Supp Fin Fac

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	24733
Company name	AccessBank
Country	Azerbaijan
Sector	Finance & Insurance
Environmental category	FI
Department	Global Financial Markets Group
Status	Active

Date SPI disclosed	November 7, 2006
Projected board date	December 15, 2006
Previous Events	Invested: March 28, 2008 Signed: May 11, 2007 Approved: May 4, 2007

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project involves the establishment of a supplier finance credit facility (SFF) of approximately $15.0 million funded by IFC, BP (on behalf of Joint-Venturers) and Micro Finance Bank of Azerbaijan (the Bank, or MFBA) (collectively the "partners" and each a "partner") to provide financing to small and medium sized contractors to BP and its affiliates in Azerbaijan. The project aims to help BP and its venturers increase local content by expanding the participation of local Azeri enterprises in the supply chain. IFC is expected to take up to 40% of the facility’s risk or $6.0 million. It is expected that BP and MFBA will take up the 40% and 20% respectively. The SFF will draw on lessons learned from a 2006 pilot phase that was funded through grants from the partners.

Project sponsor and major shareholders of project company

BP Plc:

BP Plc. is one of the largest oil and gas groups in the world, and Azerbaijan is one of the most important new exploration and production areas for the group. BP has been present in the country since 1992 and has become its leading foreign investor. BP is the operator of major projects in the Azerbaijan sector of the Caspian Sea including the Azeri-Chirag-Guneshli oil field, Baku-Tbilisi-Ceyhan oil pipeline, Shah Deniz gas fields, and South Caucasus gas pipeline.

The Enterprise Centre operated by BP on behalf of its oil and gas project venturers was launched in May 2002 and re-launched in September 2006 to help small and medium sized enterprises develop their business in support of major oil and gas developments in Azerbaijan. The goal of the Enterprise Centre is to make a significant contribution to the economic development of Azerbaijan by offering SMEs a full package of advice, practical and financial support to help them secure work in both the oil and non-oil sectors.

MFBA:

MFBA was founded in 2002 by IFC, EBRD, Black Sea Trade and Development Bank (BSTDB), KfW and LFS Financial Services (LFS) as the first formal provider of financial services to SMEs in Azerbaijan. The Bank’s goal is to provide a comprehensive set of financial services to micro and small business with limited access to finance, using international best practice. LFS is the project’s technical partner in addition to being a shareholder. Since its creation in 2002, MFBA has grown its total assets from $4.9 million equivalent to $45.2 million equivalent at the end of the third quarter of 2006, while maintaining a high portfolio quality. MFBA posted a profit of $851,000 in the first three quarters of 2006, a significant increase over a profit of $147,000 in 2005.

Total project cost and amount and nature of IFC's investment

The project will be structured as a risk sharing investment facility. The facility will have a total maturity of up to 8 years including a revolving period of up to 5 years. IFC will be the lender of record for the combined IFC/BP portion. It is anticipated that each sub-loan under the facility will be funded by IFC, BP and its partners and the Bank in a ratio of 40:40:20.

In addition to funding the facility, each partner will contribute to the project in its area of expertise. IFC will assist in the design and management of the project based on its knowledge of the oil and gas and financial sectors, and its experience with linkages program. BP will bring its knowledge of the oil and gas supply chain and its experience with Azerbaijani suppliers. BP will also make available technical support and training to borrowers, through its Enterprise Centre in Baku. MFBA will bring its local knowledge of the banking sector and SMEs in the country, and will operate the facility as the originator and servicing agent for the loans.

Location of project and description of site

The location of the project is Baku, Azerbaijan

Anticipated development impact of the project

First, the project would increase local content in the oil and gas supply chain by strengthening the local oil servicing sub-sector in line with BP’s target to double its local spend to $500m per annum by 2010. The oil and gas industry is the most important sector in the country and expanded participation of local businesses in the sector would support job creation and acquisition of technical skills. The project would also encourage the local banking industry in the development of new products and customer segments.

IFC's expected development contribution

IFC’s role is to:

- design and structure the facility;
- initiate and facilitate the partnership between BP, IFC and MFBA;
- play an active role in the early implementation phase as well as in the supervision and monitoring of the facility thereafter;and
- support the growth and development of small and medium businesses in Azerbaijan.

IFC’s ACG/BTC SME Linkages Program has been active in Azerbaijan since 2003 and has worked mainly to:

- provide technical assistance to local Azerbaijani companies to improve their chances of winning contracts with BP and other oil and gas companies in the country and
- provide business services (including training and consulting services) to local SMEs, through local intermediaries, on a commercial basis.

Environmental and social issues - Category FI

This project has been classified as a Category FI project according to IFC’s Environmental and Social Review Procedure. During appraisal, IFC will analyze MFBA’s portfolio, and the activities proposed to be supported with IFC financing for types of transactions, size, tenor and industry sectors and determine the Applicable Requirements, if any, that would include a combination of:

- the IFC Microfinance Exclusion List and/or
- the applicable National Social and Environmental Laws and regulations.

As an existing IFC client, MFBA has developed an SEMS, attended IFC and EBRD environmental management training, and provided annual reports. The focus of IFC’s capacity review will be to assess whether MFBA’s existing SEMS is robust enough to address social and environmental issues under this Facility. IFC will suggest Supplemental Actions, if required, to address any gaps in the SEMS. MFBA will be required to commit to implement the Supplemental Actions according to an agreed time frame, to the satisfaction of IFC. MFBA will continue to submit periodic reports to IFC.

As this is an oil services related project, there may be projects which bear directly on BP’s mainstream oil exploration or production activities. It is expected that these projects would be addressed by BP as part of the application of their SEMS to ongoing operations.

IFC PROJECTS