The project sponsor is BPZ Energy, Inc. (BPZ), a public corporation organized under the laws of the State of Colorado, whose common stock, no par value per share, is traded on the Electronic Over-the-Counter Bulletin Board (OTCBB) and which files annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (SEC) under the Securities Act of 1934. BPZ acquired its public listing in September 2004 following a reverse merger with Navidec, Inc, a US technology firm. At the date of disclosure, BPZ’s common stock ownership is as follows: BPZ (Executive) Officers, Directors, Employees: 14,152,239 (30.02%) Former BPZ Director (> 5%): 3,465,486 (7.35%) Private Placement Investor: 21,388,534 (45.36%) Others: 7,572,447 (17.27%) Total shares issued & outstanding: 47,148,109 (100.00%)

Total project cost, including the additional wells and pipeline for the expansion phase to Ecuador, approximates $217 million (including contingencies, import duties and value-added taxes. Total cost for the base gas-to-power project excluding the additional wells and pipeline for the Ecuadorian expansion phase is about $174 million, whereas the additional expenditures for the expansion are estimated to be in the range of $43 million. IFC’s proposed investment of up to $50 million for its own account consists of a combination of equity, quasi equity and senior debt. The rest of the financial plan is expected to be funded through sponsor equity (about $67 million) and third party financing (about $100 million). Third-party financing will be a mixture of IFC B loan facilities sourced from commercial banks and bilateral/regional multilateral funding.

50.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	30.50
Equity	19.50

* These investment figures are indicative

The gas-to-power project involves the development of the Corvina gas field, which lies within the Block Z-1 concession area, northwest of the town of Zorritos in Peru’s northernmost province of Tumbes. The project’s ultimate goal is to monetize gas reserves by selling gas and electricity to local and regional markets. The planned location of the gas processing facility is adjacent to the new power facility, a short distance away from the existing Electroperu’s 19 MW Power Plant and REP’s electrical substation, on a greenfield elevated terrain removed from any urban settlements and with easy existing transportation access. The gas processing facility is designed to handle overall production rates of 125 MMSCFD, from which approximately 40 MMSCFD will be required by BPZ’s new power plant and 50 MMSCFD will be sold to Ecuador for similar power generation developments. However, maximum capacity of the offshore facilities and the pipeline is 175 MMSCFD to allow for future expansion of both the gas and power plants.

- Monetization of Natural Gas & Creation of Gas Markets: This project will support the monetization of hydrocarbons, particularly stranded natural gas reserves, in Peru. It will not only explore, develop and produce natural gas, but will also create regional markets for natural gas. Peru and Ecuador are two countries that are both desperate to increase their gas and electricity supplies. BPZ’s project will directly increase electricity supplies in Peru through the construction of the Caleta Cruz power plant, and will potentially increase electricity supplies in Ecuador by selling natural gas to power producers in Arenillas. - Contribution to Peruvian Government Revenue: The project facilitates the production and sale of gas and, possibly, liquids, which provide an important source of revenue to the country through royalties and taxes. - Creating Local Employment and Sourcing in Peru: The project will create direct new employment opportunities in Peru associated with the exploration and development of Block Z-1, construction and maintenance of the Caleta Cruz power plant and the potential construction of the pipeline to Ecuador. The project will also have an impact on secondary employment through services provided by local contractors. - Fuel Substitution and Transmission System Stability: Since most thermal capacity in both Peru and Ecuador is diesel generated, IFC’s support of the project will help to substitute the more expensive and more polluting imports of diesel and fuel oil for clean natural gas in both countries. The project will reduce transmission constraints by reversing the flow of electricity from South to North. The plant will also have an important role for providing stability to the system through its location at the end of a long line in the transmission network. - Community Development: BPZ has designed a Social Development Plan (SDP) and will commit approximately $250,000 annually to support this effort. The main components the SDP plan is to cover are: educational and training programs for the communities in worker capacity development, micro enterprise development and health and nutrition; basic needs and infrastructure development projects; the generation of alliances and partnerships for the implementation of long-term development projects particularly relating to health and education; and meeting local philanthropic needs. Early implementation of some SDP programs has already begun to benefit the local communities (for more details, see the ESRS). IFC plans to monitor the following development impacts: - employment; - local/national purchasing; - payments to regional governments; and - investments in community programs.

IFC’s participation will provide a small, young company with access to long-term financing, which is not available from the market. IFC’s support of BPZ sends an important signal to the market, enhancing its prospects to raise further equity for the project and its expansion phases, and playing an important role in encouraging the participation of other financial institutions through a mixture of long-term B loan support, parallel local bank financing and/or other regional/bilateral sources of funding. IFC is assisting BPZ with the set-up of an adequate environmental and social management system. Also, IFC has evaluated and, is making proposals to enhance the effectiveness and reach of its environmental mitigation, social investment and community development plan initiatives. Through this investment IFC will support a small company to monetize and create markets for stranded natural gas, which is in alignment with the Management Response to the EIR. Prior to project completion, IFC will also evaluate the project’s displacement of existing or expected diesel or fuel oil fired power generation in Peru and/or Ecuador to determine whether the project would be a viable candidate for carbon credits, possibly in conjunction with the development of other small-scale gas supply-related projects which could benefit local communities.

The gas to power project in northwest Peru 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 the applicable performance standards, guidelines or design criteria.

IFC’s environmental and social appraisal of the project consisted of document review sponsor interviews and visits to the project sites. Specific information about how potential environmental and social impacts will be addressed by BPZ is summarized in the Environmental and Social Review Summary (ESRS) for the project. An environmental health safety and social action plan has also been agreed with the company to address all of the issues identified during appraisal. This action plan is attached to the ESRS.

The proposed IFC investment would be consistent with the standards recently adopted in the WBG’s Management Response to the EIR. BPZ is a small, regional player with significant interests in the development of primarily stranded gas reserves for the surrounding regional market. Governance Context: The benefits of this project come in a number of forms as outlined above, including revenues to the governments in the form of taxes and royalties. In coming to a view of whether to support this project, IFC considered the value of the project’s benefits, and governance and other risks to these benefits. In this respect it has reviewed a range of assessments including, but not limited to, the World Bank Institute’s Governance Indicators and Transparency International’s Corruption Perceptions Index. Also taken into account is Peru’s current engagement with the World Bank Group and the IMF. At the national level, Peru has already achieved a relatively high standard on accountability and transparency in the collection and distribution of oil, gas and mining revenues. This effort is part of a broader process of fiscal decentralization; it builds upon existing legislation regarding access to information and is consistent with Peru’s commitment to the G8 Transparency Compact. The Government, through the Minister of Energy and Mines, has subscribed to the EITI and appointed an EITI coordinator. BPZ has also agreed to make all payments made to the government public. BPZ is a publicly listed U.S. company and is subject to robust operational and financial disclosure requirements. BPZ’s board includes three independent directors who also serve as chairs of the company’s Audit Committee, Nominating and Corporate Governance Committee, and Compensation Committee.