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| Summary of Project Information (SPI) |
| This Summary of Project Information 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. |
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| Project number | 21046 |
| Project name | Novatek Gas |
| Country | Russian Federation |
| Sector | Oil, Gas And Mining |
| Department | Oil, Gas, Mining And Chemicals |
| Company name | OAO Novatek |
| Environmental category | B |
| Date SPI disclosed | October 15, 2004 |
| Projected board date | November 26, 2004 |
| Status | Active |
| Previous Events | Invested: June 9, 2005
Signed: May 26, 2005
Approved: January 18, 2005 |
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| Description of company and purpose of project |
Independent Russian gas producer OAO Novatek (the sponsor) has requested IFC assistance in the staged expansion of a large natural gas and condensate field in the Yamalo-Nenets Autonomous Region of Russia’s Arctic Circle. The Yurkharov Gas Field is operated by OOO Yurkharovneftegaz (YNG or the company), a wholly owned subsidiary of OAO Novatek. Discovered in 1970 by a Gazprom-affiliated exploration company of the Soviet era, the field was deemed too small for Gazprom’s development threshold. OOO Yurkharovneftegas was formed in July 1998, and YNG’s existing ownership structure was put in place in October 1999. Production at YNG commenced in January 2003 with 3.115 bcm of gas produced that year. Gas production is expected to reach 9 bcm/y by the end of 2006.
YNG operates the Yurkharovskoe field (approximately 200 sq. km.), which has 208 billion cubic meters (bcm) (7.4 trillion cubic feet (tcf)) of gas and 106 million barrels (mmbbls) of condensate. The IFC-funded project is to increase YNG’s production of gas to 9 bcm/y (Phase I). Two subsequent phases will increase production to 18 bcm/y and to 27 bcm/y. The company’s production will be transported through the region’s extensive gas and liquids infrastructure to industrial consumers and gas traders in the domestic market. |
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| Project sponsor and major shareholders of project company |
| The project is sponsored by YNG’s parent, OAO Novatek (Novatek or the sponsor), the largest, privately-owned independent gas producer in Russia with a total of approximately 13.2 bcm of production in 2003 attributable to its working interests in subsidiaries and associates. Novatek has several lines of business, including gas, condensate, and oil production, construction, pipe insulation, and others. The sponsor’s producing assets are in Russia’s main gas producing region, Nadym-Pur-Taz, part of the Yamalo-Nenets Autonomous Region of Western Siberia. Its three largest fields collectively have 574 bcm (20 Tcf) of gas reserves, 33 mmt (268 mmbbls) of condensate and 8 mmt (59 mmbbls) of oil in proved reserves. Novatek is striving to maintain its lead as the largest independent gas producer in Russia, while expanding into refining and transportation of gas condensate and refined products. The project company, YNG, is a wholly-owned subsidiary of Novatek. |
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| Total project cost and proposed IFC investment |
| The total project cost is estimated at about $282 million. IFC’s investment is up to $80 million for its own account, and a possible $70 million syndicated B Loan. |
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| Location of project and description of site |
| The western part of the Yurkharovskoye field lies on the Tazov Peninsula, while the central and eastern parts of the field are situated on the shelf of the Tazov Bay where water depths average 4 meters. Administratively, the current YNG operations fall into the Nadym raion or municipality. Some of the company’s exploration area falls into the Tazovsk municipality, and the closest communities are Nakhodka, located 20 kilometers from the field, and Tazovsk, located 60 kilometers from the field. |
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| Project Development Impact and IFC's Role |
The CAS for Russia (#24127-RU, May 14, 2002) emphasizes the importance of improving the business environment and enhancing competition, including encouraging reform in the energy sector and increasing effective financial intermediation and opportunities for entry and growth of new firms.
Investment in the natural gas sector is a key part of IFC’s oil and gas strategy. IFC’s involvement would stimulate the competition in the natural gas sector, currently dominated by Gazprom, and support a relatively small, local company (Russia’s natural resource sector is dominated by large companies). With a recent consolidation in the oil sector and formation of world-scale companies, it is even more important to support the development of smaller, local players who are willing to develop natural gas fields that large companies are not.
IFC will play a role in:
- supporting the development of a locally-owned and operated company, which provides employment in the region,
- providing long-term financing to the company, otherwise unavailable to it,
- advising Novatek on corporate governance issues, and
- helping to streamline Novatek’s social contributions to the indigenous people in the area of the project.
As this is the first private-sector natural gas financing in Russia, IFC’s involvement will have an important demonstrative effect – it will indicate that IFC supports the role of private companies in Russia’s natural gas sector, and this could encourage other local, private players to participate. Finally, IFC’s investment will increase the supply to the domestic Russian market of a clean, environmentally-friendly source of fuel.
IFC plans to monitor the developmental impact of employment, assistance levels to indigenous peoples, and payments made by Novatek to local and federal governments.
- Environmental and Social Benefits
The 2002 CAS for Russia also emphasizes the importance of mitigating environmental and social risks, particularly through addressing environmental hazards and improving environmental management; and improving the design, targeting, administrative capacity, and financing of social protection programs. IFC’s involvement in this project supports this pillar of the CAS by bolstering the Company’s efforts towards improved environmental and social management.
From an environmental perspective, IFC is supporting YNG’s efforts to manage operations to international environmental, health, and safety standards. The Novatek Group is committed to implementing a Corporate Environmental Management System in line with ISO 14001 standards. Additionally, YNG will complete a Safety and Operability Study of all its operations, workshops, support services, and transport. An Occupational Health & Safety Management System in line with OHSAS 18001 to ensure ongoing management of worker health and safety is a key element of the operations.
