While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:
Whilst all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have potential impacts that must be managed in a manner consistent with the following of IFC’s Performance Standards:

- PS1: Social and Environmental Assessment and Management Systems;
- PS2: Labor and Working Conditions;
- PS3: Pollution Prevention and Abatement;
- PS4: Community Health, Safety and Security;
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management;

The specific reasons for not applying PS5, 6 and 8 are given in the text below.

This is a Category B investment because E&S impacts associated with KEC’s activities are typical for small-scale oil and gas field exploration and production operations that can be readily managed and controlled by following good international industry practice. Potential impacts can be avoided or reduced by adhering to international standards, guidelines and design parameters and KEC has an integrated Health, Safety, Environment and Social Management System at the corporate level that is aligned with international standards. No significant E&S sensitivities have been found at existing KEC operated locations and KEC’s Management System includes procedures for the identification of E&S impacts and risks prior to entering new exploration areas (including baseline studies and E&S impact assessments). Proposed activities can therefore be assessed on a case by case basis before activities begin and E&S management measures commensurate with the identified impacts and risks can then be developed and implemented where necessary.

Key E&S issues relating to the investment are summarized below along with specific information on how potential impacts will be addressed by KEC. Upon implementation of the mitigation measures summarized below and continued implementation of the Company’s updated Environmental and Social Action Plan (attached to this ESRS), the project will comply fully with host country laws and regulations, IFC’s Performance Standards on Social and Environmental Sustainability, and follow relevant IFC Environmental, Health and Safety (“EHS”) guidelines.

Performance Standard 1: Social and Environmental Assessment and Management Systems
KEC has a corporate HSESR Policy Statement signed by the Company CEO and has developed an integrated HSESR Management System to support the implementation of this policy. A key component of KEC’s existing E&S management structure is the continuing development and implementation of consistent procedures across the operating assets where there are ongoing and planned operations using existing procedures and guidelines already in place where appropriate and developing new and improved procedures and plans where necessary. The organizational capacity in relation to E&S management has been expanded across the company to implement the Management System in each country. A corporate HSESR manager was hired in 2009 to oversee the continuing development of the Management System, plans and procedures supported by three HSE advisors in Egypt (with two further advisors to be hired), two HSE advisors in Ukraine, and one HSE advisor working on the planning for the exploration program in Yemen with one more to be hired. The E&S organization will be enhanced as and when necessary to ensure full coverage across KEC assets.

The Management System is arranged in accordance with the international quality standard ISO 9001 and the international environmental standard ISO 14001. In Ukraine, ISO 9001 and ISO 14001 system audits were recently conducted to gain system certifications. Certification is expected in 2010 and certification to the international occupational health and safety management system specification OHSAS 18001 is to follow. KEC’s Egyptian operations are preparing for certification audits in 2011.

Identification of E&S impacts and risks associated with KEC activities is an important component of the Management System. Environmental Impact Assessments (EIA) in accordance with national standards have been carried out for KEC’s operations in the Ukraine and Egypt. This has included an EIAs for each well drilling program and for the gas processing plant in Ukraine and an EIA program is followed for the activities in the Area A field in Egypt. EIAs for the planned drilling program at Burg Al Arab in Egypt are underway. In Yemen, Environmental and Social Impact Assessments (ESIA) for the exploration program have been commissioned.

Social responsibility is another key component of KEC’s Management System. KEC is committed to disclosing information and maintaining open and proactive communications with all internal and external stakeholders. KEC procedures are in place to identify potentially affected communities where they are present, and a corporate Stakeholder Engagement Plan containing consultation and disclosure procedures to be implemented at each KEC operational location has been developed. In addition, a community grievance mechanism has also recently been developed and will be put into practice where communities are present.

Compliance with the Management System, in particular the implementation of standard operating procedures and compliance with regulatory requirements, is routinely monitored internally. Each operating site is required to report performance to the corporate HSESR manager on a monthly basis. KEC operations in Egypt and Ukraine are also subject to local authority inspection.

Contractor performance is also routinely monitored in each country by KEC. This involves pre-acceptance audits of all contractor equipment and procedures and a review of past HSE performance. Where there are shortfalls, corrective actions are issued that must be addressed before KEC contracts will be awarded. Standard HSE terms and conditions have been prepared by KEC that are included in the awarded contracts.

Performance Standard 2: Labor and Working Conditions
KEC’s Human Resources (HR) department have developed a new corporate HR Policy and HR manual that when fully implemented across all of KEC operational locations will provide consistency across the Company in relation to terms and conditions of employment and HR procedures. This will include a Company staff appraisal process and a new employee grievance mechanism. Prior to full implementation of the corporate Policy, KEC continues with its current HR policies and procedures in place in each country of operations which are at a minimum compliant with national laws.

