Procter & Gamble/Novomoskovsk Detergent Plant Project(Rev)

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Upgrading of detergent factory in Novomoskovsk in the Tula region of Russia. The investment programme will provide for the upgrading of Novo equipment and facilities and working capital to improve efficiency, quality and profitability at Novo, which will be P&G's principal detergent plant in Russia. P&G successfully tendered for shares in Novo as part of the Russian Federation's privatisation process. P&G's continued investment will complete the transition of Novo to an efficient market-driven manufacturer. The borrower is Procter & Gamble Eastern Europe (PGEE), a wholly owned subsidiary of the US-based Procter & Gamble Company (P&G). The EBRD's loan financing will be channelled through PGEE to Novomoskovskbytkhim (Novo), a majority-owned subsidiary of PGEE. The EBRD will also purchase shares in Novo. Loan: US$ 15 million (ECU 12 million) Equity: US$ 2 million (ECU 1.6 million) Total: US$ 17 million (ECU 13.6 million) Commercial risks assumed by P&G via guarantee. Financing provides for certain specified event carve-outs for political risks, under which P&G would be released from its guarantee obligations. US$ 50 million (ECU 40 million). The project was classified as B/1, requiring an environmental analysis and audit. The environmental studies, carried out by independent consultants, identified a number of issues regarding air emissions, use of CFCs as propellant in a small line of aerosol cans, waste water, containment of chemicals and oils, asbestos and potential liabilities associated with a shared waste dump site. Environmental Action Plan Procter & Gamble Eastern Europe (PGEE) prepared an Environmental Action Plan (EAP) in 1994 to address all of the above issues. PGEE gained management control of the company in September 1996, and intends to introduce its full P&G Worldwide Environment & Safety Programme, which will ensure that issues such as safety, hygiene, removal of underground storage tanks, leak detection systems, chemical storage and emergency response will meet, and in many cases exceed, EU standards. This is a six-year programme and will be audited by corporate personnel on an annual basis to ensure that improvements and upgrades are progressing on schedule. The Bank will receive routine monitoring reports on this progress. Since the original Board submission, the Bank has received an update of the environmental status of the facility and a progress report on the EAP. Part of the proceeds from the EBRD's investment will be used to implement the EAP. The most significant problem which required immediate attention in the EAP was dust control inside the detergent plant. PGEE has invested US$ 3 million in air-handling equipment, new floors, personal protection, and training over the past year and a half. An asbestos survey has been initiated, use of asbestos has ceased, and removal has started where insulation upgrades were needed. PGEE is assessing the alternatives to freon propellants in the small existing aerosol product line and working with the State Committee for Environment to agree an action plan and schedule for either changing the propellant or discontinuing the product line. EBRD is tracking the progress on this issue and will require that the EAP be updated to reflect the results of the study. The waste-water treatment plant (which is owned and operated by the facility) treats water of neighbouring industries and the municipality (only 20 per cent of the water treated is from PGEE operations). The discharge requirements are extremely stringent (higher than drinking water standards in the EU) and are not possible to meet due to the lack of control on 80 per cent of the water being treated. PGEE's EAP will ensure that its own water effluent will be an acceptable standard within one year, and is negotiating the return of the waste-water treatment plant to the municipal authorities. None.