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9
Financing cement achieves
sustainable development
Cement production plays an important role in the development of a country, but it is
also energy-guzzling and polluting. EIB has implemented selection criteria that promote
environmental and social responsibility in projects. The operations that are supported are
located in Europe or elsewhere in the world and meet the same requirements.
One of the main aims is to promote the “best available techniques”, energy efficiency
and reduce CO 2 emissions.
Philippe Guinet
Philippe Guinet and Jacques van der Meer
European Investment Bank 1
The European Investment mission Bank's
is to further the objectives of the European
Union (EU) by making long-term
finance available for sound investments. It
does this inside the EU, but also beyond, where
its lending is governed by a series of mandates
from the EU in support of the EU development
and cooperation policies in partner countries,
like those in Latin America and Asia (ALA),
Eastern Partner Countries under the EU
Neighbourhood Policy, selected MENA countries
under its Mediterranean Neighbourhood
Mandate or African, Caribbean and Pacific
countries in line with the ACP–EC Partnership
Agreement (Cotonou Agreement).
While the EIB lends to the cement sector in
the EU, projects typically have to meet environmental
and energy-efficiency objectives –
its primary aim is to aid sustainable, economic
development. Financing foreign direct investment
(FDI) receives particular emphasis, since
transfers of both capital and know-how are
strong drivers for economic modernisation,
Philippe Guinet joined the
European Investment Bank
in 1993, where he is presently
Technical Advisor for Heavy
industries in the Projects
Directorate. From 1974 to 1993,
he held various operational
and managerial positions
in the private sector in and
beyond Europe. He holds
an engineering degree from
École Nationale Supérieure
des Télécommunications
(ENST) and a management
diploma from MIT, USA.
Jacques van der Meer
Jacques van der Meer
works as deputy economic
adviser at the European
Investment Bank’s Project
Directorate, where he is in
charge of the appraisal of
R&D projects. Before joining
the EIB in 1991, he lectured
strategic management at
the Rotterdam School of
Management of the Erasmus
University and the École
Supérieure de Commerce de
Lyon. He holds a PhD from
the Twente University of
Technology, Netherlands.
exports and higher productivity. It also supports
public sector projects, typically in infrastructure,
that are critical for private sector
development and the creation of a competitive
business environment.
Recipient project overview
Between 2000 and 2010, the EIB financed
14 cement projects, totalling EUR 770 million
(Table 1). Total associated investment
costs for these projects amounted to EUR
3,200 million. Of this, EUR 210 million (27%
of lending) went to three projects in EU member
states, and the remaining EUR 560 million
(73%) went to 11 projects under the Cotonou
mandate. Lending in the EU is typically geared
towards energy efficiency and environmental
protection, whereas lending under the external
mandates is geared towards construction
in line with lending objectives to promote sustainable,
economic development. For industrial
projects, like cement plants, this involves
facilitating FDI and import substitution by
local producers.
Meeting EIB’s sustainable development
objectives
EIB financing of industrial investments inside
the EU has to be consistent with EU objectives.
In the context of energy efficiency, this
is achieved by financing projects that reduce
energy consumption by at least 20%. Projects
are also considered eligible for financing if
they significantly reduce industrial pollution.
Finally, R&D investments or pilot plants are
eligible if they involve new materials, drastic
reductions in environmental pollution, or
energy consumption.
The International Energy Agency (IEA, 2007)
demonstrates that in manufacturing industries,
there is a potential to save 18-25%
1
The opinions expressed in this article are those of the authors, and not
necessarily those of the EIB.
Private Sector & Development

10
Financing cement achieves sustainable development
Cement,
confronting
ecological
responsibility
and economic
imperatives
in primary energy consumption (roughly
750 Mtoe/yr) and 19-32% in CO 2 emissions
(an average 2650 Mt of CO 2 /yr) from adoption
of best practice technologies. Whereas this
IEA study illustrates the potential for energy
efficiency investments and CO 2 abatement,
the EIB looks at the economic performance
of the investments. For instance, although it
may seem cheaper to invest in emission reductions
from power plants rather than investing
in energy efficient buildings, the cost over the
latter’s life may be much lower, resulting in the
latter being more attractive. By promoting and
supporting these higher-cost investments,
multilateral financiers like the EIB can play a
catalytic role.
With the EIB’s external mandates, efforts are
directed at fostering private sector-led development
that promotes economic growth and
has a positive economic and social impact on
the wider community and region. And this has
been the main justification financing cement
projects outside the EU. In the stages of a
country’s economic development, production
shifts from mainly unskilled, manual activities
to basic industrial activities that cater for the
expanding infrastructure – construction sectors
and heavy industries. Local cement production
is therefore important to regional
infrastructure development, which is essential
in reducing poverty, promoting social equity
and enhancing a nation or a region’s industrial
competitiveness.
This justifies international financing in support
of expanding local cement-producing
capacity. The relation between GDP and
cement demand is clearly illustrated in the Figure
1, showing the steep increase in developing
economies and the stabilisation of demand in
Western economies. When countries achieve
higher levels of economic development, production
and therefore capital investment
shifts to higher-value added goods (machinery,
transport equipment), and economies become
more service-oriented.
Technical and economic considerations
Once the EIB’s lending criteria have been met,
a due diligence is undertaken, which takes into
account the characteristics of the industry and
addresses the technical and economic underpinnings
of the project. For projects outside
the EU, the due diligence incorporates social
and economic development effects.
Given the EIB’s commitment to protecting
the environment and promoting sustainable
development, it places an emphasis on the use
of best available technologies 2 (BAT) in choosing
processes and equipment. It also encourages
using alternative fuels such as waste fuels
(spent oils, tyres, animal feeds, pet coke, biomass,
etc.) and reducing the CO 2 component of
the electricity used to operate the plant.
