Kazakhstan Kagazy

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The proposed project will increase paper manufacturing capacity and support a corporate restructuring. As part of the restructuring, the paper-making assets of the JSC “Kazakhstan Kagazy” will be transferred into a new company called “Kagazy Recycling”, which will be responsible for developing the Group’s paper business. The investment in expanded and new capacity will help satisfy rapidly increasing demand for paper products in the Country, which is presently outpacing supply capability. Demonstration of energy efficiency and environmental standards Waste paper processing, as compared to pulp, uses less water, less energy and is less polluting. Supporting a producer committed to waste paper processing (a) increases the volume of waste paper recycled in Kazakhstan and in the region, and (b) provides a tangible example for other countries in the region of the commercial viability of setting up a similar facility. Forward linkages with customers Availability of locally produced corrugated board for sale to carton box producers encourages existing and new carton box producers that will supply carton boxes for smaller orders, in which the Company and large importers may not be interested (due to small order sizes). This is also expected to encourage local industries to improve the quality of their packaging as local box production allows for printing of labels and other product information in the Kazakh language (which is a legal requirement and is becoming normal marketing practice). Customised information gives producers chances to convey all necessary product information to the customers. Demonstration of restructuring and improvement of corporate governance and business standards The Project will facilitate the financial restructuring of the Group and increase the Group’s and the Company’s disclosure and corporate governance standards. The Project will improve the environmental standards of the plant through implementation of the EAP, including construction of the waste water treatment facilities. The additional conditionality of Bank’s financing will be an improvement to the management information systems of the Company. JSC “Kagazy Recycling”, a recently incorporated company and the Borrower for the purpose of the Project. The ultimate shareholder of JSC “Kagazy Recycling” is JSC “Kazakhstan Kagazy”, a holding company, uniting paper processing and real estate businesses of the Group. Senior loan of up to USD 50 million comprising of an "A" loan of up to USD 25 million, a "B" Loan of up to USD 25 million, and a subordinated loan investment of up to USD 10 mln. USD 100 million. Screening Category and Justification The production of liners and corrugated paper based mainly on recovered paper without significant use of chemicals has limited environmental impacts. The mill is located in an industrial area outside of Almaty at a distance from residential areas and other sensitive areas. The site is surrounded by a former glass factory, a large poultry farm and other industrial facilities are being established in the area. There are no nature parks or other protected areas close to the mill site. For the above reasons, the project would result in some future environmental impacts, which are not expected to be significant and which can be readily identified and assessed. Therefore, the EBRD has classified the project B/1 and an Environmental Analysis of the planned expansion programme and an Environmental Audit of the existing facilities have been undertaken by independent environmental consultants. Key environmental issues The investigations showed that overall the present environmental performance of Kagazy is good, with the exception of high water consumption and wastewater volume due to suboptimal water recirculation and the lack of proper wastewater treatment. The company is involved in recovered paper collection, which helps reduce the amount of waste disposed of at landfills. The project will increase the utilisation of recycled paper, which has positive effect on the waste management in Almaty. The wastewaters are currently pumped to sedimentation and/or filtration lagoons located about 1 km west from the mill site. This area is former agricultural land and has also sludge lagoons for the poultry farm. No wastewaters are discharged into rivers or lakes. Due to the fact that relatively small amounts of chemicals, and no harmful chemicals, are used at the mill, the risk of soil and groundwater contamination is not very significant. The planned paper production capacity increase to about three times from the present level will significantly increase the wastewater load. The solid waste from the process, consisting mainly of rejects from recycled fibre line and the sludge from the paper mill’s water recirculation system, is currently taken to a municipal landfill. The capacity expansion will increase the amount of waste, mainly rejects, by three times from the present level. When the biological treatment plant will be taken into operation, the amount of sludge from the treatment of recirculation water and wastewater will also increase more than three times. The introduction of the deinking plant for the tissue machine will further increase sludge volumes. The company is planning to continue the use of the municipal landfill as the main disposal site of these wastes. The plant is using natural gas as the fuel, resulting in negligible air emissions of sulphur oxides and dust. The air emissions from planned new, small gas fuelled boiler will be negligible and meet European Union emission standards. The noise disturbance from the mill is not significant impact on its surroundings. The new paper machine is a new source of noise, but the impact in the environment is likely to be insignificant. Implementation Requirements An environmental action plan (EAP) has been developed to address the necessary corrective and mitigation measures so as to bring the Company in compliance with European Union environmental standards based on the use of best available techniques for recovered paper processing. The most significant actions the Company will implement in the near future are the reduction of water consumption through optimising the water recirculation and the construction of a biological wastewater treatment plant. The Company plans to purchase only elementary or totally chlorine free pulp to eliminate chlorinated organic compounds in the wastewater. The increase of reject and sludge waste volumes will be studied and a proper waste management system based on minimising the waste volumes through dewatering will be established. The Company will also strive for finding an alternative disposal method to landfilling. The Company will develop its environmental management system in accordance with international standards. The Company is monitoring and reporting it’s environmental, health and safety performance in accordance with Kazakh regulatory requirements and will prepare annual environmental reports for the EBRD. The EBRD will evaluate the project's compliance with the applicable environmental and social standards, including European Union environmental standards, during the lifetime of the project by reviewing these reports and by periodic monitoring visits. None. Alessandro Manghi Abai village, Karasay district Almaty region, Kazakhstan Tel: + 7 3272 44 87 87 Fax: +7 3272 44 87 82