Garadagh Expansion

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The EBRD is considering arranging the financing of Garadagh Cement OJSC modernisation and expansion. The company is planning to increase clinker production capacity from 2,616 tpd to 4,000 tpd and annual cement production capacity from 1.1 mt to 1.7mt, without clinker imports. The plant is located approximately 35km south of Baku, the capital of Azerbaijan. The financing will be drawn down during the construction period from mid 2009 through the first half of 2011, when commissioning of the new kiln is expected. The project will achieve significant energy savings through the use of dry technology (in excess of 50% reduction of energy use per unit of clinker produced). The introduction of state-of-the-art technology will provide the opportunity for a massive transfer and upgrading of skills. The EBRD loan will support a company that pioneers high corporate governance and business standards in a challenging environment. As the largest foreign direct investment outside the oil and energy sectors in Azerbaijan, the project should have a demonstration effect for other potential private sector investors. It is geared to attract co-financing from commercial banks in amounts and maturities not yet achieved outside the oil sector in Azerbaijan. Garadagh OJSC is the largest cement and sole clinker producer in Azerbaijan. Holcim, a leading global supplier of concrete and cement based in Switzerland, acquired a controlling stake in Garadagh privatisation in 1999. Today it owns 69.4% of the company’s share capital and provides managerial, technical and commercial resources. The project implementation under a turnkey contract is directly supervised by Garadagh. EUR 170 million structured corporate loan with a senior A/B loan of EUR 150 million, of which approximately 50% will be offered to commercial banks (B lenders), and a EUR 20 million subordinated C loan for EBRD’s account. An additional EUR 30 million loan subordinated to all bank debt is to be provided by Holcim. Approximately EUR 330 million. Environmental classification and rationale The project has been screened A/1, requiring an environmental and social impact assessment (ESIA) in line with the Bank’s Environmental Policy (2003) and Public Information Policy. The project is also subject to Azeri EIA requirements. Due diligence undertaken and outcomes An Environmental, Social Impact Assessment was undertaken of the dry cement plant project by an independent international consultant. The project has also been subject to local permitting requirements. The Bank has undertaken past due diligence of the site as part of its previous investments with the company. The construction of a new dry cement plant that replaces the current wet technology will have significant environmental and energy efficiency gains. This was confirmed by the Bank’s environmental and social due diligence and is presented in further detail in the company’s ESIA disclose documentation. The new cement plant will be designed in line with best international practice and appropriate environmental and social management systems are to be implemented during the construction and operation phases of the Project. The project has also been structured to meet European Union Integrated Pollution and Prevention “IPPC” Directive, BREF Note for Cement and Lime Manufacture and the IFC EHS Guidelines for Cement Manufacture. The project will include appropriate dust and NOx abatement, meeting both Azerbaijan’s and EU environmental standards. Garadagh Cement will operate the new cement plant and associated quarries in compliance with Azeri laws and regulations as well as in accordance with EU environmental standards and IFC EHS Guidelines. An environmental management system and continuous monitoring will be incorporated into day-to-day operations of the cement plant. Disclosure of information and consultation The Project is subject to a public consultation and a disclosure plan (PCDP) that has been developed and approved by the Bank. Disclosed materials include: The materials are available in hard copy at the following locations in Azerbaijan: The EIA package and Executive Summary have also been released for public review by the project sponsor on its website www.garadagh.com and released locally. Monitoring and reporting The Company will monitor the environmental impact of its operations in accordance with national law and regulations. The Bank will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing annual environmental reports prepared for the project covering: (i) ongoing performance of project-specific environmental, health and safety activities as reflected in the results of periodic and quantitative sampling and measuring programmes, and (ii) the status of implementation of environmental mitigation and improvement measures. The Bank’s representatives will also conduct periodic site supervision visits when deemed appropriate. The Bank will undertake monitoring of the Project, inclusive of site visits by Bank staff as well as independent audits and an additional commissioning audit once the plant has been constructed. There is an Environmental and Social Impact Assessment available for this project. None. Horia Adrian, General Director E-mail: Horia.adrian@garadagh.com