The EBRD is considering providing a senior loan of up to €7 million to the City of Sabac (the “City”), located in western Serbia, to support the upgrade of the City’s district heating (“DH”) system. The loan will be on-lent to Sabac District Heating Company (the “Company”), entirely owned by the City.
The technical due diligence, currently ongoing, will determine the least cost and most energy efficient technical solution to upgrade the DH system. The upgrade will focus on the introduction of local biomass, as partial replacement for natural gas, for heat generation. The due diligence will consider the installation of new biomass-fired boilers or a small-scale combined heat and power plant (“CHP”) for simultaneous generation of heat and electricity. The Project will be implemented by a Project Implementation Unit supported by external experienced consultants financed from technical assistance funds.
The success of the Project will be measured by the following benchmarks:
- Total population benefiting from improved district heating.
- Annual reduction in tonnes of CO2 equivalent in Project area.
The transition impact potential of the Project arises from:
- Establishment of a Public Service Agreement between the City and the Company;
- Improved financial sustainability within the Company through improved cost recovery and operating efficiencies introduced by a financial and operational performance improvement programme (“FOPIP”); and
- Potential CO2 savings.
Sabac District Heating Company. It is wholly owned by the City of Sabac and it is responsible for operating the DH system in Sabac. The Company owns two district heating plants (installed capacity of 66.6 MW) and two small capacity boilers (installed capacity of 6.8 MW). It provides heating services to 7,514 households and, in 2012, it produced and sold 70,175 MWh of heating energy.
Up to €7 million loan to the City of Sabac to be on-lent to the Company, co-financed with a capital grant of up to €2 million from an international bilateral or multilateral donor.
Total project costs to be determined during due diligence.
The project has been Categorised B in line with the Bank’s 2008 Environmental and Social Policy. The independent environmental and social due diligence (“ESDD”) of the Company and the project consisted of an E&S audit of the Company's management systems and practices, the existing facilities and operations, and an E&S analysis of the impacts and benefits of the Project.
The ESDD identified that the implementation of the Project will result in increased reliability and efficiency of district heating services, and reduction of air emissions as well as heat, energy and hot water losses. The Project may cause some temporary environmental, occupational health impacts during the construction phase, which can be mitigated by adoption of good construction practice.
An Environmental and Social Action Plan (“ESAP”) has been developed and should be agreed with the Company to address some areas for improvement identified during the ESDD and carry out the necessary mitigation measures which will enable the Company to comply with national regulations and the Bank’s Performance Requirements.
In addition, the ESAP also requires the development and implementation of a Stakeholder Engagement Plan and grievance mechanism. The Company will also disclose locally information on its environmental and social performance.
The project will be monitored in terms of its environmental and social performance and implementation of the ESAP through annual E&S reports and site visits when deemed necessary.
EBRD will mobilise funds from donors to support the following technical cooperation:
Technical, environmental and social due diligence. Preparation of a feasibility study ( €200,000, financed by the Swedish International Development Cooperation Agency (“SIDA”)).
- Assistance to the Project Implementation Unit for tendering and supervision of works (the estimated cost of the assignment is up to €400,000, to be financed by an international donor).
- Preparation of a Financial and Operational Performance Improvement Programme (“FOPIP”) (the estimated cost of the assignment is up to €250,000, to be financed by an international donor).
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