Kronospan Particleboard Project in Bashkortostan

cancelled

Translated version of this PSD: Russian The EBRD is considering providing a senior syndicated A/B loan of up to EUR 90 million to Kronospan Bashkortostan LLC, incorporated in Russia, to finance construction of a particleboard and melamine faced particleboard plant in Shaksha village, Ufa region, Bashkortostan Republic, Russian Federation. The plant is expected to have production capacity of 500,000 m3 of particleboard, and 15 million m2 of melamine faced particleboard per annum. EBRD funding will be used to finance capital expenditure. Market expansion through backward linkages: the project will create a market demand for low-value and small-sized wood as well as for wood residues from the existing wood processing industry. This will provide an important market outlet for roundwood thinnings and wood waste and will enhance commercial use of the region’s under-utilised forest resource base and complement current sustainable forestry management practices in Russia. Currently, Bashkortostan has an undeveloped potential harvesting volume of 6.5 million m3 per annum. Market expansion: transfer of skills: Kronospan will incentivise local suppliers to adopt and implement sustainable forest management practices and certify their harvesting operations to internationally-recognized sustainable forest management standards. This will allow for transferring skills and know-how to local regional suppliers and help them improve the quality of the inputs, compliant with sustainable forestry management practices. Market expansion: incentives to new enterprise creation: The Project will also stimulate the creation of new private enterprises serving Kronospan’s plant as partner companies. The introduction of high quality particleboard will also stimulate the development of the furniture industry producing high value-added products in the Republic of Bashkortostan and its neighbouring regions, activities which were until recently concentrated in Russia’s Central region. Setting standards for business conduct: The new production plant will feature state-of-the-art technology with the key focus on Best Available Techniques (BAT) in energy and resource efficiency, operational safety and environmental performance. Kronospan’s reputation and positive record worldwide will ensure that the project can be used as a model for the dissemination of best practice in this sector in Russia. Demonstration effect: new ways of private sector and finance activities: Bashkortostan has high potential for further development in the forest-product sector, taking into account its vast forestry resources and the demonstration effect of Kronospan’s investment in the Ufa region. Kronospan Bashkortostan LLC is a wholly-owned Russian 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 senior syndicated A/B loan of up to EUR 90 million. The EBRD loan will be complemented by Kronospan’s own funds to finance the Project. EUR 180 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 a site visit and a review of the environmental documentation (OVOS) prepared for the Russian 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 per year of particleboard, 15 million m2 of which will be melamine faced (MFC), are site-specific and will be mitigated through introduction of modern production technology and appropriate management and mitigation measures as well as ensuring the wood raw material for the particleboard production is of legal and sustainable origin. The ESDD showed that the project site is located on the south-east borders of Ufa city with most residential areas in the distance of over 1.5 km, with several cottages in about 800m north-east from the fence line. The sanitary-protection zone is defined at 300m for this type of production. The land registration has been recently changed from agricultural to industrial use. There are no historical sites or other sites requiring special consideration for environmental protection in the vicinity of the site. Mechanical wood processing, such as particleboard 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 particleboard plants in the Czech Republic, Poland, Russia and Ukraine 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 particleboard 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 particleboard products will be E1 classified in accordance with EU standards for free formaldehyde content in the final products, ensuring that the products can be safely used without causing elevated concentrations of formaldehyde in indoor air. The plant’s wood raw material consumption is estimated at 1 million m3 per year that is provided on the basis of an investment agreement between the Company and the Republic of Bashkortostan (“RB”). Currently, the forest resources in RB are underutilised and only some 38% of annual allowable cut of 9 million cubic metres is being harvested. 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. The Company will also seek to use wood residues from local timber processing plants to substitute for the round wood as the raw material. 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 previous projects of 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 Ufa and in the case of its own wood harvesting operations will adhere to sustainable forestry management practices. To ensure the implementation of adequate mitigation measures, an Environmental and Social Action Plan (ESAP) has been developed to address the issues identified during the ESDD. The ESAP includes among others the following E&S management and mitigation measures: The implementation of the ESAP will be covenanted in the loan agreement. The Company will provide the Bank with annual environmental and social reports (AESR), including updates on the ESAP implementation. The Bank will evaluate the Project’s environmental and social performance in accordance with the Bank’s PRs through reviewing the Client reporting and undertake periodic monitoring visits when deemed appropriate. 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