Petropavlovsk-Kamchatsky (the City) is the capital of Kamchatka Krai (the Region), which was formed only on July 1, 2007 as a result of a merger of two earlier regional jurisdictions, the Kamchatka Oblast (population 352,000) and the Koryak Autonomous Okrug (population 25,000). While Kamchatka’s natural resources include gold, silver, copper, natural gas, and coal, and it has substantial timber reserves, its economy depends primarily on fishing and fish-processing. In recent years, ecotourism has also been growing in the Kamchatka Peninsula. However, the economic development of the region has been hindered by inadequate infrastructure, remote location, dependence on fuel imports and high energy prices. MPK’s revenues grew at an average rate of 25% p.a. during 2004-2006 and reached RUB4.7 billion ($180 million) in 2006. Municipality’s operating margin has grown steadily from zero to about 13% of total revenues in four years. Simultaneously MPK has also rapidly increased its capital investment program in order to improve municipal service coverage and quality. The City’s capex program is expected to reach 13% of the total budget in 2007, while keeping the budget deficit at 5-6% of the total revenues.

The total project cost is estimated at RUB1.74 billion (approximately $70 million). The proposed IFC investment is a senior loan of up to RUB 700 million (approximately $27 million). The expected maturity of the loan is 8 years, including 2 year grace period.

28.68 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	28.68
Equity

* These investment figures are indicative

The city of Petropavlovsk-Kamchatsky is one of the easternmost municipalities of Russia located on the Peninsula of Kamchatka.

The following are expected to be the main developmental impacts of the project: - help contribute to economic growth and the competitiveness of local firms by improving the local infrastructure, - allow MPK to better match its liabilities with the expected benefits of its infrastructure investments over their service life and free up resources for additional productive investments, - extend MPK’s credit history. Accompanying technical assistance will help MPK improve its procurement practices and support its efforts to improve effectiveness of financial management.

The proposed loan will provide the Municipality of Petropavlovsk-Kamchatsky access to long-term Rubles on reasonable terms, which are difficult to obtain from other sources, to implement a highly needed infrastructure investment program. It will help MPK diversify its sources of long-term finance over the medium term.

The project is a category B investment according to IFC’s Environmental and Social Review Procedure. The project has limited potential adverse environmental and social (E&S) impacts, which are mainly associated with road reconstruction works. E&S impacts are assessed and will be managed in line with Russian regulatory requirements. To minimize third party risks associated with client’s contracting activity, the implementing Agency will introduce a screening mechanism to identify if contracts for road reconstruction works are likely to be in significant non-compliance with IFC’s Performance Standards and will address them via appropriate Action Plans.

A summary of IFC’s environmental and social review findings for the project including the rationale for the B categorization is publicly available in the Environmental and Social Review Summary (ESRS).