Oltenia - Turceni Rehabilitation

Translated version of this PSD: Romanian

Project Description

The EBRD is considering arranging a syndicated loan of up to EUR 200 million for Complexul Energetic Oltenia (“CET Oltenia”) to help finance the rehabilitation and modernisation of unit 6 of CET Oltenia’s Turceni lignite fired power plant in order to:

1. significantly improve the efficiency and reduce the carbon intensity by reducing CO2 emissions by more than 160,000 tons annually;

2. increase the availability and reliability of one of the most important power plants in Romania;

3. improve the environmental characteristics of the plant so as to comply with EU environmental directives, reducing harmful local emissions; and

4. implement a modern automation and control system, fulfilling the requirements of ENTSO-E.

The Project will be procured in accordance with EBRD’s Procurement Policies and Rules for public companies.

The Project is a restructuring and refinancing of the EUR 150 million A/B loan arranged in 2009 for CET Turceni, a company which was subsequently merged into CET Oltenia in 2012.

Transition Impact

This project will demonstrate Romania’s extensive progress in market liberalisation, given that CET Oltenia operates on commercial terms on a merchant basis, selling power on the wholesale electricity market in Romania.

It will also significantly improve efficiency and environmental characteristics and reduce carbon intensity of a major plant which is a core part of the Romanian generation sector, providing essential base load capacity. It is expected to result in a reduction in CO2 emissions of more than 160,000 tons annually.

The Client

CET Oltenia is the second largest electricity producer in Romania by installed capacity (3,900 MW) and the market leader in terms of electricity generated with around 35% of the total annual domestic power generation.

Turceni is the largest thermal power plant in Romania generating roughly 10% of the domestic electricity consumption, with a total installed capacity of 2,310 MW.

EBRD Finance

EBRD is considering arranging up to EUR 200 million in a syndicated loan to commercial banks, using an A / B loan structure.

Project Cost

Approximately EUR 266 million.

Environmental Impact

Category B. An Initial Environmental and Social Examination (IESE) confirmed that environmental and social issues associated with the modernizations of a boiler at this existing power plant can be readily assessed and mitigated, and confirmed the Category as “B”. The project is in essence the continuation of the 2009 Bank-approved loan that also included the replacement of boiler 6, which was required under Romania’s EU Accession Treaty. That project was categorized as B/1 under the Bank’s then-applicable 2003 Environmental Policy. However, this loan was never disbursed, the project was never implemented, and the previously agreed ESAP was not fully implemented. Since 2009 the Company has undertaken a number of investments as part of attaining compliance with EU requirements. This includes four state-of-the-art flue gas desulfurization (FGD) installations, including for boiler 6, all of which were supported by financing from the Japanese government.

For this new loan, the Bank commissioned independent consultants to complete technical and environmental due diligence of the Project (Turceni Power Plant - TPP) and the area of influence (Oltenia, which includes the Company’s other power plants and all lignite mines) against the Bank’s 2008 Environmental and Social Policy. Due diligence confirmed that the project can be structured to achieve and maintain continuous compliance in the post-2016 period with the EU Industrial Emissions Directive (IED) and will not result in an in increase in thermal capacity. Given that the project is a modernization of an existing unit and no development consent was required, the Competent Authorities have not required an EIA. Based on anticipated energy efficiency and other assumptions, due diligence estimated that carbon dioxide (CO2) emissions could be reduced by 160,000 tonnes per year; at this rate, CO2 emissions would be reduced by be 2,400,000 tonnes over a 15-year period.

The Environmental and Social Action Plant (ESAP) that has been agreed by the Company will ensure that the project complies with relevant EU standards and the provisions of the EU Accession Treaty. Under the ESAP, the company will develop and implement a program to ensure compliance with IED and the EU Accession Treaty for all operational units in TPP. The ESAP also requires the Company to make additional investments at TPP for NOx and dust abatement, which is necessary to comply with IED within the period specified in the EU Accession Treaty. In addition, a BAT Assessment is to be undertaken in 2015 to further assess compliance status and future investment needs. TPP is also making investment into dry ash handling. This will eliminate the use of ash lagoons and eliminate the risk of dam failure and also allow for better efficiency.

The due diligence also reviewed the operations of the remaining assets of the Company that are within the area of influence, including three other power plants and a number of lignite mines. A key issue with the mines is associated with resettlement, as the open cast mines are constantly expanding and this expansion encroaches over rural residential areas/small villages and agricultural land. There are outstanding issues related to the ownership of land in areas where mine expansion is planned, and not all the land required has been acquired to date. This can result in a financial and reputational risk to the Company and Bank. The Bank’s due diligence assessed current practice in regard to physical and economic displacement and a corporate livelihood restoration framework and resettlement action plan that meets the Banks Performance Requirement 5 is required by the ESAP. The ESAP also requires the implementation of a stakeholder engagement plan (SEP).

Oltenia will need to undertake significant investments at its other generating assets to comply with the EU’s Industrial Emission Directive and the EU Accession Treaty. These investments are outside the scope of the Bank funded Project.

Due diligence also identified a number of institutional weakness in corporate ESHS management and an overall need for further institutional strengthening and co-ordination of ESHS management systems across the power plants and other assets. Higher safety awareness is also needed in order to reduce safety incidents. The ESAP includes measures to ensure implementation of best practices for occupational health and safety.

The Bank will monitor the implementation of the ESAP and compliance with the Bank’s Performance Requirements with a monitoring visit at least every 2 years, and will review annual reports on overall ESHS performance and compliance with the Bank’s PRs.

Technical Cooperation

None.

 

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