Notice

Category A project supported: Shotton Mill, Containerboard and Tissue Manufacturing Facility, UK

Published 9 October 2024

1. Project description

UK Export Finance (UKEF) has agreed to provide support to Shotton Mill Limited (SML, the “Borrower”) in respect of working capital that will be applied to a specific UK-based project located at Deeside Industrial Estate, Wales, UK.

The Project consists of the conversion and expansion of Shotton Paper Mill (an existing non-operational paper mill) into a containerboard and tissue manufacturing facility. The Project aims to make card, containerboard, tissue paper and tissue products using 100% recycled materials. It is expected to have an annual output of 750,000 tonnes of cardboard, 110 tonnes of containerboard and 210,000 tonnes of tissue products. A combined heat and power (CHP) plant will provide power (60MW) for the Project, supplementing the existing biomass plant.

ENKA is the EPC contractor and is responsible for the design and construction activities. The Project will be operated by SML, a wholly owned subsidiary of Modern Karton Sanayi ve Ticaret A.Ş. (Modern Karton).

The Project does not include any Associated Facilities[1].

2. Project sector

The Project is in the civil construction sector.

3. Project sponsors

The Project is being developed by Shotton Mill Limited.

4. UK exporters

Shotton Mill Limited.

5. Export Credit Agent Bank

UBS and HSBC Bank Middle East.

6. Amount of UK Export Finance Support

The total Export Development Guarantee (EDG) amount is £170 million, of which UKEF are providing an 80% guarantee for £136 million.

7. OECD Common Approaches and Equator Principles

The EDG product does not fall under the scope of the OECD, Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the “Common Approaches”), OECD/LEGAL/0393. However, since 100% of UKEF financing will be used to develop a new facility with an identified location, the Project falls under the scope of the Equator Principles (2020). UKEF categorised the Project as a Category A, i.e. having the potential to have significant adverse environmental and social impacts that are diverse, potentially irreversible, and which may affect an area broader than the Project site.

8. Environmental, Social and Human Rights Standards

Project-related environmental, social and human rights (ESHR) documentation was reviewed for alignment against the 2012 International Finance Corporation (IFC) Performance Standards (PS) on Environmental and Social Sustainability and the World Bank Group Environmental, Health and Safety (EHS) Guidelines. The applicable IFC PS and World Bank Group EHS Guidelines were:

• PS1: Assessment and Management of Environmental and Social Risks and Impacts;
• PS2: Labour and Working Conditions;
• PS3: Resource Efficiency and Pollution Prevention;
• PS4: Community Health, Safety and Security;
• PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources;
• PS8: Cultural Heritage;
• World Bank Group General EHS Guidelines (2007);
• World Bank Group EHS Guidelines for Pulp and Paper Mills (2007); and
• World Bank Group EHS Guidelines for Thermal Power Plants (2007).

9. Nature of ESHR impacts

The review of potential ESHR risks and impacts took into account the following impacts, receptors and issues during the construction and operational phases of the Project:

• Air and noise impacts;
• Climate change;
• Soil quality;
• Waste, including hazardous waste and wastewater;
• Biodiversity;
• Management of third-party contractors and suppliers;
• Grievance mechanisms;
• Occupational and community health and safety;
• Emergency planning and response;
• Worker welfare;
• Cultural heritage; and
• Community engagement.

10. Assessment of ESHR impacts

A review was undertaken in line with the requirements of the Equator Principles to identify potential ESHR risks and impacts of the Project and how these would be effectively managed.

An Independent Environmental and Social Consultant (IESC) with a duty of care to the Lenders was appointed and commissioned to undertake an environmental and social due diligence of the Project. The IESC report formed the basis for UKEF’s evaluation of the Project’s alignment with the relevant standards and recommendations for compliance and monitoring.

The review included:

• Desk-based review of project-related documentation including environmental and social impact assessment and environmental and social management plans;
• IESC and lender site visit to the Project area, including meetings with key stakeholders; and
• Follow-up meetings and interviews with relevant Project representatives.

The results of this review formed the basis for the evaluation of the Project’s alignment with relevant international standards, and recommendations for future compliance and monitoring.

11. Climate change considerations

UKEF considered the Project’s potential direct (Scope 1 and 2) and indirect (Scope 3) greenhouse gas (GHG) emissions and effects of climate change factors on the Project. The operation of the Project is considered to be carbon intensive undertaking. Scope 1 emissions are expected to be 249,859 tCO2e/year during operations. Most emissions (236,453 tC02e/year) come from natural gas combustion at the CHP plant. Lower carbon alternatives to natural gas were considered but are not currently technically feasible or sufficiently reliable to meet the steam and power demands of the Project. No Scope 2 emissions are envisioned. Scope 3 emissions are expected to be 436,479 tCO2e/year. The Project has committed to publicly reporting on its GHG emission levels from combined Scope 1 and Scope 2 GHG emissions, on an annual basis in line with EP4 requirements.

The ESHR review revealed that the Project design has considered potential physical impacts of climate change.

12. Decision

Various actions have been agreed between the Project developers, operators, and parties involved in the financing, which are necessary to ensure the Project’s ongoing alignment with international standards. Following agreement of these commitments, it was concluded that the Project should meet the relevant international standards over the Project cycle. UKEF has therefore decided to provide its support to SML for development of the Project.

A condition of support is that the Project will be subject to ESHR monitoring by an IESC to provide satisfaction that the Project is aligned with the relevant ESHR standards throughout the duration of support.

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[1] OECD Common Approaches defines “Associated Facilities” as: those facilities that are not a component of the project, but that would not be constructed or expanded if the project did not exist and on whose existence the viability of the project depends; such facilities may be funded, owned, managed, constructed and operated by the buyer and/or project sponsor or separately from the project.