People and projects | 2008 Stories from the EBRD region

www.ebrd.com Peopleandprojects|2008 01

Contents

01 Foreword02 Azerbaijan:Whenabumpyroadbecomesasmoothpassage04 Bosnia and Herzegovina:Facilitatingwomen’sentrepreneurship06 Bulgaria:Warmerkindergartens,happierchildren08 FYR Macedonia:Creatingjobsfromcookies10 Georgia:Neighbourhoodbankmakesadifference12 Moldova:LandoftherisingSUN14 Russia:Workingforcleanerrivers16 Russia:Severstal–themakingofalandmarkdeal18 Focus on Ukraine36 Health and safety:Tacklingthehighrateofindustrialaccidents38 Donor funds:Improvinglivesatthegrassroots40 Contacts

Foreword

In its fourth year, this publication features the EBRD’s clients from refugee women turned entrepreneurs in Bosnia and Herzegovina to successful private companies in Moldova.

Ourclients’questforbetterliveshasinspiredtheEBRDsinceitwascreatedin1991.ThesestoriesreflectthefactthatthereisstillmuchworkaheadintheEBRD’smissiontobuildmarketeconomiesinformercommunistcountries.Helpingourcountriesofoperationstoadapttothe21stcenturychallengesistheBank’srole,whetherthroughinvestmentsinenergyefficiencyinBulgariaorimprovementstohealthandsafetystandardsinageingminessothatliveswillbesavedandpeoplewillbesafe.

Thisyear’seditionhasaspecialfocusonUkraine,wheretheEBRDisholdingits2008AnnualMeeting.FromChernobyl,wheretheEBRDisworkingtomakethesiteofthe1986nucleardisasterenvironmentallysafe,toKievwheretheBank’sfinancingisrenovatingthecity’smetrojustintimefortheEuro2012championship,theEBRDishelpingUkrainetotransformintoastrong,modernmarketeconomy.

AndtherearestoriesofimaginationandentrepreneurialspiritfrompeoplerightacrosstheEBRDregion.IhopeyouwillenjoyreadingaboutPeople and projects.

Brigid Janssen, DirectorofCommunications

02 www.ebrd.com Peopleandprojects|2008 03

Azerbaijan

WhenabumpyroadbecomesasmoothpassageBy Axel Reiserer

In more poetic times it was known as Azerbaijan’s section of the Silk Road. The 501 kilometres of road stretching from the capital Baku to the border with Georgia are part of the wider link that connects Asia with Europe. Explorers, traders, adventurers and, every so often, armies travelled the road whose beginnings can be traced back to China in the second century BC.

MarcoPolo,thegreatItalianexplorer,wroteofhisjourneysalongtheSilkRoad:“Whenamanisridingthroughthisdesertbynightandforsomereason–fallingasleeporanythingelse–hegetsseparatedfromhiscompanionsandwantstorejointhem,hehearsspiritvoicestalkingtohimasiftheywerehiscompanions,sometimesevencallinghimbyname.Oftenthesevoiceslurehimawayfromthepathandheneverfindsitagain,andmanytravellershavegotlostanddiedbecauseofthis.”

Thiswassome800yearsago.Inourmoresobermoderntimestheroadbecameknownas“theintestineofAzerbaijan”:aseeminglyendlessstretchofasphaltinincreasingdegreesofdecomposition,hastilybuilt,poorlymaintainedandcrackingunderthestrainofheavySoviettrucksandextremeweatherconditions.NotfaroutsideBakutheroadtakesaturntotheWestandforseeminglyendlessmilesrunsstraightthroughadesert.MarcoPolo’swordscometomind:“Whateveryoudo,neverstrayfromthepath.”

TherefurbishmentoftheSilkRoadinAzerbaijanisoneofthecountry’sstrategicprojects.ItwillallowthecountrytointensifyitslinkstointernationaltradeflowsbetweenAsiaandEurope.OnealreadyencounterstrucksfromTurkey,GermanyandSwedenontheroute.Thenewroadwillalsomakedomestictrafficeasierandfaster,importantsincecarownershipandtrafficlevelsareincreasingrapidly.

Betterconditions–andaseverecrackdownonspeeding–willalsomakedrivingmuchsaferandmorecomfortable.Infact,ithasbecomesogoodthatsomearealmostdisappointed:“Itissomewhatboring.Intheolddaystheroadwassobadthatyouusedtobangyourheadpermanently.Nowyoucansleepinthecar,everythingissoquietandsmooth.Alltheadventurehasgone,”saysVugarAliyev.

Buthehasonlyhimselfto“blame”:MrAliyevworksasanengineerwiththeinternationalconsultancyScottWilsonwhichhasbeenhelpingthelocalconstructioncompanyAzerinsaatwithitspartofthe75kilometrelegbetweenHajigabul(outsideBaku)toKyurdamirincentralAzerbaijan.

Hemay,however,also“blame”theEBRD.TheBankisfinancingtheconstructionofthissectionwithaUS$41millionloan.“IfitwerenotfortheEBRD,thisprojectwouldneverhavehappened,”MrAliyevbelieves.“TheBankprovidedmorethanthefinance.Ithasalsoworkedcloselywithlocalexpertsandwehaveallbenefitedfromthisopenexchangeofknowledge.Finally,theEBRDhasmonitoredtheprojectveryclosely,fromthebeginningtotheveryend.Nowthat’swhatIcallcooperation.”

ThecontractwastenderedbyAzerbaijan’sroadauthorities.TheItalianconstructioncompanyTodiniwonthecontractfor30kilometreswiththebalanceoftheworkundertakenbyAzerinsaat.Constructingorrefurbishingaroadmayseemaprettystraightforwardjob:groundworks,insulation,asphalt.Inaddition,thestretchbetweenBakuandKyurdamirinvolveswideningtheroadaswellasjunctions,roundaboutsandfourbridges.Inreality,however,itisamorecomplextask.

ElchinIbrahimovexplains:“Wehavehadconsultancymeetingswithalllocalpeoplelivingalongthe75kilometresweconstructed.Weagreedwiththeirsuggestionsandrequestsasmuchaspossible.”MrIbrahimovwasworkingasapublicrelationsmanagertoaccompanytheconstructionproject.Thetaskwasnottoimposethenewroadonthepopulation,buttomakepeoplefeelpartoftheproject.“Thishasmeantoneadditionalbusstophere,oneadditionaljunctionthere.”Itseemstohaveworked,thinksMrIbrahimov:“Noweverybodyishappy.”

Themainreasonforthisisnodoubtthehugetravelimprovements.ThejourneytimefromBakutoKyurdamirhasbeencutfromtwohourstolessthanonehourandahalf.

Kyurdamir,thoughnotknownasthemostenticingplaceinthecountry,isanimportantstopoverbetweentheAzerbaijanwhichwindsaroundtheCaspianSeaandtheAzerbaijanwhichishewedintotheCaucasianmountains.Melonsandchickenarethetwomostimportantagriculturalproductsoftheregion.Tradersusedtolinetheoldroad,offeringuptheirdelicacies,andtheyarealreadystartingtore-occupytheiroldplaces.“Wehavewidenedthehardshoulderstoimprovesafety”,saysMrAliyev.“Butthisisamarketeconomyandwewon’tshutthepeopleaway.”

Travellersarewelladvisedtoaccepttheoffer.Afterall,thebestchickensintheworldcomefromthisregionandtheyarewhatmakesfamouschickentabakasodelicious.Fortheunitiated,chickentabakaisflattenedchicken,soflatthatitlookslikeit’sbeenrunoverbyatruck.Butitisabsolutelydelicious.Nowthattravellerscansavetimeonanewroadtheywillbeabletodoubletheirpleasurebyspendingmoretimeonaspecialmeal.

US$ 41 million TheEBRDfinanceforAzerbaijaniroadproject

04 www.ebrd.com Peopleandprojects|2008 05

BosniaandHerzegovina

Facilitatingwomen’sentrepreneurshipBy Bojana Todorovska

As Director of BOSPO, a humanitarian organisation that was helping displaced women deal with the emotional wounds of the Bosnian war, Nejira Nalić visited a group of female refugees in Tuzla, northern Bosnia, in 1995. This is where she met Nezira Mustafić, Ajsa Mustafić and Sabina Mujić – three female farmers who had lost their homes in the war and were now receiving basic humanitarian assistance just to help them get on with life. Asked how they survived, Nezira said: “We use some of the aid to support our families and the rest we sell or exchange for other goods.”

MsNalićrealisedthat,apartfromasurvivalinstinct,thesewomenhadanentrepreneurialspiritandabusinesssense.Humanitarianaidwasnotenough.

SetupbytheDanishRefugeeCouncilin1995toprovidedisplacedwomeninnorthernBosniaandHerzegovinawithpsychologicalandsocialservices,BOSPObegantofocusonthegrowingnumberofwomenwhoweretryingtoincreasetheirfamilyincomewithsmallinvestmentsintradeanddifferentserviceactivities.

“Werealisedwehadtoenablethemtobeginanewlifeafterthewar.Westartedthinkingaboutwaystheseskilledwomencouldearnmoney,whattheycoulddotoprovidefortheirexistenceandhowwecouldhelp,”MsNalićsays.

In1996,withthehelpofadonationof105,000GermanmarksfromtheWorldBank,apilotproject–MI-BOSPO–wascreatedandthefirstmicrocreditswereissued.AndnowtheEBRDissupportingthedevelopmentandcommercialisationofthatprogramme.

“Ourvisionwastoempowerwomeninasustainableway–byprovidingloanstoallowalargenumberoflow-incomewomentofinanceeconomicallyviableactivities.Fromtheverybeginningitwasimportanttoestablishtrustandensurethattheloanswouldberepaid,”MsNalićsays.

Loanswereofferedonasolidaritybasis–groupsofwomenwhokneweachotherwellwouldformsolidaritygroupsthatallowedthemtoguaranteetheloansoneachother’sbehalf.

ThisallowedNezira,AjsaandSabinatoborrow1,000Germanmarkseach,guaranteedbytheothers.Neziraboughtacow.Shewouldusesomeofthecow’smilktofeedherfamily,selltherestandusetheextramoneytosetupacraftshopwithherhusband.AjsareliedontheloantomakeclothesandsellthemthroughrelativesinGermany.Sheusedtheextramoneytobuildahouseandtosendherdaughterstoschool.Sabinaneededherloantopurchasenewmaterialforherhome-basedhair-dressingsalonandtoofferbetterservicestoclients.

GoodresultsandrepaymentoftheloansjustifiedMI-BOSPO’sexistenceandpavedthewayforthedevelopmentofamicrocreditprogrammeoverthenextfouryears.In2000,MI-BOSPOwastransformedintoanon-profitmicrocreditorganisationprovidingfinancialservicestolow-incomefemaleentrepreneurs.

MI-BOSPO’stransformationwasareflectionofthechangesthatBosniansocietywasundergoing.Attheheightofthewar,90percentofMI-BOSPO’sclientswerejustlikeNezira,AjsaandSabina.Theyborrowedsmallamountstomeetbasiceconomicneedsandrepaytheloans.

“In1996,veryfewpeoplebelievedthatoneofthewaysofhelpinglow-incomedisplacedwomenwastoprovidecreditandsparkentrepreneurshipamongwomen,”MsNalićsays.

Butasmemoriesofthewarbegantofade,moreandmorewomenapproachedMI-BOSPOforloansintendedtostartorexpandtheiractivitiesinfarming,trade,productionandservices.“Peopleweredevelopinganunderstandingforourmission,societyarounduswaschanging,”MsNalićsays.

TodayMI-BOSPOisprovidingloansto25,000womenwhotypicallyborrowbetween€500and€15,000.Manyareinvestinginthedevelopmentandexpansionofmoresophisticatedbusinesses.

