The project sponsor is ISD. Founded in 1995 and headquartered in Donetsk, Ukraine, ISD is owned by Messrs. Sergey Taruta, Vitaliy Gayduk and Oleg Mkrtchan.

The project is estimated to be $1.1 billion. The proposed IFC investment is a $100 million A loan for IFC’s own account and a $250 million syndicated B loan.

100.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	100.0
Equity

* These investment figures are indicative

AMK and Alchevsk Coke are located in the town of Alchevsk, with a population of about 190,000 people. AMK supports some of the social infrastructure in the town. AMK is only 120km from the port of Mariupol and 650km from Odessa. DMK is located in the town of Dneprovsky with a population of about 300,000 people. DMK is sited on the Dnepr river.

The proposed project is expected to have a positive development impact in several areas:

- It will further improve the competitiveness of a major steel producer in Ukraine. The project should enable ISD to produce better quality and value products for the domestic and export markets. ISD-Ukraine does not depend on tariffs, especially as it is export oriented.

- By implementing an action plan to meet IFC’s environmental guidelines, the project should have a substantial positive impact on the environment by decreasing the emissions, improving the use of gases and better recycling of dust emissions.

- Efforts by ISD, an industry leader, to improve transparency through having an international audit of its financial statements, will have far reaching effects on the business practices of the rest of the Ukrainian private sector, and the attitudes of foreign investors regarding Ukraine.

- Steel plants often have a huge impact on the local community by virtue of:

--the large number of people directly employed, normally between 10,000 and 60,000 per plant; and

--the historical dependence of nearby towns for services, especially in former Soviet Union and East Europe.

- AMK and DMK are important to the development of the economies where the plants are located as they are town-creating enterprises and employ a significant portion of the regions’ workforce. AMK and Alchevsk Coke’s combined staff is 25,300. AMK still supports some of the social infrastructure in the town of Alchevsk, with a population of about 190,000 people. DMK with 19,000 employees is also one of the key employers in its town which has a population of 300,000.

IFC Role in the project is as follows:

- Given IFC’s proven track record of helping other integrated steel plants in Eastern Europe and CIS countries bring their environmental performance up to international standards, ISD seeks IFC’s assistance in formulating and implementing a time bound, milestone specific, environmental action plan to do the same.

- IFC will provide long-term financing to ISD which otherwise is not available in Ukraine. Given the cyclicality and capital intensiveness of the industry, steel companies need long-term financing. Commercial banks are only willing to provide loans to ISD with maturity of up to three years, and often with complicated structures consisting of securitization of export receivables.

- IFC will attempt to mobilize additional financing through a B Loan syndication, attracting commercial bank financing in Ukraine with a longer tenor and encouraging the banks to take ISD’s credit risk, without any securitization of export receivables.

- ISD is interested in expanding its relationship with IFC. ISD is an important Ukrainian industry leader which has acquired production facilities in other Eastern European countries. In this context, ISD should be a strong partner for IFC when promoting South-South investments and supporting the expansion of the emerging markets companies becoming a global player.

- IFC would assist ISD in improving transparency and corporate governance practices. As a start, ISD has begun the process of preparing audited consolidated financial statements in accordance with the International Financial Reporting Standards.

This is a Category B project according to IFC’s Procedure for 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 review of this project consisted of appraising technical and environmental /social information submitted by the project sponsor, as well as an audit carried out by an independent consultant and site visits by IFC environmental and social specialists. The following potential environment, health and safety and social impacts of the projects were analyzed:

- Historic development of the operations and their inclusion in the ISD ownership;
- Past and current environmental performance of all facilities in relation to compliance with local environmental regulations and compliance with World Bank guidelines;
- The company’s relations management with respect to local authorities;
- A review of the company’s proposed Capital Expenditure (CAPEX) program and its influence on compliance;
- Analysis of areas not initially included in the CAPEX program, but with non compliance with local or World Bank guidelines, and inclusion of programs for these areas to achieve compliance;
- The company’s occupational health and safety record;
- The company’s social role in the local society.