ESM II: Distribution Grid Efficiency Investment

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The proposed project is the financing of a EUR 90m investment programme to upgrade the electricity distribution network in FYR Macedonia. The investment programme will be focused on four main areas: Upgrade of grid lines and connections Upgrade of substations and transformers Roll out of metering Upgrade to systems and administration. The proposed investment will play an important role in the objective of improving Company’s operations – i.e. technical performance of the network, including reducing technical and commercial network losses by network efficiency, metering and billing systems. The loan will support the ongoing turnaround in operating efficiency of the recently privatised distribution Company, ESM, demonstrating the benefits of private participation in the electricity sector and playing a key role in the ongoing sector liberalisation and restructuring. The project is also expected to support the transfer of skills from the Sponsor to the Borrower. The Borrower, ESM, is the single electricity distribution and supply Company in FYR Macedonia supplying electricity to households, industry and budgetary organisations. The Borrower also owns and operates 11 small hydro power plants. The Borrower is owned 90% by the Austrian utility, EVN, a Company listed in Austria and majority owned by the State of Lower Austria. A EUR 35 million corporate loan to ESM. EUR 90 million. Screening category and justification Screened B/1. The project involves the provision of funds for investments at an electricity distribution company. In line with the Bank’s Environmental Policy a corporate Environmental Audit of the Company and an Environmental Analysis of the proposed investment programme has been undertaken as part of the due diligence. Due diligence undertaken and outcomes An environmental due diligence was undertaken of the project by an international environmental consultant. This consisted of a corporate Environmental Audit inclusive of site visits to substations and depots to assess the current compliance level and environmental risk associated with current and past operations. An Environmental Analysis of the planned investment programme was also undertaken to assess the planned line and transformer station upgrades as well as the planned new metering systems and assess whether the proposed investment programme will allow the Company to attain National and EU Environmental standards. A number of key action areas have been proposed as part of an Environmental and Social Action Plan (ESAP). The majority are focussed at the Corporate level, although some site specific actions have also been identified. The most significant actions are considered to be: Systems investments to strengthen the transmission and distribution losses and thus increase overall energy efficiency; Implementation of a centrally coordinated EHS management system, including effective monitoring; Significant training of Macedonian staff through a mentoring programme with EVN staff and the setting up of the “ESM Academy” for more general staff training. The implementation of the ESAP will allow the Company to maintain compliance and develop best practice. The planned investment programme will also allow for substantial energy efficiency gains as well as improve the safety to the system in terms of staff and the general public. None. Dr. Michael Längle, Director, Head of Finance and Accounting Chief Financial Officer EVN Group EVN Platz A-2344 Maria Enzersdorf Austria Phone: +43 22 36 / 200 – 123 24 Fax: +43 22 36 / 200 – 847 15 Email: michael.laengle@evn.at Web: www.evn.at