Russia - Federal Grid Company Modernisation Project

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The proposed project is to procure equipment for the upgrade and rehabilitation of high voltage substations and communications systems of reduced losses, improve reliability and safety of the transmission system of the Federal Grid Company of Russia. Modernization of the transmission infrastructure is crucial for the stability and reliability of the power system and efficient functioning of the emerging competitive wholesale electricity market in Russia. With power transmission being a key infrastructure component of an efficient power market, the proposed loan to the Federal Grid Company will be a logical continuation of Bank’s involvement in power sector restructuring and market establishment, as well as efficiency improvement of the existing transmission infrastructure. All of these factors have been identified as priorities for Bank’s activities in the power sector. Strengthening the transmission capacity will ensure an efficient wholesale market functioning and system reliability. It is impossible to have a functioning market without the required technical infrastructure and capacity being available to operate the market and the power system, to meter the actual transactions and to settle the trading transactions. The current technological obsolescence of the transmission sector is a substantial risk factor, which could adversely affect the transition to competitive relations in the power sector. Through the substations equipment rehabilitation and replacement, the investment will facilitate increased efficiency and reliability of the whole electricity system in European Russia. Severe underinvestment into transmission in the past present numerous problems with high losses in transmission and distribution, as well as inefficient consumption of energy, preventing optimal flow of electricity, and impeding necessary sector reforms. OAO The Federal Grid Company UES is the electricity transmission monopoly of Russia, 100% owned by RAO UES of Russia. To provide a long-term senior rouble-denominated loan of up to RUB 5B (EUR140MM). RUB 5 billion. Summary of environmental issues Environmental classification and rationale The project was screened B/1, requiring an Environmental Audit and Environmental Analysis in line with the EBRD’s Environmental Policy and Public Information Policy. The modernisation of existing substations is associated with a number of environmental issues which can be readily identified, assessed and mitigated. Additionally a corporate Environmental Review was undertaken of FSK to assess environmental, health and safety management at corporate level. Key environmental issues and mitigation The key environmental impacts of substation modernization and operation of transmission grids are well known and generally very localized. The impacts on the physical and biological environment are mainly limited to the construction stage. These can be mitigated by applying sound engineering design and good construction management. The substations can also be associated with environmental risk due to hydrocarbon spillage, noise and EMF (electromagnetic fields). Overall, these impacts were assessed as low given the remote location of the substations. The main environmental issue identified at FSK is the control of planning and implementing of new projects and the management of existing legacies facilities which may have environmental legacies (e.g. PCBs; aspects of waste management; flood risk and potential for water contamination). Environmental opportunities The objective of this project is to increase the reliability of power supply to consumers in the regions. The modernization of the substations will reduce losses, improve reliability and safety of the transmission system and will therefore increase efficiency. The increased transmission efficiency is likely to lead to associated emission reductions at generating stations. Summary of environmental action plan The company will be required to adhere to Russian environmental, health and safety regulations and EU environmental standards. All relevant permits will need to be obtained during the construction period and prior to commissioning of the modernized two substations. An Environmental Action Plan (EAP) has been developed following and is being agreed with the Company. The EAP will address, inter alia, air emissions, waste, water, PCB and asbestos management as well as house-keeping, safety, and the overall management of the environment, health and safety issues at the corporate level of FSK. Disclosure of information and consultation In the context of the EBRD’s participation in the project, the Company has released this summary of relevant environmental issues associated with the project. 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 covering (i) ongoing performance of project-specific environmental, health and safety activities as reflected in the results of periodic and quantitative sampling and measuring programmes, and (ii) the status of implementation of environmental mitigation and improvement measures. The Bank’s representatives will also conduct periodic site supervision visits when deemed appropriate. If required, the Bank will carry out monitoring visits to the Company. Proposed TC with Federal Tariff Services to improve the tariff methodology for transmission and associated services.