In 2003, Pilkington plc, the second largest glass manufacturer globally, established a joint-venture company called Pilkington Glass LLC (the “Company”), to construct and operate a world-scale, green-field float glass plant (the “Project”), at Chulkova, near Moscow. Project cost was estimated at EUR 193 million, and the financing plan included EUR 100 million of parallel senior loans provided by EBRD and IFC (the “IFIs”), of which EUR 57.5 million was provided as a syndicated loan from EBRD (the “First Loan”). The IFI loans are fully disbursed. Construction of the plant is complete and commercial production of glass started in February 2006.
The Company faced challenging local conditions that adversely affected Project implementation and resulted in a Project cost overrun from the initial budget. The IFIs have been requested to provide additional financing the Company to complete the Project.
Pilkington will raise production and quality standards in the Russian glass industry and offer consumers more choice at affordable prices. Furthermore, with its strong history of demonstrated transition impact in other countries of operations, Pilkington will play a positive role in setting corporate governance, business, and environmental management standards (i.e. energy savings from establishing building standards that promote installation of thermal insulating glass), as well as by providing reference points for other firms, and local and regional regulatory agencies.
A recent due diligence review found that the Company has a well-developed labor policy that provides terms of employment and working conditions, including the freedom to create unions (was not a requirement of the Safeguard Policies), in accordance with Russian law. Also, the new facility was designed according to the latest principles and included best-available-technology for emission control, an access road that avoids residential areas, and frequent public information and discussion meetings in cooperation with the local authorities.
The Company is a 50:50 joint venture formed by Pilkington plc ("Pilkington"), and AIG Emerging Europe Infrastructure Fund L.P. Employing approximately 25,000 people globally, Pilkington is a leading worldwide producer of float glass products, automotive glass products and specialty glass. AIG Emerging Europe Infrastructure Fund (AIG EEIF) is a private equity fund with US$550 million capital to invest in selected greenfield projects, companies undergoing post-privatization restructuring and privatization in Eastern and Southern European countries including the Russian Federation.
EBRD’s First Loan was for € 57.5 million, of which €20 million was syndicated to ING and FMO. In respect of the Project cost overrun, it is proposed that EBRD will co-finance a further €23 million by way of a long-term loan, in parallel with loan for €17 million from IFC.
The revised total operation amount is €254 million.
Pilkington is committed to manage the project in accordance with the relevant Russian and EU environmental and occupational health and safety standards. During the planning and construction phases of the project its social and environmental management has been largely supported by the Pilkington’s corporate management system. Currently Pilkington’s Russia is establishing in-house capacity to implement the project-specific Social and Environmental Management Program;
This project was screened B/1 requiring an environmental audit and analysis. The environmental investigations addressed the following potential environmental, health and safety and social impacts.
Site location and suitability;
Sustainable raw material supply;
Wastewater and solid waste management;
Occupational health and safety;
Proposed mitigation for environmental and social issues
The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable national laws and regulations and EU and World Bank/IFC requirements. The information about how these potential impacts will be addressed by the sponsor/project is summarised in the paragraphs that follow.
The proposed site is located 35 kilometers south east of Moscow, in the Ramenskii District and is owned by a private farm company. The private farm company, formerly a collective, owns and uses approximately 4,500 ha of land for its production based on cattle, milk and vegetables. The 37 ha site is located between two villages (east and west), a major sand quarry (north), and open fields with an underground high-pressure sewage line (south). The nearest village is Zhukovo approximately 600 meters west-south-west of the property line on the other side of two high voltage power transmission lines and a railroad line leading to the sand quarry. At a further distance towards the east is the village of Kakuzevo. The nearest residence is 300 meters from the site boundary and a land usage plan will ensure that no residences can be build within 100 meters of the project site.
The site is located along the rail line and the project includes rail facilities for raw materials import. Road access to the main road to Moscow is currently via a local road passing thru the village of Zhukovo. To avoid heavy traffic in the village the project will construct a new access road to the north of the village. This road will follow existing field divisions to avoid impact on the usage of the fields. The land take for the access road is included in the 37 ha to be bought from the farm company.
General utilities, including natural gas, are readily available near the site; while the project will have the limited need for water supplied from own wells.
