Bautino Atash Marine and Supply Base Project (DEBT)

disbursing

The proposed project will respond to a wide range of off-shore oilfield operators’ needs, such as fuel & water provision, support base infrastructure and services, vessel repair & maintenance, involved in the development of the North Caspian Sea. This will be achieved through the construction of the marine support and supply base near the Atash Village on the Eastern coast of Bautino Bay, north of Port Aktau. The initial investments already made by Caspian Services Inc. include land acquisition, preparation of Feasibility Study and EIA, and a large part of the construction works. The company now seeks to reduce the Bank’s debt financing to the amount of USD 18.6 million loan and retain the existing USD 10 million in equity. In 2009, the company will seek to reduce the scope of works for the project to USD 70.5 million in response to an evolving market situation characterised by more diversified commercial opportunities. The revised project was designed so that it would be sustainable and would limit the potential revenues loss resulting from postponed equipments. In the revised project, the fuel jetty for filling ships; fuel tank farm; sea water desalination plant; two warehouses; and one of the two 1000m3 underground sewage tanks were removed from the original design considered in 2006; and the following additions were made: i) a 10m3 chemical waste tank for temporary storage of Base chemicals washoffs; ii) 50m3 above ground diesel tank for the Base equipment refuelling; iii) a 4000m3 ship fuel offloading and uploading barge moored in the Base harbour; and iv) 3km of the Base access road constructed through Atash village. The transition impact potential of the project will not be affected by the proposed changes to the financing plan. Support of private ownership in a government-dominated market remains the project’s main transition impact. Currently there are very few independent infrastructure operators at the Caspian shore that can provide support to the activities in both Kazakh and Russian sectors. The Project will also contribute to the structure and extent of markets as it will lead to further market expansion of the supply of marine support services. By supporting this entrepreneurial activity, the Bank will demonstrate ways to structure the financing and manage the risks associated with such green-field infrastructure projects, commonly perceived as too risky for private sector involvement. By getting a seat at the Board as an equity holder, the Bank will be able to promote new business standards in corporate governance, another important source of transition impact. The client is Balykshy LLP, a specially created project company that will own and operate the marine support base. It is 100% owned by the Sponsor, Caspian Services Inc. a successful provider of onshore and offshore oilfield services, with the established reputation among the oil majors. It is a U.S. incorporated company listed at New York Stock Exchange (OTC BB listing). Debt: USD 18.6 million loan (DTM: 36384). Equity: USD 10 million (DTM: 36673). USD 70.8 million. The project was screened A/0. Impacts associated with the construction and operation of this facility cannot be readily identified, assessed and mitigated; therefore an Environmental Impact Assessment (EIA) was required. An Environmental Impact Assessment (EIA) was carried out by independent consultants for the original project and approved in 2006. The investigations showed that the Project was structured to meet Kazakh environmental, health and safety requirements and the EU environmental standards. The EIA concluded that there would be no negative impact of critical significance and only three main activities, namely dredging, wavebreaker and wharf construction, and sea reclamation may create high significance impact on the marine environment in the Base area. Mitigation measures were developed and included in the EIA to reduce these impacts to medium significance and activities that are valued to have medium significance to low or negligible level. A Public Consultation and Disclosure Plan was implemented in accordance with the Bank’s Policy for category A projects. To account for the changes in the project design and the impacts associated with these changes, an addendum has been prepared. This addendum augments the EIA of 2006. The due diligence shows that with the acceptance of the impact mitigation measures, the revised project will result in less adverse environmental and social impacts than predicted in 2006 for the original design of the Base (removal of the fuel export/import and storage facilities, one underground sewage tank and change in design of the Ship Repair Yard from a slipway to the crane lift). Another reason for reduction of impacts' significance is availability of the two years monitoring data that reduced uncertainties incorporated in the evaluation of the impacts in 2006. An Addendum has been prepared for the Environmental and Social Action Plan (ESAP) of the project. The implementation requirements in this addendum can be summarised as below: For the original design, an extension of the Marine Base was proposed. For this extension, relocation of 38 households from the Atash village, accounting for approximately 250 people, would be required. The Company developed a Resettlement Action Plan and held numerous discussions with the residents and the local Akimat to ensure that the process was managed in accordance with EBRD standards. As a result of the revision in the Project scope, the Company does not intend to extend the equipment to the escarpment and has thus postponed the Resettlement. The Company has been working closely with the Bank to address the concerns of the affected Atash village residents, as well as those of the wider civil society and NGOs related to economic losses and uncertainty experienced due to the postponement of the Resettlement. This has resulted in the development of an agreement on a Stakeholder Engagement Plan as well as in an ex gratia payment and provision of winter fuel to the affected households to compensate them for the postponement of the Resettlement and any related economic losses as well as any inconvenience suffered related to the construction. The Company will continue systematically monitoring and reporting the environmental, social, and health and safety issues to ensure it complies with Kazakh and EU environmental standards. The EBRD will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing annual environmental reports prepared for the project. There is an Environmental and Social Impact Assessment available for this project. None. Caspian Services Inc. Kazakhstan, Almaty, 29/6 Satpaev Ave, 9th floor. Tel: +7 3272 508478 Fax: +7 3272 508479