The EBRD is considering providing up to €30 million in equity investment to Milkiland, a group of dairy companies that produces whole milk products, cheese, butter, and dry milk powder, to contribute to the company’s balance sheet restructuring, modernisation, consolidation and integration of its production capacities in Ukraine and Russia.
Transition impact potential arises primarily from:
1) Setting standards for corporate governance and business conduct - financial disclosure, and benchmarking requirements for compliance with EU environmental standards via the Shareholders’ Agreement;
2) Enhancing backwards linkages with raw milk producers by providing pre-financing to selected farmers to buy cows and milking equipment, along with free technical advice, to help farmers increase their yields (dairy farming is a business that has low profitability due to poor farming skills and outdated technology, low raw milk prices, and therefore, low investment attractiveness for local farmers who have limited access to financing);
3) Enhancing forward linkages though the expansion of the distribution network and introduction of new products to the Ukrainian market, which will provide consumers with more choice of healthy, good quality products at affordable prices;
4) Transfer and dispersion of skills through establishing a milk production base in Ukraine that will include a training centre to which dairy farmers will be invited to attend training programs that would focus on improving milk collection, hygiene and animal health, and would also cover corn cultivation, feeding systems and recipes, veterinary care, quality and sanitary control, feeding and milking equipment; 5) Greater competition in the project sector / restructuring of old production capacities.
The Bank will invest in Milkiland N.V., a public limited liability company incorporated in the Netherlands, which is a holding company for Milkiland-Ukraine and Ostankinsky Molochny Kombinat (“OMK”) in Russia.
Milkiland-Ukraine is the largest dairy group in Ukraine, incorporating 10 processing companies and three dairy farms.
Ostankinsky Molochny Kombinat (“OMK”) is the second largest dairy plant in the Moscow Region in terms of capacity.
An equity investment of up to €30 million.
Screened B. Environmental and social issues associated with the proposed use of proceeds might be readily identified, addressed and mitigated therefore the project has been categorised as “B” according to the EBRD’s Environmental and Social Policy (2008).
The environmental and social due diligence took the form of an independent third-party audit in May 2009 which looked at the Company’s corporate management of environmental, worker and public health and safety, labour and community issues and included an audit of five of the Company’s production facilities. The audit assessed the facilities past and current performance against national regulations and the EBRD's Environmental and Social Policy Performance Requirements which includes EU standards with reference to the European Commission’s Integrated Pollution Prevention and Control Reference Document on Best Available Techniques in the Food, Drink and Milk Industries (August 2006).
Whilst the audit identified a number of positive aspects it highlighted a need for the development of a corporate-level environmental and occupational health and safety (OHS) management system and the establishment of a centralised environmental and OHS management function. The findings at the facilities identified a number of improvements were needed to address worker health and safety conditions and improve environmental performance.
An Environmental and Social Action Plan is currently being developed by the Bank and environmental consultants and will be agreed with Milkiland prior to Bank approval of the Project. The implementation of the ESAP will require substantial investment by Milkiland and will be undertaken over a period of several years. The Bank will monitor Milkiland’s environmental and social performance for the lifetime of its investment through annual environmental and social reporting and via periodic site visits. Milkiland will be required to immediately notify the Bank of any incidents or accidents likely to have an effect on the environment or worker and public safety.
Mr. Oleg Rozhko
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