The main raw materials for the float glass production are sand, soda ash, and dolomite/limestone. All these raw material are available as a commodity at the market and Pilkington will ensure supply contracts with at least two suppliers for each essential raw material. The principle of at least two suppliers is to ensure price competitiveness and the possibility of eliminating any supplier breaking basic principles for environmentally sustainable supply. Despite the principle of at least two suppliers for all raw material it must be expected that the local sand quarry, which is the leading local supplier for glass production and has a capacity of up to 1,000,000 tpa, will have a transport cost advantage over other suppliers and will supply a significant part of the 180,000 tpa needed by the project. Pilkington will carry out an internal review of all major suppliers ahead of contracting.
Melting inorganic raw materials in a furnace at high temperature is the basis for glass production. The high temperature needed will result in formation of sulphur oxides (SOx), nitrogen oxides (NOx), and dust emissions. Sulphur oxide concentrations in the air emissions will be directly proportional with the sulphur in the fuel used, while nitrogen oxides are formed by oxidation of the natural free nitrogen in the atmosphere. A normal trimmed (optimized) glass smelter furnace will have NOx emissions of up to 2,500 mg/Ncm if no NOx reduction measures are taken. Dust emissions are caused by both the fuel used and evaporation and later condensation of sodium sulphate from the melt.
The proposed plant will utilize natural gas, which is low in sulphur and the air emissions will therefore have low sulphur oxide emissions. To limit the NOx emissions Pilkington will install its 3R-low NOx technology on the plant. This will allow the plant to reduce the NOx emissions to around 1200 mg NOx/Ncm. Pilkington has further committed to follow European Union Directive IPPC (Integrated Pollution Prevention and Control) as applied to float glass manufacturing once it becomes available.
Natural gas is a clean fuel and does not result in dust formation by it self. Therefore the dust emissions will be limited to evaporation of sodium sulphate (a water soluble non toxic substance) from the molten glass bath. The evaporated sodium sulphate will condense as the temperature of the combustion gas decreases in the heat recovery system. Pilkington has managed to optimize the furnaces from originally emitting around 250 mg dust/Ncm to around 100 mg dust/Ncm at the moment, and is currently developing and testing further furnace modifications to lower the dust emissions. Pilkington is committed to optimise the furnaces operation to bring the dust emission below 50 mg/Ncm before the end of 2007. The compliance with the 50 mg/Ncm limit will be achieved either by the new furnace modifications or by installing traditional flue gas scrubbing systems.
Water consumption and wastewater from the new facility will be limited. Both cooling water and wash water from the process will be circulated in closed loops, with only a small bleed being discharged to the on-site wastewater treatment plant. Hereby the on-site biological wastewater treatment plant will mainly receive its load from domestic sources (toilet, bath, canteen facilities, etc.). The treatment system will be based on a system successfully implemented at another Pilkington float glass plant and will fully comply with local requirements, EU standards and World Bank guidelines.
A float glass plant needs significant blowers for the furnaces. These blowers will, due to the construction of the heat recovery systems, be located in deep enclosures and will have practically no noise impact on the site. Therefore the main sources of noise will be rail movements and truck movements. No residences are located near the site, and the new access road will ensure that the trucks do not pass through the local villages.
While cut related accidents in the downstream handling of the flat glass has been typical for this industry sector in the past, Pilkington PLC, the sponsor company, has corporate wide focused on occupational health and safety upgrades. As a result the Pilkington corporate accident rates have fallen from 34 LTA/MMH (Lost Time Accidents/Million Man-Hours) in 96/97 to 5.85 LTA/MMH in 01/02. While the reduction is impressive, Pilkington PLC is aware that further improvement is desirable and is constantly looking for opportunities to reduction. Within the Pilkington worldwide operations the float glass plant in Sandomierz, Poland, has the best safety record with no LTA for the last 1790 days (nearly five years) at the time of appraisal. The Sandomierz operation is of approximately the same size as the proposed project and to ensure the highest safety standard from the very beginning, the General Manager of Pilkington's operations in Sandomierz is expected to take the position of General Manager of the new facility.
During construction the number of construction worker will reach almost 500. In the operational phase the float glass plant will need around 200, of which 180 will be hired locally and trained to operate the plant safely and optimally.
Monitoring and compliance
EBRD will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering ongoing performance of project-specific environmental, health and safety activities. Periodic site supervision visits will also be conducted.
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