KEC is a non-discriminatory and equal opportunities employer. Currently KEC employs over 300 staff on permanent contracts of which approximately 150 are located in Egypt, Ukraine and Yemen. All employees are full-time staff and their terms of employment, working conditions and benefits are provided to them when they are hired. Market salary surveys are carried out in the countries where KEC operates to ensure that compensation packages including benefits offered to employees are competitive. One benefit that applies to all staff is an employee stock ownership program, wherein employees, when warranted, are awarded shares in KEC as a performance bonus. The Company has established a minimum age requirement for employment of 18 years.

Workforce occupational health and safety (OHS) is a key component of KEC’s HSESR Management System. Safe working practices are adopted at each operating location and this is reflected in the positive safety statistics reported in relation to KEC’s ongoing activities in Egypt and Ukraine, with only very minor incidents recorded.

KEC is building on the most suitable and appropriate OHS procedures in place at their operated fields and continues to develop and implement improved and uniform procedures across the Company’s assets. Risk assessment procedures are routine, such as job safety analysis to define hazards before commencing work to ensure appropriate controls are implemented. All field staff undergo mandatory training in health and safety procedures upon employment with periodic refresher courses. Training includes workplace hazard identification and procedures, fire and life safety, the permit-to-work system, safety signage, and the wearing and correct use of appropriate personal protective equipment. Emergency response arrangements are in place in Egypt and Ukraine. Emergency response preparedness and procedures for Yemen are under development.

Contractors are subject to the same OHS requirements and, following pre-acceptance audits of the contractor’s equipment and procedures, KEC requires that a bridging document is developed to align contractor HSE procedures with KEC procedures before site work can begin.

KEC has also adopted a behavioral safety system that empowers field supervisors and staff to issue a “safety observation card” that will halt work when unsafe conditions are observed. Work is stopped until the unsafe conditions are remedied. The issuance of safety observation cards is recorded and reported along with other health and safety statistics.

Performance Standard 3: Pollution Prevention and Abatement
Principal air emissions from KEC’s current operations in Egypt include emissions from flaring of associated gas and combustion emissions from the field power generators used to supplement the power taken from the national grid. Flaring is highest at Area A where volumes are around 5 million cubic feet per day (approximately 160,000 tonnes CO2 equivalent per annum). Smaller amounts are flared at other fields including at KEC’s non-operating assets in both Egypt and Yemen. KEC, along with the operators and the government authorities, are looking at possible alternative options to avoid flaring at these locations. In Egypt the authority that has ownership of the gas continues to study options for greater utilization of the gas generated at Area A. This includes a feasibility study underway to determine the opportunities for gas capture and production of Liquefied Petroleum Gas (LPG) and will require the construction of a gas treatment plant and the negotiation of a new gas sales agreement. Other options under consideration include greater utilization of gas for field power and the use of gas for re-injection for reservoir pressure maintenance purposes. Associated gas at KEC’s fields in Egypt is sweet (contains no hydrogen sulfide).
Principal air emissions at KEC operated sites in the Ukraine are from the gas plant. There are four main sources of emissions to air from the gas plant: the fired heater; the gas compressor; the back-up diesel generator; and, the flare. The produced gas is used as the main fuel source and is sweet. Emissions to the air from these sources were approved and permitted by the authorities following a detailed air assessment study (including emission points, the heater and compressor stack heights and monitoring). Stack emissions are monitored by a third party and are found to be compliant with Ukrainian and IFC standards. Flaring volumes are minimal as the plant’s flare is only used for emergency blow-down and start-up following maintenance procedures.

Principal wastes routinely generated at KEC’s assets include: process waste water; drilled cuttings and spent drilling fluids; sanitary wastes; and, general non-hazardous and hazardous waste materials. Current disposal options for these wastes include:

- Process waste water: produced water is collected in lined disposal pits in Egypt. At Area A the water is transferred to a central water treatment and disposal site operated by a government-run oil field subsidiary company along with other produced waters from nearby fields. The authority separates residual oil from the produced water prior to disposal. There is no process waste water from the gas plant in Ukraine.
- Drilled cuttings and spent drilling fluids are disposed of in lined pits alongside the drilling location as per industry practice and pits are remediated following the drilling program. Only water based drilling fluids have been used in KEC’s drilling programs.
- Sanitary wastes: domestic sewage generated at KEC’s facilities in Egypt and Ukraine is collected in septic tanks that are periodically evacuated by truck for disposal at the nearest municipal sewerage system.
- General wastes are managed using the existing infrastructure available for disposal in Egypt and Ukraine. In Ukraine, a waste permit issued by the local authorities is required before any wastes may be generated. In both countries, third party waste contractors approved by the government authorities are used to remove wastes from the operating locations. Hazardous materials wastes such as chemicals, chemical containers, and used oil drums are returned back to the providers.

