Medanito was founded in 1993 by Tecna Proyectos de Ingenieria S.A and a group of private investors. Tecna is an engineering company that develops proprietary technology and engineering projects in the hydrocarbon, energy and petrochemical sectors in Latin America. The largest beneficiary shareholders of Medanito are the Carosio family (43%), and Messrs. Carlos Grimaldi (12.6%) and Ricardo Altube (12.6%).

Total project cost is estimated at $137 million. IFC is considering to invest equity for its own account and mobilize investments from third parties, for a total of up to $50 million.

25.0 million (USD)

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

* These investment figures are indicative

IFC’s financing will be used to further develop Medanito’s exploration and producing assets in the province of Neuquen (located in Southern Argentina). Funds may also be used to acquire new hydrocarbon assets. The areas where the company operates are sparsely populated and land generally belongs to the government or to large scale landowners. There are no small farmers or vulnerable households.

The project will lead to further exploration, appraisal and development of primary energy sources in Argentina. The expected benefits will come in the form of: 1. Increased supply of hydrocarbons, particularly natural gas: IFC expects that Medanito's upstream production will increase from the current level of 3,600 boe/d. About 60% of this upstream production consists of natural gas. Continued support for gas production and displacement of more carbon-intensive fuels is a key part of the World Bank Group's strategy, as natural gas is endorsed as a bridging fuel in the transition to a low carbon economy. The increased levels of gas production will also mitigate Argentina's dependence on gas imports. 2. Contribution to Government revenues: the project will result in increased sales of natural gas, LPG, and crude oil. The associated provincial taxes, royalties, and federal income taxes will provide an important source of income to the Federal and Provincial Governments (incremental fiscal revenues are estimated at more than US$150 million over the next decade). 3. Creation/preservation of local employment and sourcing in Argentina: by extending the life of the Company's reserves, the project will help to secure direct and indirect jobs in the Provinces of Neuquen and Rio Negro. The project will also have an impact on regional economic activity through local purchasing. IFC plans to monitor the following indicators during supervision: (i) annual production of natural gas in Argentina (mcf); (ii) payments to governments (US$); and (iii) purchases of domestic goods and services (US$). Governance risks assessment It is expected that benefits from the project will accrue to different levels of government in Argentina in the form of taxes and royalties. Benefits to the local population are also anticipated in the form of direct and indirect employment. In coming to a view on whether to support this project, IFC has reviewed a range of governance and transparency metrics including, but not limited to, The World Bank Institute's Governance Indicators and Transparency International's Corruption Perceptions Index. The Government has committed to strengthening public sector performance within Argentina's federal system, with a view towards improving the effectiveness of basic service delivery and building transparency and trust, objectives that are supported by the World Bank Group. In addition, the Governments of Neuquen, La Pampa, and Rio Negro adhere to the 2004 "Ley de Reponsabilidad Fiscal", meant to promote fiscal discipline at the provincial level. Separately, IFC requires all its extractive industry clients to publicly disclose taxes, royalties and other payments made to governments. On balance, given the governance situation in the country and the project's expected development benefits, IFC believes that this is a project which it should support.

(i) Provision of risk capital: Medanito is seeking to strengthen its equity base to achieve a sustainable capital structure and accelerate its growth. As an anchor equity investor with global expertise in upstream oil&gas and deep knowledge of the local industry, IFC is well positioned to provide long-term support for the company's plans. (ii) Mobilization: IFC is working to mobilize parallel investments from institutional investors. In the future, the IFC investment is expected to play a catalytic role, attracting further equity investments. (iii) Corporate Governance: Medanito's governance structure is typical of a closely-held family-owned company. IFC is helping Medanito to develop and implement a Corporate Governance Improvement Plan. Improved corporate governance practices will facilitate Medanito's future access to the public equity and debt markets. (iv) Environmental and social sustainability: Medanito is committed to adopt best international standards on environmental and social management, and assigns important value to the guidance IFC is providing to enhance its environmental, social, health and safety management system, which will be fully compliant with the IFC's Performance Standards.

The key social and environmental aspects to address in this project include: i) adequacy of the Environmental, Social, Health and Safety Management System; ii) the Company’s assessment and management of potential ESHS impacts related to its activities; iii) Company and contractor’s ESHS performance; iv) Pollution prevention; v) Biodiversity; vi) Stakeholder engagement.

The issues and their impacts are limited and can be managed through an Environmental and Social Action Plan and Medanito’s ESHS Management System and Standard Operating Procedures.