AOC is part of OAO Alliance Group (Alliance or the Group), which was founded in 1998 by Mr. Zia Bazhaev, a Chechen businessman and management consultant with significant experience in the oil production and trading business. Mr. Bazhaev’s original business was based on trading petroleum products and crude oil, which he bought in Russia and sold on international markets. Several years of trading, combined with high-level management assignments in then troubled oil companies, allowed Mr. Bazhaev and his team to develop expertise in managing petroleum related businesses. When founded in 1998, the Group offered its turnaround management services to troubled companies operating in the areas of oil and gas extraction and refining, petroleum product distribution, machine building, petrochemical production, and transport logistics. Assignments were carried out in exchange for fees and equity stakes or equity options in the underlying companies. As the acquired companies were turned into profit-making enterprises, this resulted in the creation of significant shareholder value for Alliance Group. Upstream and downstream oil and gas activities form the majority of Alliance Group’s operations. Other interests include smaller equity stakes and management contracts in companies operating in the petrochemicals, machine-building, agribusiness, textiles, financial services, and media sectors. The Group is now managed by Mr. Musa Bazhaev, one of the founder’s brothers. At present the Bazhaev family owns 83% of Alliance Group. Other shareholders include the members of the company’s top management and a number of regional state property funds and private companies.

The total project cost is estimated at $100 million. The proposed IFC investment is a $25 A loan extended as a corporate facility to AOC.

25.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	25.0
Equity

* These investment figures are indicative

AOC is headquartered in Moscow, Russia, but its operations are wide-spread geographically. The Company controls two refineries, one in the Russian Far East and another one in Southern Ukraine. AOC operates an integrated logistics, wholesale, and retail distribution network for petroleum products (including three marine export terminals) centered around its two refineries. In addition, AOC co-owns a network of gas service stations in Kyrgyzstan and is involved in oil exploration in Kazakhstan. The investment will finance a portion of AOC’s capital expenditures that will be made in Far East Russia and Southern Ukraine.

The project will help finance the continued expansion, growth, and modernization of a mid-sized Russian company engaged in adding value to one of Russia’s key natural resources. It will allow AOC to improve the efficiency of its refining and retail operations and help increase the degree of competition in a market dominated by the Russian oil majors. Expected consumer benefits include higher quality standards (more modern, safe, and environmentally friendly gas filling stations), increased convenience (higher density of filling stations); cleaner fuels (reduced sulfur content); and a more competitive pricing environment. AOC is already one of the largest employers in its refining locations, and also contributes significantly to indirect employment generation through outsourcing and of supplies and services. The project will support further employment growth, mostly through the expansion of AOC’s retail network and transshipment infrastructure. In addition, the Company will undertake significant investments over the next few years to elevate the level of employee skills and technical expertise in all areas. IFC will work with the Company to improve its environmental, social, and corporate governance practices. Alliance already enjoys a good reputation as a socially responsible company and senior management has stressed its belief that a socially responsible business operation is the key to sustainable growth. The Company is proactively involved in social, cultural, and sports activities in all of its locations: it has programs for housing, supporting orphanages and school hospitals, assisting children from zones of military hostility, creating cultural centers, and supporting local sports teams. IFC will play an important role in giving Alliance access to longer-term funding, which the Company has not been able to access to-date for tenors of more than 2-3 years. IFC’s involvement will enhance the Company’s credibility in raising long-term finance for its refinery modernization project, which is a key component of the Company’s future strategy.

This is a category B project according to IFC’s environmental review procedure because specific impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of appraising technical and environmental information submitted by the project sponsor, and the technical appraisal and site visit completed by IFC’s Environmental and Social Department staff. The following potential environmental, health and safety impacts of the project were analyzed:

- Environmental, health and safety management capacity;
- air emissions;
- surface water impacts and effluent management;
- solid waste management and disposal;
- hazardous material management;
- noise control;
- occupational health and safety;
- impacts on soil and ground water;
- fire control and emergency response; and
- public information/consultation.
Location of environmental documents in locally affected community
The environmental documentation will be disclosed at the following locations on December 29, 2005: - Centralized library system "Gagarinskaya", Olimpioniqe Library (http://olympic.org.ru/ ) Moscow, Michurinski prospekt, 54A - Far Eastern regional scientific library Khabarovsk, Muravyova-Amurskogo str. 1\72 - City Library, Kherson, Pavlika Morozova str.,8