Agrokor

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	24442
Company name	Belje d.d.
Country	Croatia
Sector	Food & Beverages
Environmental category	B
Department	Agribusiness
Status	Active

Date SPI disclosed	May 5, 2006
Projected board date	June 9, 2006
Previous Events	Invested: July 24, 2006 Signed: June 26, 2006 Approved: June 14, 2006

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

In March 2005, Agrokor acquired 52% of a large agricultural enterprise, Belje d.d., and 99% of a slaughterhouse and meat processing plant, PIK Vrbovec, through a privatization process. Belje, a 300-year-old company, is located in the Baranja province, and operates in food manufacturing (packaged meat and cheese), livestock, cropping, and flour/feed milling. PIK Vrbovec, located near Zagreb, is one of the largest meat companies in Croatia and is mainly involved in pig and cattle production, slaughter, and fresh and processed meat production. The project is to restructure, modernize and expand PIK Vrbovec and Belje.

Belje and PIK Vrbovec have not been managed commercially in the past. They both lacked significant investment in productive assets, modern sales and marketing management, and a bottom-line oriented corporate culture. Agrokor has extensive experience in acquisitions and operational restructurings. Its strategy is to support the two companies with management capacity and investment to realize their commercial potential. The newly privatized companies present strong synergies among themselves and with other Agrokor Group subsidiaries. In addition to investments in staff and management (recruitment, training and MIS investments), the project will bring the currently run down productive assets up to standards, de-bottleneck and expand the production lines.

Anticipated development impact of the project

The proposed project will allow Agrokor to implement its operational restructuring plan, and return PIK Vrbovec and Belje to profitability by providing investment in quality processing and rationalization of productive assets. The result of the turnaround plan should be larger output, higher productivity and improved cost structure for both companies.

Agrokor will also work with IFC on improving operational standards, quality management systems and occupational health and safety, in line with EU standards, introducing HACCP (Hazard Analysis and Control Point) where appropriate. PIK Vrbovec and Belje were not sustainable enterprises. By restructuring these companies, Agrokor will be providing sustainable jobs for their employees and seasonal workers

IFC's expected development contribution

IFC would be playing a key role by providing long-term financing matching the investment needs of PIK Vrbovec and Belje. Long-term financing is not easily available to the Borrowers on terms that would allow for sufficient time to turn the business around.

IFC would also support the recent privatization of PIK and Belje, two companies in need of strategic investments and modernization, as well as changes in management practices to become more efficient and leverage their brand names, synergies and productive assets. IFC will support a local player providing its management expertise and presenting many opportunities for operational synergies to optimize the industry’s efficiency in Croatia. Finally, IFC and Agrokor are working together to improve management systems and environment practices.

Environmental and social issues - Category B

This is a Category B project according to IFC's Procedure for the Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

The following potential environment, health and safety areas of the project were analyzed:

- agricultural operations within Kopački rit nature preserve;
- existing and planned integrated management systems encompassing quality, environmental and social affairs; - animal husbandry, disease and zoonosis control, welfare, and traceability;
- food safety;
- emissions to the environment (air, wastewater and solid waste, odors, and noise), clean production and eco-efficiency in processing operations including minimization of water use and wastewater production, recycling, and efficient use of energy;
- management of hazardous materials and hazardous wastes including bio-hazards, use of chemical and ozone-depleting refrigerants; occupational health, safety and emergency response, life and fire safety;
- social issues and employment, communications, community development and land acquisition; and
- technical assistance in the supply chain.

Remedial actions to correct noted deficiencies in compliance with Croatian regulatory and IFC/World Bank policies and guidelines compliance are summarized in a Corrective Action Plan (CAP) with mandatory completion dates. Upon successful implementation of the mitigation measures in the CAP as well as project elements described in the ERS, IFC concludes that the proposed project will meet applicable Croatian regulatory requirements as well as World Bank/IFC environment and social policies and the environmental, health and safety guideline requirements.

The Environment Documents will be made available in publicly accessible locations within the towns of Beli Manastir and Vrbovec. An advertisement will be published in local newspapers indicating where the documents may be obtained.

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