The project sponsor and guarantor is OAO Lukoil, which accounts for roughly 19% of Russia’s crude oil production or 86.2 million mt in 2004. Throughput at Lukoil’s refineries amounted to 43.8 million mt in 2004. Lukoil's shares are publicly traded on the Russian stock exchanges (RTS, MICEX, SPICEX, SSE) and its ADRs and GDRs trade on the US over-the-counter market and exchanges in London, Berlin, Frankfurt, Munich and Stuttgart. Lukoil became the first Russian company to obtain London Stock Exchange (LSE) listing in 2002. In September 2004, the Russian Government sold its remaining 7.59% stake in Lukoil to Houston-based ConocoPhillips, who has since indicated it will increase its stake to up to 20% and become a major equity investor. Following an internal reorganization in 2000, the sponsor’s international assets were placed with Lukoil Overseas Limited B.V. for upstream operations and Lukoil International GmbH for downstream operation. Petrotel’s shares are owned by Lukoil Europe Holding B.V., a wholly-owned subsidiary of Lukoil International GmbH, (93.67%), the investment company S.I.F. Muntenia (3%), former State Property Fund - A.P.A.P.S. (2.59%) and various individuals (0.75%).

Lukoil’s investments in Romania are in the range of $367 million, out of which $260 million was invested to expand the gas station network, tank farms and other distribution installations, and $107 million for the modernization of the refinery. At the outset of the project in 2003, Lukoil engaged IFC to provide long term financing. However, in the interest of expediting the refinery modernization, the sponsor provided its own bridge financing to commence project implementation. The refinery re-commenced operations in the fall 2004, and IFC’s loans will replace the sponsor bridge financing. IFC’s proposed investment will consist of a $35 million A loan and a $47 million B loan.

35.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	35.0
Equity

* These investment figures are indicative

The Petrotel refinery is located in Ploesti, a city with 300,000 inhabitants in central Romania. The city is dominated by the Romanian oil industry, there are 4 refineries in the immediate area. Lukoil has 300 gas stations and 8 storage tank farms across the country.

This is a category B project according to IFC''s Environmental Review Procedure.

Key environmental issues associated with this project include environmental and social management capacity, soil contamination, air emissions, liquid effluents, solid waste management, fire/explosion safety and emergency response, storage and transport safety, and logistics and safety handling for product distribution system. Occupational health and safety issues include emergency response training and general occupational health and safety. Key social issues include public/community relations and community development including the possibility of implementing SME initiatives.
Location of environmental documents in locally affected community
The ERS document was released for the requisite 30-day period in July/August 2003 at the Petrotel’s refinery gate and on Lukoil’s website.

The proposed project will have the following development impacts: - As part of Lukoil’s operations in Romania, Petrotel forms a crucial element of a professionally run downstream business, which can serve as benchmark for other players. - Romania’s refining sector is a legacy of the COMECON time with too many refineries at sub-optimal size. Lukoil’s investment in the downstream industry will facilitate rationalization of Romania’s refining sector, by helping to remove overcapacity and loss-making players. By streamlining the industry, the overall economics of the refining sector in Romania will be strengthened, allowing for a market-driven approach. - Together with the privatization of Petrom, which was acquired in 2004 by Austria’s OMV, the project will reduce the need for the Government of Romania’s involvement in the downstream industry. This by itself is a benefit for the entire economy as western business practices are increasingly adopted. - Lukoil’s investments in the Romanian economy will also be perceived as a showcase for a successful privatization. Not only has Lukoil honored its commitment to carry out the modernization program as part of the privatization contract, but it will keep investing in the Romanian economy through the expansion of its gas station network and other activities. - In view of Romania’s aspired EU accession, Petrotel’s modernization program allows Lukoil to supply Euro-3 and Euro-4 fuels (the latest EU fuel Specifications) to Romania, as well as bring new technology to the country’s debilitated refining sector, moving Romania’s refining industry closer to EU best practices. - Due to the modernization program, Petrotel’s air emissions have been reduced and meet IFC, EU and Romanian emissions standards, as low NOx burners are installed in boilers and heaters. - As part of the modernization program, $11 million were spent for a wide-ranging environmental improvement program as part of Lukoil’s obligation to the Government of Romania to carry out environmental clean-up work. - Lukoil has trained and will continue training its Romanian staff to improve on current working practices, as well as health and safety standards. - Petrotel has total direct employment of 1,241 staff. Moreover, Lukoil has currently 3,819 staff employed at its petrol station network and distribution facilities throughout Romania, which brings the total employment for Lukoil to 5,060. All of Lukoil’s operations will create substantial backward linkages in the country’s economy. The proposed project fits well with the World Bank Group strategy of promoting private sector development in a key sector that has been traditionally important for Romania. In addition, it is in line with IFC’s strategy of supporting the increase of foreign investment flows and investor confidence in the country. IFC’s participation in the project would enable the company to obtain adequate long-term financing at reasonable terms. In addition to providing direct financing, IFC would serve as a catalyst by mobilizing sources in Europe via a B loan syndication at a time when limited access to long-term financing is available in Romania for these type of projects. IFC has played a key role in structuring the financial plan, and evaluating environmental issues, thus reducing the project's risk profile. In view of the perceived macroeconomic and political risks of investing in Romania, IFC's participation together with Lukoil, a regional leader in oil, gas and petrochemicals, will have a significant demonstration effect in supporting foreign direct investment in Romania.