A lot of consideration is given to using alternative
cementitious materials as a substitute for
clinker. The EIB has instances of this in its portfolio,
with up to 50% of steel slags being used
in the Cementir plant in Taranto (Italy), and
the promotion of modifications of the national
technical specifications for cement by the Syrian
plant, in order to allow the incorporation
of up to 25% of puzolan. The EIB has defined
an internal methodology (based on international
greenhouse gas accounting standards)
to assess the carbon footprint of its industrial
projects, by calculating baseline emissions and
absolute project emissions.
2
Best available technology (BAT) is the advanced method used in industrial
production that limits the emission of pollutants.
TABLEAU 1: EIB LENDING OPERATIONS IN CEMENT SECTOR (2000-2010)
Year Country Project name Cost (M EUR)
2000 Bangladesh Lafarge Suma Cement Plant Construction of a cement plant near Chhatak 247
2002
Bosnia-
Herzegovina
Lukavac Cement Factory
Modernisation and new production line at Lukavac,
nord of Sarajevo
2002 Algeria Algerian Cement Company Construction of cement plant near M’sila 284
2002 Tunisia Cimenterie CAT
Modernisation and capacity extension
of a cement plant near Tunis
2003 Portugal CIMPOR Cimentos Modernizaçao Modernisation of three cement plant in Portugal 120
2004 Algeria Algerian Cement Company Capacity extension of cement plant near M’sila 157
2005 Nigeria Dangote Cement Construction of a cement plant 605
2006 Pakistan DG Khan cement Construction of a cement plant near Chakwal 208
2008 Ethiopia Derba Midroc Cement Construction of a cement plant at 70km from Addis Abeba 251
2009 Turkey CIMPOR Yibitas Ankara Construction of a clinker line near Ankara 127
2009 Namibia Ohorongo Cement Construction of a small cement plant near Addis Abeba 242
2009 Syria Syrian Cement Company Construction of a cement plant near Aleppo 127
2009 Spain Cementos Molins Energy Efficiency project at a cement plant near Sant Vincenç 506
2010 Italy Cementir Taranto Energy Efficiency project at a cement plant in Taranto 208
Source : BEI, 2011
75
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FIGURE 1: LINK BETWEEN GDP GROWTH AND CEMENT CONSUMPTION
800
6 000
700
600
1950-2008 CAGR:
Gross Domectic Product: 3.4%
Cement consumption: 2.4%
5 000
1950-2008 CAGR:
Gross Domectic Product: 4.5%
Cement consumption: 7%
500
EU15, USA and Japan
4 000
Rest of the world
400
3 000
300
2 000
200
100
0
50
535659626568
71747780838689929598010407
1980 = 100
1 000
0
50
535659626568
71747780838689929598010407
Nota bene: CAGR means Compound Annual Growth Rate
Source: Italcimenti
For the construction and equipment used in
the plant, the EIB has established criteria in
terms of cost of investment, timely implementation
and reliability of operation, to ensure
that design, procurement and management
are effectively carried out in the project. These
criteria have resulted in the Bank financing
projects using Chinese technology. This may
seem controversial, as it does not promote
EU technology, and some Chinese equipment
incorporates copied Western technology; however,
in some instances, these choices of technology
have proved favourable to projects. For
instance, without compromising on the quality
of equipment supplied, the low-cost delivery
of equipment has permitted the improved
profitability of a project in undertaken in difficult
circumstances in Ethiopia.
For greenfield cement plants in the EU a full
social and environmental impact assessment,
including public consultations has to be undertaken.
The EIB applies this criterion to all its
operations worldwide, on all plant aspects. This
results in choosing best available technologies
in the design of projects. The social impacts of
projects are consistently taken into account;
in particular, issues such as resettlements of
previous occupants of the sites, occupational
health and safety, and engagement with communities
are carefully monitored. Examples of
this in EIB-financed projects can be found in
Syria and Ethiopia.
Cement is the principal material used in construction
(buildings and large infrastructure),
and demand for cement is tightly linked to
the social and economic development of countries.
Investments in local cement production
stimulate competition and often create surpluses,
reducing local prices and improving
product quality. In developing countries, due
to deficient local capacity, it may release pentup
demand, resulting in development. Examples
of significant cement price reduction
(of up to 30%) and an immediate increase
in demand (of up to 10%) were the results
of projects financed in Bangladesh, Nigeria
and Ethiopia. Thus, in addition to the financial
underpinnings, such direct externalities
are incorporated as the economic returns of a
project. Simultaneously, the EIB evaluates the
environmental impact in its economic assessment,
including a shadow price for greenhouse
gas (GHG) emissions in the calculation
of the project’s economic rate of return. The
Bank’s current shadow prices for carbon are
based upon an economic price of carbon proposed
in 2006 by the Stockholm Environment
Institute (SEI) to the Bank for its economic
analysis of projects. SEI recommended values
start from EUR 25/t of CO 2 emitted in 2010
- increasing by EUR 1 every year - to reach
EUR 45/t of CO 2 in 2030 for the central range
(baseline). The shadow prices of other GHG
is based upon their global warming potential
factors (where CO 2 = 1), as proposed by the
Intergovernmental Panel on Climate Change.
The EIB has continued its financial support of
the cement industry, an energy- and carbon
emissions-intensive sector, by considering its
important impact on the economic development
of countries. However, EIB-financing is
increasingly being challenged because of its
imperative to calculate the absolute and relative
footprints of projects.
References / IEA, 2007. Tracking Industrial Energy Efficiency and CO2 Emissions, report.
Private Sector & Development