Hlebprom

disbursing

Translated version of this PSD: Russian The EBRD is considering pro-rata participation in equity increase in the amount of up to EUR 10 mln in Hlebprom group of companies to support Hlebprom’s capital expenditure programme including construction of a new state-of-the-art modern fully automated plant for production of fresh frozen cakes in Russia. The Project will significantly increase production efficiency in the industry implementing a high level of automation and offering products of consistent high quality to a larger portion of the population reaching smaller towns in remote areas. Transition impact potential will derive mainly from demonstration effects of successful restructuring of the confectionery industry which currently suffers from lack of modern asset base. Thanks to the size of the investment program and the Company’s goal to cover majority of urban population, it is expected that once such standards are implemented in the market on a regional basis, other producers will also consider applying it in their own operations. In addition, the project will lead to greater customer choice in products, higher quality, packaging types and price range in both bigger and smaller markets. At the Company level, the investments will ensure increased hygiene standards and more efficient levels of productivity through the introduction of best international practices and technologies. Furthermore, the company will continue its co-operation with local suppliers, including training to produce higher quality inputs. OJSC Hlebprom, an open joint-stock company organised and existing under the laws of the Russian Federation involved in production of pastry and cakes. Hlebprom currently operates four production sites in Russia: Chelyabinsk, Krasnogorsk, Yartsevo. Up to EUR 10 mln equity investment. EUR 55 mln The project was categorized as B, similarly to the original one financed in 2011. The pro-rata increase in equity participation of the Bank in Hlebprom, a leading producer of frozen cakes in Russia, will not result in additional adverse environmental or social impacts to the existing operations. The original Environmental and Social Due Diligence (ESDD), was undertaken by an independent consultant end of 2010 and consisted of a corporate audit of the Company's E&S management systems and its performance against EBRD's E&S Policy Performance Requirements (PR’s), including sample visits to the production facilities in Chelyabinsk and Krasnogorsk, and mitigation measures included in the Environmental and Social Action Plan (ESAP). For current project, ESDD included review of additional documentation for the Project, including design of new plant, and Annual Environmental and Social Report, provided by the Company with respective updates on the status of the ESAP implementation. The ESDD confirmed that Hlebprom has good health and safety management in general, although need for improvements in environmental management have been identified, for example areas such as developing projects for the sanitary protection zones and undertaking monitoring and statistical reporting at specific sites. Overall corporate environmental management is not strong and it has been recommended as part of ESAP that a position of an environmental manager is established to drive improvements in this area and E&S systems are further strengthened with ISO14001 and OHSAS18001 certification. An environmental, health and safety manager is appointed, environmental policy is developed and further work on E&S management systems implementation/certification is outstanding. In terms of European Union standards, as part of the ESDD the comparison of Hlebprom’s activities against EU IPPC's Food, Drink and Milk Industries Reference Document on Best Available Techniques was carried out. Although due to relatively small size of production the IPPC BAT requirements are not applicable, the Company is generally complying with the requirements of BAT. However, some improvement opportunities should be considered to bring the project in compliance with EBRD PR’s. These will be included as condition precedents or as part of the updated ESAP to be incorporated into new subscription agreement with the Company. Environmental impacts of bakery operations include air emissions, food waste and waste water discharge that need to be managed by the Company. Among improvement measures an assessment of hazardous materials present on the sites and replacement of ozone depleting refrigerants (R22) with alternatives is required. Oil traps at the Chelyabinsk site will need to be installed for waste water treatment. In terms of social aspects, the Company has good Human Resource management system and is addressing social and labour issues in line with national requirements as well as corporate standards that meet the Bank’s PR’s of Environmental & Social Policy PR2 on Labour. The health and safety and food hygiene procedures reflect best practice, but the accidents rate is still significant and need to be addressed by applying specific equipment and training measures as well as minimisation of high noise levels among main occupational health and safety improvements. A Stakeholder Engagement Plan (SEP), including grievance mechanism, is being developed in line with PR10 and agreed with the Company as part of the ESDD. Information on new project was disclosed at Hlebprom’s website. Implementation requirements for the project are as follows: None. Anton Gubkin, General Director Tel: +7 (495) 789 4632/33 E-mail: gubkin@hlebprom.com