SenadaSelimbasićfromTuzlahasbeenaclientofMI-BOSPOformorethan10years.Sheestablishedasmallaccountingbusinessin1997withthehelpofherfirstcreditof1,200Germanmarks.Tenyearslatersheborrowed€15,000toexpandheraccountingpracticewhichnowemploysfourpeopleandservesanumberofwell-establishedclients.

ThesekindsofsuccesseshelpedMsNalićandhercolleaguesdrivetheorganisationforwardasasustainable,commerciallyorientedfinancialinstitution.

“MI-BOSPO’svisionistobecomethefinancialservicesproviderofchoiceforfemaleentrepreneursinBosniaandHerzegovina,”MsNalićexplains.

RealisingitspotentialtoserveavibrantanddynamicmicrocreditsectorinBosniaandHerzegovina,anEBRDpriority,theBankishelpingMI-BOSPOwitha€3millionloantobuildacorporatefutureasastrong,commercialandsustainablefinancialinstitution.

Theloanwillbecomplementedby€300,000oftechnicalassistancetohelpMI-BOSPOadapttothechangingdemandsofamarketeconomy.Themoneywillbeusedtostrengtheninternalinformationtechnologies,toauditandcontrolriskmanagementandprocessesassociatedwithmicroandsmallenterpriselending.

“TheEBRDloanwillassistMI-BOSPOinservingevenmoreclientsandsupportingtheunderdevelopedmarketforfinancingwomenentrepreneurs.WebelievethatprovidingfinancialservicesfortheneedsofmicroandsmallclientswillplayasignificantroleinthetotalreconstructionandtransitionofBosniaandHerzegovina”,saysChikakoKuno,DirectoroftheEBRD’sGroupforSmallBusiness.

“ThemicrocreditsectorinBosniaandHerzegovinaisauniquesuccessstory.Itdemonstratestheimportanceofprivatehumanitarianinitiativeswhichdevelopedintoinnovativefinancialserviceprovidersthatserveanimportantanddynamicsegmentoftheeconomy,”saysGiulioMoreno,EBRD’sDirectorforBosniaandHerzegovina.

Twelveyearsafteritsestablishment,MI-BOSPOisseenasastrongandprosperousinstitution,guidedbyamissiontoensuresustainableprogressforenergetic,entrepreneurialwomen.Bysupportingsuccessfulbusinesswomen,MI-BOSPOishelpingtobuildalong-termandsustainablefutureforthewholeofBosniaandHerzegovina.

25,000ThenumberoffemaleentrepreneursfinancedthroughMI-BOSPO

06 www.ebrd.com Peopleandprojects|2008 07

Bulgaria

Warmerkindergartens,happierchildrenByMarjolaXhunga

When the 1 June Kindergarten in the town of Karlovo, central Bulgaria, closed for two months in 2006 for energy efficiency improvements, the local community didn’t react well at all. Parents had to find alternative accommodation for over 100 children.

Twomonthslatertheyknewtheinconveniencehadallbeenworthwhile.Theoncedarkandoftenfreezingkindergartenhadnowbecomewarmandwelcoming.Otherparentsarequeuinguptosendtheirchildrentoakindergartenthathaschangedbeyondrecognition.Parentstalkedofafairytaletransformation.

“Weneededtoimprovetheheatingsystemandinsulatetheroofandexteriorwallstobringtemperaturesinthekindergartentonormallevels,”saysschooldirectorDianaGeorgieva,whohasbeenamemberofstaffsince1976.“Weneedednewdoorsandnewwindowframes.Weneededabrandnewkindergarten.”

Enemona,alocalengineeringandconstructioncompanyspecialisinginenergyefficiencyimprovements,auditedthebuildingandcameforwardwithaplantototallyrevamptheschoolwhilealsocuttingitsenergybill.

Themunicipalitysimplycouldn’taffordtheimprovementcostsallatonce.Enemonacameupwithasolution:anEnergyServicesCompany(ESCO)contractwhichwouldallowthekindergartentoimprovenowandpaylater.

UnderanESCOcontract,acompanyinvestsitsownfundstodesign,implementandfinanceprojectsthatdecreasetheoverallenergyconsumptionofpublicsectorinstitutions.

“ThecreativethingaboutESCOcontractsisthatthekindergartensandhospitalsarenotputunderpressuretopaycostsallatonce,”saysProkopiProkopiev,Enemona’sCorporatePolicyManager.“Instead,theenergysavingsachievedinthesepublicinstitutionspayofftheinvestmentcoststypicallyinfivetosixyears.”

Takethe1JuneKindergarten:sincetheenergyefficiencyimprovementstookplace,theschoolhascutitsenergycostsby60percent.

“AnESCOistheperfectfinancingvehicletofundprojectsthatmunicipalitiesoperatingundertightbudgetswouldneverbeabletofund,”saysPeterHobson,aseniorbankerintheEBRD’sEnergyEfficiencyTeam.

Enemonahascarriedoutenergyefficiencyworkin10kindergartens,eightschoolsandtwohospitalsinBulgaria.ItsrapiddevelopmentstemspartlyfromtheBulgariangovernment’sdecisionin2004tointroducemandatoryenergyefficiencyauditsformunicipalbuildings.

TheBulgariangovernmenthasmadeenergyconservationapriority.Afterall,thecountry’senergyconsumptionforoneunitofGDPexceedsthatineveryotherEUmemberstate.Risingenergypricesandhighconsumptionofelectricpowerforheatingaren’thelpingeither.

“Turningtoenergyefficiencytocuttheenergyconsumptionisawisemoveforanycountry,”explainsMrHobson,whopointsoutthatenergyefficiencyiskeytotheEBRD’sstrategytohelpputitscountriesofoperationsontoasustainableenergyfooting.

InordertofurtherassistthespreadofESCOcontractsinBulgaria,theEBRDagreedtoprovidea€7millionloantotheBulgarianESCOFund.Enemonacreatedthefundtogeneratemuch-neededfinanceforimprovingenergyefficiencyinthepublicsector.

“AlthoughcommercialbanksinBulgariaareofferinglongermaturitiestotheirtraditionalclientsandthepublicsector,theESCOmarketisstillnotunderstoodbythefinancialcommunity,”saysMrHobson.“CompaniessuchasEnemonaarenotabletoattractthelongertermfinancingtheyneedfortheirprojects.”

“TheBulgarianESCOFundisuniqueandwasestablishedinresponsetothenewEuropeanenergypolicy.Itachievesenergysavingsthatthepublicsectorwouldfindhardtoaddresswithitsownresources,”MrProkopievexplains.

“Enemonaisnowworkingonapipelineof17ESCOprojectsandtheEBRDfinancewillmakethemhappen.Thefinanceistranslatedintowarmerkindergartensandhospitals,happierchildrenandpatients,”headds.

WithnewsofslashedenergycostscomingfromkindergartensintheBulgariantownsofMontana,SvilengradandKarlovo,thepublicandprivatesectoralikearerealisingthattheycoulddomorewithless.

“WewanttospreadinnovationandturnEnemonaintoacatalystforthedevelopmentoftheenergyefficiencymarketinBulgaria,”MrHobsonsays.

60%Theproportionofenergysavedatthe1JuneKindergarten

08 www.ebrd.com Peopleandprojects|2008 09

FYRMacedonia

CreatingjobsfromcookiesByMarjolaXhunga

Simon Naumoski has been with Vitaminka, the largest food manufacturer in the Former Yugoslav Republic (FYR) of Macedonia, since 1974. A former MP, Mr Naumoski, now the company’s General Manager, says he prefers business to politics.

SittingcomfortablyinhisofficeinthecityofPrilep,inthewestofFYRMacedonia,heisconvincedthatVitaminkaperformsbettertodaythanbackin1956whenitwasestablished.

Justlikethecountry,Vitaminkahasseentumultuousdaysandsurvived.“ThecompanywascreatedtomeettheneedsoftheunifiedformerYugoslavmarket.UntilthedissolutionofformerYugoslaviain1991,Vitaminkawascateringfor24millionpeopleanditssalesreached€34millionperyear,”explainsMrNaumoski.

WithFYRMacedoniagainingindependencein1991,Vitaminkastruggledasneighbouringcountriesabruptlyclosedtheirborders,leavingjustadomesticmarketoftwomillionpeople.

ThecollapseoftheexportmarketforVitaminkawasfollowedbyfouryearsofzerosalesgrowth.

AdrivearoundthecityofPrilepallowsthevisitortowitnessdilapidatedfactoriesfromtheoldcommunistdays.Oncewell-establishedcompanies,theyhavenowclosedtheirdoorsandthecity’sworkershavelefttofindjobselsewhere.

ButVitaminkahasperseveredandsurvived.In2007,itreceiveditsfirstloanfromtheEBRD.

A€4millionloanfromtheBankwasneededtodevelopnewproductsandexpandthecompany’sactivityintheWesternBalkansandotherareasoftheEBRD’sregion.

“TheloanisanexampleofhowtheEBRDishelpinggoodprivatedomesticcompaniestogrowinFYRMacedonia,”saysElenaUrumovska,ActingHeadofEBRD’sSkopjeResidentOffice.

MrNaumoskiexplains:“TheEBRDfinancewillhelpVitaminkatogrowandmoreimportantlyre-enterintoregionalmarketswhereitonceoperatedandtoexplorenewopportunitiesinthesemarkets.”

WithsalesgrowingsteadilyandwithclientsfromBosniaandHerzegovinatoSlovenia,VitaminkahasbecomethesecondbiggestprivatebusinessinthecityofPrilep.ThismeansalottoVitaminka’s420employeesandtothelocalfarmerswhoprovidetherawmaterialsforVitaminka’s300products.They,atleast,haven’thadtomovetobiggercitiesorabroadtofindajob.

“Over50peoplewerehiredtoworkonanewproduct,softchocolatecookies,thatVitaminkaisintroducingwiththehelpoftheEBRDloan,”explainsMrNaumovski.

TheloantoVitaminkacomesundertheWesternBalkansLocalEnterpriseFacility,aninvestmentinstrumentestablishedin2006bytheEBRDwithfinancialcontributionsandsupportfromtheItaliangovernment.

In2007,theItaliangovernmentreplenishedthefacility,whichnowamountsto€65million,tobenefitbusinessesinneedoffinanceintheWesternBalkans.

“ThereplenishmentdemonstratestheItaliangovernment’scommitmenttotheWesternBalkans,”emphasisedEnzoQuattrociocche,theEBRD’sDirectorforItaly.“ThisFacilityisinstrumentalinengineeringnewsolutionsforfinancingsmallandmicrobusinessesintheWesternBalkans,”headded.

TheWesternBalkansLocalEnterpriseFacilityprovidesindividualinvestmentsupto€8millionandhasbeeninstrumentalinprovidingmuch-neededfinancefortheWesternBalkansthroughmainlyequityandquasi-equityfinancingtosmallandmedium-sizedlocalenterprises.

420PeopleemployedbyVitaminka

10 www.ebrd.com Peopleandprojects|2008 11

Georgia

NeighbourhoodbankmakesadifferenceByAnthonyWilliams

When ProCredit Bank Georgia began offering savings accounts with a minimum deposit of just 5 lari (about € 2), critics said it wouldn’t be taken seriously. When it sent its bankers onto the streets to talk to people, they said the idea wouldn’t work. And when ProCredit tore down the bars over their windows, “it was a revolution,” says Deputy General Manager Asmus Rotne. “We had to fight with security advisers, police and our insurers to get them to understand why we wanted to open up.”

ButthenProCreditisn’treallyatypicalbank.Asitsmissionstatementpointsout,itsshareholdersare“notprimarilyinterestedinshort-termprofitmaximisation”.