KEC is in the process of updating their waste management program at the corporate level. This includes a waste management options study to identify the type and quantity of current and possible future waste streams at all sites and the alternatives available for their reuse, recycling or disposal. Country specific waste management plans will then be updated.

Oil and chemical spill response arrangements are included in the facility emergency response plans for KEC’s producing fields. Specific spill response arrangements are being updated across KEC’s various assets where required.

Pre-existing ground oil contamination is present at some of KEC’s fields. A baseline study carried out in 2006 at the Area A field in Egypt on behalf of the previous operator identified a number of contaminated surface areas as well as contamination of shallow ground waters; however these groundwaters are saline and not potable. The contamination was principally related to spilled oil contamination as a result of leaking equipment and poor operational practices, such as insufficient storage and containment of fluids. KEC bears no legal responsibility for this legacy contamination, but will work with the authorities where possible to consider the approach towards remediation.

Legacy oil contamination is present around existing well sites in the North Yablunivska field in Ukraine. KEC is not legally responsible for this contamination which is limited to the areas where state-run operations are continuing. KEC’s planned operations in this field will take place in a separate location.

Performance Standard 4: Community Health, Safety and Security
KEC facilities and activities are not expected to result in health and safety risks to the general public in Egypt as KEC’s assets are all located in remote areas; the city of Ras-Gharib is some 30 km north of the Area A field and this is the closest community to any of the assets. In Yemen, the assets are also all remote, but small villages and settlements as well as nomadic tribal peoples are located in the regions where exploration activities are planned. Risks to any residents or tribal people in KEC locations will be considered in the assessments conducted as part of the planning for the exploration program.

In Ukraine, although not densely inhabited, there are scattered rural villages across each of KEC’s fields. The closest village to KEC’s existing facilities is about 1 km from their gas plant in the Bilousivsk-Chornukhinska field. The gas plant uses proven technology with modern equipment. Safety measures include: alarm systems; pressure relief devices; emergency isolation valves; and, shutdown equipment in accordance with international design codes. Risks to villages in the vicinity of the plant were assessed by quantitative risk assessment carried as part of the plant engineering design program. A Sanitary Protection Zone of 1 km radius around the gas plant has been established by the government authorities. The SPZ acts as a buffer where no new buildings will be permitted and is also used by the authorities to monitor compliance with emission limits. In relation to the community response in the event of an emergency at the gas plant, KEC has response agreements in place with the local emergency services. Safe distance operations from residents are carried out for all drilling activities.

Security measures in Egypt are principally limited to gatehouse guards due to the remoteness of KEC assets. In Ukraine a security company is used to secure the gas plant. Strict procedures and charters are in place that must be followed by the security team.

In Yemen, KEC will need to develop a security force for worker protection due to the high risk security situation in the country as well as the high risk of kidnapping. This will require the hiring of trained armed security personnel. A security plan for Yemen is under development. Security procedures and training for all of KEC’s assets will take into account the engagement principles and guidelines contained in the UN Code of Conduct for Law Enforcement Officials, the UN Basic Principles on the use of Force and Firearms by Law Enforcement Officials and the Voluntary Principles on Security and Human Rights.

Performance Standard 5: Land Acquisition and Involuntary Resettlement
This Performance Standard is not specifically triggered for this investment because:

-The land used by KEC in Egypt is owned by the government or military and was provided to the previous operators of KEC’s assets by the government. The land is similarly owned by the government in Yemen and provided to KEC for the purpose of hydrocarbon exploration and production. None of the sites acquired for KEC activities in Egypt or Yemen to date have resulted in physical or economic displacement.

-KEC’s activities in Ukraine are taking place on agricultural land in rural areas and the land is leased from the land owners on a willing lessor/willing lessee basis. KEC follows land acquisition procedures in accordance with Ukraine’s clear guidelines and requirements. Both registered owners and land users are compensated one year in advance based on standard land prices as agreed by the owner/user, KEC and government authorities. Detailed records for every transaction are held by KEC. Land for pipeline corridors are temporarily leased for construction only and no farming restrictions are placed along the buried pipeline following construction.

For future activities, KEC will adopt a land acquisition procedure that identifies situations in which economic displacement may be necessary. In such cases, consultation, policy and compensation procedures that are in compliance with all of the provisions of Performance Standard 5 will be adopted.

