Kronospan UA - OSB investment

Location:

Ukraine

Project number:

50479

Business sector:

Manufacturing and Services

Notice type:

Private

Environmental category:

B

Target board date:

25 Apr 2019

Status:

Passed Final Review, Pending Board Approval

PSD disclosed:

22 Mar 2019

Project Description

The provision of a loan up to €116 million to Kronospan UA, Ukraine. The facility will consist of €75 million for the construction of an Oriented-Strand Board (OSB) plant in Novovolynsk, Ukraine and EUR 41 million for refinancing of the existing Company's balance sheet restructuring.

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 construction of an Oriented-Strand Board (OSB) production facility to meet the growing demand for OSB products in Ukraine and in the export markets.

Kronospan will also invest into creation of cluster for furniture producers, a new transformer substation, bio-mass boiler and WESP filter at the site.

Transition Impact

Foreign direct investment: the project will be a combination of FDI equity investment and the Bank's loan. There have been only marginal FDI inflows in wood processing sector and overall in Ukraine in recent years. Kronospan is bringing substantial new investment into the borrower, which will exceed annual volume of FDI in wood-processing sector in Ukraine over the last 3 years.

Kronospan seeks to minimise its negative environmental footprint recognising the impact of its wooden board production on air quality. As part of the Project, the Company will install additional Wet Electrostatic Precipitator (WESP) to reduce concentrations of dust and formaldehyde emissions for the OSB dryer. Additionally the Project includes the construction of own transformer substation, as well as a biomass boiler energy unit, to heat the OSB dryer and OSB press (via thermal oil), allowing for gas substitution.

Client Information

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

Kronospan is the market leader in the wood-based panel sector. It manufactures wood-based panel products at over 40 sites and has 16 distribution centres in 21 countries.

EBRD Finance Summary

EUR 76,000,000.00

A senior loan of up to €116 million, of which up to €40 million would be syndicated in A/B-loan structure.

Total Project Cost

EUR 168,000,000.00

  • SOURCES TOTAL: €168m USES TOTAL: €168m
  • Kronospan own funds: €52m CapEx: €127m
  • EBRD Financing: €116m Refinancing of EBRD debt: €41m

Environmental and Social Summary

Categorised B in accordance with the EBRD Environmental and Social Policy (2014). The construction of the Oriented Strand Board (OSB) plant with annual capacity of 280,000 m3 at the existing Kronospan particleboard (PB) plant and an adjacent furniture cluster are associated with a limited number of environmental and social issues that can be readily identified and are site specific. The Project will be located at the site of the existing Kronospan's production plant in Novovolynsk, north-west of Ukraine, 10km from the border with Poland. The closest residential area is more than 300m away. The nearest nature protection area is about 50km away, and there are no historical monuments in the immediate vicinity of the site.
The project related Non-Technical Summary is published on the Company’s website at: https://ua.kronospan-express.com/en/express-services/downloads
The technology of the OSB production line and its design will be similar to other Kronospan's OSB plants (including Bank-financed OSB plant in Mogilev, Belarus), and will introduce Best Available Techniques (BAT) for Wood-Based Panels, in line with the EU Industrial Emissions Directive. As part of the OSB plant investment plan Kronospan will install a directly heated dryer, a multi-daylight press, a 45MW biomass boiler and surface water drainage and treatment facility as well as some infrastructure upgrades to accommodate new production facility.
The plant will consume a significant amount of wood as raw material and the main potential indirect environmental and social impacts are associated with the wood supply. 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 obtained in 2014 is still valid.
Currently, about 20% of the produced PB product is labelled FSC 100% under the C-o-C certification standards. The future OSB plant will be subject to FSC certification.
The independent consultant was contracted to carry out Environmental and Social Due Diligence (ESDD) of the investment Project, review current operations environmental and social (E&S) performance against BAT Conclusions for Wood-Based Panels, and update existing PB project ESAP to address identified E&S issues under the new Project. The ESDD assessed potential adverse future environmental and social issues associated with OSB production are related to air emissions (dust, formaldehyde and other VOCs), use of hazardous substances, wood waste management, high energy use and associated CO2 emissions, as well as occupational health and safety, explosion/fire risks and impacts on neighbouring community. The ESDD confirmed that these can be mitigated through project design, introduction of modern production technology and appropriate management and mitigation measures, which will be introduced via the Environmental and Social Action Plan (ESAP). The Company published Non-Technical Summary and Stakeholder Engagement Plan to facilitate OSB Project’s information disclosure and engage with community and other stakeholders.
The ESAP is agreed with the Client, and among other includes the following provisions

  • Strengthening of the E&S management systems and stakeholder engagement practices;
  • Regular air emissions monitoring installation of WESP at the OSB line in line with BAT;
  • Noise, odour and other public nuisance reduction measures and monitoring;
  • Materials handling, log yard hard surface and waste management improvements;
  • Occupational safety controls, accidents prevention and traffic safety management;
  • Fire and explosion safety controls installation.

The company has provided 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 EU environmental standards based on the use of EU BAT (as outlined in 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 Information

Natalia Pokinska
n.pokinska@kronospan.com.ua
+380 3344 43 600
+380 3344 43 619
www.kronospan-worldwide.com
Kronospan UA LLC 20 Lutska Street 45400 Novovolynsk Volyn Region Ukraine

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