3 Aug 2020
EUR 60 million
Industries and services
Together with a group of international financiers, NIB has agreed on an investment package for financing the rebuilding of a wastewater treatment plant in Petrozavodsk, the capital of the Republic of Karelia in Northwest Russia. The contractor company, PKS, the city and the regional government see many advantages in cooperating with the Nordic international financial institutions.
“It’s a miracle this plant is still functioning,” says Vladimir, a journalist from a local newspaper, as we take a guided tour at the Petrozavodsk wastewater treatment plant just a few hours before signing a loan agreement with NIB and other international financiers on actually reconstructing this same plant.
The plant was launched in 1979. Every day, it releases some 120,000–140,000 cubic metres of the city’s treated effluent into the lake Onega, just a hundred metres away. Onega is Europe’s second largest lake and part of the Baltic Sea catchment area.
“The reconstruction couldn’t come any sooner. This plant won’t last much longer,” says Vladimir. We are looking into a large empty sedimentation tank. The metal parts of the tanks as well as most of the other machinery are heavily corroded and look very much worn out. It does feel like the plant is barely breathing.
Our host, Alexandr Safronov agrees: “It’s obvious the reconstruction is long overdue.” Some equipment was upgraded in the mid-1990s, for instance the dewatering machine, but even that has already become obsolete and a danger to the environment.
Mr Safronov is the Chief Managing Director of Petrozavodsk Communal Utilities Systems (PKS), a company that takes care of the drinking water supply and wastewater treatment in the city.
“In general, the effluent treated at the plant meets requirements but the concentration of nutrients exceeds the recommended value,” he continues. He also admits a high risk of emergency release of untreated wastewater into the lake from the long-time obsolete plant.
“We do whatever we can to prevent the emergency, fixing up here and there every now and then, but this is not enough,” Mr Safronov adds.
In order to meet international standards on water and wastewater quality and apply modern technologies, PKS is embarking on an investment programme to be completed in 2015. It is estimated that the revamped treatment plant will reduce the amount of phosphorus in discharges by more than 60 tonnes a year.
“This result will allow us to comply with the HELCOM requirements,” says Mr Safronov.
For this purpose, the company has secured financial backing from the Government of the Republic of Karelia and the city budget, as well as a EUR 18 million international package. The international part of the financing includes a EUR 7 million loan from the Nordic Investment Bank, as well as a EUR 4 million loan from the Nordic Environmental Finance Corporation—NEFCO, a EUR 5 million grant from the Northern Dimension Environmental Partnership and a EUR 2 million grant from the Ministry of the Environment of Finland. The loans from NIB and NEFCO are being guaranteed by the Republic of Karelia.
The Deputy Minister of Finance in the regional government, Alexey Maximov, says attracting a financing package from reputable international institutions is a valuable experience for the Republic of Karelia.
“This is our first experience in dealing with international investments in infrastructure projects of this scale. The Republic of Karelia is now a step closer to the European financial institutions,” he says.
“The government has decided to provide guarantees for the loans, because the importance of this project for the region is very significant. At the same time, despite the costs, we are doing our best to keep the tariffs at their current level. The trust of our international partners gives the region access to long-term money at competitive interest rates. We need it for projects in water management to relieve the burden from the regional budget,” Mr Maximov explains.
The conditions of the long-term loans provided and the grants from the NDEP Fund and the Finnish Ministry of the Environment will help ease up the prospective pressure on tariffs. The grant money will be used for the acquisition of up-to-date technologies and equipment.
The First Deputy Mayor of Petrozavodsk, Evgeny Zhuravlev, hails the technological upgrade of utilities and the transparency of the loan agreement.
“Technologies and transparency are as important as money. The efficient treatment of Petrozavodsk’s sewage is in the interest of the whole Barents and Baltic Sea region. But we are, of course, the first to benefit. After all, Lake Onega is the source of drinking water for the city,” says Mr Zhuravlev.
The modernisation of the drinking water and wastewater treatment is one of the largest projects in the public utility services in Petrozavodsk. Besides its positive environmental effect, it will also create some 300 new jobs in building and maintenance. Mr Zhuravlev hopes the project will give a green light for investors to come to the city.
“The loan agreement proves that we are a reliable partner for investors. We also count on the multiplication effect. Investors are more prone to build up their business on infrastructural improvements,” he says.
The city has a number of other urgent needs for environmental investments, including the upgrade of smaller wastewater treatment facilities and building up storm water treatment. Mr Zhuravlev believes that the experience from close cooperation with international financial institutions in this project will help in negotiations for more loans in the future.
“It may seem easier to land a loan from a commercial bank, but we are learning how to deal with IFIs, how to make our projects eligible for their financing. It’s well worth it if the outcome allows us not to dip into the pockets of the inhabitants,” says the deputy mayor.
All partners on the Russian side—the contractor, the city and the regional government—are speaking with one voice about the prestige of the project. Mr Safronov has been in his job for more than seven years after a long career in public administration. He sees the implementation of the investment programme as a matter of honour.
“We have a perfect opportunity to excel,” he says.