UGV

Location:

Ukraine

Project number:

49204

Business sector:

Natural resources

Notice type:

Public

Environmental category:

B

Target board date:

12 Dec 2018

Status:

Passed Final Review, Pending Board Approval

PSD disclosed:

08 Oct 2018

Translated version of this PSD: Ukrainian

Project Description

Provision of up to EUR 52 million debt funding to JSC Ukrgasvydobuvannya ("UGV", the "Company"), a 100% upstream subsidiary of Public Joint Stock Company "National Joint Stock Company Naftogaz of Ukraine" ("Naftogaz", the "Parent") to finance the procurement of workover rigs and a package of energy efficiency investments.

Project Objectives

The Project will support the Company to sustain natural gas production from the UGV's existing fields via increased wells availability by financing a replacement of inefficient workover rigs procurement.

The Project will also support energy efficiency investments, which will introduce innovative ORCbased waste heat recovery systems from existing gas turbines.

Transition Impact

Good.

It is expected that the Project will contribute to making Ukraine's gas sector more resilient and green:

i) Resilient: the Project will support UGV to sustain natural gas production through investment and modern technologies and will allow to decrease dependence on natural gas imports and facilitate further market liberalisation. Naftogaz will work with the EBRD on its joint policy dialogue engagement with Energy Community Secretariat to establish a natural gas exchange in Ukraine. The Project will also enable the Bank to further its policy dialogue initiatives in the natural gas in Ukraine by supporting improvement of the legislative framework in the upstream segment for attraction of private sector investments and increase in its transparency;

ii) Green: the Project will finance energy efficiency investment, which will introduce innovative ORCbased waste heat recovery systems from existing gas turbines. The Bank will provide technical assistance and engage in policy dialogue with the Ministry of Ecology and Natural Resources, Naftogaz and the key stakeholders to develop and introduce a Methane Emissions Reduction Program in Ukraine.

Client Information

UKRGASVYDOBUVANNYA PJSC
UGV is a 100% subsidiary of Naftogaz and the largest natural gas upstream producer in Ukraine.

Naftogaz is a 100% State-owned company. Naftogaz is the holding of a vertically integrated group of entities with activities including oil and natural gas production, transportation and storage, refining and supply.

EBRD Finance Summary

EUR 51,900,000.00

Up to EUR 52 million senior loan to UGV. The loan will benefit from a sovereign guarantee by Ukraine.

Total Project Cost

EUR 51,900,000.00

Up to EUR 52 million

Environmental and Social Summary

Categorised B (ESP 2014). The independent environmental and social due diligence (consisting of a  review of existing documentation and reports, an audit of existing activities including an assessment of potential environmental and social impacts and an assessment of benefits of the future investments) was conducted in April-August 2018. Potential impacts from the purchase and operation of workover rigs will be similar to impacts from the ongoing activities of the Company; and the installation of the Organic Rankine Process at the existing compressor station should allow waste heat recovery. The ESDD identified that UGV has in place a Health and Safety manual, which contains a UGV Company policy for their activities. Key principles of the policy include environmental protection and minimisation of negative environmental impact; compliance with national regulation and international agreements; application of Best Available Technology (BAT); and improvement of environmental culture across the company. While the manual outlines the foundations of health and safety management, it does not include specific provisions for environmental or social management. UGV will therefore need to develop and implement a Social Policy and Environmental and Social Management Plans to achieve compliance with PR1.

UGV employs a total of 20,900 staff. Labour management and working conditions are in line with national legislation. A collective labour agreement is in place and agreed upon by the employee's union. Union representatives' are the main vehicle to transmit workers complaints to the Company HR. UGV should set up a formal grievance mechanism for employees endorsed by the Company and coordinated by UGV's HR (with the collaboration of the workers union). The grievance mechanism should also be accessible by contractor workers.

Air emissions monitoring is currently undertaken by UGV both at field sites and at the Lokachi gas treatment plant. However, no control measures over air emissions reduction have been developed. Therefore, to achieve compliance with PR3, UGV should develop a formal emissions monitoring plan setting measurement locations, timeframe, and frequency for all sites; and quantify its emissions in accordance with EBRD Methodology for Assessment of Greenhouse Gas Emissions. In order to increase energy efficiency and reduce emissions from machinery and equipment, UGV should consider undertaking, in addition to regular equipment maintenance, an assessment of current equipment conditions and identification of technically and economically modernisation feasible options. Waste and wastewater management practices require improvements and, additional management focus should be directed towards handling hazardous materials, collection, treatment and disposal of drilling cuttings and wastewater and a tracking of the final disposal of waste, including auditing of waste operator and final disposal facilities in accordance to the Duty of Care principle.

With regard to the community and workers health and safety, the HS manual contains the basic elements needed to address relevant issues. Awareness of all potential ESHS risks and impacts should be reinforced through increased management activities (e.g. regular toolbox talks, HS walkovers etc.) at all Project sites. Additionally, UGV will need to consider further training on use of PPE and compliance with HS procedures for the transportation and handling of hazardous materials. Verification and ongoing monitoring of contractors need to be undertaken to ensure that adequate HS requirements in the field are being implemented.

The ESDD identified that no physical displacement will occur as result of the Project.  Most of UGV wells are located on agricultural land and, a temporary acquisition of the land, required to conduct workovers and access the well, is regulated through rental contracts. UGV follows the requirements of the national legislation, which allows a maximum rental period of two years. The land is permanently acquired only for the area where well-head equipment is located. No land acquisition is necessary for the energy efficiency upgrades at the Lokachi facility, which are entirely within the site boundaries. To achieve a compliance with PR5, the land acquisition process should be formalised in a Land Acquisition and Livelihood Restoration Plan (LALRP), to ensure the implementation of a common approach for all affected owners/ users.

UGV will implement a screening process for the impacts on biodiversity at existing sites with the aim to identify the likelihood, significance and severity of impacts proportionate to Project activities and, if required, determine potential mitigation actions and avoidance strategies that will then be managed under the Company environmental and social integrated management system.

Some of the Project areas are considered as having cultural/ archaeological value according to the classification of local institutions. Compliance with chance-finds requirements is ensured by appropriate practice implemented on site in line with national legislation (interruption of the activities and intervention of the public authorities).

With regard to PR10 compliance, existing EIAs do not include any stakeholder identification and the Company's engagement and consultation activities are mainly focused on institutional stakeholders and land owners and users.  The Company will therefore carry out a stakeholder identification process for the current and future Project operations, and regularly update the Stakeholder Engagement Plan (SEP). Particular attention during the identification process will be be paid to individuals and groups that may be differentially or disproportionately affected by the Project. The Company will establish and make public a community grievance mechanism, necessary for collecting community stakeholders' issues and concerns; and regularly monitor the trend of grievances and report back to the communities.

Mitigation measures, required to achieve compliance with the EBRD PRs, have been included in the Environmental and Social Action Plan, which is being negotiated with the Company.

The Bank will conduct regular monitoring of the Company's environmental and social performance and compliance with ESAP through monitoring visits and review of annual E&S reports.

Technical Cooperation

The Project is associated with technical cooperation in the following areas:
(a) Development of a Methane Emissions Reduction Program in Ukraine.
(b) Development of a Ukrainian natural gas exchange.
(c) Upstream Policy Dialog.
(d) Capacity building to enhance Naftogaz Group's compliance function is also under consideration.

Company Contact Information

Serhii Ivaniuta
serhii.ivaniuta@ugv.com.ua
+380444612980
+380444612980
ugv.com.ua
JSC Ukrgasvydobuvannya Kudryavska str, 26/28 Kyiv, 04053, Ukraine

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