Thebankisalong-termpartneroftheEBRDandmainlyfocusesonbusinessloanstothemicroandsmallbusinesssector.Whenitdoesprovideconsumerloans,thecriteriaarestrict:itdoesnotoffercreditforbuyingDVDplayersorTVsets.“Consumerloanscanbeforhousingrenovation,whenthereissomelastingvalue,”saysMrRotne,citingroofreplacementordoubleglazinginstallationsasviableprojects.

ProCreditBankGeorgiaispartoftheProCreditHoldinggroup,whichisactivein21countriesinLatinAmerica,AfricaandeasternEurope.EBRDhashelpedtoestablishthe10subsidiariesoftheholdingcompanythatareactiveineasternEuropeandtheCaucasus,includingthoseinBulgaria,BosniaandHerzegovinaandKosovo.ProCredit’snationalsubsidiariesmoreorlessworktothesameformula:theyaredevelopment-orientedbanksfocusingonbusinesslendingtothemicro,small,andmedium-sizedenterprises(MSME)sector.

ProCreditBankGeorgiawasestablishedin1999withthesupportoftheEBRD,Germany’sKreditanstaltfürWiederaufbau,theNetherlandsDevelopmentFinanceCompanyandtheWorldBank’sprivatelendingarm,theIFC,aswellasoffourlocalbanks.TheEBRDalsoprovidedtechnicalassistancefundsfromtheUStohelptheinitialsetupofProCreditBankGeorgia.

TheEBRDformerlyheldastakeinProCreditBankGeorgia,whichitsoldtoProCreditHolding,andhasalsobeenasourceofcredit,providingtwoloansworthatotalofUS$9million(TaipeiChina’sInternationalCooperationandDevelopmentFundalsoprovidedUS$3millionthroughtheEBRD).Mostrecently,theEBRDprovidedaUS$15millionloaninJune2007,ofwhichUS$5millionwassyndicatedtoCitibank.ThiswasthefirsttimetheGeorgianbankhadbeenabletoaccesstheinternationalcapitalmarketsandmarkedasignificantmilestoneinitsgrowth.

DevelopmentisattheheartofProCredit’sbusinessethos.“Wearemoreinterestedintheloanshavinganimpactonthedevelopmentofthecompany,fortheeconomyandfortheentrepreneurrunningthatbusiness,”accordingtoMrRotne,aDanishgraduateofAarhusandHarvarduniversitieswhospeaksRussianandGeorgian,whichhelearnedonanexchangeprogrammein1995-96.

ProCreditcanhaveanimpactwithalargenumberofsmallerloans,MrRotnesays.RecipientshaveincludedEkaBezhanishvili,adoctorwhogaveupherprofessionintheeconomicallydifficultperiodinGeorgiainthelate1990s.Herfirstloancamenotfromthebankbutfromaneighbour,wholentherjust7laritobuyingredientstomaketwosmallcakes.ThesaleofthosetwocakesdevelopedintoabakerywhichProCredithassupportedforthelastfiveyears.MsBezhanishvilinowhas30employeesandabakerythatoperates24hoursaday.

ProCredithas35branchesinGeorgia,16oftheminthecapital.SixtypercentofitstotalloanshavebeenmadeoutsideTbilisi.

MrRotnesaysthebankplacesagreatemphasisonbeingpartoftheneighbourhoodsinwhichitoperates.Whileitdoesadvertise,itpreferstomakeitspresencefeltbyinvolvementinthecommunity:itsemployeesgooutontothestreetstotalktopeople;ithasdevelopedlocalprojectssuchastherenovationofaplayground,forwhichitencouragedlocaltradesmenandconstructionworkerstogetinvolved;anditrecentlysetupablooddonationprogramme.

Thisapproachrequiresadifferentsortofbanker,MrRotnenotes.Peopleworkingintheteamwanttobepartofthismission,hesays.OfProCredit’soutstandingcreditportfolioof60,000loans,40,000arebusinessloans,heavilytiltedtowardsthemicro(orwhatProCreditcallsthedevelopment)sector.Clientsinmedium-sizedbusinesseshaveoftengrownupwiththebank.

ProCreditBankGeorgiafacescompetitivechallenges,attheverysmallendfromNGOsbutalsofromlargerbankswhicharestartingtomoveintothemicrofinancearea.Thebankhasrespondedpartlybyintroducingamoreflexiblepricingpolicy.

MrRotnedescribestheexperienceofworkingwiththeEBRDas“reallypositive”.“Weknoweachotherwell,”hesays.TheEBRDinitiallyprovidedloansandtookanequitystake,whichitsold.ItlaterprovidedProCredit’sfirstaccesstocommercialfundingviatheJune2007syndicatedloan.

AccordingtoMrRotne,ProCreditisgrowingmoreindependentthankstothebuild-upoffundsheldatthebankbycustomersandtotheCitibankcomponentoftheJuneloan.“Itisimportanttoestablishacredithistorywithmainstreamcommercialbanks.Ourclientsneedacredithistoryandsodowe,”saysMrRotne.“IfwecandoitwithouttheEBRDinthefuture,thatwillbethesuccessstory.”

40,000ThenumberofProCreditloansforthemicrosector

12 www.ebrd.com Peopleandprojects|2008 13

Moldova

LandoftherisingSUNByClaireVogt

Can you imagine life without a telephone or, even worse, without your mobile? Three out of four Moldovans currently have no fixed telephone line at home, while only a third of the population has a mobile phone subscription. Computer and internet coverage in Moldova is also at an early stage, with surveys showing that out of a population of 3.6 million, only 12 per cent have access to the internet and as few as 6 per cent have a computer at home.

Asimilarpictureemergesintermsofchoicebetweentelevisionprogrammes,asonly1in20Moldovansisconnectedtocabletelevisionservices.Butchangeisontheway.

Withmorethan75,000customers,SUNCommunicationsistheleadingprivatecabletelevisionoperatorinMoldovaandwellplacedtotapthismarketpotential.Itprovidesupto70televisionchannelsandistheonlylocalandprivatetelecomscompanytohavedevelopednetworksthatcanalsoprovidebroadbandinternetaccess.Lastyear,SUNbecamethefirstprivatelyowned,fixed-linetelecommunicationscompanyinMoldovatoconstructitsowninternationalnetwork,connectingdirectlywithaninternationalcarrierinRomania.

Butexpandinganddevelopingmoderntelecommunicationstechnologyrequiresmoney.“Wecouldnotdothisonourown,”saysJohnMaxemchuk,thecompany’sGeneralDirector.“Inthelastthreeyears,wefeltfinancialconstraintsasweexpandedintonewservices,suchashigh-speedinternet,andintonewterritories.Wearesimplygrowingfasterthanouroperatingcashflowcansupport.Weneedanewpartner.”

ThisiswheretheEBRDsteppedinwithacombinedUS$4millionequityandUS$4milliondebtfinancingpackage.“ThisinvestmentwillallowSUNtogrowandcompeteonanationallevelwithapackageofservicessuitableforthe21stcentury,”MrMaxemchuksays.Thefundswillbechannelledtowardsupgradingthecabletelevisionnetworksandextendingthetransmissioninfrastructuretothecountry’s10largestmunicipalities.SUNalsoplanstoexpanditscoveragethroughtheacquisitionandmodernisationofsmallercableproviders.

“TheBank’sinvestmentprovidedanexcellentopportunitytosupportasuccessfulprivateenterprise,”saysMichelleSenecaldeFonseca,theEBRD’sDirectorofTelecommunications.“ItisexpectedtohaveasignificantimpactthroughincreasedcompetitionwhichwillofferMoldovancustomersgreaterchoiceatfairprices.”

Indeed,ifthecountry’sappetiteforthenewesttelecommunicationtechnologiesisanythingtogoby,thepotentialforgrowthintheMoldovantelecommunicationsmarketmustbeenormous.Thetelecomssectoristhemostdynamicinthecountry’seconomy,growingbymorethan35percentannually.

SowhyhavesofewMoldovansfeltthebenefitssofar?Leavingasidethelowbutincreasingpurchasingpower,theotherobviousanswerislimitedcompetition.State-ownedMoldtelecomdominatesthefixedtelephoneandinternetservicesmarket,makingitdifficultforprivatecompaniestocompete.Incontrast,thecabletelevisionmarketisextremelyfragmented,withmorethan180registeredcabletelevisioncompanies.

Inthepast,SUNhasbeenconstrainedinitsdevelopmentduetothedominantstate-ownedoperatorononesideandanumberofcash-basedcompetitors,saidtobeoperatingattheedgeofthelaw,ontheother.“OureffortsatreformingthemarkethavehadmarginalsuccessbutarestartingtoacceleratewiththeincreasinginvolvementoftheinternationalcommunityandexpansionoftheEUontoourwesternborder,”saysMrMaxemchuk.

Inordertofurthersupportmodernisationefforts,theBankiscurrentlydevisingatechnicalassistanceprogramme,whichwillassistthecountryindevelopingandenforcingthenecessarytelecomsregulation.

“WewelcomethesupportandaddedemphasisofEBRD’svoiceandglobalreputationinthiseffort,”saysMrMaxemchuk.“IamcertainwewillseegreatimprovementsinthecompetitiveenvironmentinMoldovainthenextfewyears.”

DanStefanescu,whohasledthisprojectonbehalfoftheEBRD,saysthatexpandingacultureoftransparentbusinessinthelocalmarkethasbeenoneofthekeyaimsfortheBankandcountedjustasmuchastheactualphysicalmarketgrowth.

“Whatweappreciatemostisthemanagement’sdeterminationtostepoutoftheoldbusinessstandardsandtomakeasignificanteffortinturningSUNintoamodernenterprise,evenifthisimpliesconsiderableefforts,”MrStefanescustresses.“WearelookingforwardtohelpingSUNcontinuetoriseandshine.”

3 out of 4Moldovanshavenofixedtelephonelineathome

14 www.ebrd.com Peopleandprojects|2008 15

Russia

WorkingforcleanerriversByMikeMcDonough

Ufa is a thriving Russian city of just over one million inhabitants in the south-western Urals, with low unemployment, a well-developed oil and petrochemicals industry and income levels 20 per cent higher than the Russian average. But the capital of Bashkortostan also has a problem: outdated and incomplete waste-water treatment facilities. As a result, some 15 per cent of the city’s sewage is discharged without proper disinfection into the Belaya River, whose waters flow into the Kama River, a tributary of the mighty Volga.

Ufa’swaste-waterfacilitiesweredesignedinthelate1960sandintendedtobeconstructedinthreestages.Thefirststagewascompletedin1974,butthesecondonlybecameoperationalin1987andtheeconomicdifficultiesofthe1990smeantthefinalstagewasnotcompletedatall.Now,however,municipallyownedwaterutilityUfaVodocanalisseekingtofinishtheworkwhileatthesametimereducingtheenvironmentalimpactofthewaste-watertreatmentprocess.

Withthisgoalinmind,theEBRDhasagreedtolendtheutility500millionroubles(around€15million)overthenext13yearssothatitcaninvestincleanerandmoreenergyefficienttechnology.TheloanwillenableUfaVodocanaltotreatsewagewithultravioletdisinfectiontechnologyandpurchasemethanetanks.ThesetankswillcapturegasfromthesewageandthegaswillbeburnedofftoproduceheatforUfaVodocanal’sownuse.

“TheultraviolettechnologywillenabletheutilitytosignificantlyreducethelevelsofuntreatedsewagedischargedintotheBelayaRiver,”saystheDirectorofUfaVodocanal,ViacheslavSemenovichGordienko.

“Thisprojectwillgiveaboosttotheeconomyofthecityandiskeyinimprovingenvironmentalstandards,”saidPavelRurikovichKachkaev,theMayorofUfa.

