Project Alro loan

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Project Description This PSD relates to a historical Bank project approved some years ago, and does not represent a new approval, or allocation of new funds.  Disclosure of this PSD was deferred in accordance with the transparency framework in place at the time, but due to an administrative oversight, was not subsequently disclosed In June 2010, the EBRD played a catalytic role in the refinancing of most of the existing debt of Alro S.A (‘the Company’). As a result of the global financial crisis, the structure of the Company’s loan portfolio affected its financial flexibility, putting great pressure on liquidity reserves. This had a negative effect on the Company's ability to gradually shift its production towards higher value added and better quality products. The stabilisation of the financial situation allowed the Company to carry out an investment program of USD 50 million between 2010 and 2012, which focused on improving the quality and range of products, including important projects aimed at increasing energy efficiency. These investments, together with an action plan regarding aspects related to the environment, health and labour protection were supported by the financial restructuring. Project Objectives The transaction was proposed in order to allow for refinancing of the Company’s existing debt, to stabilise balance sheet and mitigate financial risks such as cash flow shortages, in turn enabling the Company to proceed with its proposed investment programme for the improvement of the quality and range of its products and implementation of its environmental, health and safety action plan. Transition Impact The project was an important response to the global financial crisis, with a transition impact deriving from improvements in energy efficiency and environmental standards, as well as demonstrative elements regarding potential restructuring that could take place in the future. Though primarily intended to provide restructuring for the Company’s existing debt, the EBRD also supported the Company in implementing improvements in the Company’s energy efficiency, with impact on reduction of carbon emissions through facilitating investment in the modernisation of its production facilities to standards beyond those required by local law.  As the Company is among one of Romania’s largest industrial companies these measures also served as an important demonstration effect. Additionality In providing long term financing during a period of financial crisis and limited sustainable lending to the private sector, the Bank was able to be additional in relation to this project.  This not only brought stability to the Company’s financing structure, but permitted redirection of the Company’s focus toward its Environmental and Social Action Plan and improvement of its products. Environmental and Social Summary This project was included in category B projects, in accordance with the Social and Environmental Policy of the Bank from 2008. The debt refinancing project considered did not have a direct social or environmental impact; however, given that the past operations and maintenance works related to the aluminium smelter and the alumina refinery have been postponed, this may become the source of significant environmental liabilities. Therefore, an independent consultant specialized in environmental issues was contracted to carry out an environmental and social audit of the operations (smelter and refinery), an analysis of the capabilities of the environmental management systems and to develop an Environmental and Social Action Plan – ESAP. Furthermore, given the connection with Vimetco’s bauxite mine in Sierra Leone (in relation to the supply of raw material for the alumina refinery), a questionnaire was developed to assess information regarding the environment, health and safety at work of these operations. Also, a member of the bank’s environmental department visited the aluminum smelter and met with plant management as part of the environmental assessment. An Environmental and Social Action Plan was developed for the project and including the following main elements: These measures were implemented over an agreed timeframe, and their implementation will guarantee that the company’s operations will comply with EU environmental standards and EBRD requirements in this regard. Technical Cooperation An energy audit was carried out within the company, being financed by the Bank’s technical cooperation framework contracts, to review the proposed investments and to identify additional priority energy efficiency projects. In parallel with the use of the loan, additional technical assistance can also be provided for the training program in energy management. Implementation Summary The transaction was successfully implemented: the Company was able to undertake its planned investment programme as envisaged, with consequences including beneficial impact on energy efficiency and corresponding carbon emission reductions. The loan was repaid in 2016.