Bozoi Gas Storage Facility

Location:

Kazakhstan

Project number:

48356

Business sector:

Natural resources

Notice type:

Public

Environmental category:

B

Target board date:

25 May 2016

Status:

Repaying

PSD disclosed:

18 Mar 2016

Translated version of this PSD: Russian

Project Description

The EBRD is providing a multicurrency loan in the amount of up to EUR 245 mln equivalent (KZT 93 bln) to Intergas Central Asia JSC, the national operator of gas transmission pipelines in Kazakhstan. The debt finance will be used to support the ongoing capital expenditures programme, including the expansion of Bozoi underground gas storage facility and to help ICA optimise its balance sheet by replacing existing hard currency-denominated liabilities with local currency funding.

Project Objectives

The Bozoi underground gas storage expansion, which the EBRD will support, aims to enhance the security of natural gas supplies to the southern region of Kazakhstan to smooth out the peaks in  gas consumption of local clients experiencing power deficit during cold season and improve the load profile of the gas transmission system operated by the Company.

Through the Project the Bank will also help the Company optimise its balance sheet to achieve a sustainable currency balance between its income and liabilities.

Transition Impact

The transition impact potential of the project is based on:

(i) Demonstration of Successful Restructuring: The project will facilitate the Company's balance sheet restructuring, to make it more financially sustainable in the face of growing share of non-USD revenues.

(ii) Setting Standards of Corporate Governance and Business Conduct: The expansion of the underground gas storage facility in Bozoi (Aktobe oblast), which will be financed by the Bank, is a critical element of the new gas pipeline network being introduced in the region. It is expected that the development of the gas network in the region will lead to more secure and sustainable supplies of natural gas, promoting introduction of gas-fired power plants.

Client Information

INTERGAS CENTRAL ASIA JSC

Owned by KazTransGas JSC and, ultimately, Samruk-Kazyna Sovereign Welfare Fund, Intergas Central Asia JSC (ICA) is a designated operator of Kazakhstan's natural gas transmission system.

Gas pipelines under ICA's management include the Russia-bound Central Asia - Centre pipeline (with throughput capacity of almost 60 bcm a year), Bukhara - Ural (8 bcm), Orenburg- Novopskov (15 bcm) and Bukhara-Tashkent-Bishkek-Almaty trunk lines (5.8 bcm) and other assets. ICA earns most of its revenues by transporting natural gas through these pipelines. In addition, the company operates three underground gas storage facilities, provides technical and maintenance services to third parties. ICA employs around 7,000 staff in Kazakhstan.

EBRD Finance Summary

KZT 93,600,000,000.00

EBRD Loan of approximately KZT 94 bln or the equivalent of EUR 243 mln (subject to foreign exchange adjustments).

Total Project Cost

KZT 112,500,000,000.00

Environmental and Social Summary

This Environmental and Social Summary (ESS) has been prepared to provide an overview of the environmental and social aspects of the Bozoi Gas Storage Project including the key findings of the environmental and social due diligence (ESDD) and the approach and commitment to managing and monitoring environmental and social issues.

  1. Project Description

The EBRD is providing multicurrency loan to Intergas Central Asia (ICA) JSC, the national operator of gas transmission pipelines in Kazakhstan. The debt finance will be used to support the ongoing capital expenditures programme, including the upgrade of Bozoi underground gas storage facility and to help ICA optimise its balance sheet by replacing existing hard currency-denominated liabilities with local currency funding.

The Bozoi underground gas storage upgrade under  EBRD financing aims to enhance the security of natural gas supplies to the southern region of Kazakhstan to smooth out the peaks in  gas consumption of local clients experiencing power deficit during cold season and improve the load profile of the gas transmission system operated by the Company. Through the Project the Bank will also help the Company optimise its balance sheet to achieve a sustainable currency balance between its income and liabilities.

Owned by KazTransGas JSC and, ultimately, Samruk-Kazyna Sovereign Welfare Fund, Intergas Central Asia JSC (ICA) is a designated operator of Kazakhstan's natural gas transmission system. Gas pipelines under ICA's management include the Russia-bound Central Asia - Centre pipeline (with throughput capacity of almost 60 bcm a year), Bukhara - Ural (8 bcm), Orenburg- Novopskov (15 bcm) and Bukhara-Tashkent-Bishkek-Almaty trunk lines (5.8 bcm) and other assets. ICA earns most of its revenues by transporting natural gas through these pipelines. In addition, the company operates three underground gas storage facilities, provides technical and maintenance services to third parties. ICA employs around 7,000 staff in Kazakhstan.

