €0.7 million from the EBRD Shareholder Special Fund (SSF).

Project Cost

€10.7 million.

Environmental Impact

The project has been categorised B in accordance with EBRD's 2008 Environmental and Social Policy. The priority investments into the rehabilitation and modernisation of the district heating infrastructure are expected to bring environmental and social benefits associated with the overall improvement in the quality of heating and hot water services in the Balti municipality, improved energy efficiency, reduction in fuel consumption and heat and water losses, and lower air emissions.

The due diligence has been finalised and included a corporate review of the Company’s corporate environmental, health and safety and social management capabilities and procedures in relation to its own workforce and construction contractors, and an analysis of the environmental and social impacts and benefits of the proposed priority investment programme to establish the level of project's compliance with EBRD's Performance Requirements (PRs). There were no major issues identified and any adverse impacts are expected to be limited to short-term environmental, health and safety issues arising from construction works which can be adequately mitigated by taking environmental protection measures into consideration in construction planning and work practices. Particular attention needs to be paid to conducting an asbestos survey and developing and enforcing implementation of strict procedures for handling and removal of asbestos-containing materials. An Environmental and Social Action Plan (ESAP), containing mitigation measures for identified issues along with a framework for provision of information to stakeholders have been developed and are currently being reviewed by the Company. The Company will need to implement the ESAP, provide timely information to stakeholders affected by the Project and submit annual environmental and social reports to the Bank.

Technical Cooperation

Pre-loan Signing

• TC 1: Feasibility Study. Preparation of a technical, financial, environmental and social feasibility study. The cost of the assignment is € 300,000, financed by the Swedish International Development Cooperation Agency (Sida) as part of a district heating market study in Moldova.

Post-loan Signing

• TC 2: Corporate Development Support Programme to foster institutional development in the form of operational and financial improvements to secure sustainability. The estimated cost of the assignment is € 200,000, to be financed by an international donor.
• TC 3: Project Implementation Support to ensure appropriate procurement, preparation and evaluation of tenders, contract award and administration, financial control, project management and reporting. The estimated cost of the assignment is € 400,000, to be financed by an international donor.

Implementation Summary

The Project helped to modernise and upgrade the district heating services in the city of Balti, Moldova. The investment has improved service levels, reduced consumption of natural gas, eliminated the uses of coal as well as helped the state owned company CET-Nord JSC (the “Company”) maintain its customer base. The implementation of the Project has resulted in significant energy efficiency improvements due to customer controlled heat supply, improved efficiency of generation capacity, increased electricity cogeneration and reduced losses in the distribution network.

The Company significantly improved its environmental, energy management and occupational and health and safety practices due to implementation of the Environmental and Social Action Plan and introduction of ISO standards.

The Project also contributed to tariff reform by introducing cost-recovery tariff levels. The successful introduction of biomass (wood pellet) fuel with automatic feeding and implementation of combined heat and power generation plant was a real breakthrough for the Company being the first plant in the country using such modern technology. Such technologies are being considered by other cities in Moldova. Finally, Management Contract was duly signed between the Company and the Ministry of Economy and Infrastructure for a period of 15 years, which sets the standards for corporate governance.

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