“Whatmakesthisprojectspecialisitsstrongfocusontheenvironment.Thisisaboutmorethanjusteconomicbenefitsandreducingcostsanditshowshowforward-lookingtheutility’smanagementteamandthelocalcommunityare,”explainstheEBRD’sOxanaSelska,whoworksasaseniorbankerintheMunicipalandEnvironmentalInfrastructureTeam.

“Mostofthewaterandwaste-waterutilitiesthattheEBRDdealswithinRussiaarestartingfromalowpointintermsofcompliancewithEUenvironmentalstandards,”saysMsSelska.“Thefactthattheutilitycan’tmeetEUstandardstodayshouldn’tpreventtheEBRDfrominvesting:wecanmakeanimportantstartandgettheprocessunderway.WemustnotforgetthatcitiesinEUcountrieshadalongtimetoadjusttothesestandardsandwereoftenhelpedbybiginvestmentgrantsfromtheEuropeanUnion.”

Aswellasimprovingthesewagetreatmentprocess,theprojectisaimedathelpingUfaVodocanalmoderniseitsbusinesspracticesandoperateonamoresoundcommercialfooting.Thiswillinvolvereformingtheutility’stariffstructureandremovingthecrosssubsidywherebybusinessesandpublicorganisationsarechargedmuchhighertariffsinordertoeasetheburdenondomesticcustomers.

“WewantUfaVodocanaltooperateoncommercialtermsasmuchaspossible,evenifitremainsmunicipallyowned,”MsSelskasays.“Financialindependencefromcitysubsidiesiskeyinthedecision-makingprocess.”

“Althoughhouseholderswillseetheirtariffsincreaseasaresultofthereforms,issuesofaffordabilityforlow-incomegroupsaretakenintoaccountandthepriceadjustmentswillbemadegradually,”sheadds.

TechnicalcooperationfundsprovidedbytheEUandthegovernmentsofJapanandFinlandandworth€810,000intotalaregoingtowardsvarioussub-projectsthatunderpintheEBRDloan.Theseincludeafeasibilitystudy,projectengineeringsupport,anInternationalFinancialReportingStandardsauditandthecreationofaCorporateDevelopmentSupportPartnertohelptheutilityimprovebillingroutinesandrevenuecollection.

ThecityofUfaisactingasguarantorfortheEBRD’sinvestment,whichisthesecondloantheBankhasmadetothemunicipality.Inearly2006,theEBRDagreedtoprovide360millionroublestohelpimprovethecity’sdistrictheatingsystem.Thatloaniscurrentlybeingdisbursedandheatingsubstationsarebeinginstalled.

ThomasMaier,theEBRD’sBusinessGroupDirectorforInfrastructure,hasbeenvisitingUfaregularlysince2004andispleasedwiththehighlevelsofprofessionalismandthecommitmentoftheutilities,thecityandtheregionalauthorities.

“WeformalisedourrelationshipwithUfathroughaloanforinvestmentsinthedistrictheatingsectortwoyearsago,”saysMrMaier.“Andnow,aftersomestartingdifficulties,thatprojectismakingheadway.Theloantothewaterutilityisalogicalprogressionandwearenowassessingthepossibilityofextendingafacilityforthesecondphaseofthedistrictheatingproject.”

“Wecanbringtheknow-howtofar-flungcitiesinRussia,”explainsMrMaier,“andtheEBRD’smunicipalandenvironmentalinfrastructureprogrammeinRussiaisdoingexactlythatbyfocusingonlocalinvestments,workingwithlocalauthoritiesandtheirutilitycompaniestoenhancetheircreditworthinessbyimprovingbudgeting,debtmanagementandinvestmentplanning.”

1960TheyearUfa’swaste-waterfacilitieswereoriginallydesigned

16 www.ebrd.com Peopleandprojects|2008 17

Russia

Severstal–themakingofalandmarkdealBy Mike McDonough

In the latest in a series of projects with Russian steelmaker Severstal, the EBRD is providing a € 600 million package to help finance a range of energy efficiency measures at the company’s Cherepovets plant.

Withitscolossalappetiteforpowerandheat,thesteelindustryisaprimetargetforenergy-savinginitiativesandnowhereisthistruerthaninRussiaandUkraine,wherelowenergycostshavelongfosteredwastefulpracticesonamassivescale.ThatiswhyateamofEBRDstaffworkedforayearandahalfwithRussiansteelgiantSeverstalononeofthebiggestindustrialenergyefficiencyprojectseverfundedbyadevelopmentbank.

SeverstalisoneoffourcompaniesthatdominateRussia’ssteelsectoranditsenergyrequirementsareastounding.ItsmainplantatCherepovetsinnorthwestRussia,whichaccountsfor16percentofRussiansteelproduction,consumessixmillionmegawatt-hoursofelectricityperannum,whichismorethanMoldovausesinayear.Yetelectricityandgassatisfyonlyaround40percentoftheplant’senergyneeds:theremaining60percentcomesfromcoal.Ascoalalsoconstitutesakeyingredientinthechemistryofsteel,thereislimitedscopeforreducingtheamountusedinthesteel-makingprocess.

Cherepovetsdoes,however,offerampleopportunitiesforcuttingitselectricityandgasconsumption.

TheEBRD’steamworkedwithSeverstaltodevelopaprogrammetocutbackitsenergyuseandreducegreenhousegasemissionswhilealsosavingmoneyandimprovingthereliabilityofitspowersupply.

“Untilthen,Severstalhaddealtwithenergyefficiencyprojectsfromamaintenanceperspective,forexampleifaboilerbrokedown,butnotwiththespecificintentionofsavingenergy,”saysPeterHobson,EBRD’sSeniorBankerintheEnergyEfficiencyTeam.“Weshowedthemthataninvestmentcouldberepaidinaslittleasoneyearforsomeoftheprojectsandthatthiswouldbeveryattractiveinthecontextofrisingenergyprices.”

Signingtheloan,AlexeyMordashov,SeverstalCEO,said:“TheERBDloanrecognisesoureffortsinthesekeyareasandprovidesuswiththeimpetustoreduceourenergyconsumption.”

The€700millionthatSeverstalisinvestinginenergyefficiency–ofwhich€600millionisbeingprovidedbytheEBRD–willfund11differentprojectsatCherepovetsoverthenexttwotothreeyears.Theseincludetheconstructionofanewhigh-efficiencycombinedcyclegasturbine;asystemforcollectingwastegasesforuseinpowergeneration;andthemodernisationofboilersandsubstations.Inaddition,thecompanywillimplementanEnergyManagementSystem(EMS)tomeasurepreciselyhowmuchenergyisusedthroughouttheplantandtocontinuouslysettargetsforcuttingconsumption.

“TheEMSisoneofthesmallerprojectsintermsofcapitalexpenditure,”saysSeniorEngineerIoannisPapaioannoufromtheEBRD’sEnergyEfficiencyTeam.“Butitisthemostimportantsingleprojectbecauseitisastrategicinvestmentaimedathelpingthecompanytoapproachinternationalgoodpractice.”

Thecumulativeeffectoftheseprojectswillbea10percentreductionintheamountofelectricityusedinCherepovetsanda3.5percentcutintheamountofnaturalgasconsumed.Furthermore,theplantwillgenerate75percentofitselectricity,upfromthecurrentlevelof50percent.Carbondioxideemissions,meanwhile,areexpectedtofallbyaroundonemilliontonnesayear,whichisequivalenttothedomesticCO2emissionsofacitythesizeofManchester.

Whiletheprojectsfundedbythedealfeaturedmanytechnicalchallenges,financingtheloanpresenteditsownhurdles.TheEBRDissyndicating€450millionto18commercialbanks.Calyon,INGandRaiffeisenhavepartlyunderwrittenthesyndicatedloan.

“Itwasadifficultsyndicationtoarrange,”saystheEBRD’sSeniorSyndicationsManagerJoergZinnecker.“Itclashedwiththebeginningofthecreditcrisisandevenwithoutthecreditcrunchthetenorandmarginswerequiteaggressive.”Aftersomenegotiation,however,thebankswerekeentobeapartoftheproject.“Itisveryattractiveforcommercialbankstobeconnectedwithanenergyefficiencyloan,”MrZinneckeradds.“Itisaverygoodmarketingtoolforthem.”

Theendresultisanenergyefficiencyloanwhich,accordingtoChrisBeauman,theEBRD’ssteelindustryspecialist,provides“arolemodelforotherloans”.Theprojectisexpectedtohaveasignificantdemonstrationeffectonnumeroussmallercompaniesintheregion.

AsMrBeaumansays:“TheobjectiveistohelptheBankreplicatethisloan,althoughnotnecessarilyonthesamescale,andtogetitintothecultureofRussiaandUkrainethatenergyefficiencyisagoodthingtodo.”

€ 600 millionTheEBRDfinancetoimproveSeverstal’senergyefficiency

18 www.ebrd.com Peopleandprojects|2008 19

FocusonUkraineBy Axel Reiserer

20 Ukraine:Thislandisyourland22 Bosch:Onefortheroad24 Bank Forum:Itislocalknowledgethatcounts26 Slobozhanska Budivelna Keramika:Bricksthatbuildtheworld28 Kiev-Chop road rehabilitation:Re-connectingwithEurope30 Kiev transport:Mendingthegap32 ArcelorMittal Kriviy Rih:Howthesteelwastempered34 Chernobyl:Thedaylastsmorethanahundredyears

20 www.ebrd.com Peopleandprojects|2008 21

Ukraine

Thislandisyourland

History never hands a merciful destiny to countries located on the border of great empires. What then can be expected for a country that seemingly carries its destiny in its name? Traditionally, historians and linguists have interpreted the name “Ukraina” as borderland, although some contemporary scholars disagree. Samuel Huntington even went so far as to see the “Clash of Civilisations” cutting right through Ukraine.

ThelandonwhichthemodernnationofUkraineissituatedmaylookbackatahistorythatstretchestothebeginningsoftheKievanRusintheninthcentury,butasanindependentcountryitisveryyoung.AftercenturiesofruleovertheterritorybytheMongols,Russia,Austria,PolandortheTatars,itwasonlyattheendof1991thatthecountrybecameindependent.

FromtheCarpathianmountainstotheBlackSeacoast,fromthenoman’slandaroundChernobyltothecoalminesoftheeast–forthefirsttimeingenerationsUkrainianshadreasontohumWoodyGuthrie’ssong:“Thislandwasmadeforyouandme”.Asitturnedout,adaptingtoanewworldorderwasrathermoredifficultthanmanyhadhoped.AfewyearslaterthequestioninGuthrie’ssongwasaskedpublicly:“Isthislandstillmadeforyouandme?”

Forweeks,theOrangeRevolutionin2004captivatedtheattentionofthewholeworld.Today,muchoftheenthusiasmthatwasondisplayduringthosedayshasevaporated.Day-to-daypoliticsisbyfarlessintriguing,butisinmanywaysmuchmoredifficultthanthebigmomentswhenhistoryisbeingmade.

ManyobserversseeUkraineasadeeplydividedcountryandtheydrawthelineexactlywhereHuntingtonlocatedthefaultlinebetweencivilisations.Thesamedivisionisalsofrequentlyevokedbyrivalpoliticalforcesforobviouspurposes:itservesbothsidestodoso.

Inreality,however,thecountryismoreunifiedtodaythanithaseverbeensinceindependence:noseriouspoliticalforcequestionsthecountry’sindependenceanymore;nobodyfavoursitsbreakup;nobodywantsareturntocentralplanningandpoliticalsuppression.EventhosewhoareverycriticalofUkraine’sdevelopmentwillconcedethatthereisfreedomofexpressionandavibrantdebateaboutthecountry’sdestinyandfuture.ForthefirsttimeinperhapsgenerationsUkrainianartistshavetheopportunitytoleaveamarkinternationally.Despiteallitsdifficultiesthecountry’seconomyisgrowingrapidlyandpubliclifeisthriving.And,finally,todaythebattlegroundiswhereitoughttobe:inthepoliticalarena.