  1. Environmental and Social Categorisation

The Project was categorised B by EBRD in accordance with the 2014 EBRD Environmental and Social Policy as this is not a green field development and it is considered that that environmental and social impacts associated with the Project can be readily identified and addressed by mitigation measures.

  1. Environmental and Social Due Diligence (ESDD)

ESDD comprised of a review of the completed EBRD Corporate Environmental and Social Questionnaire (and accompanying detailed environmental and social information), ICA’s corporate annual reports, internet search of available information on ICA and its performance, a site visit by the Bank's environmental and technical staff and discussions with Management in March 2016.

  1. Outcomes of Environmental and Social Due Diligence (ESDD)

ESDD of this project showed that ICA (as a subsidiary member of KTG) adheres to legal compliance and conducts operations in line with international good practice in the industry. Further, as part of the ISO accredited system as seen below, the company has a comprehensive and functional E&S Management System. 

ICA’s Environmental & Social Risk Management

A review of this project showed that the E & S risks associated with the project are typical of this industry, and that these are well known and managed by the company.  The Company undertakes consistent implementation of actions aimed at protection of the environment and performs regular assessment of environmental risks to avoid occurrence of events that may produce adverse impact on the environment, public health, and the business of the company caused by pollution of the environment, as provided by the relevant environmental requirements.

The Company is responsible for effective and rational development of the gas transportation system in the country and is committed to continue activities to reduce environmental and occupational risks with account of the world experience. 

The Bank's due diligence confirmed that the client has the required resources, knowledge and capacity to implement the project in compliance with appropriate legislation and EBRD Performance Requirements (PRs).  The client is accredited with ISO14001, ISO9001 and OHSAS18001, and their HR management procedures include an employee grievance mechanism in line with PR2.  

The Company regards occupational health and safety is a major priority of its performance indicators. The entire work in this area is based on compliance with the requirements of the Labor Code of the Republic of Kazakhstan, Law of the Republic of Kazakhstan "On Civil Protection", legal and technical documents, rules and regulations governing the issues of health and safety, prevention and management of emergency situations of caused by natural or technical origin, ensuring fire and industrial safety.

As to ensure a single-centered and uniform security management in the production, the Company developed a corporate standard named Uniform Occupational Safety and Health Management System (hereinafter, " the ESUBOT"), which regulates the  whole Company including all its branches, procedure for occupational safety and health management.

Also, in order to maintain stable productivity and its improvement, the Company has been undertaking actions in vocational training for its staff.

This project was originally a natural gas field, developed for gas production.  Following exploitation of the field, the reservoir was developed as an underground gas storage facility.  The current project calls for the modernization of the existing underground gas storage facility.  Plans are to complete the modernization by 2018.  Each segment of civil work is subject to the State Expertise’s environmental review and is carried out with an adequate environmental permit. A series of mitigation and management measures have been developed to ensure that development of the project will not result in impacts such as resettlement and/or physical and economic displacement, biodiversity and cultural heritage.  

One example of the pro-active approach adopted by the company is in regards to traffic management where the company has installed GPS on all vehicles and enforces strict speed restrictions.  Strict adherence to the speed restrictions was observed during extended trips in over 30 hours of driving with corporate vehicles and drivers, even in instances where the road was in good condition and line of sight allowed for higher speeds (90 kph maximum was never exceeded).

