ROCH

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26472
Company name	Roch S.A.
Country	Argentina
Sector	Oil, Gas and Mining
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Active

Date SPI disclosed	December 20, 2007
Projected board date	January 31, 2008
Previous Events	Invested: March 19, 2008 Signed: March 3, 2008 Approved: February 28, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

ROCH S.A. (ROCH or the company) is a small Argentinean oil and gas exploration and production (E&P) company. Its six hydrocarbon assets are located in the Austral, Golfo San Jorge, and Neuquen basins, in central and southern Argentina. The company’s main asset is its 20.29% participation in the Rio Cullen – Las Violetas – Angostura joint venture, which produces natural gas and crude oil from the Tierra de Fuego island. Current oil and gas production net to ROCH is 440 barrels per day (b/d) and 4700 thousand cubic feet per day (mcf/d), respectively. IFC has been requested to provide a financing package to the company to partially fund its 2007-2010 capital expenditure program, which includes:

- drilling programs aimed to increase production from existing hydrocarbon fields,
- addition of production and storage facilities,
- exploration activities within ROCH’s hydrocarbon concessions; and
- potential acquisition of new hydrocarbon assets.

Anticipated development impact of the project

- Fit with the World Bank Group Strategy:

The World Bank Group’s (WBG) current program in Argentina focuses on supporting the Government’s efforts to make the transition from emergency response and crisis recovery, to sustained growth with improved equity and reductions in structural poverty and an appropriate policy framework for private sector development. IFC’s priorities for its direct investments are to provide long-term financing and structured financial products to companies and projects in strategic sectors including: oil, gas and mining; agribusiness and forestry products; and the financial sector. The proposed IFC investment is fully consistent with this strategy.

- Development Impact:

Contribution to alleviate tight gas market in Argentina:

ROCH’s capital expenditure plan is targeted to increase Argentina’s indigenous sources of energy, particularly the monetization of gas reserves. This is important for Argentina, where approx. 46% of the primary energy matrix is supplied by natural gas. Argentina is facing a shortage of gas due to the increase in demand and decreasing production rates, which presents a risk for sustained growth. The project will contribute to mitigate this effect.

Creation/preservation of local employment and sourcing in Argentina:

ROCH currently employs 105 people directly and over 40 people through subcontractors in the provinces of Tierra de Fuego, Santa Cruz, Mendoza, and Rio Negro. The project will help to secure these jobs by extending the life of ROCH’s hydrocarbon fields. During drilling and construction operations, a significantly larger number of people are expected to be hired through local and regional contractors. This will provide an alternative source of income to local people, whose employment alternatives are mainly restricted to the agribusiness sector. The project will also have an impact on regional economic activity through local purchasing.

Contribution to Government revenues:

The project will facilitate the sale of increased volumes of natural gas, gas liquids, and crude oil. Associated taxes provide an important source of income to the Federal and Provincial Governments; therefore, the implementation of the project will result in increased revenues for the Government.

Indicators that will be used to monitor the development impact of the project include:

- Employment maintained/created;
- Payments to Government; and
- Purchases from local and national suppliers.

Governance risks assessment

It is expected that benefits from the project will accrue to different levels of government in Argentina in the form of taxes and royalties. Benefits to the local population are also anticipated. In coming to a view on whether to support this project, IFC has reviewed a range of assessments including, but not limited to, The World Bank Institute’s Governance Indicators and Transparency International’s Corruption Perceptions Index. The Government has committed to strengthening public sector performance within Argentina’s federal system, with a view towards improving the effectiveness of basic service delivery and building transparency and trust, objectives that are supported by the World Bank Group’s current program in Argentina. In addition, the Governments of Tierra de Fuego, Santa Cruz, Chubut, and Rio Negro adhere to the 2004 “Ley de Reponsabilidad Fiscal”, meant to promote fiscal discipline at the provincial level. On balance, given the governance situation in the country and the project’s expected development benefits, IFC believes that this is a project in which it should invest.

IFC's expected development contribution

- Optimization of capital structure:

It is critical for ROCH to maintain a sound capital structure, including long-term financing consistent with its business profile. IFC’s financing will provide ROCH access to adequate tenors at competitive pricing, beyond what is currently available to the company from the local banking and capital markets.

- Promotion of environmental and social sustainability:

IFC will assist the company in developing a corporate environment and social management system (ESMS) in line with IFC’s Performance Standards and international best practices. The ESMS will be applicable to ROCH’s current operations and to any asset acquired by the company in the future.

- Promotion of good corporate governance practices:

ROCH is a family-owned company that is in the process of expanding its operations. As such, the company will benefit from IFC’s assistance to enhance its corporate governance system. Stronger corporate governance will facilitate the company’s access to the international capital markets during its future financing rounds.

Environmental and social issues - Category B

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 comprised an appraisal of the Project’s technical, environmental and social information, visiting some of the key oil and gas operations in Argentina, as well as interviews with company managers and operations’ personnel. The following management elements were assessed:

- Adequacy of the existing Environmental, Health, Safety and Social Management to satisfy IFC’s Performance Standards requirements;
- The client’s assessment of potential EHS & Social impacts related to the project;
- Labor issues, Human Resources policy;
- Health and Safety performance;
- Contractors’ EHS performance;
- Air emissions;
- Produced water disposal;
- Liquid and solid waste management;
- Drilling and Workover procedures including their solid waste disposal;
- Emergency Response Plans;
- Community engagement and public consultation;
- Potential related land use/rental or compensation issues;
- Operations in biologically sensitive areas.
- Social issues;
- Cultural and Archaeological chance find procedure.

The company has plans to address these impacts and ensure that the project will comply with the environmental and social requirements - the Argentinean laws and regulations and the World Bank/IFC environment and social policies and the environmental, health and safety guidelines. The information about how these potential impacts will be addressed by the company is summarized in the Environmental and Social Review Summary (ESRS) and in the Action Plan agreed with the client.

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