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| Alliance Refinery |
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| 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 | 26528 |
| Company name | Open Joint Stock Company (Alliance Oil Company) |
| Country | Russian Federation |
| Sector | Chemicals |
| Environmental category | B |
| Department | Oil, Gas, Mining And Chemicals |
| Status | Hold |
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| Date SPI disclosed | October 24, 2008 |
| Projected board date | December 1, 2008 |
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| View Environmental & Social Review Summary (ESRS), click here |
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| Overview |
Sponsor/Cost/Location |
Development Impact |
Contacts |
Attachments |
| Project description |
OJSC Alliance Oil Company (“AOC” or “the Company”) is an emerging, mid-sized, independent oil company with a focus on downstream petroleum operations in Russia. As on the end of 2007, AOC’s revenues and EBITDA were $1.6 billion and $228 million respectively, with assets of $1.5 billion. The company’s key asset is its refinery in Khabarovsk (the Russian Far East). Geographically centered around the refinery, AOC operates an integrated logistics, wholesale, and retail distribution network for refined petroleum products, including a marine terminal in Vladivostok. The company also owns two small crude oil production assets in Tatarstan (Russia) and Kazakhstan.
AOC is investing about $1 bln in the upgrade of Khabarovsk Refinery. The project, which involves construction of a hydroprocessing complex (including a hydrotreater and a hydrocracker), will increase the refining depth of the refinery, allowing it to produce higher volumes of light petroleum products, improve the quality of its output to comply with Euro-4 standards, and increase its nameplate capacity to approximately 4.35 million tonnes per annum. Following the modernization AOC expects to process 3,5 to 4,5 mln tonnes of crude oil depending on market conditions.
The modernization of the Khabarovsk refinery is critical for AOC’s operations as it would not only make its products compliant with the Euro 4 product specifications, but also would allow the company to:
- capture the premium from production of higher value-added products from the same crude intake by decreasing output of dark products and increasing output of light products,
- satisfy the growing demand for higher-octane gasoline, low-sulfur diesel and high quality jet fuel, and
- access new export markets requiring higher fuel quality standards. |
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| Project sponsor and major shareholders of project company |
The project sponsor is West Siberian Resources Limited (“WSR”). In April 2008, Alliance Oil Company merged with WSR, an oil exploration and production company with more than 1,000 employees and operations in three oil producing regions in Russia. WSR is listed on the OMX Nordic Exchange, Stockholm. As a result, a mid-sized, vertically integrated group of companies (the “Group”) was formed with two main operational streams:
- downstream (refining and distribution/logistics) that will continue to be managed and operated by Alliance and its subsidiaries, and
- upstream (exploration and production) that will be managed by WSR and its subsidiaries.
The Group has retained the WSR name and continues to be listed on OMX Nordic Exchange Stockholm. |
| Total project cost and amount and nature of IFC's investment |
| The total project cost is estimated by the company to be about $1 billion (based on November 2007 exchange rate, exclusive of import duties, VAT and contingencies). |
| Location of project and description of site |
| The project is a modernization of the existing and operating refinery located in the city of Khabarovsk, Khabarovsk Krai, Russian Federation. |
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| Anticipated development impact of the project |
The company currently employs approximately 5,000 people in Far East Russia. Most of its products are sold though Alliance’s distribution network in the frontier regions of Khabarovsk, Primorye, Amur, and Jewish Autonomous District. The project will bring the Refinery’s output in compliance with the upcoming Euro-4 standards and enhance Alliance’s competitiveness in an industry with increasing feedstock costs. Therefore, jobs in the Refinery and in the distribution subsidiaries will be preserved as the project is critical for Alliance’s viability. Indicator to be monitored: Number of employees to reach 5,100 by 2012.
The project will require approximately 5.5 million man hours of labor for construction. These jobs are expected to be filled through local contractors. Indicator to be monitored: Construction jobs created during project implementation to reach approximately 5.5 million man hours by the end of Project implementation.
Alliance is uniquely positioned to increase the access of consumers to quality fuels, because it has the largest distribution network in the Russian Far East with an overall market share of 30%. The Project, in combination with Alliance’s distribution network will increase the consumer’s access to high quality fuels. Indicator to be monitored: Retail sales of refined products in the Russian Far East to reach approximately 470 thousand tons by the end of 2012.
The project will reduce the amount of particulate matter, sulfur dioxide, and carbon monoxide emissions emitted to the atmosphere nearby the Refinery. Indicator to be monitored: Total amount (tons) of air pollutant not emitted to the atmosphere.
Currently, about 2 million tons/year of products produced by Khabarovsk refinery are sold domestically which constitutes 63% of its production volume. The Project would significantly improve the quality of the products (e.g. lowered sulfur content). It will enable AOC to supply a wider range, higher-quality, and environmentally friendlier products and benefit not only the consumers but also the environment in the region. Indicator to be monitored: volume of domestic sales to reach 2.3 million tons by the end of 2012 and volume of sulfur production at the Refinery.
The Project, aimed at increasing the refining depth and capacity of the Khabarovsk refinery, will contribute to expanding the value chain of one of Russia’s key natural resources and encourage local industrial growth. It will result in the manufacturing of higher value added refined products that would be supplied locally and also exported. Alliance’s expansion is in line with the Russian government’s strategy to encourage exports of petroleum products, rather than crude, and to increase economic diversification. Indicator to be monitored: Increase in output of light petroleum products from 59% to 75% by 2012. |
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| IFC's expected development contribution |
IFC’s financing will have the following benefits to the company:
- providing and mobilizing long tenor loans that will match the company’s debt profile and the project implementation needs; and - introducing the company to a larger set of international banks which could be tapped into for future financing needs of Alliance.
IFC participation ensures implementation of best practice environmental and social norms by having the company strengthen its environmental and social management system. With IFC participation, the company initiated the process to establish a corporate E&S management system and assessing the environmental status and performance of all of its operations in a systematic way.
Due to IFC’s current credit exposure and knowledge of the company, IFC’s participation in the project will be closely watched by market participants and potential investors. IFC’s participation will serve as a stamp of approval for the project, and Alliance’s ability to implement it, and will help the company to raise long-term debt as well as equity. |
| Environmental and social issues - Category B |
IFC's assessment of this investment identified the following environmental, social, health and safety issues: air emissions, wastewater treatment and discharge, solid and hazardous waste management, operation hazard and hazardous material management, employee health and safety, fire protection and emergency response, soil and groundwater oil contamination, community health/safety, and community relationship and development. The company has agreed to implement an Environmental and Social Action Plan and to design and operate current and future operation in accordance with the IFC Performance Standards and IFC applicable Environmental, Health and Safety Guidelines. After the implementation of the project, the overall air pollution conditions in the nearby area will be improved since there will be a significant reduction of air pollutant currently emitted.
Based on the review, it is anticipated that this investment will require 30 days disclosure by IFC prior to Board and has been categorized as B. |
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| For inquiries about the project, contact: |
119002 Moscow
Sivtsev Vrazhek 39,
OJSC “Alliance Oil Company”, Refining Department
telephone (095) 745 98 62
fax (095) 745 98 62 |
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| For inquiries and comments about IFC, contact: |
General IFC Inquiries
IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster |
| Local access of project documentation |
Address and location.
Far East State Regional Scientific Library
Khabarovsk, Muravieva-Amurskogo str. 1/72 |
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