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Financing low carbon cement production in emerging markets: Florence Bachelard-Bakal, EBRD (UK)

Filmed at Cemtech Europe 2015, 20-23 September, Intercontinental Hotel, Vienna, Austria.

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So very briefly, to explain what is EBRD for who are not familiar with us. OK, we were set up in 1991, mainly by European Union government. We have some very large shareholders outside the European Union, which are of course the United States but also Japan and Mexico and all the countries which EBRD operates, which are the former countries of the comic-con.

From countries from the Yugoslavia, the caucasus and more recently Turkey, Cyprus, Greece Morocco, Tunisia, Egypt and Jordan. So this is keeping us busy, we are operating with a capital base of 30 billion Euro, were not leveraged and now triple air rigid which give us some flexibility to do financing in difficult countries, in this emerging markets.

We are mostly private sector finance, about 70% of what we do is in the private sector. We do roughly 400 new projects every year, for a total of 7-8 billion Euro new money every year, and since we have been set up, we have invested about 100 billion Euro. That's the map of where we operate which give us quite a large diversity of countries jurisdiction and challenges as you can imagine.

Cement has been a very important sector for us of course, because it's essential to rebuild infrastructure of countries, also because it's very [xx] and this is typically where you need to have long term financing from development institutions of such EBRD, you will recognize of course, the large names in the industry, but also working with smaller producers and I will talk to you later about the project we have done in Mongolia with stanson which was launched months ago and also what we are doing more generally in Kazakhstan and in Egypt which is a new country for us.

Energy efficiency and surprisingly is very important. Non the less because we have been set up very recently, and our shareholders are very aware that CO2 emission is one of the critical aspects that have to be dealt with. We have the privilege of having grand funding that has been entrusted to us by a number of government or institutions, which allows us actually to support industrial projects, either through due diligence, project preparation or even through implementation since we have friends that are buying covered credit if we do the CDM project we also had access to some of grand funding for innovative technology which also helped us kick start some new number of structures on your projects in difficult countries.

So what have we done in Mongolia? Mongolia is an interesting country because it's huge, it's 1.4 million population, it imports almost until recently all its cement to China and you will appreciate that the cost of cement delivered to Ulaanbaatar the capital is very high for obvious reasons.

We were approached by a lady who was actually gold miner so nothing to do with cement, and once you purchased she had in hand business plan which was prepared by one equipment manufacturer at 300 Euro per tonne, we are not industry players but we have the comments sense to understanding that if you spend too much money on building your client, we never going to make money on return either tender or equity provider you will see in your return. So we sat down with the management and we had them re-tenderer, redo the design and then we tend tally their cement plant which basically led to decrease by 100% of the cost because we reduced the cost of the plant to 150 million tank we had them in the EPC negotiation and they successfully signed a very good contract with Huacim.

We have them secure good management team we help their structure implementation arrangement, with hold-tech from India we help them and also help them arrange for an operation in management agreement also [xx]. EBRD city in the board we have secured very experience, cement person who is advising the company and helping them to take good strategic decision, and as we're working with the company, we've been working our aways through number of key objectives including best- practice coupled governance.

Which for us institutions is absolutely essential, improve the designer improve management practice because its the first new cement factory launched in Mongolia. It was essential that wastaging group standard in a country like Mongolia, so we had to change labor standards to allow a woman to work so many plants.

Mongolia is a country where alot of men have gone working in South Korea so you have a shortage of skilled labor force and it was important to find ways to populate the cement plant and so we have changed the labour laws in Mongolia is supposed to allow a woman to work in the cement plant factory so that quite unique.

The next country where we've been active and quite active is Kazakhstan. And in Kazakhstan we're doing two things really, we do finance projects and we also support to government through policy dialogue, projects have for finance, we have financed quite few projects in cement in Kazakhstan presently we've been supporting the Baikonur machinery group in providing them long-term local currency financing which is very important, cement industries are local industry primarily at least in Kazakhstan.

And we've been providing that and equity, the equity piece is also because Kazakhstan is a country where you have quite often government interference, and having EBRD the equity helps fend off some demand from the local acupads or government that are trying to extract bribes or God knows what privileges.

In supporting this investment we have been supporting foreign direct investment which in Kazakhstan is scarce, and we have been using this project also to support the launching of the policy dialogue with the Kazakh authorities, to improve the regulation of CO2 emission verification.

and also to align the Kazakh emission trading system with EUGS, we've been working with Italcementi to have them set energy efficiency standard in Kazakhstan, and to demonstrate to other players how you can increase the content of alternative fuels which is less developed in Kazakhstan.