MikolayRyabchuk,arguablytheleadingUkrainianscholarofourtime,doesnotwanttoseehiscountryreducedtoabattleground.InhisbookThe real and the imagined UkraineheforcefullymakesthecaseforaUkrainianstateandnationwhichisajunctionofitsdifferentpartsandasawholeisbiggerthanitsconstituentelements.

TheawardingoftheEuropeanfootballchampionship2012toUkraineandPolandwasawelcomeboosttothecountry’sconfidenceandtoitsambitions.MostUkrainiansrealisethatthischallengerepresentsahugeopportunityforthecountryintermsofwhatmustbeandwhatcanbeachievedforsuccessfulgames.Nolessimportant,though,ishowthecountrywillpresentitselftotheworld.

TheEBRDhasbeenUkraine’spartnersinceitsindependence.ItistestamenttothesignificancetheBankattachestothisnationof46millionpeople,thatforthefirsttimeinitshistorytheBankwillholdanAnnualMeetingforthesecondtimeinthesamecity.TheEBRDheldits1998AnnualMeetinginKiev,anditwillreturntothecapitalofUkraineinMay2008totakestockofthepast10yearsandalsotolookahead.

TheBankhasabalancesheetinUkraineofwhichitcanbeproud.Morethan€3billioninEBRDfundshavebeeninvestedinsome150projects.Butitisnotonlythefinancialcommitmentwhichisimpressive;perhapsevenmorestrikingisthedepthandbreadthoftheBank’sprojectsinthecountry.Since1991,theBankhasinvestedinvirtuallyeverysectoroftheeconomythatiscoveredbyitsmandate,fromagribusinesstothefinancialsector,fromroadconstructiontoshipping,frompropertydevelopmenttosteelproduction.

Today,theEBRD’sfocusinUkraineisoninfrastructureandenergyefficiency.Thecountryuses3.3timesmoreenergytoproduceeachunitofGDPthantheEU-25average.A€100millionenergyefficiencyframeworkwasputinplaceinOctober2006toencouragesmallandmedium-sizedenterprisestoinvestinenergysavings.AloantoArcelorMittalincludesalargecomponenttofinanceenergyefficiencyimprovements.Elsewhere,theEBRDprovideda€76millionloantotheAlchevskironandsteelworkstoreducegreenhousegasemissions.Boththeseprojectsinvolvethepurchaseofcarboncredits.

AvisitortoUkrainetodaywillfindacountryofhugecontrasts.ThecapitalKievisbooming,butthestronginflowofforeigninvestmenthasyettoreachremoterpartsofthecountry.ThemostexpensiveWesterncars(naturallywithtintedglass)arespeedingdownnewlyupgradedroadsonlytobeheldupbyancientox-carts.Ukraineishometothefamouslyrichblackchernozemsoil,yetmanyagriculturalactivitiesbarelyreachsubsistancelevels.

Despiteachievementsandundeniableprogress,therefore,muchremainstobedoneinUkraine.Developmentisneveraone-way,linearprocess.Assurelyastherewillbebeslow-downs,detoursandsetbacks,therewillalsobenewimpulsesforprogress.TheEBRDunderstandsthisasacalltointensifyitseffortsasastronganddependablepartnerintheregionandthecountry.

€ 3 billionThetotalofEBRDinvestmentsinUkraine

22 www.ebrd.com Peopleandprojects|2008 23

Bosch

Onefortheroad

The Ukrainian car market is accelerating faster than Formula 1 star Lewis Hamilton coming out of the pit lane. Almost 40 per cent more cars were sold in 2006 than in 2005, and there is no end in sight to the boom. With annual sales of 371,000 cars in 2006, Ukraine was the 9th largest car market in Europe by sales volume.

IntheWest,itisnotcommonlyknownthatUkrainehasahugecarindustry.DaewooofKorea(ownedbyGM)andAvtoVazofRussiaoperatehugeplantswhichproducehundredsofthousandsofcarseveryyear,mostlyforthedomesticmarket,whileGM’sOpelbrandandSkoda(ownedbyVolkswagenofGermany)alsooperateassemblylines.

OnthestreetsofKievtodayonecanseeallkindsofcars.OldSovietvehicles,newandusedWesterncars,andmoreandmorelocallyproducedcars.HighimporttaxeshavehelpedDaewootobecomethemarketleader,withAvtoVazcompetingstronglyforthetopspot.Ifitistruethatcarownershipreflectssocialsegmentation,thecountry’smiddleclassmustbegrowingstrongly.

Buteventhemostreliable,brandnewcar–whetheritcomesfromassemblylinesinZaporozhets,NagoyaorWolfsburg–regularlyneedsservicingandsometimesevenrepairs.WiththehelpoftheEBRD,Bosch(theleadingGermansparepartsmanufacturer)hasestablishedanetworkoflicensedservicecentresinUkraine,whereprivateandcommercialcustomersgetfirst-classtreatmentfortheirlittlesweethearts.

Underaframeworkagreementinitiallysignedin2001andextendedin2006,theBankisprovidingupto€14millionforon-lendingtoprivateentrepreneurstobecomeBoschpartners.Thenetworkisexpandingrapidlywithnearly60licensedservicecentreslocatedacrossthecountry.“ThecooperationwiththeEBRDhasbroughtusmuch-neededstability,meaningwecanoperatesuccessfully,”saysViktoriaYermakfromBoschUkraine.

ViktorMednikovistheownerofaBoschServiceStationontheoutskirtsofKiev.Hisfacilitiesresembleadoctor’sofficemorethanacarworkshop.Everythingisneat,cleanandveryorderly.Hugepipeshangfromthewallandremindvisitorsofgiantvacuumcleaners.Theseductivesmellofoil,rubberandexhaustfumes,socharacteristicofagarage,isallbutgone.Wereitnotforthegianttruckparkedinworkshopnumbertwowithitsdriver’scabinupsidedown,makingitreminiscentofabeachedwhale,nobodywouldthinkthatanyoneherehastodirtyhishands.

Thestationservicesandrepairsdieselengines.“Ifyouhaveaproblem,Boschwillfindasolution,”saysMrMednikov.Hisstationuseslicensed,state-of-the-artBoschsparepartsandsoftware.Heemployssome20mechanicswhoserve20to30customersaday.TheyreceiveextensivetrainingandBoschisalsoprovidingmanagementtrainingtoitspartners.TheGermanparentcompanyalsodispatchesinspectionteamstoguaranteequalitystandards.Thisisveryimportant:“Today,qualityisallthatcounts,”saysMrMednikov.

Thatistosaythatqualityisthemostimportantpitchforthefranchises.“Repairscanbeveryexpensive,”admitsMrMednikov.Onlyguaranteedqualitycanpersuadecarownersnottohavethisworkdoneonthecheapintheshadoweconomy.Competitionisstiff,butitseemsthatMrMednikovisdoingquitewell.Currentlyheisponderingplanstoexpandhisservicestation.Althougheverycarownerintheworlddreamsofarepair-freevehicle,itissafetopredictthattherewillnotbeashortageofworkforMrMednikov.BoschandtheEBRDwillmakesurethatitisdonetothehigheststandard.

9thUkraine’spositionintheleagueofEuropeancarmarketsbysalesvolume

24 www.ebrd.com Peopleandprojects|2008 25

BankForum

Itislocalknowledgethatcounts

The housing market in Ukraine’s capital Kiev is booming. On the way to our meeting with Bank Forum we stop outside an estate agent. Prices in central Kiev are eye-watering: a fully refurbished single bedroom apartment in one of those beautiful houses which contribute so much to the city’s charm (of course with concierge, CCTV and car parking) costs up to US$ 4,000 a month. To rent, that is.

Ofcourse,onlyasmallfractionofpeoplelivinginKievcanaffordtheseprices.Thevastmajorityofthecity’sthreemillioninhabitantsliveinthesamehouseswheretheyusedtoliveinSoviettimes,onlynowadaystheseformercommunalapartmentsareprivatelyowned.Theyareverycheap,butstandardsareoftenverymodest.Outsideitsstylishcitycentre,KievisshapedbytheseeminglyendlessconglomerationofconcretetowerblockswhichusedtobesocharacteristicofSovietcities.

Becausethehousingmarketisshapedbythesetwoextremes,thereisahugedemandforgood,yetaffordablehousing.Kiev’sskylineisfullofcranes.Growingbusinessdemandsandrisingincomesarefuelingtoday’sconstructionboom.

BankForum,the13thlargestUkrainianbankintermsofassets,wasfastinconvertingthesedevelopmentsintoabusinessopportunity.InJanuary2007itsecuredaUS$20millionmortgageloanfromtheEBRDwhichisbeingon-lenttoindividualcostumersforpurchasing,constructing,renovating,repairingand/orre-mortgagingresidentialproperties.

Thebank’sstrengthsareitstailor-madesolutions.“Wehavedevelopedaverywiderangeofproductsandweareconfidentwecanmaketherightoffertoanyofourclients,”saysMikolaBabenko,DeputyManagingDirectoratBankForuminKiev.“Thedemandforhousingisconsiderableandpricesarequitesteep.Butwehaveadedicatedandprofessionalstaffwhocandeliver.”

BankForumandtheEBRDhavebeenpartnerssince2001whenBankForumfirstreceivedacreditlinetofinancesmallandmedium-sizedenterprises.Eversince,thecooperationhasgonefromstrengthtostrength.TherecentmortgageloanwascomplementedbyaUS$36millionsyndicatedloan,onlythesecondarrangedbytheEBRDtodateinUkraine,thisforfinancingprivateenterprises.

Inaddition,theEBRDhasextendedtechnicalassistancetoBankForumtohelpbringtheUkrainianbank,whichwasfoundedin1994,uptoWesternbusinessstandardsandpractices.FrancoisLabontéfromtheNationalBankofCanada’sPartnershipforPrivateSectorDevelopmentprogrammeisfullofpraise:“WehavebeenworkingwithBankForumsince2001,helpingwithinstitutionbuildingandprovidingtraining.Thestaffhasbeenveryreceptiveandweregardouractivitiesasabigsuccess.ItisthankstobankslikeBankForumthattheUkrainianfinancialsectorisnowenjoyingthepublic’strustwhichisthemostimportantprerequisiteforsuccessfuldevelopment.”

PeterJ.Sugden,ManagingDirectorofFleetFinancialCorporation,isalsoinvolvedintrainingprogrammesforUkrainianbanks:“Ihavebeenworkinginthiscountrysince1992andIseehugechanges.Todaythefinancialsectorisrunbyawholenewgenerationwhichhasastrongbusinesssense,goodeducationandmodelsitselfonitsWesternpeers.Thisisnottosaythattherearenomoreproblems.Lackoffinanceandgoodgovernanceremainthetwomostpressingissues.Buttheprogresswearewitnessingisimpressive.”

TheUkrainianbankingsectoriscurrentlyundergoingmassivechanges,withWesternbanksexpandingrapidlyintothemarket,mainlythroughacquisitionofUkrainianbanks.Thisisleadingtoconsolidationinthesector.Competitionisgrowingandmarketplayersareconstantlyunderpressuretomoderniseandupdatetheiroperationsandproductrange.

BankForumfoundastronginternationalpartnerinGermany’sCommerzbank,whichacquiredamajoritystakeinSeptember2007.This,however,willnotchangetheUkrainianbank’sphilosophy:“Weareandwillremainastronglocalbankwithastronglocalpresence.Ourlocalknowledgeisourmajorasset,”saysMrBabenko.

