CCS Regional District Heating - Equity

disbursing

The EBRD is considering providing financing to OJSC "KKS-Group", a privately owned Russian operator of utility services to support: (i) KKS-Group’s priority investment programme, including, i.a., upgrade of district heating infrastructure facilities operated by KKS-Group in four municipalities in Tula and Kemerovo regions of the Russian Federation; and (ii) Geographical expansion of KKS-Group’s operations through acquisitions of district heating infrastructure facilities in other cites of the Russian Federation. EBRD will assist in increasing private sector participation in the district heating market in Russia by supporting the KKS-Group’s ongoing investment plans and acquisitions. The operation addresses the following sustainability goals as defined in the Municipal and Environmental Infrastructure Sector strategy (BDS12-126(F)): direct annual savings of approximately 6.3 million cubic meters of natural gas and 2,500 tonnes of coal following completion of the project investment. The project supports a private operator specialising in provision of district heating services in smaller municipalities to implement an investment pipeline and possibly expand operations to new cities and regions. The key sources of transition impact relate to: (i) more widespread private ownership, as the project will support the expansion of a private district heating operator into new regions bringing the technical, financial and operational expertise. The project will help to demonstrate that the private sector can be instrumental in implementing improvements to service quality, management efficiency and other innovations in the district heating sector; (ii) demonstration effect of (a) restructuring of operations after takeovers as the proposed investments will target a reduction of energy costs, heat losses and other operational improvements over time; and (b) good corporate governance, transparency and business standards. KKS-Group is a Russian operator of utility services established in 2009. KKS-Group provides district heating services along with water and housing management services in four cities and a number of settlements across Tula (Central FD) and Kemerovo (Siberian FD) regions of the Russian Federation, servicing a population of approximately 240,000 people. Approximately RUB 425 million, including equity and long-term debt. It is expected that EBRD financing will be provided in parallel with another IFI. Up to RUB 920 million. The project has been categorised B in accordance with EBRD's 2008 Environmental and Social Policy. The priority investments into the rehabilitation and modernisation of the district heating infrastructure are expected to bring environmental and social benefits associated with the overall improvement in the quality of heating and hot water services, improved energy efficiency, reduction in fuel consumption and heat and water losses, and lower air emissions. Independent due diligence has been done by an international consultancy. It includes a review of the Company’s corporate environmental, health and safety and social management capabilities and procedures in relation to its own workforce and construction contractors, and an analysis of the environmental and social impacts and benefits of the proposed priority investment programme to establish the level of project's compliance with EBRD's Performance Requirements (PRs). Due diligence has identified a number of actions required to be addressed by the Company to meet EBRD requirements and an action plan has been developed. The action plan includes items such as increase in capability and capacity to manage environmental and social issues and to develop management systems aligned with international standards - while maintaining local regulatory compliance. In addition, issues associated with occupational health and safety, contractor management, waste management and development of sustainable procurement policy are to be adopted by the Company. The above action plan has been incorporated into an Environmental and Social Action Plan (ESAP) developed by the consultant and reviewed by EBRD which includes corrective actions and mitigation measures for identified issues to ensure that the Company meets the EBRD requirements. In addition, a Stakeholder Engagement Plan (SEP) has been developed and these two documents are currently being reviewed by the Company. The Company agreed to implement the ESAP and SEP and submit annual environmental and social reports to the Bank. None.