24373 - IPR EGYPT

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Summary of Proposed Investment

Project Number

24373

Company Name

IPR TRANSOIL CORPORATION

Date SPI Disclosed

Nov 29, 2006

Country

Egypt, Arab Republic of

Industry

Metals and Mining

Projected Board Date

Dec 29, 2006

Status

Completed

Sector

Oil and Gas Production (Includes Development)

Department

Gbl Infrastructure & Natural Resources

Environmental Category

B - Limited

Previous Events

Approved : Feb 16, 2007
Signed : Jun 6, 2007
Invested : Aug 7, 2007

Project Description

The IPR Group of Companies (IPR or the company) is a group of privately-held domestic and international companies that engages in exploration and production of oil primarily in Egypt, but also in Syria and Pakistan. IPR is headquartered in Dallas, Texas, where, besides being active in exploration and production through its affiliates in Egypt, Pakistan and Syria, it also provides petroleum consulting services through out the world. IPR’s existing production is largely concentrated in its Alamein Yidma concession in the Western Desert area of Egypt, but it also has existing production in the Gulf of Suez from the North July concession.

IFC has been asked to provide financing of up to $25 million to help fund a portion of IPR’s capital expenditure program for the 2006-2009 period. The program (drilling nine new wells and undertaking 51 well interventions or workovers, plus auxiliary facilities) will focus primarily on the further appraisal and development of its Almein Yidma field, but will also target exploration and development of five other oil fields in Egypt, namely, North Bahariya, North Ras Qattara and El Diyur all located in the Western Desert, and the Southwest Gebel El Zeit and North July fields offshore in the Gulf of Suez.

Sponsor / Cost / Location

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

Development Impact

Fit with World Bank Group Strategy:

Current World Bank Group (WBG) priorities in Egypt, as outlined in the FY06-09 Country Assistance Strategy (CAS) are:

- facilitating private sector development;
- enhancing the provision of public services; and
- promoting social and economic equity.

More specifically, IFC''s strategy for Egypt focuses on:
- encouraging private investments in infrastructure, mining and hydrocarbon sector;
- supporting export-oriented manufacturing;
- technical assistance for SME development and the business enabling environment; and
- supporting financial sector activities.

In recent years, crude oil production in Egypt has declined from 700,000 bpd in 2001/2 to an estimated 640,000 bpd in 2005/2006 due to lower production from maturing fields, while domestic demand has been rising. This has resulted in significant ongoing efforts to raise oil and gas production to meet domestic needs as well as to step up natural gas exports. The WBG is actively supporting these efforts; IFC has four existing oil and gas investments, and the World Bank is currently engaged in providing technical assistance to the Government of Egypt (GoE), on strengthening domestic natural gas distribution in the country. The proposed project fits well within the WBG’s strategy for Egypt as it promotes the participation of the private sector and foreign direct investment in Egypt’s important hydrocarbons sector, especially in smaller fields that would otherwise be ignored by larger oil companies.
Anticipated Development Impact of the Project:

The hydrocarbon sector is important to the Egyptian economy, contributing nearly 10% of GDP and 53% of export earnings as well as drawing a significant share of foreign direct investment. IFC’s investment will continue to support foreign investment in Egypt’s hydrocarbon sector. The country recently went from an oil exporter to an oil importer. Finally, IPR specializes in enhanced oil recovery and management of marginal and declining production fields. This technology and expertise is being applied to extend the life of smaller fields that are of no interest to the larger oil companies. This technology is being shared with its partners, including the local oil company, Sahara Petroleum.

- Contributions to Government Revenue:

Direct economic benefits for GoE in the form of Egyptian General Petroleum Corporation’s (EGPC) production share (includes IPR’s share of royalties and income taxes).

- Creating and Providing Sustainable Local Employment:

IPR is an important source of local employment in the fields it operates, particularly in its largest field, Alamein Yidma, which, through the Joint Operating Company El Hamra Oil, employs 125 people, 90% of whom are Egyptian. Overall, IPR employs approximately 250 people in Egypt, with the majority (90%) locals. As the company has success in its exploration and development projects, it is likely that employment will grow.

