The proposed project consists of debt financing to Pervouralsk New Pipe Plant (PNTZ, part of CHTPZ Group) located in Pervouralsk, Sverdlovsk Region, to build a finishing centre for seamless pipes used in energy sector. This investment will allow CHTPZ Group to enter a growing market segment for high value-added pipes and will increase the Group’s competitiveness.
The project will be accompanied by amending existing loans provided by the Bank to CHTPZ Group.
The bank financing will enable the Group to undertake technological upgrade of its production facilities, introduce product innovations and quality improvements. The project will aim to bring the Group in full compliance with the Russian Corporate Governance Code.
CHTPZ Group (“the Group”) is Russia’s 2nd biggest pipe producer with pipe production facilities in Chelyabinsk (Chelyabinsk Tube Rolling Plant, CHTPZ) and Pervouralsk (Pervouralsk New Pipe Plant, PNTZ).
The EBRD would provide financing up to USD 193 mln as follows: EUR 115 mln senior loan part of which will be syndicated to commercial banks and USD 42.9 mln towards amending of the existing loan facilities on the account of the EBRD.
USD 203 million.
CHTPZ Group is one of the largest steel tube manufacturer in Russian Federation providing high quality pipes for a number of sectors of the Russian economy, namely the oil and gas sector.
The planned modernization of the Chelyabinsk and Pervouralsk steel tube manufacturing plants is aimed at improving the technology as well as addressing environmental investment needs.
Environmental classification and rationale
The project was screened B/1, requiring an Environmental Audit and Environmental Analysis in line with the Bank’s Environmental Policy and Public Information Policy. The planned modernization of existing steel tube manufacturing plants is associated with a number of environmental issues, which were readily identified, assessed and mitigated as part of an Environmental Analysis and Environmental Audit.
As part of the environmental due diligence an Environmental Audit and Analysis was undertaken by an international environmental consultant. Members of the Bank’s Environment Department visited the Company in the summer of 2006. The due diligence also utilized past environmental studies undertaken by the Bank of Chelyabinsk and Pervouralsk plants in 2002 and 2004 respectively as part of past financing. CHTPZ acquired the Percourlask plant (PNTZ) in 2004.
Key environmental issues and mitigation
The Company operates two large tube manufacturing plants located in Chelyabinsk and Pervouralsk. Both plants are significant employers in the region and have environmental management system in place. The main environmental issue is associated with air emissions, notably at Chelyabinsk which operates Open Hearth Furnaces (OHF). Water use, wastewater and waste management have also significant environmental impacts at both plants. It should be noted that in Chelyabinsk the local air quality is significantly affected by the concentration of heavy industry, and CHTPZ operations are not a major point source emitter in the City. Nevertheless, the planned closure of the OHF at Chelyabinsk and construction of a new state-of-the-art mini mill at Pervouralsk will help to improve the ambient air quality in Chelyabinsk. The proposed mini mill project is subject to separate Bank financing and a full Environmental Impact Assessment (EIA) is to be undertaken of this project prior to Bank financing. Initial review of the designs undertaken as part of the environmental due diligence, indicates that the new plant is structured to meet both Russian and EU environmental standards, and will not be associated with significant environmental or social impacts.
The Group is currently implementing a significant investment programme aimed at replacing old machinery with state-of-the-art technology. This will significantly reduce the environmental footprint at both plants as well as improve the overall working conditions and therefore reduce the risk of occupational disease. Elevated noise and lack of protective equipment has been identified as an issue requiring attention and this has been addressed through the environmental action plan.
The Project is expected to bring significant environmental health and safety benefits and reduce the risk of occupational disease and accidents. The replacement of old and energy intensive Open Hearth Furnaces with a modern Electric Arc Furnace (EAF) will also help the Group to reduce significantly its carbon emissions.
Summary of environmental action plan
An Environmental Action Plan (“EAP”) has been developed for the Company and this includes specific investment and upgrade requirement to ensure ongoing and future compliance with Russian and EU environmental standards, notably EU IPPC requirements for the sector. The EAP is being negotiated with the Company and includes specific actions aimed at strengthening corporate environmental management as well as improving the waste and wastewater management. Although, the financing of the mini mill project is to be covered by a separate Bank project the EAP addresses the minimal environmental performance of the planned mini mill and includes a commitment to close the old and inefficient OHF at Chelyabinsk.
Disclosure of information and consultation
In the context of the EBRD’s participation in the project, the Company will release locally a summary of relevant environmental issues associated with the project and summarise mitigation measures, action plans and other initiatives agreed, as in accordance with the provisions of the EBRD’s Environmental Policy.
Monitoring and reporting
The Company will monitor the environmental impact of its operations in accordance with national law and regulations. The Bank will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing annual environmental reports prepared for the project covering:
(i) ongoing performance of project-specific environmental, health and safety activities as reflected in the results of periodic and quantitative sampling and measuring programmes, and
(ii) the status of implementation of environmental mitigation and improvement measures. The Bank’s representatives will also conduct periodic site supervision visits when deemed appropriate.
The Bank will undertake monitoring of the Project, inclusive of site visits by Bank staff.
ARKLEY CAPITAL S.`a r.l., Moscow branch
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tel.: +7 (495) 933-2780
fax.: +7 (495) 933-2783
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