The EBRD has signed a US$ 150 million medium-term working capital facility for JSC oil company LUKOIL. The operation will enable LUKOIL to secure a sufficient and stable level of working capital to fund its working capital requirements in respect of export-related payments, crude oil production and oil processing at its refineries in Russia.
Following the financial crisis of August 1998, Russian companies have found it increasingly difficult to obtain international financing. The EBRD has identified LUKOIL as a creditworthy Russian corporation with a positive track record of corporate governance. The Bank’s objective is to provide financing that will enable the company to maintain a sufficient and stable level of working capital. This will enhance LUKOIL’s ability to undertake long-term investment and to implement its corporate strategy.
The proposed transaction will promote the following:
- improved financial transparency through preparation of IAS financial statements;
- further investment in the Commonwealth of Independent States as a result of a stable corporate financial structure;
- implementation of critical international environmental management standards; and
- establishment of a market standard for other potential medium-term financing in Russia.
LUKOIL is Russia’s largest vertically integrated oil company with operations in the exploration, development, production and refining of crude oil and the distribution of petroleum products.
The company has a proven track record of leadership in the Russian oil sector. For example, LUKOIL led the process of vertical integration of subsidiaries. In addition, the company was one of the first major Russian oil companies to conduct an independent reservoir audit according to international standards. The senior management of LUKOIL has extensive experience in the oil sector and remains focused on the development of the company’s core business activities, both in Russia and abroad.
US$ 150 million (€165 million) medium-term working capital facility.
An independent environmental audit was undertaken to assess LUKOIL’s environmental management system. This was carried out by an international environmental consulting firm, according to terms of reference developed by the EBRD.
The audit reported that LUKOIL is at the forefront of environmental management development in Russia. It found that LUKOIL’s environmental management compares favourably with other major Russian industrial and oil companies. Furthermore, the audit reported that the company’s existing environmental management system includes elements corresponding to or approaching current international standards for environmental management.
The audit also identified areas that will require further improvements to bring LUKOIL's environmental management practices in line with international good practice. The areas which require particular attention include: strategic environmental management, internal auditing practices, recording and documentation procedures, establishing performance guidance, preventing adverse environmental impact, risk management, and emergency response. Required improvements to meet international good practice in the identified areas will be addressed through the implementation of an Environmental Management Action Plan (EMAP). This will be implemented within two years, and will allow for compliance with ISO 14001.
In addition to environmental management issues, the corporate environmental audit reviewed key environmental risks associated with LUKOIL and its subsidiaries’ operations. The key environmental risks included associated gas flaring, oil spills, waste management practices, and interaction with the public. LUKOIL has developed a "Programme of Environmental Safety (PES) of LUKOIL Operations for 1996-2000" to address these environmental risks at the subsidiary level. This programme is at the final stages of implementation. The company is also finalising an environmental safety programme for 2000-2003, which will include action under the EMAP. The above-mentioned programmes cover virtually all of the significant environmental issues and top-priority environmental targets related to the operations of the company and its subsidiaries.
Further corporate initiatives with respect to critical environmental issues include programmes for increased utilisation of associated gas, waste minimisation and improvement of waste storage practices, oil spill prevention and pipeline replacement, soil remediation and land reclamation. Concerning greenhouse gas emissions, LUKOIL completed a corporate inventory in 1999. The review was performed as part of Russia’s obligations under the UN Framework Convention "on Climate Change" and its Protocol on reduction of greenhouse gas emissions. LUKOIL’s Environmental Protection Department is summarising the inventory results from the company’s subsidiaries. According to preliminary results, the company’s gas utilisation rate is approximately 80 per cent. A programme for reducing greenhouse gas emissions will be included in the LUKOIL Environmental Safety Programme for 2000-2003. With respect to soil remediation and land reclamation, LUKOIL reclaimed approximately 12,000 ha of land in 1998.
Finally, LUKOIL has also developed a "Corporate Relations Programme for Indigenous Populations of Northern Russia".
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