- Benefits to the Community
IFC has helped the company prepare an Indigenous Peoples Development Plan (“IPDP”), which places emphasis on providing assistance to nomadic Nenets, who are normally difficult to support in comparison to more settled Nenets.
As with other oil and gas companies in the Yamalo-Nenets Autonomous Region, YNG has agreements with the local (‘raion’) governments and the local branches of the regional indigenous NGO to provide benefits to the local communities and reindeer breeders. In cooperation with the Nadym and Tazov region, YNG is committing to programs for university scholarships, assistance to local hospitals and boarding schools, including helicopter time to move the children of reindeer herders to and from the boarding schools, support for the traditional economy and medical care for migrating herders. Support for the traditional economy will include purchasing fish and reindeer meat for use by staff of the company and finding new markets for traditional products. The company also assists in the delivery of foodstuffs to herders, who do not have access to shops. YNG is also providing support for educational and social safety net programs undertaken by the local branches of Yamal for Descendents, the regional non-governmental organization representing the local indigenous peoples.
Novatek has committed to publishing annually the amounts paid to local governments, NGOs, and other recipients of funds associated with indigenous peoples. This information will be distributed to communities within the region by local news outlets and the Yamal for Descendents local branches.
On its own, YNG will potentially provide, after further consultation, a service center for reindeer herders migrating through its area. Additionally, it will be supporting a development plan for Nakhodka, a community next to its license area, and further field research on the migratory herders passing through its production and license areas. In all, YNG is committing to $5.3 million in expenditures for these programs, including the programs in association with the governments and NGO, over the five years from 2005 to 2010.
- Benefits to the Government
The IFC-financed project will be a source of tax revenues to both the federal (albeit a small portion) and local governments. According to IFC base case calculations using a production scenario of 9 bcm/y, an average of approximately $40 million per year from the project will accrue to governments in the form of production taxes, excise taxes, profit taxes, export duties and other payments over the life of the project license (until 2020). About 11% of the tax revenues generated from the project will go to local governments while 89% will go to the federal government. The Novatek Group publishes taxes paid to the government, including production taxes, excise taxes, property taxes, and others, in its annual audited financial statements.
- Governance Context
The IMF and the World Bank are both involved in Russia, though to a limited extent given the country’s high foreign exchange reserves. The 2002 Russia CAS suggests strengthening public sector management by enhancing accountability mechanisms and information flows within and across different levels of government; improving fiscal management at the national and sub-national levels; and improving the efficiency and quality of public service delivery. In 2003, IMF commended Russia for sound macro-economic policies. Along with recommendations for continued structural reform, management of oil revenues and in other areas, IMF also welcomed decisions taken to proceed with new data and fiscal transparency. In 2004, IMF made a number of recommendations on the operation of the oil stabilization fund set up to manage oil revenues resulting from prices above US$20/bbl. The stabilization fund has played a role in helping Russia deal with recent windfalls from high oil prices. In its Report on the Observance of Standards and Codes (ROSC) Fiscal Transparency Module (August 2004), IMF Staff found that Russia had made considerable progress in fiscal transparency and financial management since 1999, although a number of important reforms remain to be undertaken.
The revenues contributed from this project to the federal government are relatively small with respect to the total revenues of the Russian government. In addition, 11% of the taxes from the project go to the local governments, and a portion of these are earmarked for the development of indigenous communities over and beyond what Novatek has already committed to spend. Given IFC’s role and developmental impact and benefits from the project to the community and local government, and given the overall framework of governance in which the project takes place, IFC believes this is a project in which it should invest. |
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| 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 social and environmental impacts may result that can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of appraising technical, social, and environmental information submitted by the project sponsor and field visits by IFC specialists. The following potential social, environment, health and safety impacts of the projects were analyzed:
- Prior land use;
- Indigenous peoples;
- Worker health and safety;
- Gas field transport, construction and operation in permafrosted and ice-covered areas;
- Hazardous waste management;
- Liquid and solid waste management;
- Air emissions;
- Emergency response plans;
- Development of an integrated environment, health and safety management system; and
- Reclamation and closure.
The Sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements; the host country laws and regulations; the World Bank/IFC environment and social policies; and the WBG/IFC environmental, health and safety guidelines. The information about how the Sponsor will address these potential impacts is detailed in the Environmental Review Summary (ERS) disclosed in the World Bank InfoShop and in the locations described below.
To view the environmental documents for this project, click here |
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| Location of environmental documents in locally affected community |
The Sponsor has placed announcements in newspapers in the locally affected communities describing where the Environmental Review Summary and Indigenous Peoples Plan may be viewed. The announcements were published on October 14, 2004 in the following local newspapers:
- Noviy Urengoi, Russia - Newspaper “Urengoi Weekly”
- Tazovskiy Settlement, Russia - Newspaper ‘Sovietskoye Zapolyarnoye”
- Nadym, Russia - Newspaper “Nadym Worker’
The viewing locations of the Environmental Review Summary and the Indigenous Peoples Plan announced in the above newspapers are as follows:
- Noviy Urengoi, Zhurnal Smena Library, 3a Molodyozhnaya St., Noviy Urengoi, Russia
- Tazovskiy Settlement, Central Tazovskiy Regional Library, 34 Pietomina St., Tazovskiy Settlement, Russia
- Nadym, Central Town Library, 10 Leningradskiy St., Nadym , Russia
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| To contact the project company, please write to: |
Yurkharovneftegas
P.O Box 1043
Noviy Urengoi,
Russia 626300
Phone: (34949) 7-40-51
Fax: (34949) 7-40-52 |
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