Kostanay District Heating sub-project

Location:

Kazakhstan

Project number:

47396

Business sector:

Municipal and environmental infrastructure

Notice type:

Public

Environmental category:

B

Target board date:

24 May 2016

Status:

Disbursing

PSD disclosed:

15 Jan 2016

Translated version of this PSD: Russian

Project Description

The EBRD is providing a loan up to KZT 3.7 billion to the GKP Kostanay Heat and Power Company (the "Company"), a local municipal entity providing district heating and hot water supply services to the local population and business entities, to rehabilitate and upgrade the existing district heating infrastructure in the City of Kostanay.

Project Objectives

The Loan will be used to finance priority capital investments, including the reconstruction of the existing heat and combined heat and power generating facilities, upgrade of the heat supply networks, introduction of SCADA system and other auxiliary investments (the "Project"). This will result in enhanced quality of heat supply services, improved reliability of the heat infrastructure, maximised operation cost savings, improved service standards and environmental and social performance.

Transition Impact

This project would deliver:

  • Commercialisation of the Company by means of introduction of Public Service Contract that will establish a contractual relationship between the Company and the City Akimat;
     
  • Energy efficiency improvements in the operations of the Company through the modernisation of the district heating facilities;
     
  • Introduction of commercial district heating tariffs covering the full costs of service for all customer groups as part of the priority investment programme (the "PIP") agreed with the tariff regulator.

Client Information

KOSTANAY HEAT AND POWER COMPANY, GKP

GKP Kostanay Heat and Power Company, provider of district heating services to residents, commercial and public sector customers in the city of Kostanay, Kazakhstan.

EBRD Finance Summary

KZT 3,700,000,000.00

A senior loan to the Company in the amount of up to KZT 3,700,000,000.

Total Project Cost

KZT 6,042,528,703.00

KZT 6,042,528,703 including co-financing from the Government of the Republic of Kazakhstan ("GOK") under the Enhanced Partnership Framework Arrangement ("EPFA"), related technical cooperation to support the Company with the project preparation and implementation.

Environmental and Social Summary

The Project has been categorised B under the 2014 Environmental and Social Policy. The planned priority investment programme (“PIP”) is expected to result in enhanced energy and resource efficiency, reduction in air emissions and improvement of environmental, health and safety conditions at the Company’s facilities. The PIP involves the rehabilitation and modernisation of the existing large-scale CHP (560.4 MW thermal heat output) and boiler houses No.2 and No.3 (372.9 MW and 497.6 MW respectively), which will not significantly change or increase thermal capacity. The Environmental and Social Due Diligence (“ESDD”) undertaken by independent consultants as part of the Feasibility Study confirmed that the adverse future environmental and/or social impacts of the project would be site-specific and readily identified and addressed through adequate mitigation measures.

The ESDD included an independent environmental and social (E&S) audit of the Company's current operations and facilities, as well as an analysis of the E&S impacts and benefits associated with the proposed PIP, tariff affordability issues and gender-related issues. It showed that the existing district heating infrastructure in the City of Kostanay is old, inefficient and unreliable, with high levels of heat losses during transmission and distribution (17.9 per cent annually) and a high risk of accidents. The Company’s environmental and occupational health and safety (OHS) management systems also require further improvements of internal procedures, capacity building and data management to fully comply with EBRD PRs.

The ESDD estimated that PIP implementation will result in some reduction of emissions of air pollutants and greenhouse gases (GHG), and a minor improvement of the ambient air quality around the CHP. Environmental benefits will also be achieved through a reduction of heat and water losses during transportation and distribution of heat and hot water. Annual natural gas and electricity consumption after completion of the PIP is expected to be reduced by 4.63 million m3 and 12.8 million kWh respectively, which corresponds to the GHG emission reduction of 31,927 tonnes of CO2 equivalent per annum. This reduction in losses will lead to an estimated reduction of water consumption by 80 thousand m3/annum. Over 150,000 people connected to the DH networks will benefit from the improvements. At least 340 staff currently working at the CHP will benefit from improved OHS procedures through the replacement of obsolete and unsafe equipment and improved working conditions at the Company’s facilities.

The ESDD confirmed that the project will bring the modernised CHP and boiler houses into compliance with both national requirements and EU IED BAT for air emissions. The project components will also be subject to national EIA process, disclosure and consultation requirements. The affordability analysis identified that the supply of heat and hot water will remain affordable for the average households. However the lowest income decile households may face some affordability challenges with the increased heating and hot water tariffs. These will be mitigated through conditions in the PSC and via the Company’s close cooperation with the City and the Oblast Akimats to ensure that adequate compensation is in place through targeted subventions. Poor and vulnerable households need to be able to afford a basic amount of heating, so affordability will need to be continuously assessed for those households to mitigate the risk of the most vulnerable being cut off from the heating supply due to affordability constraints.

An ESAP has been developed which requires the Company to further improve its environmental and OHS management systems, its HR policy to cover gender equality and retrenchment procedure, construction and maintenance contractors' EHSS management and performance monitoring, and waste management and disposal, including adequate asbestos management and phase out programme. It also requires the Company to obtain the necessary environmental permissions prior to any construction works, and to finalise and implement an adequate Stakeholder Engagement Plan and grievance mechanism. ESAP has been agreed with the Company.

The Bank will monitor the project’s environmental and social performance and compliance with EBRD PRs by reviewing annual reports prepared by the Company on environmental and social matters, and through the implementation of the ESAP. The TC funded Project Implementation Support consultants will also monitor day-to-day E&S performance and issues, as well as providing assistance in the implementation of the ESAP. The Bank may also undertake monitoring site visits.

Technical Cooperation

Pre-signing

  • Feasibility Study for the Project. EUR 290,000, financed by the GOK under the EPFA.


Post-signing

  • Support to the Project Implementation Unit ("PIU") including Procurement, Engineering, Design and Contract Supervision. The consultants will assist the Company's PIU with technical design, procurement, contract award and administration, financial control, overall project management, and quality assurance. The estimated cost of this assignment is EUR 522,000, proposed to be financed by the GOK under the EPFA.
     
  • Public Service Contract Development to assist the Company to prepare and implement the PSC with the City. The estimated cost of this assignment is EUR 48,000, proposed to be financed by the GOK under the EPFA.

Company Contact Information

Shmyglov Viktor V., General Director
gkpktek@gmail.com
+7 (7142) 57-70-24
Borodina, 231, Kostanay, 110006, Kazakhstan
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Text of the PIP

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Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.