VMG Mogilev

Location:

Belarus

Project number:

49912

Business sector:

Manufacturing and Services

Notice type:

Private

Environmental category:

B

Target board date:

20 Jun 2018

Status:

Concept Reviewed

PSD disclosed:

18 May 2018

Translated version of this PSD: Russian

Project Description

Long-term senior loan of up to EUR 50 million to VMG Industry FLLC, a foreign limited liability ompany domiciled in Belarus, to finance the capacity expansion programme at its plant in Mogilev, as well as to partly refinance its existing debt portfolio.

Project Objectives

The proposed facility will support the investment programme carried out by VMG at its particleboard and furniture plant in Mogilev. The proceeds from the EBRD loan will be allocated towards capex focusing on capacity increase in its furniture manufacturing facility, improvement of competitiveness, energy efficiency and environmental performance.

Transition Impact

The transition impact of the proposed project will be derived from:

  • Employees' training to acquire or improve skills required in the wood working industry.
  • Financial restructuring.
  • Environmental and energy improvements.

Client Information

VMG INDUSTRY FLLC

VMG Industry FLLC, a foreign limited liability company domiciled in Belarus, active in the woodprocessing sector (particleboard and furniture manufacturing).

VMG Industry FLLC is part of VMG Group of companies, one of the largest Lithuanian groups engaged in wood processing (particleboard and furniture production) and related activities.

EBRD Finance Summary

EUR 50,000,000.00

Senior secured loan to the borrower in the amount of up to EUR 50 million.

Total Project Cost

EUR 50,000,000

Environmental and Social Summary

Category B (2014 ESP). The E&S impacts of the furniture production expansion at the existing VMG Industry plant in Mogilev with respective new buildings, equipment and installations, are associated with the site specific E&S issues that can be readily identified and mitigated through the implementation of an E&S Action Plan (ESAP). The ESDD of the original Project in 2010 resulted in the development of an ESAP to address the identified issues. The Company provided regular and timely updates on ESAP implementation as part of annual reporting until loan repayment in 2016. The current Project ESDD consisted of the plant’s site visit, discussions with EHS staff and review of the supporting materials, including new Project’s E&S Questionnaire and monitoring reports of the past transaction.

The ESDD confirmed that the Company’s operations are well managed with a sound environmental, health and safety (EHS) management system in place based on the IKEA’s supplier requirements for environmental issues, working conditions and safety (IWAY Standards), including regular audits and reporting. Most of the IWAY requirements correspond with the Bank’s PR’s and include such control areas as air quality, noise emissions, water use and waste water handling, soil and groundwater contamination, chemicals and hazardous materials, business ethics, ILO core labour standards, working conditions, occupational health & safety, fire prevention, etc. There is a dedicated EHS team in place, and the Company has an adequate capacity to implement Bank’s Performance Requirements. VMG Industry complies with national environmental and social legislation and has valid permits. The new expansion project’s complex environmental permit is being updated to reflect new facilities and their impacts. The Company’s maintains sustainable wood supply policies and practices that are certified for compliance with the FSC Chain-of-Custody (CoC) and Controlled Wood (CW) standards since 2013. All of its products are 100%FSC labelled reflecting the fact of all timber being sourced from FSC certified forests. Further to this, suppliers are required to sign "Self-declaration" for compliance with IWAY Standards for child and forced labour.

Due diligence confirmed that employees have the right to associate with independent trade unions and that this is being communicated proactively to the workforce. The Company has not shifted all their employees to 1-year fixed term contracts as per new labour regulation enacted in 2017 and employees are free chose to retain open-ended contracts.

Currently the plant’s particleboard, layer-glued products and furniture production units are equipped with a number of state-of-the-art technology features, such as a closed loop water system in plywood logs conditioning, dust and VOC emissions abatement with wet scrubbers, bag filters and cyclones, as well as recovery of wood waste as fuel for its two biomass boilers. All these good industry practices will be maintained; however, additionally it has been agreed with the Client as part of the new Project to install Wet Electrostatic Precipitator (WESP) that will guarantee the off-gases treatment to achieve EU BAT levels of dust, formaldehyde and other VOC concentrations, going beyond national laws compliance and bringing the plant’s operations in compliance with EU Industrial Emissions Directive (IED) and respective BREF for Wood Based Panels Production by 2019. VMG also sets a high benchmark in the market with its environmentally friendly and safe products that under IKEA’s requirement have to comply with E0.5 (up to 4mg/m2) level of residual formaldehyde content in the final furniture products ensuring their safe use indoors. This practice is going beyond the level of E1 that is accepted as EU best practice and strict international formaldehyde emissions regulations of California Air Resources Board (CARB).

The existing Environmental and Social Action Plan was updated with regards to the new expansion Project and was agreed with the Client. It includes among other the following provisions:
- Development of the integrated management system and contractors management;
- Community liaison and grievance mechanism updates for the new Project works;
- BAT Assessment of the plants’ environmental performance after expansion;
- Chemical storage and used substances’ Material Safety Data Sheets maintaining;
- Improvements of the storm water treatment;
- Development of a comprehensive waste management plan;
- Carrying out occupational health and safety risk assessment for all new working places, working instructions and PPE updates for new positions;
- Development of a traffic management plan;
- Fire and explosion safety measures.

The Company will provide the Bank with annual environmental and social reports, including updates on the ESAP implementation, and notification on any material accidents or incidents. The Bank will evaluate the Project’s environmental and social performance in accordance with the Bank’s PRs through reviewing the Client reporting and periodic monitoring visits.

Technical Cooperation

None.

Company Contact Information

Ingrida Mikenaite
ingrida.mikenaite@vmg.eu
+370 46 469 423
www.mediena.lt
Liepu str. 68, LT-92100 Klaipeda, Lithiania

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