Kronospan UA modernisation

Location:

Ukraine

Project number:

47319

Business sector:

Manufacturing and Services

Notice type:

Private

Environmental category:

B

Target board date:

16 Dec 2015

Status:

Signed

PSD disclosed:

13 Nov 2015

Translated version of this PSD: Ukrainian

Project Description

The EBRD is considering providing a loan totalling up to € 40 million to Kronospan UA, Ukraine, to finance its capital expenditure.

Kronospan UA is an existing client of the EBRD. The first loan to the Borrower was provided in 2006.

Project Objectives

The Project assumes the replacement of a multi-daylight press with a continuous particleboard press, and adaptation of the pre-production area for the increased production volume.

Kronospan will also invest into a new bio-mass boiler and WESP filter at the site.

Transition Impact

Energy efficiency and resource efficiency initiative: The Project envisages installation of a 15MW biomass boiler and uses wood by-products and waste from the production process as a fuel for heat production, which allows the plant to produce a substantial part of the energy requirements from renewable energy resources. The biomass boiler will allow replacing natural gas as fuel currently used for heating of the press thermal oil, resulting in significantly reduced associated GHG emissions. Kronospan will be the first wood-panel producer who will install such a boiler onsite and will set the standard for energy and waste efficiency in the sector.

Market Expansion: The proposed expansion will involve increased demand for wood raw materials for the plant. Under the existing project, one of the transition impact objectives is to further facilitate good forestry practices among the suppliers by sourcing wood from Forestry Stewardship Council (FSC) certified suppliers. Therefore, the project could further expand the scope in terms of increasing the number of local wood suppliers that will comply with sustainable forest management practices.

Demonstration of successful restructuring: The improved quality of the final product, will enable the Borrower to increase exports to EU markets. Such export quality could not be achieved with the existing equipment. The new Project will be structured to achieve compliance with the EU BAT in the form of the draft BREF for Wood-based Panels production. The successful Project implementation and reorientation of the market from Russia towards the EU will have a positive demonstration effect to the other companies in the sector and beyond.

Client Information

KRONOSPAN UA

Kronospan UA is a wholly-owned Ukrainian subsidiary of Kronospan Holdings East Limited, Cyprus.

Kronospan is the market leader in the wood-based panel sector. It manufactures wood-based panel products at over 40 sites in 27 countries, including Poland, Czech Republic, Slovakia, Bulgaria, Romania, Hungary, Croatia, Serbia, Russia, Belarus and Ukraine. It currently employs over 14,000 people and has revenues in excess of € 4.5bn a year.

EBRD Finance Summary

EUR 40,000,000.00

A senior loan of up to € 40 million for the EBRD account.

Total Project Cost

EUR 67,000,000.00

SOURCES TOTAL: EUR 67m USES TOTAL: EUR 67m

Kronospan own funds: EUR 27 m CapEx: EUR 67m

EBRD Financing: EUR 40m

Environmental and Social Summary

Categorised B in accordance with the EBRD Environmental and Social Policy (2014). The expansion of the existing particleboard (PB) production facilities without any additional land plot acquisition is associated with a limited number of environmental and social issues that can be readily identified and are site specific. The project is located at the existing Kronospan's particleboard production plant in Novovolynsk, North West Ukraine, 10km from the border with Poland. The distance to the closest residential area is 500 - 600m. The nearest nature protection area is about 50km away, and there are no historical monuments in the immediate vicinity of the site.

An independent consultant was contracted to carry out Environmental and Social Due Diligence (ESDD) of the investment Project and review current operations E&S performance. The ESDD confirmed compliance with national legislation, and the ability of the Company to implement the EBRD PRs following recommendations outlined in the ESAP.

The technology of the new PB production line and its design will be similar to Kronospan's existing PB plants in Belarus, Poland and Russia, and will introduce Best Available Techniques (BAT), including replacement of the multi-daylight press with a continuous press, and air emissions control systems among others. Bark and other wood residues will be used as a fuel for the plants heating and steam generation requirements to substitute the use of natural gas via installation of the state-of the-art 15 MW biomass boiler.

The potential adverse future environmental and social issues associated with particleboard production are related to air emissions (dust, formaldehyde and other VOCs), wood waste management, high energy use and associated CO2 emissions, as well as occupational health and
safety, explosion / fire risks and impacts on the neighbouring community. These can be mitigated through project design, introduction of modern production technology and appropriate management and mitigation measures, which will be introduced via the ESAP. The latter is being prepared and will be agreed with the Client prior to the Project submission to the Board of Directors for approval.

The plant will consume a significant amount of wood as a raw material and the main potential indirect environmental and social impacts are associated with the wood supply. A substantial part of that will consist of low grade round wood, and the Company will also seek to use saw dust and sawmill residues available from local wood processing plants. To mitigate the potential adverse impact of the wood procurement and to ensure the wood supplied is of legal and sustainable origin, the Company will purchase wood from responsible sources and give preference to certified wood when available.

Kronospan's Novovolynsk plant has already been subject to the external FSC audits and the FSC Chain-of-Custody and Controlled Wood certification was obtained in 2014.

Kronospan is working with 47 suppliers, 22 of which are FSC certified for sustainable forestry management. About 35 per cent of PB produced is FSC 100 per cent certified and labelled. All PB produced at the plant comply with E1 standards on formaldehyde content in final board products ensuring safety of use in indoor environment.

The Company will provide the Bank with an annual environmental and social report (AESR), including updates on the ESAP implementation. The Bank will evaluate the Project's environmental and social performance in accordance with the ESAP and Bank's PRs including compliance with Ukrainian and the EU environmental standards based on the use of the EU BAT (as outlined in the EU BREF Wood-based Panels Production when it comes into force) through reviewing the Client reporting and undertaking periodic monitoring visits.

Technical Cooperation

None

Company Contact

Chris Ryan / Oliver Vaughan
c.ryan@kronospan.co.uk / o.vaughan@kronospan.co.uk
+ 44 1691 775 257/343
+44 1691 776 196
www.kronospan-worldwide.com
Kronospan Limited Holyhead Road Chirk Wrexham LL14 5NT

Business opportunities

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