Lower carbon emissions in Ukraine

NIB is financing an investment into upgrading the energy supply at a Ukrainian steelworks as part of an ongoing effort to modernise the country’s steel industry. The Industrial Union of Donbass (ISD), the owner of the steelworks and the borrower, is Eastern Europe’s major steel producer.

The NIB loan is earmarked for the installation of a combined cycle gas turbine for a power cogeneration facility with a total capacity of 450 MW at the Alchevsk iron- and steelworks in eastern Ukraine. Once the facility is set in operation, the steelworks will be self-sufficient in electricity supply.
The Alchevsk steelworks, founded in 1896, is one of the oldest plants in eastern Ukraine. The plant features the full technological cycle of production and exports to more than 60 countries. Rolled steel plates and pig iron enjoy growing demand on the international market.

More steel, less carbon

To tap the demand, the plant is set to increase its steel output capacity more than two-fold to about 8 million tonnes, as well as to expand the range of steel grades. The construction of the new power cogeneration facility is a primary prerequisite for the planned expansion totalling USD 3.6 billion.

The upgrade will, however, not entail as large an increase in carbon emissions as might be expected. This will be possible thanks to the financed power cogeneration facility using waste gases from the steel production and coke oven gases. The facility will allow cutting the levels of the greenhouse gas emissions by 3.5 million tonnes a year. This amount is comparable to the annual emissions of a large European industrial city.

“Our support will help increase the company’s competitive advantage, expand its range of steel grades, and improve its environmental performance,” says Tore Emanuelsson, Senior Manager of Lending at NIB.

First of its kind

The new power cogeneration facility will use state-of-the-art pollution control technology and meet all the relevant EU and Ukrainian laws and regulations. The facility will be the first of its kind in the whole of the former Soviet Union. The town of Alchevsk, where the steelworks is located, with a population of about 190,000 people, will largely benefit from the modernisation programme.

“This project will introduce best international standards of environmental management at the Alchevsk steelworks, which will have a positive impact on the environment in a large industrial region of eastern Ukraine,” Mr Emanuelsson explains.

“We hope that this successful modernisation project at Alchevsk will become a pattern other industrial producers in Eastern Europe will follow,” he adds.

Boosting the sector’s competitiveness

The Industrial Union of Donbass, the owner of the steelworks, is Eastern Europe’s major steel producer, with production subsidiaries in three countries. The corporation’s main assets include the Alchevsk iron and steel plant, the Alchevsk coke plant and the Dneprovsky iron and steel plant in Ukraine, the ISD Dunaferr steel plant in Hungary and the ISD Huta Czestochowa in Poland.

Cooperation with international financial institutions, such as the International Financial Corporation, the European Bank for Reconstruction and Development and now also NIB, is helping ISD implement its capital investment programme with the purpose of boosting the company’s performance and the competitiveness of the whole metal industry, a key sector of Ukraine’s economy.

“The financing from IFIs will allow the ISD steel works to continue replacing older steel facilities with the latest production technologies. The modernisation will improve quality and extend the product mix as well as put us on the map in terms of energy efficiency,” says Valentine Smirnyagin, ISD’s corporate finance project manager.

The company’s modernisation programme will also lower the costs of production. The investments will indirectly create about 5,000 new jobs in related sectors, including construction, extractive industries, engineering, transportation, and services.