ThisisexactlywhattiesthebanksocloselytotheEBRD:“Apartfromthetransferofknow-howanditsexpertise,themostimportantthingtheEBRDhasbroughtisitslocalpresenceanduniqueknowledgeofthelocalmarket.Itmakesaveryimportantdifferencewhetheryourpartneristhousandsofmilesawayorafive-minutewalk.AndwehavefoundourpartnersattheEBRDalwaysaccessible,alwayslisteningandalwayshelpful.”

OvertheyearstheEBRDhasincreaseditslocalpresencesignificantly.TodaytheKievResidentOfficehasmorethan30staffandontopofthatfrequentlywelcomesvisitorsfromtheBank’sLondonheadquarters.Inaccordancewithitsincreasingactivitiesintheregions,theBankhasalsoopenedanofficeinDnipropetrovsk,themaincityineasternUkraine.

US$ 4,000ThemonthlyrentofasinglebedroomflatincentralKiev

26 www.ebrd.com Peopleandprojects|2008 27

SlobozhanskaBudivelnaKeramika

Bricksthatbuildtheworld

The building boom in Ukraine’s major cities is also good news in areas which are far away from the country’s growth centres. Romny is a sleepy city in the north-eastern Ukrainian oblast of Sumy and a three (or even four, depending on your driver’s local knowledge) hour drive from Kiev. The journey is a trip into a faraway world. A beautiful, sparsely populated landscape unfolds which has yet to be fully discovered.

With50,000inhabitants,RomnycanrightlyclaimtobearegionalcentreinSumy,oneofthepoorestdistrictsofUkraine.TheRussianborderislessthan150kilometresaway.ThecathedraloftheHolySpirit,foundedin1735inplaceofawoodenchurch,isthecity’smostnotablebuilding.Whilethechurchhasbeenmeticulouslyrefurbished,theadjacentsquarehasnotwitnessedmanychangesinthelast40yearsandexudestheflairofadistantpast.

Ifthetowntodayhasasecondcentre,notarchitecturally,butsymbolically,thisisduetothecourageouseffortsofinvestorsinthelate1990stosavethethenstate-ownedbrickproducerSlobozhanskaBudivelnaKeramikafrombankruptcy.Todaytheformerintensive-carepatientisaliveandwell:UndertheacronymSBK,thecompanyisnotonlythebiggestemployerinRomnyandtheneighbourhood,buthasbecomethemarketleaderinUkraine.

ThereisprideaboutthisremarkablereversaloffortunesatthefactoryinRomny,butcertainlynocomplacency:“Wehavebeenworkingveryhardandwemustcontinuedoingjustthat.Themarketneversleepsandwearefacingstrongcompetitionwhichwillonlyincreaseinthenearfuture.Weknowaboutverylargeinternationalcompanies’planstoentertheUkrainianmarket,”saysVassiliMariukha,DirectoroftheSBKplantinRomny.

Toprepareforthechallengesaheadthecompanyhasatwo-foldstrategy:expansionandmodernisation.ItisherethattheEBRDcomesintoplay.TheBankacquireda12percentstakeinthecompanyinApril2007whichitplanstoincreaseto25percentbytheendoftheyearandithasprovidedaloanofUS$8.8million.SBKcurrentlyhasplantsinRomny,KharkivandIrpen,ontheoutskirtsofKiev.Thecompanyisplanningtonearlydoubleitscapacitytomorethan250millionbrickunitsbytheendof2009.

AtleastathirdofthisoutputwillbeproducedattheRomnyplant,wherecurrentlytheannualcapacityis60millionbricksandalmost400peopleareemployed.Underacomprehensivemodernisationprogramme,newproductionlineswillbeinstalledtoexpandproductionandsaveenergy.“Alreadyweareabletouseheatfromtheovensforheatingpurposes”,saysMrMariukha.ThecompanyhasimplementedtheindustrystandardISO9001inRomnywhichguaranteesthehighestqualityforitsproducts.

Increasingly,SBKisexportingitsproducts.“Demandisverystrong,”saysMrMariukha.ThecompanyenjoysastrongpositioninneighbouringBelarusandRussia,aswellasinKazakhstan,andisnowadayslookingmoreandmoreateastEuropeanmarkets.But,asMrMariukhaadds,“bricksdon’ttravelwell.”ThereforeatSBK,aseverywhereelseinUkraine,theEuropeanfootballchampionship2012isregardedasaonce-in-a-lifetimeopportunity.NofewerthanfourUkrainiancitieswillbehostinggamesatthegroupstageandbillionswillbeinvestedinupgradesandnewfacilities.

Thechampionshipisforthecountrywhatapenaltyisinfootball.WithcompanieslikeSBK,nobodyneedstoworrythattheopportunitywillbemissed.

60 million bricks TheannualproductioncapacityattheRomnyplant

28 www.ebrd.com Peopleandprojects|2008 29

Kiev-Choproadrehabilitation

Re-connectingwithEurope

Where exactly Ukraine’s place is on the political map of Europe, is a question that will probably be debated for a long time. The European Union has offered the country close cooperation as a neighbour, whereas Ukraine wants to become a full member of the club. While intellectuals debate and politicians prevaricate, on the ground, new realities are already being shaped.

Literallyontheground,asoneofthebiggestinvestmentsinUkraineinrecentyearsshows.Itwasasearlyas1996thatthegovernmentapproachedtheEBRDwitharequesttofinancetherebuildingoftheM06highway.TheroadisUkraine’smostimportantconnectionwithitswesternneighbours.ItlinksthecapitalKievwithLviv–withnearlyonemillioninhabitants,oneofthelargestcitiesinthecountryandtheeconomic,politicalandintellectualcentreofwesternUkraine.FromheretheroadeitherconnectstotheborderwithPoland(Medyka)orHungary(Chop),andformspartoftheTrans-EuropeanCorridorsIIIandV.

RapidlyincreasingtrafficlevelsandthepoorshapeoftheoldM06maderenovationoftheroadamatterofurgencyfortheUkrainianauthorities.HugetrucksfromBlackSeaportsaremakingtheirwaytowesternEurope,whileontheoppositesideoftheroad,deliveriesfromWesternneighboursarepouringintothecountry.Trafficlevelshavebeenrisingdramaticallyandnowadays75,000truckstravelbetweenLvivandKieveveryyear.

Amatterofurgencyrequiresswiftworkandimpressiveprogresshasbeenmade.Elevenyearson,theEBRDisalreadydisbursingitsthirdloanandtherenovationworkfinishedinMarch2008.FevziAyranciogluisprojectmanageroftheTurkishconstructioncompanyOnur,whichhaswonthetenderforroadworksbetweenLvivandBrody,astretchofmorethan100kilometres.Some450peoplewereworkingdayandnighttobringthehighwaytoawholenewstandard,andallwhiletrafficcontinuedusingit.

Whowouldhavethoughtthatroadmendingwassuchamassiveandcomplexundertaking?Thenewroadconsistsofthreelayers:base,bindingandasphalt.Wherepossible,exisitingstructuresarebeingused.

Onurhasnotonlybroughtitsengineersandmorethan80trucksandothermachineryfromTurkey.Thecompanyhasalsosetupitsownplantnexttothehighwaywheretheyareproducingtheirownconcreteandasphalt.“Wearemakingaspecialbitumenwhichwillbeparticularlyresistanttoextremetemperatures,”MrAyranciogluexplains.

ThetaskOnurhastakenonisdaunting.“Wehavebuiltbridges,underpassesandpavements.Wehavestraightenedpartsoftheroadandcutthroughhillstomakedangeroussectionssafer.Wehaveenlargedtheroadtofourlaneswhereveritwaspossibleandconstructednewrestareas.”MrAyranciogluticksoffalonglistoftasksalreadyachieved.Equallyimpressivearethefigureshecanreciteoffthetopofhishead:“3,600cubicmetresofconcrete,720,000cubicmetresofearthworks,640,000filling,106,000squaremetresofgeotextile,385,000tonnesofcoldmixtureand481,000tonnesofhotbituminousmixture.”

Onvariousoccasions,Onurhasalsosub-contractedtoUkrainiancompanies,thusbenefitingthelocaleconomy.Inaddition,“weemployasmanylocalworkersaspossible,”MrAyranciogluadds.

Ukrainehasheldmoreelectionsthanusualinrecentyears,notexactlytoMrAyrancioglu’sunreserveddelight.“Wheneverthereisacampaign,politicianscomehere,deliverastirringspeechandpromiseadateforthefinalisationoftheprojectwhichismuchearlierthanwehadanticipated.”

ThedrivingtimebetweenKievandLvivwillbehalvedwhileroadsafetywillbeimproveddramatically.SomeonewhowillnotbenefitfromallthoseimprovementsisMrAyranciogluhimself.Butheisphilosophicalaboutit:“That’sourlife.Oncewehavefinishedajobwehavetomoveontofindanewone.”75,000

TruckstravelbetweenLvivandKieveveryyear

30 www.ebrd.com Peopleandprojects|2008 31

Themodernisationofthepublictransportsystemcouldnotbemoretimely.In2012,Ukraine–togetherwithPoland–willhosttheEuropeanfootballchampionship,andKievwillbeoneofthemainarenas,hostinggamesatthegroupstageandthefinalinthe(yettobe)refurbishedOlympicStadium.UEFA’sunexpecteddecisionhasgivenbothcountriesaboostthatcannotbeoverestimated.Fromthetopechelonsofpoliticalpowertotheproverbialmanonthestreet,everybodyseesthechampionshipasauniqueopportunity.

Butthechallengesandneedsareenormous.KyivMetropolitanrecentlyannouncedambitiousexpansionplanstoaccommodatetheexpectedincreaseintraffic.Overthenextfiveyears,thecompanyisplanningtoinvestUS$3billioninthebiggestexpansionofitsnetworkever:twonewundergroundlinesarebeingplannedwithfourtofivestationsbeingbuilteveryyear.Bycomparison,thelocalmetroconstructioncompanycanpresentlyonlybuildonestationayear.

ThebiggestprojectwillbetheconstructionofafourthundergroundlineconnectingKiev’smaininternationalrailwaystationVoksalnawiththeboroughofTroyeshchinaonthecity’srightbank.Theprojectincludes12newstationsandconstructionofanewbridgeovertheDneprRiver.Inaddition,twoofthethreeexistinglineswillbeextended,whiletheplannedfifthlineisnotexpectedtobeinoperationuntilafter2020.ThetotalcoststoputKiev’sinfrastructureinorderfortheEuro2012tournamenthavebeenestimatedbythecityadministrationatnearlyUS$8billion.LongbeforethenationalteamofUkrainewillhavetheopportunitytoscoreitsfirstgoal,thepeoplewillhavewonasthebeneficiariesofanewandimprovedinfrastructure.

Kievtransport

Mendingthegap

Kiev Metro’s central stations are cathedrals for the modern commuter. The architecture and design may not be to everyone’s taste, but never fail to impress. References to the communist past are ubiquitous. The stations are kept impeccably clean, cleaners with huge brooms seem to be chasing passengers. Train intervals at peak times are less than two minutes. A signaling board counts down the seconds and – surprise! – the trains run on time. By the second. A ride costs 50 kopeks. That’s a third of the price of a one kilo loaf of the famously tasty and nutritious Ukrainian bread.

Andyet,thecitizensofKievarefarfromhappy.HereiswhatOleksandrSidorovwhoworksinthecitycentrehastosay:“PublictransportinKievhasbecomejustawful.Ilivenotfarfromthemetro,butwhenIgotoworkinthemorning,trainsaresoovercrowdedthatIcannotevengetintoacarriage.Thiscausesmassivedelays.ThecarriageswerebuiltinSoviettimes.Thereareothermeansoftransport,butbusesarenoalternativebecausethereisnowaytogetthroughtheearlymorningtrafficcongestion.Everythingisjustclogged.”

