Vorotan Debt

completed

The proposed project involves a US$150 million debt financing package for ContourGlobal Hydro Cascade CJSC (the “company”, an existing IFC investee) in Armenia. This will include a proposed IFC A Loan and mobilization through an IFC B Loan and/or parallel loans. The company owns and operates the 404 MW Vorotan hydropower cascade, located roughly 255 km south east of Yerevan in Armenia’s southern Syunik Province. In July 2015, the company acquired these assets from the Government of Armenia (“GoA”) with IFC taking a 19.7% equity stake in the company (project #33450, board approved April 2014). ContourGlobal L.P. (“CG” or the “sponsor”) owns the remaining 80.3 % of the cascade company. The purpose of IFC’s previous investment was to support the acquisition of the cascade from GoA as well as a major electro-mechanical rehabilitation program required as a condition of the privatization process. The use of proceeds for this proposed debt financing is to allow the company to make an outstanding 50 % payment to GoA for the assets, to pay off bridge loans and to make a distribution to shareholders. No significant construction work is anticipated and the required electro-mechanical works to which the original investment was targeted will have few environmental and social (E&S) impacts, most of which will be positive.The 404 MW Vorotan cascade extends 178 km along the Vorotan River and its tributaries and consists of three Soviet era hydropower plants (HPPs) and five reservoirs with a combined hydraulic head of 1223 m. The cascade contributes around 17 % of national power generation and, by virtue of a system of daily, monthly and seasonal reservoirs, supplies both base and peak load generation capabilities, providing an important grid stabilization function. The upper two HPPs are typically used for peaking purposes, whilst the lower HPP is used for baseload generation and grid stabilization. Construction of the first elements of the cascade began in the early 1960s, starting at the downstream end, and culminating in the start of commercial operations at the upstream end (Spandaryan) in 1989. The various HPPs have been operated reliably for between 26 - 45 years to date. The combined units have generated an average of 1135 GWh per annum over the past decade, with an overall capacity factor of ± 32 %. The cascade is made up of the following key infrastructure, in order of up- to downstream position:Spandaryan reservoir and dam comprises of an embankment type dam of 83 m in height, a large multi-seasonal storage reservoir of 257 million m3, 8.1 km of pressure tunnels and the 76 MW Spandaryan Hydropower Plant (HPP). The uppermost and most recently added component of the cascade, this HPP has two generating units and began commercial operations in 1989. The reservoir is located at an altitude of 1609 meters and acts as the main storage for the cascade, accumulating water during spring and early summer to allow for releases during the rest of the year. The reservoir is drawn down to minimum level in winter and the HPP units are shut down from March to May-June until the reservoir is filled to maximum supply level. Water from the Spandaryan HPP discharges into the Angeghakot reservoir.Located below the Spandaryan HPP are two monthly/seasonal storage reservoirs with a combined total capacity of 96 million m3, namely Angeghakot reservoir (with a 23.4 m concrete spillway dam) and Tolors reservoir (with a 79 m embankment type dam). Water discharges from Spandaryan HPP into Angeghakot reservoir and then onward through a 10.5 km transfer tunnel to Tolors reservoir, which also impounds water both from the Sisian River and another tributary. Water from the Tolors reservoir is directed downstream to the Shamb HPP via a 6.9 km high pressure tunnel and a 1.26 km penstock. The 171 MW Shamb HPP began operations in 1978, has two generating units and is located at the upper end of Shamb Reservoir. This penultimate reservoir in the cascade has a total volume of 13.6 million m3 and a dam height of 70 m.An 18 km non-pressurized tunnel joins the Shamb Reservoir with a much smaller Daily Regulation Reservoir/Pond, a concrete tank with a capacity of 85,000 m3 which represents the fifth and final reservoir in the cascade and acts as a regulating forebay for Tatev HPP. A 1.9 km steel penstock leads from this structure steeply down to the 157.2 MW Tatev HPP, the lowest and final stage of the cascade, located at an elevation of 730 m. Tatev HPP, which has been in commercial operation since December 1970, operates its three units near continuously and represents an important baseload generation plant for Armenia. The power plants are connected by long-established 220 kV transmission lines to the main Shinuhayr substation near Goris, except for Tatev which is connected by a 110 kV transmission line. Although few records exist with respect to minimum flow releases during the past decade of cascade operations, the consensus from regulators, operators and others seems to be that ± 10 % of the Vorotan’s natural flow is continually released along the river’s original course, with the rest being diverted into the power cascade. Actual flows in these bypassed river reaches are reportedly reasonably high in many parts of the river due to the ingress of a series of tributaries along the length of the cascade and the effects of winter snow melt. The current flow regimes have been in place for several decades and will not be altered by the proposed project. Terrain in the project area is mountainous and relatively sparsely populated, though there are a number of towns, villages and homesteads spread along the length and breadth of the cascade. The largest of these are the towns of Sisian (population approx. 13,000), which is located on the banks of the Vorotan River in the upper section of the cascade, and Goris (population approx. 23,000), which is located a few km north of the river near the base of the cascade and is where the company has its offices. Other, smaller settlements spread across the cascade include Gorhayk, Tsghuk, Sarnakunq, Angeghakot, Shaqe, Shaghat, Balak, Tolors, Ahotavan, Uyts, Shamb, Ltsen, Tate and Khot. There is reportedly minimal use of cascade reservoirs for social or tourism purposes such as fishing, boating or rafting, as access is generally prohibited by law. Planned releases are made in late spring and early summer from Shamb reservoir for irrigation purposes, though volumes released are inconsequential with respect to power generation needs. As long-standing flow regimes will not be altered, no impacts on local inhabitants have been identified from the project besides those associated with potential changes to employment and the company’s corporate social responsibility program (described further below).