In 1872, the (British) São Paulo Gas Company was licensed to distribute piped gas in São Paulo city, mainly for street lighting. In 1912 the company was acquired by the Canadian Company, Light, which over the next 40 years extended the customer base to include residential, commercial and industrial consumers. In 1959 the company was nationalized and renamed Companhia Paulista de Serviços de Gás. In 1968 a joint stock company (Companhia Municipal de Gás (Comgás)) was incorporated and control was assumed by the city authorities. The company name was changed in 1974 to Companhia de Gas de São Paulo, the shareholding being acquired in 1984 by Companhia Energética de São Paulo – CESP – which managed it until privatization in 1999. In 1997, 15% of the company was offered for auction and sold to Shell do Brasil, and two years later the company was offered for auction and acquired for R$1.65 billion (equivalent to approximately $1 billion at the time) by a consortium comprising BG and Shell. The company’s registered share capital is R$244,783,305.18, comprising a total of 11,982,279,687 shares, with around 78% of these being common shares with voting rights and 21% preference shares without voting rights Some 14% of the preferred shares are held by Integral Investments BV (the BG (95%) and Shell (5%) investment vehicle in Comgás,) and the remainder are publicly listed. The preferred shares attract priority in liquidation, and convey rights to participate in capital increases and to receive a dividend 10% higher than common shares. Currently, the ownership of the company, in terms of voting rights associated with shareholdings, is the following in percentages: British Gas 72.74 Shell 23.72 Publicly listed 4.04

The total project cost is estimated at $337 million. IFC is exploring a possible cooperation with the company to finance part of this program.

45.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	45.0
Equity

* These investment figures are indicative

The project comprises financing that will finance Comgás’ continued capital expenditure program. Comgás has a concession to operate gas distribution services in 177 municipalities of the São Paulo state under an exclusive concession awarded through an international competitive bid held in 1999.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

Environmental and social review of this project consisted of appraising information submitted by the project sponsor and a report prepared by a technical consultant to IFC. This review addressed the compliance status of Comgas'' current operations, including right-of-way alignment and land acquisition, and how liabilities such as land contamination and labor obligations associated with pre-privatization operations are managed. Comgas'' management system for the environmental, social, and safety aspects of its current and future operations was reviewed, as well as its corporate social responsibility and community development programs.
Location of environmental documents in locally affected community
Comgas administrative office Companhia de Gas de Sao Paulo Rua Agusta, 1600 1 andar 01301-901 Sao Paulo SP Brasil

IFC funding will allow Comgás to continue to implement projects with a substantial development impact. A strong factor that encourages industries to start up in or relocate to the São Paulo region is the increasing availability of natural gas. It is expected that São Paulo will continue to attract new industries as the Comgás network is expanded to new industrial areas envisaged under the project. The economies of scale generated by operating in close proximity to the significant market represented by São Paulo’s 24 million population are also important. This combination of economies of scale and the availability of gas (at the right price) will be a powerful magnet drawing enterprises to the region. Also, the expansion of the gas distribution network will increase economic activity due to requirement for domestically manufactured goods, as well as lead to an increased requirement for construction jobs. IFC support will strengthen Comgás as a company that proactively seeks to promote community development programs, including the Comgás Apprentice program, the Corporate Volunteering, and the Environmental Education and Social Programs. The expansion of the company’s operations to new areas under the project is expected to result in the expansion of the Comgás social development programs accordingly. The expansion of the Comgás distribution network also carries important safety benefits. The inherent physical characteristics of natural gas give it a higher ignition point, and a higher required concentration for an explosion, than either gasoline or LPG thereby reducing the risk of a catastrophic accident. The continuous distribution of natural gas through the pipeline by a safety-conscious company such as Comgás, reduces risks associated with accidents in the transport of LPG cylinders, and eliminates the need for storage facilities. Comgás will also widen access of natural gas to more lower income consumers than at present, that will derive benefit from the avoided cost in terms of time and in the handling and change-out of LPG cylinders and the increased convenience of natural gas. Natural gas is the cleanest burning of all the fossil fuels, and environmental benefits include large reductions of nitrogen oxide, carbon monoxide, sulfur dioxide, and total organic emissions compared to emissions from combustion of fuel oil commonly used in São Paulo. Consequently, environmental benefits and a lower contribution to greenhouse gas generation will result from further development of the gas market by Comgás. In time the substitution of diesel in the heavy vehicle transport sector may also provide significant pollution reduction benefits. Other benefits accrue from the cast iron mains replacement where leakage is reduced (natural gas itself being a greenhouse gas). Comgás is an exceptional candidate for IFC support as a key player in facilitating the expansion and consolidation of the gas distribution system in the state of São Paulo. The natural gas distribution industry, due to regulatory controls, is typically characterized by relatively long pay-back periods and moderate financial rates of return, which substantially underestimate its very important economic and environmental benefits. Appropriate long-term financing is essential for such projects. Since its inception in 1999, Comgás has been able to partly finance its network expansion through a combination of medium and short-term financing of five years or less in maturity. IFC’s funding would enable Comgás to continue with its expansion plan with a more stable financing structure. IFC would also be mobilizing substantial international commercial bank financing which would otherwise not be available. As such, the company lacks access to the more traditional longer-term debt or capital market financing normally available to larger gas distribution companies under more favorable macroeconomic conditions.