NLMK

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The EBRD is considering to finance a comprehensive Energy Efficiency Programme (“the EEP”) developed by NLMK with the support of Russian and international experts. The EEP comprises several projects aiming to (i) reduce energy use and associated costs, (ii) reduce emissions of greenhouse gases and (iii) improve quality of production. The transition impact potential of the transaction derives from its contribution to improve business standards in energy efficiency and environmental impact control. The Project will: i) reduce energy/carbon intensity and production costs of NLMK’s works; ii) set a good example of technological achievement through the implementation of Best Available Technique in energy efficiency and steel-making; and iii) promote competition and restructuring in the sector. By implementing new energy efficiency solutions with very limited precedents in Russia, the Project will significantly contribute to creating a sizable market for new technologies (with associated transfer of skills) which will have implications beyond the steel sector. The project will also contribute to raising the importance of energy efficiency as part of corporate strategy, capital planning and long term financial decision-making – especially during the current economic downturn Introduction of the EEP places NLMK at the forefront of carbon emission mitigation in Russia demonstrating the benefits of an integrated approach which combines introduction of state-of-the-art carbon abatement technologies with best practice also in terms of energy management All the components included in the EEP are consistent with applicable international best practice. NLMK (Novolipetsk Metallurgical Company) – one of the leading Russian integrated steel-making companies and one of the world’s largest single plant steel producers. The Bank will provide a long-term €125 mln loan to NLMK to finance the EEP in accordance with the agreed Implementation Plan. The main components that the Bank will finance include: The Bank is aiming to partially syndicate the Loan amount to commercial banks within the next twelve months. The total cost of the EEP is €490 million Screened B according to 2008 Environmental and Social Policy and the environmental due diligence revealed a number of issues which will be addressed by the implementation of the Environmental and Social Action Plan (ESAP). The ESAP which is structured to meet Russian and EU Best Available Technique (BAT) standards has been agreed with the Client. NLMK will be required to implement and adhere to the ESAP in all aspects and close monitoring will ensure that all relevant milestones included in the ESAP are met in a timely manner. It is anticipated that the implementation of the ESAP will bring NLMK's air emissions, waste management and water, fuel and other resource management in line with BAT requirements by the end of 2015. Major reductions are anticipated in dust emissions from the foundry shops, blast furnaces, steelmaking shops, sinter plant and the slag storage site, and in NOx emissions from the power plant. Emissions will be reduced as a consequence of closing down four coking batteries and the coal tar processing plant; therefore, the Sanitary Protection Zone can significantly be reduced. The ESAP contains water management improvements and ultimately, the introduction of a close circuit water management system by end of 2011. The ESAP also targets substantial improvements in the occupational health and safety conditions. The proceeds of this loan facility are dedicated to energy efficiency related investments and the implementation will result in significant benefits from reduced energy consumption leading to decreased emissions of greenhouse gases (GHG) and other pollutants The due diligence has reviewed NLMK's corporate environmental and social management at Group level and made suggestions for improvements in communication and management of social issues. This will strengthen the institutional capacity of the Company to implement the Bank's Performance Requirements inter alia related to stakeholder engagement and resettlement. The Company will be required to develop and implement a Stakeholder Engagement Plan (SEP) and a Resettlement Action Plan (RAP). As part of the EBRD’s existing Industrial Energy Efficiency programme funded by Canada, an Energy Review will be arranged at NLMK in order to: i) define Key Performance Indicators (e.g., energy intensity) for monitoring the impact of the Project (including versus appropriate industry benchmarking); ii) define disclosure requirements for NLMK in relation to energy and GHG intensity (e.g., through the Company’s annual Corporate Responsibility report, or through international disclosure programmes such as e.g., the Carbon Disclosure Project); iii) review ways to utilise energy efficiency and climate mitigation as communication instruments and to enhance the profile of the NLMK in the market place. Eugene Ovcharov, Head of Corporate Development Department Tel: +7495 411 8966; www.nlmksteel.com