Asamatteroffact,publictransportinKievwentbeyonditscapacitylongago.Thiscityofalmostthreemillioninhabitants,theseventhlargestinEurope,isservedbythreeundergroundlines,aswellastram,busandtrolleybusroutes.Themetroalonecarriesaround600millionpassengersannuallyonits58.7kilometrenetworkwith45stations.ItisrunbyKyivMetropolitan,whereasasecondcity-ownedcompany,KyivPasTrans,isinchargeofovergroundtraffic.

ConstructionoftheKievundergroundbeganintheaftermathoftheSecondWorldWar,butittookuntil1960fortheUkrainiancapitaltobecomethethirdcityintheSovietUnion(afterMoscowandStPetersburg)togetanundergroundservice.Geologyandmilitaryconsiderations(thetunnelsweredesignedassheltersincaseofanotherwar)meantthathalfofthestationsareverydeepunderground–indeedtheescalatorsseemtotakepassengersintotheveryinterioroftheearth.

Atransportmasterplanwasadoptedin2003,butimplementationisdifficult.Running,maintainingandimprovingpublictransportarecomplexandexpensivetasks.Andthereisadownsidetopricesbelowcost-recovery.Itmeansthattheoperationisbeingrunatalossandnorevenueisavailableforinvestments.Nevertheless,thegovernmenthasblockedtariffadjustmentsapprovedbytheKievcitycouncil,withtheresultthatpublictransporttariffsinKievhavenotbeenincreasedsince2000.

InthiscomplicatedsituationitisgoodtohaveapartnerliketheEBRD.TheBankisprovidingloanstoKyivMetropolitanandKyivPasTransofupto€40millionand€60millionrespectivelytosupportserviceupgrades.Thefundswillbeusedforserviceimprovementsaswellastheacquisitionofnewundergroundtrains,busesandtrolleybuses.AnincreaseinrollingstockshouldbewelcomenewstocommuterslikeMrSidorov.

Inaddition,theprojectwillprovideassistancefortheintroductionofanewelectronicticketingsystemin2008-09.Currently,passengersontheKievundergroundhavetobuyplastictokensatticketoffices.Dependingonthemoodofthe(usuallyfemale)vendorbehindthewindow,thisusedtobeamoreor–inmostcases–lesscharmingexperience,butalsoledtolongqueuesanddelaysinanalreadyoverburdenedsystem.

600 million PassengersusetheKievMetroeveryyear

32 www.ebrd.com Peopleandprojects|2008 33

ArcelorMittalKriviyRih

Howthesteelwastempered

Probably the best way to approach Kriviy Rih is through cyberspace. Google Earth will take you to the central Ukrainian city at breakneck speed before the image stalls 90 metres above the ground. From this distance you can see how the city is wrapped around the largest hole in the ground in continental Europe. This is the city’s main open-pit mine where iron ore is extracted.

Explorationoftheregion’sorestartedinthe18thcentury.ThenameKriviyRihmeans“curveofahorn”andindicateshowthebuildingsfollowedexplorationefforts,groupedaroundthemines.Butitisnotuntil1880thatthecommercialutilisationoftheregion’snaturalresourcesstarts.WithinacenturytheKriviyRihbasinwouldbecometheworld’slargestareaofironoreextraction.

Inadditiontoironore,Ukraineisself-sufficientincoke,manganeseandvariousothermaterials.UkrainewasthemetallurgicalworkshopoftheformerSovietUnion.Itusedtobesecondintheworldinsteelproductionandfourthinironcasting.Insteelproductionpercapita,Ukrainewasnumberoneintheworld.

ThebiggeststeelplantinUkraineistheKriviyRihsteelplant.ItisalsothesecondbiggeststeelplantinEuropeandoneofthebiggestintheworld.Despitebeingprofitableevenindifficulttimes,theplantmadeheadlinesforallthewrongreasonsin2004,whenitwas“privatised”inaflawedprocesswhichgeneratednotmuchmorerevenuethantheaskingprice.

Theplantmadeheadlinesagainafterthe“OrangeRevolution”whenthenewpowersmadeitashowcasetodemonstratetheirseriousnessaboutinstallingadifferentorder.Afteracourtannulledtheprevious“privatisation”(whichhadtakentheideaabittooliterally),theplantwassoldagaininatransparentandfaircompetitionin2005.ThewinningbidderwasMittalSteelwithanofferofUS$4.8billionfor93percentofthesharesofKrivorizhstal,astheplantwasstillknownthen.Thiswassixtimeshigherthanthefirst“privatisation”oneyearearlier.

OntopofthatMittalSteel–todayknownasArcelorMittal,andthebiggeststeelproducerintheworld–acceptedvariousobligationsandenteredintoanumberofcommitments.Onepriorityareafromtheoutsetwasthemodernisationandenvironmentalupgradeofthefacility.ItisherethattheEBRDsteppedin.

“TogetherwithourcounterpartsfromMittalwesattogetherandveryquicklydevelopedanenvironmentalactionplanandanenergyefficiencyimprovementplan,”saysHolgerMuent,theBank’soperationleaderfortheproject.“Alargeportionofourloanwentintoenergyefficiencymeasures.”WithintwomonthsMittalSteelandtheEBRDhadagreedonaUS$200millionloanfromtheBank,whichwasapprovedinMarch2006.

Timewasoftheessencebecausetheinvestmentneedswere(andstillare)enormous.Theenergyefficiencyimprovementplanaloneincluded,amongotherthings,modernisationoftheairseparationunit,installationofenergyefficientburnersintenfurnacesandswitchingfuelfromnaturalgasonlytoamixtureofcokeoven,blastfurnaceandnaturalgas.Theimplementationoftheplanresultedinareductionofelectricityandgasuse.Thisisofnationalsignificance,becauseofthesizeoftheplant.Themeasureshavealsoledtoasignificantreductionofgreenhousegases.

Butthiswasonlythebeginning.Attheendof2007,ArcelorMittalannouncedplanstoinvestUS$2billionintheplantby2012.Thefundswillbespentonthemodernisationofexistingfacilitiesaswellastheconstructionofnewinstallationslikeasinteringshop,anewconvertershopwithacontinuouscastingplantandahot-stripmillwithannualcapacityof5milliontonnes.Withallitsinvestmentsthecompanyplanstoexpandannualproductionofsteelto12milliontonnesby2012from7.7milliontonnesin2007.“Theexpansionisbiggerandfasterthananyonecouldhaveforeseen,”saysMrMuent.

Withmorethan55,000employeestheplantisalsoamajoremployerinKriviyRih,acityofsome700,000people.Morethan90percentofthelocalworkforceholdsjobswhicharelinkedwithminingandmetallurgy.Thisisnotgoingtochange:theestimatedironorereservesintheregionamountto32billiontonnes.Recentexplorationhasalsodiscoveredothermetalslikezinc,tungstenandmolybdenum.

“Withitslargereservesandexcellentrailandriverlinks,theplant’spotentialisverystrong,”saysMrMuent.HevisitsKriviyRihabouttwiceayearandisimpressedwiththeprogresswhichhasbeenmade.“Everythingwehadplannedandagreedonhasbeenimplemented.”Avibrantsteelplantalsomeansavibrantcity:“Thingsareverylivelythere.”

In1936whenNikolaiOstrovskipublishedHow the Steel was Tempered,hissocialistrealistmasterpiece,Stalin’spowerhadalreadybecomeunassailableandtheUSSRwasinthemidstofitssecondfiveyear-plan,whichgaveheavyindustrytoppriority.Alltheharderwasthefallwhenanewerabegan.

Today,thechimneysofKriviyRiharesmokinglikeneverbefore–thankstoArcelorMittalandtheEBRDtheyaredoingitinawaythatismuchmoreenvironmentallyfriendlythanbefore.

55,000 EmployeesworkattheKriviyRihplant

34 www.ebrd.com Peopleandprojects|2008 35

Chernobyl

Thedaylastsmorethanahundredyears

For one of his most beautiful novels, the acclaimed Kyrgyz writer Chingiz Aitmatov has chosen a line from a poem by Boris Pasternak as the title: And Longer than a Century Lasts the Day. A better description of the task to overcome the legacy of the accident at the Chernobyl nuclear power station in 1986 can hardly be found. The disaster happened within seconds, but resolution may well take a century. The day that dawned in Chernobyl on 26 April 1986 at 01:23:40 when reactor 4 exploded has not yet ended.

TheEBRDhasbeeninvolvedintheeffortstocleanupthesiteandtransformitintoanenvironmentallysafeandsecurestatesince1997.ItwasthenthattheG7countries(Russiawasadmittedasamemberoneyearlater,thusmakingittheG8)andthegovernmentofUkraineagreedonajointapproachtodealwiththeunresolvedissueofChernobyl.Aftertheaccidentaso-calledsarcophaguswaserectedinextremelyhazardousconditionsandunderintensetimepressure,butfromtheoutsetitwasclearthatthiswouldonlybeatemporarysolution.

TheinternationalcommunitythendecidedtoappointtheEBRDasadministratorandmanageroftheChernobylShelterFund.Overtheensuingyears,23countriesandtheEuropeanCommunitybecamecontributorstothefund,whichnowhasbindingpledgesworthsome€800million.

ThesefundsarebeingspentonthetransformationofChernobylunderacomprehensivemasterplan.ThemostvisibleandspectacularprojectwithinthisframeworkistheNewSafeConfinementwhichwillcontaintheremnantsofthereactorforatleast100years,duringwhichtimeapermanentsolutionforthenuclearwastemustbefound.On17September2007thelong-standingeffortsandcommitmentoftheinternationalcommunityandtheEBRDcametofruitionwhenacontractwassignedfortheconstructionofthisgiant,arch-shapedstructurewhichwouldbebigenoughtohouseLondon’sStPaul’sCathedral.AcontractfortheInterimStorageFacility-2wasalsosigned.

VinceNovak,DirectoroftheEBRD’sNuclearSafetyDepartment,says:“Thesigningofthesetwocontractsisofhistoricsignificance:wenowhavesolutionsandplansforthetwomostimportantanddifficulttasks.Twenty-oneyearson,itmayseemasthoughit’stakenusallalongtimetoreachthispoint,butyoucannotimaginethelevelofcomplexityanddifficultyinvolvedintheimplementation.”

TheNewSafeConfinementisthepièce de résistanceoftheShelterImplementationPlan.Butbecauseitissuchaspectacularprojectitiseasytooverlookhowmuchhasalreadybeenachievedoverthepasttenyears:theexistingsarcophagushasbeenstabilisedtoeliminatethedangerofitssuddencollapse,newfacilitieshavebeenconstructed,newsafetyandemergencyregulationshavebeenputintoplaceandthesitehasbeenpreparedintermsofinfrastructure,safetyandaccesstoenabletheassemblyofthenewstructure.Intotal,morethan85contractshavebeenfinishedinmorethanfivemillionworkhours.

Overtwodecadesaftertheaccident,ChernobylverymuchresemblesthesecretlaunchsiteAitmatovdescribessovividlyinhisnovel.Morethan135,000peoplewereevacuatedfromtheareaaftertheexplosionofreactor4.The30kilometreexclusionzonearoundtheplantwillremainuninhabitablefordecades.Workingtomitigatetheeffectsofthe1986accidentisawholenewexperienceforallpartiesconcerned–fromthepeopleonthegroundtotherepresentativesofthedonorgovernments.

