Lukoil Shah Deniz Stage II

Location:

Azerbaijan

Project number:

46766

Business sector:

Natural resources

Notice type:

Private

Environmental category:

A

Target board date:

22 Jul 2015

Status:

Disbursing

PSD disclosed:

06 Oct 2014

Translated version of this PSD: Azerbaijani

Project Description

The proposed project is an A/B loan to LUKOIL to provide financing for its share in Stage 2 development of the Shah Deniz, an offshore gas exploration and production project in Azerbaijan (the “Project”), which is one of the largest gas fields in the world. LUKOIL has a 10% interest in the Shah Deniz field. The Project is managed by BP plc. The EBRD and the ADB were appointed by LUKOIL as the Mandated Lead Arrangers (“MLAs”) for the proposed transaction.

The project will include two additional bridge-linked offshore gas platforms, 26 subsea wells, 500km of subsea pipelines, and the expansion of the gas plant at Sangachal Terminal and the South Caucasus Gas Pipeline expansion.

Transition Impact

The transition impact potential of the proposed Project is expected to derive from a demonstration effect through the introduction of new technology to the region and improvements in energy and resource efficiency; skills transfer via the training of production workers to international standards in the implementation of the latest production technology; and support to private ownership throughout the gas production and distribution value chain.

The Client

LUKOIL Overseas Shah Deniz Ltd (“LOSD”) is an SPV beneficially owned by LUKOIL Overseas Holding GmbH, a subsidiary of OAO LUKOIL in charge of the development of the Group’s non-Russian exploration and production activities.

EBRD Finance

The total loan amount is expected to be up to USD 1 billion, with both MLAs arranging USD 500 million each. Approximately a half of the total loan amount is expected to be syndicated under the A/B Loan programmes of both the EBRD and the ADB.

Project Cost

USD 3,000 million.

Environmental Impact

The project has been assigned Category A (in accordance with the 2008 ESP), indicating that the project requires a comprehensive, formalised and participatory Environmental and Social Impact Assessment (ESIA) process. A unique aspect of this transaction is that EBRD has no formal relationship (for this project) with the technical operator, BP. The Bank’s client for this transaction is Lukoil Overseas, a 10 % shareholder of the Shah Deniz project. Therefore, the normal Bank-Client relationship, allowing EBRD to influence or to make contractual requirements for operations at the site, does not exist on this project.

BP in their role of project operator has completed a comprehensive ESIA for the project and has carried out disclosure of the ESIA and public consultation for the project in accordance with National legislation and corporate requirements. This ESIA has been approved by the governmental authorities and is being implemented by BP as Technical Operator of the project. The intention of the EBRD disclosure on this project is not related to approval of the Project, but rather approval of EBRD financing Lukoil Shah Deniz Stage II for their participation in the project. While EBRD does not have a formal relationship with BP for this transaction, Lukoil Shah Deniz organised meetings with BP technical specialists for the project and facilitated a site visit, data and document exchange.

An Independent Environmental and Social Consultant (IESC) was retained to perform a review of the environmental and social performance of this project against the requirements of EBRD, ADB and IFC (as part of review for commercial banks that may be signatory to the Equator Principles). The ESIA document prepared by BP is dated November 2013 and has been available on the BP Caspian web site since end of the year 2013, and has been available via the EBRD web site as a link to the EBRD Project Summary Document for the Shah Deniz Stage II project since 6 October 2014.

The ESIA for the Shah Deniz Stage II project is considered to be generally comprehensive and consistent with good international practice. While considered to be generally comprehensive, there are some areas where the document (as available on the web site) is not fully compliant with EBRD PR requirements. These items are identified as derogations to the Environmental and Social Policy (2008) and are outlined below:

The ESIA as disclosed does not include Environmental and Social Management Plans, as required by PR1 paragraphs 14 and 15 (2008 ESP), and EU Directive 2011/92/EU Article 5. While this information is not included in the disclosed ESIA package, this information was requested from BP as part of our review, and upon our review of such plans it can be confirmed that this information has been prepared and is available for use; however, it is not disclosed.

One area where information available in the public domain is not consistent with EBRD requirements relates to social issues, specifically related to compensation for economic displacement. While some information for fishing income in the project area is provided in the disclosed package, the methods used to agree compensation for economic displacement (and any associated grievance procedure) and any livelihood restoration monitoring are not presented. While not originally available in the public domain, we have verified that such information is available and has been communicated verbally with affected people.  This information, in the form of a Fisherman Livelihood Management Plan, has recently been disclosed.  As part of project appraisal/review EBRD and the IESC were able to review the FLMP and other procedures applied by the Operator for mitigation, management and monitoring of potential impacts.  Results of this review were communicated to management as part of project presentation with an explanation of the gaps relative to the 2008 Environmental and Social Policy and how these were being managed.

Based on previous experience on this project, and on review of the information and documents provided as part of this appraisal (some disclosed, some not disclosed) we stated at the time of review that we considered that the project was being managed and monitored in a responsible manner, consistent with the EBRD Environmental and Social Policy, even though the ESIA package of documents available in the public domain were not fully compliant with EBRD PRs.

Details of green house gas (ghg) emissions for the project are provided in the ESIA broken down by activity, by year and by source.  As shown here the total estimated onshore operations ghg emissions are 6,150 k tonnes, and total estimated for offshore operations are 3,725 k tonnes.

The IESC will continue to monitor this project and these reports will continue to be released here.

Original ESIA: EnglishAzeri

BP Azerbaijan Annual Sustainability Report (including Shah Deniz II)

Independent Review of the ESIA

EHS Monitoring Reports

2016 | 2017 | May 2017 - Oct 2017 | 2018

Environmental and Social Management Plans

Shah Deniz Stage 2 Summary ESMPs

Technical Cooperation

None.

Company Contact

Oktay Movsumov
JSC LUKOIL
Sretenskiy blvd, 11
Moscow, 101000,
Russia
Email: mail@lukoil-overseas.com

 

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Text of the PIP

Project Complaint Mechanism (PCM)

The Project Complaint Mechanism (PCM) is the EBRD's accountability mechanism. It provides an opportunity for an independent review of complaints from individuals and organisations concerning EBRD-financed projects which are alleged to have caused, or are likely to cause, environmental and/or social harm.

Please visit the Project Complaint Mechanism page to find information about how to submit a complaint. The PCM Officer (pcm@ebrd.com) is available to answer any questions you may have regarding the submission of a complaint and criteria for registration and eligibility, in accordance with the PCM Rules of Procedure.