KEC, an existing IFC client, is one of one of the very few local, privately-owned E&P players in MENA and one of the fastest growing. KEC was founded in 2005 by former employees of Kuwait Petroleum Company, including Ms. Sara Akbar, the current CEO and the first woman to lead an E&P company in MENA. Since 2005, the Company has acquired working interests in 42 producing and exploration assets in eight countries. KEC has net proved and probable (“2P”) reserves of 55.7 million boe and total reserves and risked resources of 260 million boe, representing significant upside potential beyond its core 2P reserve base. The majority of its known exploration upside is in Egypt and Yemen, while its current 2P reserves are largely in Egypt (oil) and Ukraine (gas). The Company has a very diverse shareholding structure. Local retail investors hold a 32% stake; KEC founders, including KEC management and Zahra Group, a private Kuwaiti holding company, hold 19%; Kuwaiti investment fund AREF Investments holds 17%; and a range of other international and regional institutional and private equity investors hold the remaining 32%.

The total project cost is estimated at $120 million. IFC is considering an equity investment of up to $50 million. The Company plans to finance the remainder of the project cost through a combination of internal cash flow generation and equity investment from other private investors.

50.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	50.0

* These investment figures are indicative

In Egypt, KEC has interests in three onshore producing assets (Area A in Gulf of Suez, and East Ras Qattara and Burg el Arab concessions, both in the Western Desert), one development asset (Abu Sennan in Western Desert) and an early exploration asset (Block 6 in Southern Egypt). In Yemen, KEC has one producing asset (Block 43, onshore, Central Yemen) and interests in six exploration assets, all onshore in Central Yemen with the exception of Block 15 (offshore Al Mukalla in the Gulf of Aden). Block 43 is expected to cease production shortly. In Ukraine, KEC has a participating interest in six licenses, including Bilousivski-Chornukhi, North Yablunivska, Dubrivka. RC Field, Bitkov field and JAA 429 Bytkiv Field. All are onshore assets.

The project will lead to further exploration, appraisal and development of domestic natural resources in Egypt, Yemen and Ukraine, helping to meet domestic demand for oil and gas and curbing production declines particularly in Yemen and Egypt. Revenues to governments, particularly in the case of Yemen and Egypt, provide the countries resources to promote macro-economic stability and support development priorities. The Project's expected benefits will come in the form of: 1. Increased domestic gas supply in Ukraine: The Project will help to increase domestic gas supply and contribute to relieve reliance on imported gas. In addition, success of KEC in Ukraine may encourage other private companies to invest in Ukraine's gas sector. 2. Contribution to Government Revenues: the Project benefits to the governments of Egypt, Yemen and Ukraine include revenues in the form of production share, royalties and corporate taxes. In 2009, the Government of Egypt's fiscal take from KEC's operations in Egypt was US$68 million, the Government of Yemen's take was US$11 million and the Government of Ukraine's take was about US$2 million. 3. Employment, development of local skills, technology transfer: The Project will help to sustain employment and, in particular, develop local skills. KEC's direct local employment in Egypt, Yemen and Ukraine is expected to continue to increase as KEC further expands its operation. Training of local people and technology transfer are especially important in Ukraine due to the lack of private investment in the gas sector in the country and the restriction on expatriates working in the country. 4. Supporting the development of local independent E&P sector in Middle East and North Africa: The E&P sector in MENA has traditionally been dominated by large state-owned oil companies or western oil and gas companies. KEC is one of the first significant attempts by the local private sector to participate in this industry. KEC's ability to grow into a company on par with other mid-size international E&P companies will have a demonstration effect to encourage other such private sector initiatives. IFC plans to monitor the following indicators during supervision: (i) annual production of gas in Ukraine (mcf); (ii) payments to governments (US$); (iii) number of direct employees in portfolio countries; (iv) community development outlays (US$); (v) purchase of domestic goods and services (US$).

IFC ROLE AND ADDITIONALITY i. Long term partner and anchor investor: KEC sees IFC as an anchor investor who can provide long term support for KEC's future multi-country/regional growth. IFC is seen as one of the few institutions that has both technical expertise and knowledge across a broad geographical spread with a willingness to invest in higher risk countries. The Company also appreciates IFC's full range of debt and equity instruments (including Islamic finance) and ability to invest at either the corporate or asset level. ii. Ability to mobilize financing: Even though KEC has been successful in raising finance from private investors in the past to fund its growth, a big portion of its investors are retail investors who lack the ability to provide additional finance for KEC's continuing growth. Also, KEC would like to expand its investor base and plans for an IPO at London Stock Exchange. IFC's participation in this pre-IPO private placement is seen by the Company as key to strengthening market perception of its growth potential and help raise its profile among European and North American investors. iii. Corporate governance expertise: IFC Corporate Governance Advisory Services team has completed an in-depth assessment of the Company's corporate governance and provided a serial of recommendations for improvement. As part of the assessment, a comparison of KEC's corporate governance and the combined code was conducted for KEC to prepare for its IPO. IFC Advisory team will continue to assist the Company in implementation of the recommendations. The improvement of corporate governance, together with IFC's investment being seen as a stamp of approval, is expected to facilitate KEC's planned IPO. iv. Environmental and social expertise: With IFC's assistance, KEC has made significant progress on its E&S management. IFC will provide further assistance to the Company on adapting the diverse HSESR practices it has inherited in the different operations it has acquired to create a consistent approach.

This is a Category B investment because E&S impacts associated with KEC’s activities are typical for small-scale oil and gas field exploration and production operations that can be readily managed and controlled by following good international industry practice. Potential impacts can be avoided or reduced by adhering to international standards, guidelines and design parameters and KEC has an integrated Health, Safety, Environment and Social Management System at the corporate level that is aligned with international standards. No significant E&S sensitivities have been found at existing KEC operated locations and KEC’s Management System includes procedures for the identification of E&S impacts and risks prior to entering new exploration areas (including baseline studies and E&S impact assessments). Proposed activities can therefore be assessed on a case by case basis before activities begin and E&S management measures commensurate with the identified impacts and risks can then be developed and implemented where necessary.

IFC has considered the Project’s main benefits and in assessing the potential governance risks to them has come to a view that the Project should be supported. In coming to this view, IFC has examined various governance and corruption indices for Egypt, Yemen and Ukraine, including the World Bank Institute’s (“WBI”) Governance Indicators as well as Transparency International’s Corruption Perception Index. While governance capacity is lacking in these three countries, efforts are being made to address corruption, transparency and improve overall governance. The World Bank Group is actively engaged with these governments and is playing a supportive role in tackling governance and sector issues. In Yemen, the World Bank is supporting the Government’s active engagement in the Extractive Industries Transparency Initiative (“EITI”) and has provided assistance to help advance the EITI process, including capacity building of EITI stakeholders. While Egypt has thus far not been involved in EITI, the WB has tried to engage GOE on this front. In Ukraine, improving governance is a core priority for the WBG, which is reflected across the design of all activities in the Country Partnership Strategy FY08-FY11. In addition, the European Commission, EBRD, EIB, and the World Bank issued a Joint Statement of Intent regarding support to gas sector reform in Ukraine in 2009. The previous Cabinet of Ministers also adopted a resolution for Ukraine to join EITI in September last year. While the prospects for EITI are unclear given the new Cabinet, the hope is that EITI will be pursued going forward. Besides these country efforts on enhancing transparency, the Company will publicly disclose all its material payments to the governments of Egypt, Yemen and Ukraine as per IFC requirement.