CAEPCo Equity (F. Northern Lights)

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The EBRD is considering an equity investment in Central-Asian Electric Power Corporation (CAEPCo), a private energy holding of power utility companies in Pavlodar, Petropavlovsk, Ekibastuz and Astana, to finance major rehabilitation investments aimed at enhancing energy efficiency and improving the environmental standard of power generation and distribution assets. The project will support a dynamic local private sponsor active in the power utility sector in Kazakhstan. It will facilitate implementation of an ambitious investment programme leading to significant improvements in efficiency and environmental standards, in line with the Sustainable Energy Action Plan signed between the EBRD and the Government of Kazakhstan in June 2008. The transaction will demonstrate to other market participants that tangible investments in the power sector can be pursued based on tariff increases approved within the existing regulatory framework in Kazakhstan. The Bank’s participation as an equity investor in the company will also facilitate the future IPO to further diversify the investors’ base and attract interest from the private sector. Investee: Central-Asian Electric Power Corporation (CAEPCo), a private energy holding of power utility companies in major cities of Northern Kazakhstan. Sponsor: Central-Asian Power-Energy Company (CAPEC), a private holding company with interests in the energy, industrial and financial sectors in Kazakhstan. The Bank is considering an equity investment in CAEPCo potentially along with other local private strategic investors. Subject to final valuation. Screening category and applicable performance requirements The Project has been screened B, requiring an Environmental and Social Due Diligence (ESDD) consisting of a corporate environmental and social review of existing operations and an environmental analysis of the planned investment programme. Environmental and social impacts from the operation and upgrade of combined heat and power plants as well as district heating and electricity distribution systems can be readily identified, assessed and mitigated. Key Environmental and Social Issues and due diligence results The main environmental issue is associated with energy efficiency as well as air emissions from the generating assets. Waste management and water use could also raise significant issues and needs to be assessed. The environmental and social due diligence confirmed that the current and planned operations are in compliance with National environmental standards and the planned investment programme is structured to meet National and EU environmental standards. Overall, the proposed project will further improve the environmental performance of the Company and allow for higher energy efficiency levels and future compliance with best international environmental standards and practices. Summary of Environmental and Social Action Plan As a result of the environmental and social due diligence, a comprehensive ESAP has been prepared to address future operations of the Company and implementation of the Bank’s Performance Requirements (PRs). This includes the development of a systematic approach to environmental issues at the Company and individual site level, including the implementation of an environmental, health and safety management system as well as further investments to reduce energy use as well as improve the abatement of air emissions and wastewater in line with best international practice. The Company plans to continue to invest to improve health and safety. A Stakeholder Engagement Programme (SEP) has been developed by the Company, which will include the publication of annual information on environmental and social matters on the Company’s web sites, as well as local information in local newspapers, as appropriate. A grievance mechanism will be maintained by the Company. The implementation of the investment program as agreed in the ESAP is structured to allow the attainment of Kazakh as well as EU environmental standards and will significantly improve the company’s environmental management and overall performance. However, the coal fired power plants will not attain emission value levels (EVL) as required for existing plants under the EU Large Combustion Plant (LCP) Directive in the medium to long term. The planned use of wet scrubbers will significantly reduce emissions of SOx and dust in a cost effective manner and will result in significant improvement of local air quality and therefore improved public health. The agreed EVL will be more stringent than Kazakh requirements post 2013 and will result in visible and tangible improvements. The Company will undertake additional Best Available Technique (BAT) Assessments to identify additional improvements to operations as part of implementing an Environmental, health and safety management system. Implementation requirements None. Gulnara Artambayeva, President of CAPEC E-mail: G.artambayeva@energy.kz