Performance Standard 6: Biodiversity Conservation and Sustainable Natural Resource Management
KEC’s Area A producing asset in Egypt falls within a proportion of “Gebel El Zeit” a designated “Key Biodiversity Area” (KBA) and “Important Bird Area” (“IBA”). Gebel El Zeit runs along a narrow 100 km coastal strip (100,000 ha) extending along the Gulf of Suez/Red Sea coast. It is not specifically a protected area but the area is considered globally significant in relation to the concentration and numbers of migratory birds that fly through the area. KEC’s oilfield activities will take place in less than 15% of the total area and are not expected to have a direct impact on these migrating birds. Nonetheless, KEC will consider the sensitivity of the area to migratory birds in its development planning and will include specific bird protection measures, in relation to their pollution prevention control procedures and will prohibit any interference of wildlife or hunting by the workforce and contractors.

The Sabkha (salt flat) is also present in the Area A field.

No other areas of critical habitat have been identified around KEC’s other assets in Egypt, or its assets in Ukraine or exploration sites in Yemen to date. Exploration areas to be assessed will include the identification of biodiversity areas in the environmental assessments carried out prior to KEC activities. If necessary mitigation measures for addressing these impacts will be implemented to ensure that the Project will comply with all of the provisions of Performance Standard 6.

Performance Standard 7: Indigenous Peoples
This Performance Standard is not triggered for this investment in relation to current operations as there will be no indigenous peoples affected by KEC operations in Egypt and Ukraine.

The potential for impacts to indigenous peoples, including nomadic communities, in Yemen will be considered as part of the social impact assessments of exploration areas and appropriate mitigation measures and benefit sharing mechanisms will be developed, in accordance with the provisions of Performance Standard 7 where such impacts are identified.

Performance Standard 8: Cultural Heritage
This Performance Standard is not triggered for this investment in relation to current operations as KEC has not identified any artifacts or resources at any of its assets that would constitute cultural heritage properties.

E&S impact assessments to be carried out for new exploration areas will include an assessment of potential impacts on cultural heritage resources. Where cultural heritage is identified, appropriate mitigation measures will be developed in accordance with the provisions of Performance Standard 8 to ensure appropriate protection of this heritage.

KEC considers corporate social responsibility (CSR) to be an integral part of its business model. As described earlier, KEC is committed to open engagement with internal and external stakeholders and has developed a corporate Stakeholder Engagement Plan containing consultation and disclosure procedures to be implemented where required at their operating sites.

There are no local communities expected to be directly affected by impacts associated with KEC’s routine activities in Egypt. In Yemen, KEC’s country management team has been meeting government representatives, village and tribal leaders from the region around their various exploration areas as part of their exploration planning. Further consultation and disclosure will be conducted in these areas where required as the E&S assessment program develops. KEC has a fully developed engagement program with local residents that live in their field areas in Ukraine that consists of routine close communications.

KEC is developing community support initiatives for Egypt and Yemen. In Ukraine, KEC continues to fund a number of community based social programs. Projects are selected on the basis of local requests and requirements and an understanding by KEC of local community needs. In 2009, KEC spent $58,000 on gasification of the village Bilousivka, renovation of Varva regional hospital and Lokhvitsa village school, and repairing roads in the communities. The Company has budgeted over $90,000 for 2010 for selected local community projects.

The following documents will be released in the English Version on April 6 2010:

- ESRS (Environmental and Social Review Summary)
- ESAP (Environment and Social Action Plan)
(Please note that this ESRS will later be revised to include Translated Versions).

Translated versions of the ESRS and ESAP will be available on April 6 2010 at:

Kuwait Energy Egypt
13B/3 Ramadan Kamel Street
New Maadi – Cairo – Egypt
Tel.: +2 (02) 25175209 /10/12/13/14/15
Fax: +2 (02) 25174126

Kuwait Energy Yemen Ltd.
Attan Street, Behind Indonesian Embassy
Hada Area
Sanaa
Republic of Yemen
P.O. Box: 16648
Tel.: +967-1-429928
Fax: +967-1-429987

Rudis International
4-6 Striletska Street, 5th Floor
Kyiv, 01025, Ukraine
Tel.: +38-044-490-6020
Fax: +38-044-490-6021

Any queries and/or comments about the project may be directed to:
Contact person:

Mr. Roger Phillips
Chief Financial Officer
Salem Al Mubarak St. Laila Tower, Block 49,
Bldg #45, 8th Floor
P.O. Box 5614, Salmiya 22067 Kuwait
Tel: +965 575 5657
Fax : +965 575 5679
Email: roger.phillips@kuwaitenergy.com.kw