Why quality dialogue and why do we get involved in this business? I think we've realized because in most of these countries we are the largest single investor we have a voice of choice with the government and the government would tend to listen to us. We also have government and grant funding that is made available to use which allows us to use these funds to retain qualified help to provide indefinite advice to the government, and often be a bridge between industry association and the government. Because Kazakh authorities have designed for themselves very ambitious target which is to decrease the C02 intensity by 50%, by 2050 for the one that has been, everywhere in Kazakhstan.

You understand that there is a lot to do and cement is actually one industry where a lot of good deed can be done. Kazakhstan has lost the pilot phase of the ETS, we're having them implement this second phase, and working on the design of the phase three which will start between 2016, and 2020.

What are we going to achieve? We are going to design a technological road map, that will identify what are the tools and means to achieve the CO2 reduction for the cement industry. We will of course develop stake holder engagement, to engage with the industry and also with the non-governmental organisation, we also help define what are the barriers to implement this legislation and allow the cement industry among others to reach these targets, and the last country I want you to mention is Egypt.

Egypt is a new country for EBRD. We have started operation in Egypt only two years ago, when we arrived in Egypt we had done and try to understand what could be our input into the cement industry which is already well established or the last cement players are already there with substantial production capacity.

It's a booming market, but at the time when we started to look at this market we realize it was facing very serious energy crisis the government reducing the subsidies on the gas or cutting the gas altogether to the cement plants so the cement plant had to face a challenge where they had to either import clinker from other places or to switch to coal which they had all done.

We also started to work with the private sector providing energy audits to understand what is the situation, and also having financing some projects, one with Cemex to support the implementation of their grinding mill in their huge plant, and also development of alternative fuel program but also we've been working with Rafash under waste energy project. So this is what we have done with the Cemex which is a 50 million euro financing for the EU plant the target we are seeking to achieve in this project is, help the company move from Mazut to coke and pet coke to lower them to increase the use of alternative fuels which are available, explain and demonstrating the Egyptian market hold by introducing coke and pet coke you can optimize to use an alternative fuel who has maintaining a sensible level of emissions.

The project is implemented in line with the EU best technology practices and we've been agreeing with Cemex how we bring the plant EU back over the life of the project policy dialog why did we get involved into this, it's quite an exclusive subject in Egypt, we clearly understood that there was a major issue in the sense that the Egyptian authorities had not dealt with coke and pet coke in the cement sector they we attacked by non governmental organization and also EBRD because we were financing the project we are also receiving of these attacks from the NGOs and we felt that there was certainly a role to play to help guide the Egyptian authorities in defining policies that would be sensible and intelligent use all these waste that we have in Egypt, but also to have the cement industry via few deficients.

We are very lucky since we have secure the support of C. S. I and actually I remember it was two years ago when we were in Istanbul, Phillip Hunter was attending this conference and we started to discuss how we can work together in Egypt, and I'm very grateful of the for C. S. I for having dedicated one of the member to work with us full time on this project.

We were last week in Egypt with the consultant that had been selected and has been kick starting this effort. This is not easy because the government in Egypt is changing quite often and the new cabinet was nominated this Saturday for 3 months is going to be changed again with new election.

The cement industry is suffering because there is contraction of demand so the outbreak to lower capacity the price of pet coke has decreased making it less of an incentive to user alternative fuels and the situation of waste management is non existent we are still in the situation where waste is there lying no policy to create incentive for the cement industry to start burning the waste and treating it.

Nevertheless we have, I believe, good starting point with the fact that, both the Egyptian authorities and the cement industry won't make progress, the cement industry having a large number of members that have them suffered a group level CO2 targets are very keen to see how we can improve the situation on the waste, we have the commitment to the authorities and the industry to present technological road map and a technical report which will explain and what is the current situation and hope to go from the situation where we are today to situation where we can substantially improve the use of alternative shows and reduced CO2 emission, the stakeholder's engagement could be particular important energy towards coke in the cement industry has not been well understood and I remember receiving letters from NGOs showing as drug runs where you would have the caller arriving to power plants and produce the energy that would then transferred to the cement industry.

So we had to reply actually not, this is not where it works and the coke is part of the production process and should be looked at differently from coke being used in power plant which for organizations like ours is prohibited. Next would be of course analysis of total barriers to a low sustainable locale bust and the waste energy pilocy will be absolutely key in this and we have agreed to create to show and show case should the design of carbon neutral production process that's flesh plant one of each probably will be the same X to show to the Egyptian authorities how this can be implemented future will tell how successful we are, but so far we have received a lot of support dynamical product by the end of the first quarter next year we'll be able to present some result to both the industry and the government.

Thank you for your attention.

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