"Continental Management" Sabotages the Modernization of Baikal Paper and Pulp Plant

Recently it has come to the attention of Greenpeace and Baikal Environmental Wave that experts from the World Bank, which is financing the modernization program at the Baikal Paper and Pulp Plant (BPPP), is seriously considering withdrawing from the project. The bankers are concerned about considerable delays in the work, spiralling costs, and the very real possibility that the project to modernize the factory poisoning Baikal could fall to pieces entirely.

The problem stems from the dangerous position of the lumber company, "Continental Management," which is running the plant. The firm is disregarding plans to invest its own capital in the program and is trying to review the list of equipment acquisitions.
At the end of December 2004, the World Bank conducted an inspection of BPPP to asses the actual progress being made in modernizing the plant. The inspectors were particularly interested in what had been done to introduce a closed water circulation system, which would guarantee a total stop to all effluent discharges into Baikal. After this trip the World Bank specialists spent a month actively discussing their findings, a reaction which, according a World Bank representative, resulted from the highly unsatisfactory pace of work at BPPP and its managing company, Continental Management. Immediately after the New Year's vacation, the World Bank first announced that if the present situation remained, it would consider the possibility of withdrawing its financing of the BPPP modernization. The bankers practically handed the lumber company an ultimatum: if Continental Management does not present a concrete plan to speed up the work by February 5th, financing will be discontinued.

On February 3rd Oleg Derpaski, the head of Bazovoi Element (BazEl), the company which owns Continental Management and 51% of the shares of BPPP, and James Wolfensohn, the president of the World Bank Group finally met. This meeting was viewed with great anticipation, as some experts believe that the owner of BazEl either doesn't know or doesn't understand what is happening at BPPP. It is more than likely (if nothing changes after this meeting) that the World Bank will be begin consultations with the Russian government about possible ways to withdraw their financing from the modernization project.
The representatives of Continental Management have abstained from making any comment on the matter. BPPP's management, as represented by the assistant director of modernization, Yuria Shmayev, believes that there is no problem: "Continental Management" and the plant are not failing to meet the schedule agreed upon earlier. However, a report, especially prepared for the World Bank inspectors' trip, clearly indicates that the time commitments have not been met. We would like to remind the reader that according to the BPPP Modernization Project the closed water circulation system should already be operational in 2006, and the entire first stage of the program should be completed by January 31st, 2007. According the World Bank experts' evaluation, completing this work by the said deadline is already physically impossible.

Aside from the administration, Vladimir Grachev, chairman of the State Duma's Environmental Committee is in charge of overseeing the completion of the modernization program. However, this deputy, apparently, was busy with more important projects, such as the construction of the Eastern oil pipeline.

If the World Bank leaves the BPPP modernization project, it will not only be one more stain on the reputation of Oleg Deripaski (though it is not beyond the realm of possibility that he really doesn't care), but also another blow to Russia's reputation, as the credit was provided under a government guarantee. In order to resolve this situation, our leaders must act effectively and immediately. Since they only respond to orders from above, it appears that the President will have to intervene and take control over the project.

The plant first began operations in 1966, and since then it has been essentially the only enterprise to discharge its effluent directly into Baikal. From the day the decision to build BPPP was made, the plant has remained at the centre of the public's attention. It is widely acknowledged that the beginnings of the Soviet, and later Russian environmental movement took root in the first demonstrations against the paper and pulp plant on the shore of Baikal.

The stock holders of BPPP are BazEl (51%) and the government (49%). The plant is being managed by the logging company Continental Management, whose main shareholders are BazEl and the banking house "Saint Petersburg."

Presently, the daily volume of effluent released by BPPP into Baikal is 120,000 cubic meters, and contains significant concentrations of suspended particles, organic chlorides, nitrates, phosphates, phenols, sulphates, sulphur-containing compounds, derivative lignin, heavy metals, etc. In addition to the above, the factory's sludge storage tanks contain millions of cubic meters of toxic solid waste.

The city of Baikalsk does not have its own water purification equipment, and the domestic wastewater is treated by the antiquated purification equipment of the plant. Without construction of municipal water treatment facilities in Baikalsk, it is impossible to solve the problem of the discharge of wastewater into Baikal. According to the experts, in the city's plan for water treatment facilities the capacity has been deliberately set too high at 12,000 cubic litres per day, or 750 litres per person. However, according to experts' predictions, due to the reform of Housing and Communal Services, water consumption will drop to 200 to 300 litres per person in the near future, meaning that it will become necessary to pay for water. The inflated capacity will make the project more expensive. The first stage of the BPP modernization program, and the only one which has undergone a state environmental impact assessment, is focused on the creation of a closed water cycle to be used for the production of unbleached cellulose, the reduction of airborne emissions, and the construction of a water treatment plant for Baikalsk. With these goals in mind, the World Bank granted BPPP 22.4 million dollars at 10% annually under the guarantee of the Russian government; an additional 11.1 million dollars are to be contributed by BPPP.

According to experts at EnviroData Ltd., which carried out an independent assessment of the cost of modernization of the plant, the project will cost 3-5 times more than the owners of BPPP have supposed, a minimum of 53 million dollars. However, relative to the Russian budget, this is a trifling sum to pay to save this unique lake, one fifth of the world's fresh water.

Press-Bureau Greenpeace Russia and Baikal Environmental Wave

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