Bozoi Gas Storage Upgrade and E & S Risk Management

The appraisal of this project confirms that the risks associated with this project are well known and managed in a responsible manner by the Company.  The location of the site in remote areas of Kazakhstan located away from settlements helps avoid or minimise many typical concerns such as resettlement, economic displacement and community safety. The company is actively managing risks associated with the project through engineering design, mitigation measures, monitoring and the jobs creation, (which are welcomed by the local residents). All details of project design, construction and operation are reviewed by process safety engineers and reviewed/approved by engineers at the Ministry of Emergency Situations.  This includes all pumping, piping, processing and gas production and injection wells.  Further, as a precaution, the reservoir will not be pressurized above the pressure of the original natural gas reservoir, therefore, the reservoir has been proven to be stable at this pressure.  Emergency response for the facility has been prepared according to national requirements, and the provisions for this have been coordinated with national emergency response planning and integrated for the local community.  Standard engineering measures are applied to ensure integrity of assets, including pressure maintenance and monitoring of pipelines and pressure vessels, use of intrinsically safe electronics to avoid sparks, and monitoring of work space for worker safety and identification of leaks or explosion hazards.

Green House Gas (GHG) Emission Reduction

In 2016, the company undertook inventory and verification of greenhouse gases emissions throughout all production units of ICA for the year 2015 including the filing of a verification report on the inventory of greenhouse gas emissions.  Based on this the company obtained the relevant registration from the Ministry of Energy of the Republic Kazakhstan. None of the volume limits adopted by the certificates for 2014-2015 years for the quotas for greenhouse gas emissions have been exceeded, and the company will be required to file annual reports and to comply with limits established with authorities on GHG.

Indeed, the project is expected to result in significant GHG reduction. This is due to estimated reductions of the fugitive emissions during operation and maintenance from the current level of 0.5% to less than 0.3% which will be as a result of the ongoing modernisation. At current operation levels these fugitive GHG emissions reduction, primarily methane, is estimated at above 4,100 tons of methane per year which corresponds to more than 80,000 tons CO2 equivalent.  The reduction from the project will be reported by ICA annually and monitored by the Bank.  Of course additional GHG reductions will be achieved through implementation of this project as this gas is used as a replacement for coal.  These figures have not been included in the data mentioned above, as the numbers are somewhat speculative (in terms of coal replacement vs new use).

  1. Environmental and Social Action Plan (ESAP)

A comprehensive Environmental and Social Action Plan (ESAP) has been developed, and agreed with the company. This ESAP addresses the main issues identified through the project appraisal including strengthening issues related to contractor management, increasing provisions for Occupational Health & Safety ensuring development and implementation of a security management plan on the voluntary principles, integration of the an emergency response plan with national and local plans, increasing the measures for hazardous substance and waste management plans, modifications to the safe vehicle transport policy to include communications standard and mandatory rest breaks for long drives, adoption of resettlement procedures in line with EBRD requirements (if required in the future), development of a specific environmental and social management plan for Bozoi gas storage upgrade civil work (covering all subcontractors), annual greenhouse gas emission reporting and procedures for transferring procedures of the existing staff to other entities of the group if needed

  1. The Bank’s Environmental and Social Monitoring Plan

The Bank will monitor the Project’s environmental and social performance through the review of an annual environmental report and through periodical site visits by ESD or an appointed independent consultant.

  1. Stakeholder Engagement

At the gas storage facility, the town is present only to serve the facility, and everyone knows how to reach out to the company to raise any issues. This has been verified first hand and has been acknowledged as an effective procedure for stakeholders to reach out and obtain information or raise issues of concern.At the pressure reduction station, there is a posted notice which shows emergency contacts. For gas users, there are contact points including in the billing information to complain/express their views.Emergency response procedures are in place that are integrated with local and national plans. The company reports on its environmental and social performance in its annual corporate report.

Any comments or concerns can be brought to ICA’s attention either verbally or in writing (by post or e-mail: info@ica.kz) or by filling in a grievance form (available at the website www.intergas.kz) alongside this description of the grievance mechanism. All grievances will be:

acknowledged within 7 days; and responded to no later than 30 days.

Grievance information is recorded in a grievance log by specifically nominated and trained members of staff by requesting the following information:

  • Name and contact details,
  • Details of the grievance and how and when it was submitted, acknowledged, responded to and closed out.

Technical Cooperation

Technical cooperation in form of support in development of best practice tariff methodology and/or assistance in setting up the Project Implementation Unit will be considered.

Company Contact Information

Daniyar Bekishev
d.bekishev@ica.kz
+7 717 297 72 15
+7 717 297 70 28
www.intergas.kz
Intergas Central Asia JSC 12th floor, Bolashak Business Center, #11 Block, 36th street Astana,
Kazakhstan

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