TGK-9 Expansion and Privatisation

complete

The project is a purchase of a 5-12% stake in TGK-9, one of Russian power generating companies, from Integrated Energy Systems (IES), one of the largest private Russian strategic investors in the power sector, subject to IES becoming a controlling shareholder in the Company. TGK-9 is to be privatised through an increase of its charter capital of RUB 17 billion (EUR 486 mln) and the subsequent sale of the Government’s stake in TGK-9. The project will facilitate the entry of a strategic private investor into one of the Russian power generating companies serving a region of growing electricity deficit and enable TGK-9 to finance the investment programme focusing on rehabilitation of existing facilities and efficiency improvements. EBRD will set a standard for private investment into the Russian power sector and will finance the enhancement of generation efficiency, upgrading major CHP assets and efficiently supporting industrial growth. In addition, the Bank will provide political and regulatory comfort to the Sponsor, making the Company more attractive to the investment community, and monitor the Sponsor’s position vis-à-vis minority shareholders. TGK-9 is one of Territorial Generating Companies in Russian formed in the process of unbundling of RAO UES. TGK-9 operates heat and electricity generation assets located in the Perm and Sverdlovsk regions, key industrial centres of Russia with rapidly increasing electricity demand, as well as in the Komi Republic. Equity investment of up to USD 200 million (EUR 140 million) equivalent in Russian Roubles. USD 200 million. Screened C/1. As the transaction is an equity structure and the Bank’s proceeds will not be directly targeted, only a corporate environmental audit was required to ensure that the Company operations are in compliance with national environmental standards and the Company’s investment programme is structured to allow it to meet EU standards within a reasonable time period. The Bank retained an international consultant to perform the environmental due diligence, inclusive of site visits to a number of plants and an assessment of key social and labour issues associated with the proposed investment programme. The due diligence assessed the Company’s standing in terms of Russian Federation and EU environmental standards, and provided a benchmark in terms of meeting EU standards such as the EU Large Combustion Plant Directive's emission limits and Best Available Technique’s guidelines for large power plants under the EU Integrated Pollution Prevention and Control Directive (IPPC). The findings of the due diligence confirmed that the Company is generally in compliance with Russian environmental standards, albeit their is a need to further strengthen the environmental management system at the Company and additional investments are needed in pollution abatement equipment and monitoring systems to ensure future compliance with National standards and EU environmental requirements. Through the investment programme the company will commence a modernisation programme aiming at improving operations and attaining international standards. The three newer CCGT units being considered are structured in line with EU environmental standards and as part of an agreed action plan the Company will undertake appropriate environmental impact assessments, inclusive of public consultations as part of the design process for these plants. Based on the environmental due diligence, a corporate Environmental and Social Action Plan (ESAP) was developed and agreed with the Company. The ESAP includes among others specific corporate environmental management requirements as well as investments needed to attain Russian Federation and EU environmental standards. The Bank will monitor the project. Implementation standard None. Vitaliy Anikin Tel: + (342) 240-65-59 Email: anikin_vv@tgc-9.ru Website: http://www.tgk-9.ru/