North-Eastern Bulgaria Electricity Distribution Companies

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The Bank is supporting the privatisation of two electricity distribution companies by providing support to a strategic investor. The Bank will partner with E.ON Bulgaria, a 100 % subsidiary of E.ON Energie, the owner of 67% of shares in the Varna and the Gorna Oriahovitsa Distribution companies, acquired via an international competitive tender. The companies supply 1.1 million customers in the north-eastern part of the country. Bank's participation will support the power sector liberalisation process in Bulgaria and in the region in line with the EU directive on Power and with the “Energy Community of South East Europe”. Specifically the Bank will: E.ON Energie, E.ON Group's business unit for central Europe. The E.ON Group is the largest private-sector provider of energy services in Europe, supplying some 14 million customers with power, gas and water. The transaction consists of a direct equity investment in the distribution companies through purchase of shares from E.ON Bulgaria. To be confirmed. Environmental classification and rationale The project is screened C/1, requiring an Environmental Audit of the two distribution companies. Initial due diligence carried out by the client will be complemented by comprehensive site audits to be completed by the end of 2005; these audits will establish the liabilities of the State of Bulgaria with regards to environmental damages caused by former acts and omissions. The findings of the audits will provided the basis on which an environmental Action will be developed by the company and agreed with the Bank. Key environmental issues and mitigation Environmental issues associated with electricity distribution are well understood, can be readily identified were they occur, and mitigation measures can easily be put in place where necessary. Issues characteristic for electricity distribution companies include: Environmental opportunities Investment plans relate to renovation and re-enforcement of the network which is likely to reduce outages and line losses, and to improve reliability and efficiency. Summary of Environmental Action Plan The company will by the end of 2005 carry out comprehensive facility audits to establish the liability of the State for ‘environmental damages caused by former acts or omissions’. These audits will be the basis on which an Environmental Action Plan is to be developed, agreed with the Bank, and subsequently implemented. Disclosure of information and consultation There are no formal requirements for public information and disclosure associated with this project. The company will, however, be encouraged to inform the public on its activities and liase with its stakeholders. Monitoring and reporting The Company will monitor the environmental impact of its operations in accordance with national law and regulations. The Bank will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing annual environmental reports prepared for the project and may, if required, carry out monitoring visits. EUR 1 million for advisory services to the GoB was provided by the European Commission PHARE programme, arranged and administered through the Bank. No further technical cooperation envisaged. Dr. Thomas Meyer Head Corporate Development - Eastern Europe E.ON Energie AG E-mail: thomas.meyer@eon-energie.com