30 June 2020
UVES LLC (“UVES”), an independent grid management company, which will be funded by Far East and Arctic Development Fund (“FEDF”) and Credit Bank of Moscow (“CBoM”), will start construction of the grid power line and substation for Polymetal’s Nezhda project.
THE PROJECT AND FINANCING STRUCTURE
The power line will be built, owned and operated by UVES, an independent grid management company led by an experienced team with a proven track record in infrastructure projects. Upon the construction completion scheduled for Q2 2022, the facility will be leased out to Polymetal on pre-agreed terms.
The project CAPEX to be incurred by UVES is estimated at RUB 6.0 billion1 (approximately US$ 86 million, net of VAT), of which RUB 5.5 billion will be funded with the FEDF’s 10-year senior loan and RUB 1.7 billion with the CBoM’s 5-year subordinated loan facility. Polymetal will grant a guarantee for the FEDF loan, as well as guarantee payments under the lease agreement to UVES.
The single-circuit 110 kV power line will run 254 km from Khandyga, 415 km east from Yakutsk, to the Nezhda production site. The project is fully permitted with construction set to start in July.STRATEGIC RATIONALE FOR THE PROJECT
Cost savings: grid connection will reduce all-in power cost from approximately 16 to 10 RUB/Kw-h compared to in-house generation from diesel, which translates into a roughly US$ 40/oz reduction in Nezhda’s TCC. Nezhda annual energy consumption is estimated at 110 GWh.
Meaningful decrease in environmental footprint:
75% reduction of equivalent Nezhda’s CO2 emissions from 64 Kt to 16 Kt per year, which implies a 4% decline in total Group’s CO2 emissions.
Reduction of environmental accident risks related to transportation and storage of large diesel fuel volumes.
Benefits from further down-the-line power intensive improvement opportunities.
“Grid power enhances the economics of Nezhda and drastically reduces its environmental footprint”, said Vitaly Nesis, Group CEO of Polymetal. “Long-term project funding from FEDF supported by a highly experienced management team ensures successful execution of the project and allows us to preserve our focus on the key business”.
“As one of the largest Russian banks, we fully understand our impact on economic, social and environmental issues, and embrace responsibility that it implies. We are actively integrating sustainable development principles into our business, prioritising projects that generate social and environmental benefits, such as the construction of a power line for Nezhda, funded by the Far East and Arctic Development Fund and us”, said Alexander Kaznacheev, Deputy Chairman of the Board of Credit Bank of Moscow.
JSC “Far East and Arctic Development Fund” is a subsidiary of the State Corporation “VEB.RF” (Bank for Development and Foreign Economic Affairs). The fund implements prioritized investment projects in the Far East and Arctic region by providing long-term preferential financing. On behalf of the Russian Government, the fund also develops digital services aimed to increase promptness and transparency of interaction between the state and business in various industries, and supports small and medium-sized enterprises.
1Including G&A and contingency costs.