Lafarge Vostok II

complete

This is a follow-up transaction under an earlier approved EUR 300 million multi-project facility (MPF) with Lafarge covering the acquisition, modernisation, expansion, construction and operation of manufacturing facilities in the cement, lime, aggregates and ready-mix concrete sectors. The project objective is to support the development of Lafarge's investment programme, which assists in the privatisation and/or the development of local companies in the eligible sectors, enhances their performance and improves their environmental standards. (i) Setting standards for the modernisation and restructuring process of the cement and related building materials industry; (ii) technology and know-how transfer; (iii) improvement of environmental management; and (iv) provision of equity to a capital-intensive and highly cyclical industry sector. Lafarge, founded in 1833, is the world's largest producer of cement and other building materials. The Group employs 84,000 people in 79 countries, with 2008 consolidated sales of EUR 19 billion. In July 2009 Lafarge Group's capitalisation was EUR 13 billion. Additional equity investment in the Russian Federation for a total amount of up to EUR 120 million. The sub-project costs are approximately EUR 380 million. Environmental classification and rationale In line with the Bank’s Environmental and Social Policy (2008), the project, a multi-site operation seeking increased equity investment, has been screened as B, requiring a corporate environmental and social audit. The Bank has an existing equity investment in the Company, and therefore the increase in the equity will not expose the Bank to any new environmental and social issues. The Bank’s environmental and social due diligence (ESDD), focused on the company’s current environmental and social management systems as well as past and current performance against the Bank’s Performance Requirements (PRs). The project falls under the Multi Project Facility (MPF) agreement with Lafarge, whereby the environmental due diligence for each specific sub-project is delegated to the Sponsor. Due diligence undertaken and outcomes The ESDD has confirmed that the Company has a good environmental and social management system and has the capacity to fully implement the Bank’s Performance Requirements (PRs). The main environmental and social issue is associated with the Sponsors environmental performance of two existing cement plants (at Voskresensk and Korkino plant) and the possible environmental and social impacts of future investments, notably the Kaluga and Rostov projects. The ESDD has included an Environmental Analysis of the future investment programme, and in line with the MPF the Company will undertake additional Environmental and Social Impact Assessments (ESIA) for each sub project as and when it is developed. The Company has developed a comprehensive Environmental and Social Action Plan (ESAP) as part of the initial equity investment in 2006. This has been implemented by the Company, notably in terms of improving energy efficiency, housekeeping and reduction of emission from the existing wet kilns. Significant environmental, health and safety improvements have also been achieved through the implementation of a corporate environmental, health and safety management system and capital investment programmes aimed at modernizing the existing assets and installing new state-of-the-art abatement equipment (such as filters). The company plans to attain the 50 mg/Nm3 emission standard on all existing plant by 2015 and all large kilns by 2012. This requirement has been included in the updated ESAP and is being implemented. Lafarge is gradually replacing the existing wet line technology with state-of-the art dry cement lines and a programme has been developed to attain this aim. However, this process is a long-term and capital intensive. The Bank has agreed with the Company that all new dry cement lines will be designed and operated in line with the best available techniques (BAT) as defined under the EU IPPC Directive. The Company is developing a stakeholder engagement plan, in line with the Bank’s PR 10. This includes the requirement of publishing an annual corporate report for the Russian operations in 2010. Lafarge corporation is a world leader in terms of corporate reporting in and is an active member in developing best practice guidance for the sector under the World Business Council for Sustainable Development. The implementation of the current investment programme and the Environmental and Social Action Plan (ESAP) will enable to the Company to comply with Russian and Lafarge corporate environmental standards and is structured in line with EU environmental standards. The implementation of the ESAP will significantly improve the company's environmental management and overall performance. As part of the project the current MPF agreement will be amended to reflect the requirements of the Bank’s Environmental and Social Policy (2008) and Performance Requirements. Implementation requirements None. Alex de Valukhoff, General Manager E-mail: Alex.deValukhoff@ru.lafarge.com Tel: +7 (495) 926 7131 Fax: +7 (495) 926 7130