Tenyearsofpreparations,discussionsandnegotiationshavedemonstratedthatprogressandsuccessarepossibleinthemostcomplicatedmatterswhenallpartiesconcernedacttogether–fromthebottomtotopandtoptobottom.Thisisnotalwayseasy,butitistheonlywayforward.TheEBRDiswellawarethatamilestoneagreementhasbeensigned,butthatthejobisnotfinishedbyfar(yet).AsAitmatov’swrites:“Givingupissimplynotanoption.”

26 April 1986 ThedayofthenucleardisasteratChernobyl

36 www.ebrd.com Peopleandprojects|2008 37

Healthandsafety

TacklingthehighrateofindustrialaccidentsBy Anthony Williams

The EBRD has put health and safety firmly on the Bank’s agenda, responding to the often fatal accidents that continue to blight industry in many of the countries where the EBRD is active.

HealthandsafetyhasbeenafeatureoftheEBRD’senvironmentalmandateeversinceitscreationin1991,butevenmoreintenseeffortsarenowplannedtoaddressthechallengesofworkersafety.“Thismustnowbecomethenorminouractivities,especiallyinextractiveindustries,butalsointhetransportsector,”EBRDPresidentJeanLemierresaid.

Inmininginparticular,accidentandfatalityratesremainunacceptablyhighinmanycountriesofoperations–buttheproblemalsoextendstoheavyindustry.

UkrainehasthesecondworstcoalminedeathrateintheworldafterChina,withatotalofmorethan4,000fatalitiessince1991.

AndthedangersremaininherentacrossthewholeoftheformerSovietUnion.InMarch2007,over100RussianminerslosttheirlivesafterablastattheUlyanovskayamineinSiberia,aneventdescribedasRussia’sworstminingdisasterforageneration.

RecentEBRDprojectshavealreadystartedtoraisetheprofileofhealthandsafety.InJune2007,aUS$100millionloantoArcelorMittalinKazakhstanwasaimedspecificallyatmodernisingthesteelcompany’scoalminesandbringinghealthandsafetystandardsinlinewithinternationalbestpractice.

HealthandsafetyissuesarealsocentraltoatrainingprogrammeforMongolia’sminingindustrythatwaslaunchedinMay2007bytheEBRDandtheMongoliangovernment.

EBRD’sNaturalResourcesDirectorKevinBortzsaystheBankhasachancetomakearealdifferenceinthissphere.“Wewillofferloansoncommercialterms.Buttherewillbeexplicitconditionsasfarassafetyisconcerned.”

UnderconsiderationisawholeseriesofinitiativesthatcouldbesupportedbyEBRDfunding:streamliningthemanagementofminesafetyandaccidentpreventionsystems;adoptingregulatory,legal,organisationalandmethodologicalrequirementsforminesafety;andraisingthestandardoftrainingofworkers.Inaddition,therecouldbemeasurestocarryoutseamdegassingprogrammes.

EBRDofficialssayitisnolongertolerabletoacceptindustrialaccidentssimplyasanunpleasantbutinevitablefactoflife.AccordingtoMrBortz,theEBRD’sdriveisnotsimplyaquestionoftheinstallationofstate-of-the-artequipmenttoraisestandardsoutofSoviet-eradilapidation.“Wewillbeworkingwithregulatoryauthorities.Insomecountrieslegislationhastochange,”hesays.“Butitisalsoaquestionofaddressingthemind-set.”

AlistairClark,theEBRD’sDirectorforEnvironment,agrees.“Therehastobeaculturalchange.Wehavetomakesurethatminimisingriskisacoreobjectiveofthecompaniesweworkwith.”Thisstretchesacrossmanysectorssuchasgold,copper,coal,oilandgasandrefining,aswellastheconstructionindustry.

Healthandsafetyisalsohighlyrelevanttothetransportsector.EBRDprojectsalreadytakeintoaccountthesafetyoftheultimateusersofnewroadsorrailwaysystems,aswellasthatofworkersinvolvedintheconstructionphase.

TheEBRD’sBusinessGroupDirectorRiccardoPulitisaysitiscrucialtogetallthebasicsoftransportsafetyright.Thatincludesroaddesigntoavoidblackspotsandexcessivechangesingradientandtoensurecorrectroadalignment.Anotherkeyfactor,MrPulitisays,issignallinginrailways.“Afailureofsignallingistheworstpossiblethingthatcanhappenonarailorundergroundsystem.”

Buthewantstodomore.UptonowtheEBRDhasconcentratedmainlyonwhathecallsthehardware:basicinfrastructureandequipment.Now,hesays,itistimetodiscussfundingsoftware.“That’sthepeopleandtheeducationofthepeoplewhoareaffected.”

Hepointsoutthatroadsafetyeducation,especiallyforyoungpeople,isimportant.Bettertrainingforpoliceforcestohelpinculcateagreatersenseoftheimportanceofroadsafetyisalsocrucial.

Trainingtoraiseawarenessofthedangersofdrunkordangerousdriving,aparticularhazardinsomeEBRDcountriesofoperations,couldbeanadditionaltargetforEBRDfunding,MrPulitiadds.US$ 100 million

LoantoArcelorMittalforhealthandsafetyimprovements

38 www.ebrd.com Peopleandprojects|2008 39

Donorfunds

ImprovinglivesatthegrassrootsBy Marjola Xhunga

This is what the EBRD and its donors aimed to achieve when they established the Early Transition Countries (ETC) Initiative and its multi-donor Fund in 2004.

TheInitiativewascreatedtorespondtoneedsoftheBank’spoorestcountriesofoperations:Armenia,Azerbaijan,Georgia,KyrgyzRepublic,Moldova,TajikistanandUzbekistan.MongoliajoinedtheInitiativein2006.

“Fouryearsagowepromiseddonorgovernmentsthatwewoulddeliver,”saidEBRD’sBusinessGroupDirectorOlivierDescamps.

Over100projectsintheETCcountrieshavehelpedbringcleanwater,electricityandroadstoimpoverishedareas.

Twelvedonorgovernmentshavepledgedabout€50millioninsupportoftheFund.

“TheETCscontinuetolagintheirtransitiontomarketeconomiesandlargepartsoftheirpopulationstilllivebelowthepovertyline,”explainsHansPeterLankes,theEBRD’sDeputyChiefEconomist.“Growthisthekeydriverofpovertyreduction.TheETCsneedtheBankanditsdonorstomakeapositiveimpactonpeople’slivesbyboostingtheprivatesector,bycreatingjobsandbyensuringthatinfrastructureandfinancialservicesdon’tconstraingrowth,”headded.

Forexample,€1ofdonorfundsfortheETCsgenerates€24ofEBRDinvestmentand€30ofthetotalcostofaproject.ThesefiguresaretranslatedintocleanwaterforthecitizensofKutaisiinGeorgia,accesstofinanceforwomenlivinginfar-flungareasinMongoliaornewjobsinMoldova.

DonorfundsarealsoaimedatareascrucialfortheETCs’development,suchasinstitutionbuilding,legaltransition,andthestrengtheningoflocalbusinessesandthegeneralinvestmentclimate.

Thefiguressofarareimpressive:theEarlyTransitionCountryInitiative(ETCI)hasledtoafivefoldincreaseinthenumberofinvestmentprojectssignedintheETCsbytheendof2007(to105)comparedto2003.Theannualbusinessvolumeincreasedfrom€53millionin2003to€416millionin2007.

“TheEarlyTransitionCountriesneedtheBankandthedonorstogoforward,”saysKazuyaMurakami,theEBRD’sDirectorforJapan.

FollowingthesuccessoftheETCFundincoordinatingassistancetothepoorcountries,theEBRDanditsdonorsestablishedtheWesternBalkansFundin2006.

Theregion,knownastheWesternBalkans,hasseenitall–communism,war,nationaldisintegration,democracy,marketeconomyandmorechallengesahead.

“TheEUaccessionprospectshavebeengoodfortheregionbutthereisstillworktobedonetoimprovethebusinessenvironmentinFYRMacedonia,MontenegroandSerbia,toupgradeinfrastructureinAlbaniaandtohelpwithlarge-scaleprivatisationsinBosniaandHerzegovina,”saysClaudioViezzoli,theEBRD’sDirectorfortheWesternBalkans.

TheBankhasinvestedabout€2.7billionsince1991in222projectsintheWesternBalkans.

Moreremainstobedone.ThomasWieser,DirectorGeneralattheAustrianFederalMinistryofFinance,explains:“IftheEBRDandothermultilateralorganisationscanbecatalystsforimprovinginfrastructureandmakingtheseeconomiestradewitheachotherandgrowtogether,thenwewillhavehelpedmorethanwewouldhavedonethroughbilateralagreements.”

Fifteendonorgovernmentshavepulledtogetherover€14milliontofundover20projectsintheWesternBalkans.

ThomasWieserargues:“TheWesternBalkansFundprovidestheanswertodonorcoordinationandgivesacoordinatedresponsetotheregion’sneeds.”

Inthenexttwoyears,theEBRDwillstepupitsroleinimprovingpolicydialoguebetweencountriesintheWesternBalkans,willincreaseenergy-relatedinvestments,willdomoretoimprovemunicipalservicesandwillimproveaccesstofinancetolocalcompaniesandmakethemmorebankable.

“Todothese,weneeddonorsupport,”explainsGaryBond,DirectoroftheEBRD’sOfficialCo-financingUnit,responsibleformanagingdonorfundingfortheEBRD’sprojects.“Inparticular,theWesternBalkansneedinvestmentgrantstobridgethegapbetweenthefundsneededforinvestmentsandthelocalcapabilitytoborrow.

“DonorfundingfortheEBRD’scountriesofoperationshasgrownsteadilyfrom€66millionin1991to€1.3billionin2007.ThelargestcontributorhasbeentheEuropeanUnion(EU),workingthroughtheEuropeanCommissionandtheEuropeanAgencyforReconstruction(EAR).OthermaindonorshavebeenItaly(includingcontributionsthroughtheCentralEuropeanInitiative),JapanandtheUnitedStates.

The European UnionThelargestcontributortotheEBRD

40 www.ebrd.com

Designedandproducedbynimdesign.PrintedinEnglandbyCreativePrintGrouponRevive50:50SpecialSilkwhichcontains50%recoveredwasteand50%virginfibreandiscertifiedasanFSCmixedsourcesproduct.ThepapermilliscertifiedtoISO14001environmentalmanagementstandard.ThisproductisCarbonNeutral.®

ref:7172Peopleandprojects(E)-March2008

Contacts

European Bank for Reconstruction and DevelopmentOneExchangeSquareLondonEC2A2JNUnitedKingdom

Switchboard/central contactTel:+442073386000Fax:+442073386100Telex:8812161EBRDLGSWIFT:EBRDGB2L

Web sitewww.ebrd.com

Requests for publicationsTel:+442073387553Fax:+442073386102Email:pubdesk@ebrd.com

Information requestsForinformationrequestsandgeneralenquiries,pleaseusetheinformationrequestformatwww.ebrd.com/inforequest

Project enquiriesTel:+442073387168Fax:+442073387380Email:projectenquiries@ebrd.com

Ukrainian head office27/23SofiyvskaStreet01001KievUkraineTel:+380442706132Fax:+380442706813Email:kiev@kev.ebrd.com

Ukrainian regional officeMostBusinessCentre2GlinkiStreet,officeNo.708DnipropetrovskUkraine,49000Tel:+380567904070Fax:+380567903111Email:Lytvyn@ebrd.com

Photography

Photographer PageAlexandarAndjić 33EBRD 12,17,34,35Enemona 6,7MikeEllis 15,cover(middleright)JackHill 18-31IbKatznelson 38GjorgjiLicovski 3,8,16,32,36,37,39, insidefrontcover,cover(farright)DavidMdzinarishvili 10,11MI-BOSPO 4,5,cover(middleleft)YuriNesterov 14ArnheldeSerra 9,13DejanVekić 2,40,cover(farleft)