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Russian oil deal benefits environment and governance
EBRD provides $80 million in long-term project finance to Lukoil subsidiary
The European Bank for Reconstruction and Development is making a six-year, $80 million loan to a key subsidiary of Russia's Lukoil group with the aim of achieving significant environmental benefits and creating conditions for improved corporate transparency and governance.
Half of the loan is to be syndicated to commercial banks - with ABN-AMRO acting as sole underwriter, joint arranger and bookrunner of the EBRD B Loan.
The loan will enable the Lukoil subsidiary, CSJC Lukoil-Perm, to start a programme to cut the flaring of gas to 20 per cent by 2005, compared with 52 per cent at a typical Russian oilfield. This gas, a by-product of oil production, will instead be converted into additional energy in the Perm region of the western Urals, hit by supply problems in recent winters. Moreover, Lukoil-Perm will implement a detailed environmental action plan with the Bank's encouragement.
Andrey Kuzayev, President of LUKOIL-Overseas Holding Ltd., said: "Large-scale environmental projects financed by well-known international banks are helping to implement what is an important component of our company's strategy and one which highlights its sense of social responsibility."
The loan will also be used to upgrade the company's management information system, a development expected to improve disclosure levels and the accountability of divisions within the company. And part of the loan will be used to develop more productive and larger scale oil and gas fields, particularly the state-of-the-art Sibirskoye field in the Perm region.
Finally, the new EBRD funds will help re-finance part of the $45 million loan the Bank provided in 1998 to Permtex, a Lukoil-Perm subsidiary acquired in 2001. Permtex is due to be fully merged with Lukoil-Perm by mid-2003.
The Bank welcomes the commitment Lukoil-Perm is making through this project to promote good corporate governance and financial transparency, said Kevin Bortz, Director of the EBRD's Natural Resources team. The EBRD hopes it will set a wider example, as the company derives longer-term benefits from its decision to invest in the environment and use - rather than waste - the associated gas produced by its fields, Mr Bortz added.
Lukoil-Perm, the third largest upstream member of the Lukoil group, has proven reserves estimated at between 1.8 billion and 2 billion barrels of oil and accounts for about 10 per cent of the group's total annual production.
The EBRD has financed three previous deals with the Lukoil group: the Chirag Early Oil project in Azerbaijan (up to $200 million committed in 1999); a working capital loan of €150 million in 2000; and a $200 million loan co-arranged with HypoVereinsBank in 2002 to SeverTEK, a partnership between Lukoil and Finland's Fortum energy group.
ABN AMRO is one of the leading arrangers, underwriters and bookrunners of syndicated loans in the Russian market and has already this year successfully closed three transactions totalling $780 million.
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