OSSH electricity distribution efficiency improvement program

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Translated version of this PSD: Albanian The proposed transaction is a EUR 50 million long-term senior loan to the Electricity Distribution Company of Albania (“CEZ Shpërndarje”, or “the Company”) to fund the Company’s turnaround and capex programme estimated at around EUR 200 million during 2010-2014, aimed at reducing electricity distribution losses, upgrading and modernising the electricity distribution network, as well as improving the Company’s financial and operational performance (“the Project”). CEZ Shpërndarje is 76% owned by the Czech energy group ČEZ, a.s. which is acting as the Sponsor in this transaction. The Company’s investment plan during 2010-2014 amounts to around € 200 million and includes the following measures: (i) modernisation of the distribution network, covering both low (€ 50m) and medium voltage lines (€ 44m); (ii) refurbishment of substations (€ 54m); (iii) installation of new meters (€ 49m); and (iv) implementation of a new billing system, SAP (€ 3m). This investment programme is expected to lead to a substantial improvement in the Company’s operating performance, reduction of distribution losses from the current 34% and the implementation of metering which will support improvements in payment discipline and thus enable CEZ Shpërndarje to improve the collection rates from the current 82%. The Project’s transition impact stems from two factors: (i) the demonstration effect of a successful turnaround, where EBRD will support ČEZ, a.s., an experienced Sponsor with a successful track record of turning around electricity distribution companies in Bulgaria and Romania; and (ii) setting standards for business conduct – loss reduction. CEZ Shpërndarje is the sole electricity distribution and retail company in Albania. The Company owns and operates the entire 110 kV distribution network in the country, covering 69,000 km, and currently serves around 1.1 million customers. Total supplied electricity amounted to 4.1 TWh in 2009. CEZ Shpërndarje was unbundled from an integrated utility into a separate entity in 2008 and privatised in May 2009, when the sale of a 76% stake to ČEZ, a.s. was completed. The EBRD is considering extending a senior corporate loan of up to € 50 million to fund a portion of CEZ Shpërndarje’s turnaround and efficiency improvement programme of around € 200 million in 2010-2014. The IFC, other commercial lenders and CEZ Shpërndarje in co-operation with ČEZ are expected to provide the balance of the financing. € 200 million. The Project is categorized B. The proposed capital investment programme includes mainly investments in network and substation modernisation, new meters and billing system. The currently available information is not sufficient to carry out an E&S analysis for the capital investment programme, however the investment programme will not involve any high voltage lines and therefore, its implementation is likely to have limited adverse environmental and social impacts, which can be avoided or mitigated by adhering to generally recognised performance standards, guidelines or design criteria. Due diligence undertaken and outcomes The due diligence undertaken for the project comprised of the following: The main issues identified during the due diligence relates to lack of defined environment, health and safety (EHS) management systems; soil and groundwater contamination; human resources policy and procedures; labour and working conditions; management of planned redundancies; third party incidents; and stakeholder engagement. Summary of Environmental and Social Action Plan (ESAP) An ESAP has been drafted to address the issues identified during the due diligence and is being negotiated with the EBRD and IFC. The priority tasks in the ESAP cover the following: Monitoring and reporting The Company will: None.