Pilkington RuII

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25154
Company name	Pilkington Group Limited
Country	Russian Federation
Sector	Nonmetallic Mineral Product Manufacturing
Environmental category	C
Department	Global Manufacturing & Services
Status	Completed

Date SPI disclosed	June 16, 2006
Projected board date	July 17, 2006
Previous Events	Signed: December 12, 2006 Approved: December 7, 2006

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

In 2003, Pilkington plc, one of the largest glass manufacturers of the world, established a joint-venture company called Pilkington Glass LLC (Pilkington or the company), to construct and operate a green-field float glass plant in Moscow Region, Russian Federation. Project cost was estimated at EUR 193 million, and the financing plan included EUR 100 million of parallel senior loans provided by EBRD and IFC (IFIs), of which EUR43.5 million was provided by IFC. The IFIs loans are fully disbursed. Construction of the plant is complete and commercial production of glass started in February of 2006.

The company faced challenging local conditions that adversely affected project implementation and resulted in a project cost overrun from the initial budget. The IFIs have been requested to provide additional financing the company to complete the project.

Anticipated development impact of the project

The project would have a substantial impact on the development of the industry and the local economy. Pilkington will raise production and quality standards in the Russian glass industry and offer consumers more choice at affordable prices. Furthermore, with its strong history of demonstrated transition impact in other countries of operations, Pilkington will play a positive role in setting corporate governance, business, and environmental management standards (i.e. energy savings from establishing building standards that promote installation of thermal insulating glass), as well as by providing reference points for other firms, and local and regional regulatory agencies.

A recent due diligence review found that the company has a well-developed labor policy that provides terms of employment and working conditions, including the freedom to create unions (was not a requirement of the Safeguard Policies), in accordance with Russian law. Also, the new facility was designed according to the latest principles and included best-available-technology for emission control, an access road that avoids residential areas, and frequent public information and discussion meetings in cooperation with the local authorities.

IFC's expected development contribution

- IFC's proposed investment will support the company in financing its capital investments overrun with long-term funds on reasonable terms.
- IFC played an important role in structuring the financial plan and evaluating the environmental issues, thus reducing the project's risk profile.
- In view of the perceived macro-economic and political risks of investing in Russia, IFC’s presence in this transaction will give additional comfort to a foreign player entering the Russian market.

Environmental and social issues - Category C

This project was originally approved in January 2003 based on a review in accordance with the Safeguard Policies, and is now under commissioning in accordance with the original plans. This investment, to provide additional financing for the original project to cover cost over-runs has been categorized as a C project based on the following.

The relevant Performance Standards for the investment are as follows:

- PS1: Social and Environmental Assessment and Management Systems, which has been dealt with through the review of the original project and Pilkington’s corporate management systems;
- PS2: Labor and Working conditions, which was dealt with through the visits to and review of other Pilkington operations and Pilkington Russia’s implementation of similar or better conditions at the new facility, including the freedom to create unions (was not a requirement of the Safeguard Policies);
- PS3: Pollution Prevention and Abatement, which has been dealt with through the design of the new facility according to the latest principles and with a reference to new targets to be met according to EU IPPC implementation schedules; and
- PS4: Community Health, Safety and Security. The project includes best-available-technique for emission control, a distance to residential areas, an access road that avoids residential areas, and frequent public information and discussion meetings in cooperation with the local authorities.
- PS5-8: The project has been screened and found not to have issues covered under these Performance Standards.

The above is documented in the ERS, and its attachment, as released on September 15, 2003 to the IFC Infoshop site and through a recent supervision visit to ensure it is fully implemented in accordance with the original plans, and consistent with the new Performance Standards.

Reference ERS #11660
ERS #11660

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