Founded in 1989, the sponsor operates businesses mainly in the field of energy distribution, with major operations covering urban gas, energy equipment, bio-chemicals, energy chemicals, and property development. The sponsor is comprised of more than 80 subsidiary companies and employs approximately 15,000 people. The sponsor will invest in the project company through three of its key affiliates: Xinao International Investment Ltd. (Xinao International), Xinao Group Co., Ltd. (Xinao Group Co.) and Xinao Gas.

Xinao International and other potential investors will invest equity in the project company through Xinneng Holding, an intermediate holding company incorporated in the British Virgin Islands. Xinao International will have a shareholding in Xinneng Holding of at least 51%. Xinneng Holding, in turn, will own at least 51% of the project company’s equity, with Xinao Group Co. expected to own about 34% of the project company, and Xinao Gas with approximately 15% of the project company.

The project is estimated at $300 million, as follows:

The proposed IFC investment in the project consists of:

- an A Loan of up to $25 million to Xinneng Chemical for IFC’s own account
- a syndicated B Loan of up to $70 million to Xinneng Chemical
- an equity investment of up to $5 million in Xinneng Holding for IFC’s own account

50.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	40.0
Equity	10.0

* These investment figures are indicative

The main site for methanol production is located in Erdos city in Inner Mongolia, China. The site is located in an industrial zone. The methanol is expected to be converted into DME in 4 locations close to the final DME markets, namely Langfang, Bengbu, Yantai, and Luoyang.

Development Impact:

- Promoting development of clean-burning fuels:

The project will support the development of clean fuel alternatives which will ultimately replace higher polluting fuels such as coal and wood and thereby contribute to an overall improvement in air quality in China.

- Address China’s energy security concerns:

China’s increasing consumption of imported petroleum is raising concerns about China’s energy security. The project’s use of China’s abundant coal reserves will allow China to diversify its fuel sources and reduce its reliance upon imported oil and petroleum products.

- Create employment opportunities:

The project is based in Inner Mongolia, an underdeveloped region in China, and will create about 641 employment opportunities through its methanol plant. The project will create an additional 200 employment opportunities in its four DME plants in Hebei, Anhui, Henan, and Shandong provinces. In addition to the direct employment, there is expected to be significant additional indirect employment to support operations, logistics, etc.

- Improve environmental and safety standards:

The project will adopt strict environmental, social and safety standards which, in turn, will provide a demonstration effect to other similar projects in China. This is especially important given the national emphasis on sustainable development.

IFC Role:

- Advising on project development and technical assistance:

The sponsor considers IFC’s involvement important because it recognizes IFC’s extensive experience in the petrochemical sector. The sponsor sought IFC’s support in conducting a technical and economic assessment of the overall viability of the project.

- Structuring and mobilizing funding:

The project is a relatively large-scale, complex petrochemical project in an emerging market segment and it needs a variety of sources to provide all the necessary financing. IFC’s involvement will provide a “quality seal” and lend the project credibility for other potential investors.

- Improving sustainability by improving environmental and social components:

The sponsor has demonstrated that it values IFC’s advice and expertise in sustainable development. IFC will work with the sponsor to ensure that it meets World Bank environmental, health, safety and social guidelines.

- Potential for Strategic Equity Partnership:

The sponsor has indicated its strong interest in having IFC as an equity partner. The sponsor had a positive experience with IFC during IFC’s previous investment in Xinao Gas and realizes the value IFC brings as a long-term partner.

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. The review of this project consisted of appraising technical and environmental/social information submitted by the project sponsor and a field visit to the project site in Erdos, Inner Mongolia, China. The following potential environment, health, safety (EHS), and social impacts or issues of the project were analyzed.

- Land and natural environment;
- Environment and social impact assessment;
- Environmental, health, and safety management system;
- Water source and wastewater treatment;
- Air emissions and ambient air quality;
- Workplace and ambient noise levels;
- Solid and hazardous waste management;
- Operational hazards and hazardous materials;
- Occupational health/safety;
- Fire prevention and emergency response;
- Coal mines and related safety; and
- Land acquisition and project affected people.
Location of environmental documents In locally affected community
At the Communist Party School ,
Dalate County, Erdos City,
Inner Mongolia Autonomous Region,
China (内蒙古自治区鄂尔多斯市达拉特旗党校)