Luhansk District Heating

cancelled

Translated version of this PSD: Ukrainian The EBRD is considering providing a loan to municipal district heating utility “Luhansk Municipal Communal Enterprise “Teplokomunenergo”” (the “Company”), operating in the City of Luhansk to finance installation of individual sub-stations, network replacement with pre-insulated pipes, modernisation of boilers and control systems, installation of monitoring and dispatching “SCADA” system. The project aims at significantly improving the energy efficiency, reducing energy losses, gas and electricity consumption and improving the quality of heat and hot water supply services in the City. The Project is part of an Integrated Approach to Reform in the Ukrainian District Heating Sector that sets out specific transition objectives for the sector which, by their nature, would benefit from a multi-project and strategic approach, to create a synergy between priority investments, technical cooperation, and sector policy dialogue. The transition impact of the project is expected to derive from: Framework for markets The Project will support a tariff setting methodology development and adoption at the National Utility Tariff Regulator level with a view to ensuring: (i) the full operating cost recovery and cost control; (ii) full investment cost recovery based on the investment programme assessment to be performed by the National Utility Tariff Regulator and (iii) improved revenue predictability and planning through a process of formalised, regular, transparent and timely adjustment of rates. The City and the Company will enter into a Public Service Contract, which will clearly define the City and the Company’s rights and obligations regarding the district heating services provision and capital improvements including the tariff setting rules and policy. The demand-side measures proposed by the project will help the Company increase its consumption-based billing and further improve revenue collection. Demonstration of successful restructuring Through physical investments and commercialisation resulting from implementation of the Corporate Development Support Programme, the project will improve operational and financial performance of the Company and will have a significant demonstration effect for other cities and utilities in Ukraine concerning ways to improve energy efficiency of district heating operations and reduce losses and costs. Energy Efficiency Through investment programme implementation the project is expected to result in significant energy efficiency gains as well as enable better energy management at the building level, thereby providing incentives for energy-savings by end-users. Luhansk Municipal Communal Enterprise “Teplokomunenergo”, a municipal district heating utility wholly owned by the City of Luhansk. EUR 20 million loan to the Company, secured by a municipal guarantee. The project is expected to be co-financed by a grant of up to EUR 5 million from the Eastern Europe Energy Efficiency and Environment Partnership (E5P). The project will be also complemented with a EUR 4 million loan to the City of Luhansk from the Nordic Environment Finance Corporation (“NEFCO”), also co-financed with EUR 1 million grant from the E5P. Up to EUR 30 million. The project has been categorised B in accordance with EBRD's 2008 Environmental and Social Policy. The priority investments into the rehabilitation and modernisation of the district heating infrastructure are expected to bring environmental and social benefits associated with the overall improvement in the quality of heating and hot water services in the City, improved energy efficiency, reduction in fuel consumption and heat and water losses, and lower air emissions. The due diligence has been finalised and included a corporate review of the Company’s corporate environmental, health and safety and social management capabilities and procedures in relation to its own workforce and construction contractors, and an analysis of the environmental and social impacts and benefits of the proposed priority investment programme to establish the level of project's compliance with EBRD's Performance Requirements (PRs). There were no major issues identified and any adverse impacts are expected to be limited to short-term environmental, health and safety issues arising from construction works which can be adequately mitigated by taking environmental protection measures into consideration in construction planning and work practices. Particular attention needs to be paid to conducting an asbestos survey and developing and enforcing implementation of strict procedures for handling and removal of asbestos-containing materials. An Environmental and Social Action Plan (ESAP), containing mitigation measures for identified issues along with a framework for provision of information to stakeholders have been developed and are currently being reviewed by the Company. The Company will need to implement the ESAP, provide timely information to stakeholders affected by the Project and submit annual environmental and social reports to the Bank. Pre-signing Post-signing