- Local Purchases of Goods and Services:

Egypt has a thriving local oil services industry that will benefit from the project and will involve expenditures on local goods and services which will be tracked on an annual basis. Currently, IPR estimates that 70% of its annual purchases are spent locally.

IFC will monitor the project’s development impacts annually based on information provided by IPR in respect of:

- annual contributions to government revenue,
- local employment, and
- purchases of local goods and services from local suppliers.

IFC has several important roles to play in this project, as follows:

- Capacity Building:

IFC has played an important capacity building role in this small independent privately-held company on a number of fronts. It has assisted IPR establish its longer-term capital investment and funding plan, and as part of this, IPR has had its financial statements and accounts independently audited and had its reserves independently certified.

- Development of an Integrated Environmental, Health, Safety and Social Management System:

IFC is working very closely with IPR to review their existing systems and to assist them in the development of a corporate Environmental and Social Management System (ESMS) that will include a new social component and improve IPR’s ability to manage these risks adequately across projects.

- Corporate Governance:

IFC has been sharing with IPR best practice approaches to corporate governance and is assisting them in establishing a corporate structure which will bring transparency to the organization thus allowing it to access external financing.

This is a category B project because a limited number of specific environmental and social impacts may result which can be avoided by adhering to generally recognized performance standards, guidelines and the corrective action plan.

IPR has prepared the framework for an Integrated Health, Safety, Environment and Social Management System and is currently in the process of developing the Management System Procedures. The HSES will address the requirements of IFC''s Performance Standards and will provide IPR with the necessary tools to apply the same level of standards in all of its operations. In addition, IPR has committed to hire an Environment and Social manager to implement the integrated management system and manage the environment and social aspects of their projects. A Corrective Action Plan (CAP) has been agreed with IPR.

As mentioned above, benefits from this project accrue from a variety of sources, including employment, supply linkages, and contributions to government revenues. The project’s revenue contributions to the GoE form an insignificant share - less than 0.01% - of total government revenues. The GoE’s share of revenues partly accrues to the Ministry of Petroleum (MoP) and for income taxes to Ministry of Finance (MoF). The GoE manages these revenues through reinvestment in the sector, as well as through the provision of affordable petroleum products to the country’s population. The GoE is currently in the process of reforming its system of fuel subsidies, and has a target of reducing the fiscal deficit by 1 percent of GDP per year over the next few years.

In its assessment, IFC has considered the value of the project’s benefits, and governance and other risks to these benefits. It has considered in this respect a range of indicators of governance, and the current relationship between Egypt and the World Bank and IMF. IFC believes the risks to project benefits not being realized, is relatively small. The non-revenue benefits which are significant, such as strengthening domestic energy production, technology transfer, generating jobs, purchases of local goods and services are unlikely to be impacted by weak governance. The project is also consistent with overall WBG objectives in the oil and gas sector; including helping strengthen private sector participation in the sector.

To ensure transparency, IPR has agreed to publish their annual payments to EGPC.

Contacts

For Inquiries About the Project, Contact

The IPR Group of Companies
Attn: IFC Project Inquiry
600 E. Las Colinas Blvd., Suite 800
Irving, Texas 75039
Telephone: (972) 257-1900
Fax: (972) 910-9259
E-mail: ipr@iprgoc.com

For Inquiries and Comments About IFC, Contact

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IFC Corporate Relations
2121 Pennsylvania Avenue, NW
Washington DC 20433
Telephone: 202-473-3800
Fax: 202-974-4384
E Mail: Webmaster

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors' consideration of the proposed transaction. It is not an offer of shares to the public and is intended solely to enhance the transparency of IFC’s activities. This document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only. The following SPI is disclosed in accordance with IFC’s Policy on Disclosure of Information that went into effect April 30, 2006.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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