Kuwait Energy has exploration, development and production stage oil and gas assets in Egypt, Yemen, Iraq, Oman, Pakistan, Ukraine, Russia and Latvia. Kuwait Energy was founded in Kuwait in 2005 by former employees of Kuwait Petroleum Company. Following a restructuring of the business in 2011, the Company now operates under the name ‘Kuwait Energy’ (previously disclosed by IFC as “Kuwait Energy Company”, or “KEC”). Kuwait Energy plc is a Jersey incorporated privately held company.

The project costs for exploration and development investments in 2012 are estimated at US$253.7 million. IFC will provide up to a US$75 million long term Reserve Based Loan (“RBL”), which would be provided in parallel with a US$90 million loan from commercial banks. Up to US$50 million of the proposed financing would be used to refinance an existing loan from IFC to the Company. The Company’s remaining financing needs are expected to be funded through internal cash flow generation and other external financing.

75.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	75.0
Equity

* These investment figures are indicative

In Egypt, Kuwait Energy 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 the Western Desert) and an early exploration asset (Block 6 in Southern Egypt). Kuwait Energy is the operator in Area A, Burg El Arab and Abu Sennan.

In Ukraine, Kuwait Energy has a 100% participating interest in two onshore licenses of which one is a producing asset: Bilousivski-Chornukhi (producing asset) and North Yablunivska (non producing development asset). Kuwait Energy is the operator of all the Ukrainian assets.

In Russia, Kuwait Energy has interests in two onshore licenses: Luzskoye (a producing asset with exploration potential) and Chikshina (an exploration asset). Kuwait Energy is the operator in both assets.

Governance Risks Assessment:

IFC has reviewed project benefits and associated governance risks and believes that the project should be supported. In coming to this view, IFC considered the magnitude of fiscal benefits, governance metrics and the World Bank’s engagement to support good governance. The oil and gas sector in Egypt has historically been stable, and the issuing of licenses and the sharing mechanism for revenue, taxation and royalty between private companies and the public sector can be considered relatively transparent. There are governance and transparency challenges in both Russia and Ukraine, and the oil and gas sectors in both countries have occasionally been subject to annulments of licenses; however, given the size of the Ukrainian and Russian assets relative to Kuwait Energy’s total reserves in terms of value as well as Kuwait Energy’s stable track record in Ukraine and Russia, IFC believes that the risks are mitigated and acceptable. Moreover, as per IFC requirements, the Company will publicly disclose all material payments made to the governments.

The Project will lead to further exploration, appraisal and development of domestic oil and gas resources in Egypt, Ukraine and Russia, helping meet domestic demand and slow the pace of decline in oil production in Egypt as well as support Ukraine''s gas production and help reduce the country''s dependency on imports.

(i) Contribution to Government Revenues: The financing provided to KEC will be used to fund activities that are expected to result in higher and longer production, positively impacting the revenues that host governments receive through production sharing, royalties, corporate taxes as well as other methods.
(ii) Local and regional spending: The Project is expected to contribute to local and regional spending as part of the field services and operational supplies will be procured domestically.
(iii) Employment: The Project will create new jobs. KEC''s direct local employment in the MENA Region, Ukraine and Russia is expected to increase as the company further develops its assets. Even though the Project''s impact on employment is expected to be marginal compared to the unemployment situation in the MENA Region, this may potentially increase given the early stage nature of some of the target assets.

Mobilization of long term financing: The proposed financing will be the Company''s first major financing with the participation of commercial banks. KEC is seeking longer term financing which would match their projects'' funding needs. Long term USD denominated financing is currently scarce in the Company''s region of operation and it is expected that IFC''s presence will help provide comfort to commercial banks.

This is a Category B investment because E&S impacts associated with Kuwait Energy’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 Kuwait Energy 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 Kuwait Energy operated locations and Kuwait Energy’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.