Karcement

complete

Expanding and modernising the Karaganda cement plant. The Project involves the refurbishment and re-commissioning of a production line that is presently mothballed to manufacture cement using the “dry-process” method. Upon completion, capacity of the plant will be doubled to at least 1.3 million tonnes per year. This will help satisfy rapidly increasing demand for cement in Kazakhstan, which is presently significantly outpacing supply capability. The project is the first major investment in this sector in over 15 years. The success of the project could potentially attract other foreign investors into the industry and encourage other producers to modernise and expand their operations, thus further relieving supply constraints. The project will improve competitiveness through productivity and energy efficiency improvements. Dry line technology uses 50% less coal, significantly improving the energy efficiency of the whole plant. Workers will be trained in the operation of the dry line cement production technology. The Company will also commit to adopt significant improvements to health and safety standards under a comprehensive Environmental Plan, which are undeveloped in the entire cement industry in Kazakhstan. The Bank will be supporting the listing of a medium-sized Kazakh cement producer on the AIM of the London Stock Exchange, and the subsequent private placement of shares. This will be the first time a Kazakh manufacturing company has sought to raise equity funding in conjunction with a listing on the Alternative Investment Market (“AIM”) of the London Stock Exchange. The listing will bring about significant improvements in reporting and governance, acting as an example for other local companies. Central Asia Cement JSC (“CAC”, the “Company”), owner of the cement plant located near Karaganda, central Kazakhstan. Newco, a sister company of CAC, is to be incorporated in Kazakhstan for the purpose of implementing the Project. Steppe Cement Limited (“SC Labuan”), a recently incorporated holding company resident in territory of Labuan, Malaysia, has been recently listed on the AIM and owns the Kazakh cement investments. A syndicated loan of up to US$ 35 million, comprising: Senior “A” Loan of up to US$ 20 million for EBRD’s own account; and Syndicated “B” loans of at least US$ 15 million from commercial banks. An equity investment of up to US$ 5 million in SC Labuan, representing not more than 10% of the ordinary shares. USD 73.5 million. Environmental classification and rationale The project was screened B/1, requiring an Environmental Audit and Environmental Analysis in line with the EBRD’s Environmental Policy and Public Information Policy. The modernisation of the existing cement plant focussing mainly on rehabilitating an old line is associated with a number of environmental issues, which can be readily identified, assessed and mitigated as part of an Environmental Analysis. The Environmental Audit and Analysis has been undertaken by an independent consultant. Key environmental issues and mitigation The key environmental issues are associated with dust emissions from point and fugitive sources. Due to lack of funds for maintenance and repairs, and overall lowering of demand for cement in the early 1990s, the dry lines where mothballed and not used. The plant has relied on the less efficient and more polluting wet lines for production purposes. The performance of the existing environmental abatement equipment has gradually declined and dust emissions are a problem at the plant. This affects both the local ambient air quality as well as employee health and safety. A considerable amount of product is also lost as a result of the poor condition of dust arrestment equipment, which also has economic implications. The planned modernization will focus on re-commissioning one of dry cement process lines with key process elements being newly constructed incorporating relevant environmental abatement equipment. The modernized line will be designed in line with EU IPPC requirements inclusive of dust, SO2 and NOx controls. As part of the investment programme an environmental management system will be incorporated into day-to-day operations at the plant. A continuous monitoring system will be installed on the rehabilitated dry line. Additional investments will be made at the wet lines focusing on air abatement equipment aimed at significantly reducing dust emissions and improving worker health and safety. The wet lines may remain in operation depending on market conditions and additional investments may be required in the future to ensure compliance with international best practice. Water consumption and wastewater discharges are an issue at the plant as the wet process lines result in higher water use. Although there are no reported problems with the current systems in place, and the water and wastewater management meets local requirements, the plant has committed to reassess the water management practices in due course once the dry line is operational. Waste has been an issue at the plant, mainly associated with waste product and dust deposited on structures. Construction debris and redundant equipment is also an issue. The environmental action plan includes measures for addressing these issues to reduce environmental and human risk. Asbestos is used at the plant, and the modernization programme will include the development of an asbestos management plan to address this issue. Overall, the health and safety culture at the plant has been unsatisfactory and will be upgraded as part of developing an environmental, health and safety management system. Environmental opportunities The proposed project is expected to bring significant environmental benefits as the re-commissioned dry plant will be operated to modern internal environmental standards and have a higher overall efficiency. Investments at the existing wet lines will also allow for substantial improvements to be made to the environmental management and operation of the plant. The increased efficiency of the dry line is likely to lead to reduction of dust and lower energy use per ton of cement produced. This will yield possible carbon reduction opportunities. The ERBD is progressing this issue and some additional investments may take place once Kazakhstan ratifies the Kyoto protocol. Summary of Environmental Action Plan The Company will be required to adhere to Kazak environmental, health and safety regulations and EU environmental standards. All relevant permits will need to be obtained during the modernization process. An Environmental Action Plan (EAP) has been developed following the due diligence and has been agreed. The EAP addresses inter alia air emission control, need for continuous air monitoring systems, asbestos management, house keeping, and the overall management of the environment, health and safety issues at cement plant and associated auxiliary operations. An updated environmental assessment, focused on benchmarking with best international cement manufacturing standards (including EU IPPC) is to be undertaken by 2008. Monitoring and reporting The Company will monitor the environmental impact of its operations in accordance with national law and regulations. The EBRD 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 EBRD’s representatives will also conduct periodic site supervision visits when deemed appropriate. An update environmental assessment is to be undertaken by an independent consultant in 2008. If required, the EBRD will carry out monitoring visits to the plant. None. Javier del Ser – Chairman c/o Central Asia Cement, Aktau Village, 472380 Karaganda Region, Republic of Kazakhstan Tel: + 7 3213 940644 Fax: +7 3213 940640