Project description
and objectives:
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The proposed project consists of an equity investment in Closed Joint Stock Company INK Capital which holds a number of exploration and development licences in the northern part of Irkutsk region in the Russian Far East. The funds will enhance the Company’s balance sheet and will allow to obtaining further long term funding for gas flaring reduction program (through gas cycling project), development drilling and future exploration.
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Transition impact:
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The proposed transaction will contribute to support a private independent medium size company in the Russian oil & gas upstream sector.
Through the Project, the Bank will be able to promote improvements in the business and corporate governance structure of the Company including production of IFRS audited accounts and adoption of Russian corporate governance principles. In addition, the Bank will require that the Company publishes its payments to the Russian authorities (“publish what you pay”). The Bank will encourage the Company to further improve environmental performance of the Company’s operations. This will include the adoption and compliance with an Environmental Action Plan.
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Environmental impact:
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Screened C/1 requiring an Environmental Audit of existing facilities and a review of current corporate environmental management systems and practices. As the company is involved in the exploration and production of hydrocarbons from several oil fields located in a remote area the main environmental impacts may be related to encroachment or fragmentation of habitat used by sensitive, rare or endangered species, possible impacts to the environment (including soil, groundwater, surface water and air) caused by release of product or wastes, increased rates of soil erosion caused by construction activities, plans for reinstatement and possible disruption of current or historical land use.
An independent environmental firm was retained to complete the environmental audit and review of the company’s current environmental performance. Results of this work indicate that the main environmental issues are as follows:
- While the company has an existing environmental department, their current performance has been developed to comply with local and national regulations and therefore not fully compliant with EBRD Environmental Policy Requirements. They require additional staff and training to be in a position to implement a program compliant with EBRD Environmental Policy.
- Associated gas is currently either used for electricity generation in one of three mobile gas-fired turbines or flared. This has been identified as a high priority item and will need to be addressed in the near future.
- Waste management. There is little to no local infrastructure for waste management and therefore the company is required to develop an integrated waste management plan.
- There are some gaps between the standard EIA completed for field development under local/national requirements and EBRD EIA requirements. Future EIAs will need to be completed consistent with EBRD requirements.
A detailed Environmental and Social Action Plan (ESAP) has been developed for this project based on the results of the work completed to date. The main purpose of the ESAP is to structure the environmental department of the company to comply with EBRD Environmental Policy requirements. This action plan identifies the details of the required actions and establishes time frame for implementing each task. The ESAP has been discussed and agreed with the company, and action has been initiated on several of the priority items. Perhaps the main issue is the capacity building of the existing environmental department. A scope of work has been agreed with the company and the tendering process initiated for an independent environmental advisor (IEA) to be retained immediately to assist on the implementation of the ESAP.
Some of the high priority tasks to be addressed by the company with assistance of the IEA are as follows:
- Development and implementation of an overall Environmental Management System (EMS). This will include hiring of additional local staff within three months of signing the investment agreement. Further, the IEA will train local staff and assist them on the development and roll out of the EMS.
- While the company already uses, and has plans to install additional gas turbines for generating electricity, the IEA will assist the company in the development and implementation of an overall gas utilization plan with the intention of up to 95% gas utilization.
- The IEA will work with the company to develop an integrated waste management plan with reliance on waste minimization, reduction, re-use, re-cycling, treatment and uses disposal as a last resort. Further, the needs of local municipalities will be considered during development of this plan and if possible the company will share their infrastructure with local municipalities.
- The IEA will work with the company to ensure that current or historical land use by indigenous people or other land users is not compromised by field developments.
- The IEA will need to assist the company on the collection of baseline data that can be used for upcoming ESIA work.
- The IEA will work with the company to implement systems and procedures to ensure that local environmental sensitivities are considered when planning future developments, and to ensure that operations do not result in adverse environmental impacts due to release of products of pollutants to the environment.
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