Borets Group

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The EBRD is considering providing a $150 million corporate loan to PK Borets aiming at refinancing its short-term indebtedness, financing the production modernisation programme and working capital needs. The envisaged modernization programme will be associated with expansion and modernization of Borets’ production assets in Russia, product unification with Borets-Weatherford and new products’ commercialisation. The proposed facility would assist Borets to strengthen its capital base and to support its plans aimed at production modernisation and innovations. In particular, it will help in commercialization of energy-efficient technologies in the sector by supporting the commercial production of Borets’ new "Permanent Magnet Motor", which consumes less energy than the traditional motors in Russian ESP systems. Consequently the use of this technology makes the oil extraction process more environmentally-friendly. Furthermore, the successful commercialization of the new more energy efficient and higher productive product for the end-users will help Borets to further boost the competitiveness. Also the new facility will contribute to the development of technologies for oilfield services sector and expansion of Russian production facilities of Borets, also resulting in economies of scale and new jobs created in Russian regions. In addition, the proposed financing will facilitate enterprise restructuring and setting standards of business conduct including IFRS reporting and environmental and social standards. PK Borets is a key production asset of Borets International – the largest Russian vertically-integrated manufacturer of ESP systems and provider of related services both domestically and globally with over 8,900 employees worldwide. Borets International is rated BB-/Stable by Standard & Poor’s. The EBRD will provide $150 million senior loan with 1/3 of which to be syndicated to commercial banks. The total financing will comprise approx $230 million. Environmental classification and rationale Potential significant adverse environmental and social impacts associated with the Company’s operations are site specific and readily identified and addressed through mitigation measures. Accordingly, the Project has been categorised as Category B in accordance with the Bank’s Environmental and Social Policy (2008). Due diligence undertaken and outcomes The Bank’s environmental and social due diligence (ESDD) included an integrated corporate audit which focused on Borets’ i) ability to manage and address all relevant social and environmental risks and impacts of its business and operations; ii) past and current performance against Russian and EU legislation and the Bank's Performance Requirements (PRs); and iii) the identification of the Company’s main stakeholder groups and current stakeholder engagement activities. Results of the audit have been incorporated into an Environmental and Social Action Plan (ESAP) that has been agreed with the Company with the aim of improving their corporate Environmental Health and Safety (EHS) performance across its operations. Key issues included in the ESAP are i) The development of a single EHS Policy for the business as a whole to set the direction of the Company, including aims and objectives for EHS performance. The EHS policy will have the objective of managing risk and performance on a proactive basis; ii) the implementation of a single EHS Management System to execute the Policy including the setting of Key Performance Indicators (KPIs) and a method of reporting and tracking of EHS KPIs for continuous improvement; iii) as part of the proposed EHS Policy and Management System, the Company will increase its environmental training and awareness of its staff at all levels of the business; iv) the Company will develop a formal stakeholder engagement and disclosure plan across its business; v) The Company will address the EHS and regulatory risks associated with having residents living within the Sanitary Protection Zones of several of their sites; and vi) Using a risk based approach, the Company will analyse and address potential soil and groundwater quality issues at the selected sites within its portfolio. The implementation of the ESAP will significantly improve the company's corporate environmental management and overall performance. A summary of the issues raised herein has also been disclosed on the Company’s website. None. Mr. Sergey Alekhin, acting CFO, Borets International Limited E-mail: alekhin@northernassets.ru Tel: +7 495 777 08 80