LUKOIL/TGK-8 Energy Efficiency Loan

cancelled

To provide financing to OAO Lukoil for the investment by its subsidiary TGK-8 in a highly efficient state of the art 410MW CCGT unit at the Krasnodar CHP plant in Southern Russia. The transaction will support the ongoing liberalisation of the Russian power sector and renew its ageing and inefficient power infrastructure. The project enhances the strategic partnership between the Bank and Lukoil established through the Bank’s previous debt deals and promotes the benefits of privatisation for the implementation of specific investment projects. The project will, in conjunction with other current and future projects, sustain the momentum of liberalisation and demonstrate the viability and efficiency of independent private operators in the sector. The addition of new generation capacity, whose power is entirely traded on the free market, will further deepen and strengthen that market and create the critical mass required to support the success of the liberalisation of Russia’s power sector. The introduction of modern equipment, meeting EU Best Available Techniques (BAT) and environmental standards, will dramatically improve the environmental and operational efficiency of TGK-8’s Krasnodarskaya plant. At the same time the technical cooperation project associated with this loan will optimise TGK-8’s operation of all its existing facilities and improve its investment programme. Taken together this will establish new standards not just for TGK-8 but more broadly within the industry and raise the levels of efficiency across the sector. The Borrower, Lukoil, is one of the Russian oil majors and the second largest non-state publicly traded oil company in the world as measured by proven reserves of hydrocarbons. Lukoil is a majority shareholder of TGK-8 (Southern Generating Company) one of fourteen Territorial Generating Companies in Russia formed in the process of unbundling of RAO UES. A/B loan of up to USD 300 million (EUR 240 million). RUB 15 billion (EUR 333 million). Environmental classification and rationale The project has been screened A/1, requiring environmental and social due diligence, consisting of an environmental audit of the existing power plant and environmental and social impact assessment (ESIA) of the planned investment in line with the Bank’s Environmental Policy (2003) and Public Information Policy. The project was screened A level due to the capacity increase at the plant. An Environmental and social due diligence was undertaken of the Project by an independent international and local consultant. The project is also subject to Russian OVOS requirements. Due diligence undertaken and outcomes The environmental and social due diligence has confirmed that the existing assets are well managed and are in general compliance with Russian Federation requirements and the investment programme will allow the plant to meet best international practice. The planned modernization programme at the CHP will improve efficiency as well as environmental management at the existing plant, although additional investment will be required in the future to further improve the plants efficiency levels to attain EU BAT requirements. This will not be possible in the short to medium term as the existing gas fired units are inherently inefficient when compared to the sate-of-the-art combined gas cycle turbines. The Bank has agreed a project specific Environmental and Social Action Plan (ESAP) based on the due diligence. This includes among others a requirement that the new CCGT plant to be constructed in line with National and EU environmental standards, namely BAT requirements. The Company will also introduce continuous emission monitoring systems and an environmental, health and safety management system to cover both the new CCGT plant and existing power plant and all other operations of all operations of TGK 8. The Company is committed to developing an environmental, health and safety management system and undertaking an internal best available techniques (BAT) review of current operations to assess opportunities for further energy efficiency and environmental investments. Disclosure of information and consultation The Project is subject to a public consultation and a disclosure plan (PCDP) developed and approved by the Bank. Disclosed materials include: The materials are available in hard copy at the following locations in Russia The EIA package and Executive Summary have also been released for public review by the project sponsor on its website (http://www.tgk-8.ru, - http://www.tgk-8.ru/investprojects/invest_lumpsum/buildproject_pgu-410/) and released locally in the following locations: Additionally the executive summary is available on the EBRD internet site at www.ebrd.com, Monitoring and reporting The Bank will monitor the implementation of ESAP for this project as well as the implementation of the corporate ESAP. A commissioning audit will be undertaken of the project to verify that all the National and ESAP requirements have been implemented. The Bank has provided TC under the existing framework programme: Thermal Power Plants, Rehabilitation and Efficiency Improvement: Technical Audits/Project Review, which is funded by the Special Shareholder Fund. The value of the call-off under the framework allocated to this project is EUR 50,000. Gleb Kiparisov Head of Credit Portfolio Management, Treasury and Corporate Finance OAO Lukoil tel: +7 495 980 33 83 E-mail: kiparisovga@lukoil.com