Kronospan OSB Belarus

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Translated version of this PSD: Russian The EBRD is considering providing a two tranche senior loan (EUR 65 million and EUR 35 million) to Kronospan OSB FLLC, Belarus, to finance construction of an oriented strand board (OSB) plant in the Mogilev region of Belarus. The OSB facility will have an annual production capacity of 500,000 m3. Tranche 1 of the loan will finance the construction starting in 2013 of Phase 1 of the Project, with production capacity of 300,000 m3. The increase of production capacity by 200,000 m3 will be constructed at a later stage and financed by the Tranche 2. EBRD funding will be used to finance capital expenditure. Demonstration effect: introduction of new products: the Loan will support an international market leader in wood-based panel production introducing a new product and modern technology to Belarus, where there is no existing domestic production of OSB. The demonstration effect will also spread over to neighbouring countries such as Ukraine, which does not have domestic OSB production, and will be an important export market for the Project. Demonstration effect: new ways of private sector and finance activities: Belarus has high potential for the further development in the forest-product sector, taking into account ample forestry resources and the demonstration effect of Kronospan’s investment. To date the foreign direct investment (FDI) inflow in the country has been low. The transition impact will derive from (i) the demonstration effect of this large-scale FDI introducing a new product/processes in the wood sector, (ii) the setting of best industry standards in the Belarusian wood- processing sector. It will also set an example of FDI in the regions (rather than in and around the capital). Market expansion through backward linkages: the Project will create a demand for low-value and small-sized wood and provide an important market outlet for roundwood thinnings, which will complement/enhance current sustainable forestry management practices in Belarus, and create a market for otherwise under-used resources. In addition, Kronospan will incentivise local suppliers towards achieving compliance with sustainable forestry management practices, allowing the transfer of skills and know-how to local regional suppliers and so helping them improve the quality of the inputs compliant with sustainable forestry management practices. Skills transfer: Kronospan will provide training to the OSB plant employees to enable them to acquire the skills necessary for operating highly efficient wood-processing facilities. Setting standards in corporate governance and business conduct: Kronospan is an international market leader, which will introduce Best Available Techniques (BAT) demonstrating high standards of energy and resource efficiency and environmental performance. Kronospan OSB FLLC is a 99%-owned Belarusian subsidiary of Kronospan Holdings East Limited, Cyprus. The Kronospan group of companies is the global leader in the wood-based panel sector. It manufactures wood-based panel products at over 30 sites in 27 countries, including Poland, Czech Republic, Slovakia, Bulgaria, Romania, Hungary, Croatia, Serbia, Russia, Belarus and Ukraine. It currently employs over 11,000 people. A two tranche senior loan: 1st tranche - up to EUR 65 million and 2nd tranche - up to EUR 35 million. The EBRD loan will be complemented by Kronospan’s own funds to finance the Project. EUR 200 million. The project has been categorised B in accordance with the EBRD Environmental and Social Policy (2008). The Bank’s environmental and social due diligence (ESDD) has included visits to the site and Kronospan’s existing OSB plant in Latvia, a review of the environmental documentation (OVOS) prepared for the Belarusian permitting process as well as discussions with the Company management and local authorities. The ESDD concluded that the potential adverse future environmental and social impacts of the construction and operation a new mechanical wood processing facility with capacity of 500,000 m3/a of oriented strand board (OSB) within an existing industrial zone are site-specific and readily mitigated through introduction of modern production technology and appropriate management and mitigation measures as well as ensuring the wood raw material for the OSB production is of legal and sustainable origin. The ESDD showed that the project site is located within Mogilev Free Economic Zone, in close vicinity to a number of existing industrial plants. The closest residential properties are at the distance of some 600m from the site. The sanitary-protection zone (SPZ) is defined at 300m for this type of production. The project itself is located in the SPZ of 2.5 km of an existing chemical enterprise. The land registration has been recently changed from agricultural and forestry use to industrial use. There are no protected areas, historical sites or other areas requiring special consideration for environmental protection in the vicinity of the site. Mechanical wood processing, such as OSB production, is associated with a limited number of environmental issues, which in new plants like this can be effectively mitigated with modern technology, project design and construction planning and work practices. The plant design will be based on Kronospan’s existing OSB plants in Latvia, Romania and Russia, and will include a number of state-of-the-art technology features, such as a closed loop water system, air emissions control including wet electrostatic precipitator (WESP), bag filters and cyclones to reduce VOC and dust emissions, as well as recovery of wood waste to be re-used as raw material in production process or as fuel in a biomass boiler. The facility’s design has been benchmarked against the Best Available Techniques (BAT) used in European Union in the industry and showed that the facility’s environmental impact is expected to be equal to similar modern OSB plants in operation in EU. After commissioning the plant, a further BAT assessment will be undertaken of the plant’s actual performance to ascertain this. The OSB products will be E1 classified in accordance with international standards for free formaldehyde content in the final products, ensuring that the OSB boards can be safely used without causing elevated concentrations of formaldehyde in indoor air. The OSB plant’s main raw material is round wood and the Mogilev plant will use up to 1.1 million m3 per year of round wood. Currently, the forest resources in Belarus are underutilised and only some 70% of annual allowable cut of 9.5 million cubic metres is being harvested. Most of the wood will be provided on the basis of an investment agreement with the Government and supplied through the Belarusian Commodity Exchange. The Company plans to supply wood directly from local forestry enterprises initially within the radius of 100km from the plant, and potentially in the future from its own wood harvesting operations. A substantial part of the round wood raw material will consist of low grade wood, which has no other commercial use. To mitigate the adverse impact of the wood procurement and to ensure the wood supplied is of legal and sustainable origin, the Company will control and manage its external wood suppliers in accordance with FSC Chain-of-Custody (CoC) and Controlled Wood (CW) criteria and is committed to give preference to FSC certified wood when available. In the previous projects with EBRD, Kronospan has implemented sustainable wood procurement procedures required by the Bank and obtained FSC CoC and CW certifications. The same approach will be used for the plant in Mogilev and in the case of its own wood harvesting operations will adhere to sustainable forestry management practices. The Company’s particleboard and medium-density fibreboard production operations in Smorgon, Belarus, which are existing projects partially financed with EBRD loan, are on track with achieving FSC CoC and CW certifications in 2015. The Company will be systematically monitoring and reporting its environmental, social and health and safety impacts to ascertain compliance with Belarusian and international environmental standards, including BAT for the industry sector. The EBRD will evaluate the project's compliance with the applicable environmental and social requirements and the Bank’s PRs during the lifetime of the project through annual reporting by the Company and periodic supervision visits. None. Kronospan Contact: Chris Ryan/Simon Reynolds Tel: + 44 1691 775 257/343 Email: c.ryan@kronospan.co.uk/s.reynolds@kronospan.co.uk Website: www.kronospan-worldwide.com