Galnaftogaz Equity Phase II

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Translated version of this PSD: Ukrainian The EBRD provided USD 30 million financing to the Company through an equity investment at the holding level. The investment corresponded to the undrawn balance of the USD 50 million equity investment signed in July 2009 and was re-committed as part of a larger financing package which also included a corporate loan package of USD 160 million in partnership with IFC and USD 20 million of internally generated cash flows. The funds were used for the following activities: (i) USD 150 million for the Company’s network expansion in the central and northern regions of Ukraine over two years, including construction/acquisition of 75 high-volume filling stations, the associated increase in working capital and some investment in energy efficiency; and (ii) USD 60 million for the refinancing of mezzanine debt at the Company’s holding level. The Project continued to enhance the transition impact achieved through the initial equity financing. The incremental sources of transition impact of this transaction arise from: 1. Support to private sector development and greater competition in the project sector. The equity financing allowed the company to take advantage of market consolidation opportunities, expand its quality driven business model in central Ukraine (where it is currently underrepresented) and better compete at a national level with the networks of state-owned or refinery-tied distribution outlets; and 2. Set higher standards of corporate governance, energy efficiency and environmental conduct. The Project accelerated the ongoing implementation of the corporate governance plan with a view to fully equip the Company for an IPO on an international stock exchange. The extension of the Company’s model to other competitors also enhanced the overall level in the industry in terms of environmental and health & safety standards. GNG Retail Public Limited (“GNG Retail”), a Cyprus-based holding company for PJSC Galnaftogaz (“GNG” or “the Company), an independent Ukrainian fuel distribution company operating a network of filling stations operating under the “OKKO” brand. USD 30 million equity investment in GNG Retail, with funds transferred to GNG in Ukraine for use in the Project. USD 210 million. Category B. Due diligence determined that the environmental and social impacts related to this Project are site specific and can be managed and/or mitigated through the implementation of the agreed Environmental and Social Action Plan (ESAP). Galnaftogaz is a long standing client of the Bank and previous projects have included requirements to strengthen environmental, health and safety, and social risk management; and to upgrade storage and distribution facilities to international standards. The Company has been responsive to the Bank’s requirements in the past and has co-operated in the provision of Annual Reports to the Bank on progress against the commitments made in Loan Agreements. For this Project, due diligence involved discussion with environmental and social specialists from the IFC who visited the Company to audit the Project; review of questionnaires provided to the Company to address the minor gaps between IFC and EBRD requirements; and detailed telecommunications with the Company management to draft the ESAP relevant to the current Project. Due to the equity nature of this Project, due diligence was targeted at evaluating the Company's capabilities at managing all operations in a manner compliant with the Bank's Performance Requirements. Previous Projects were carried out under the Bank's 2003 Policy and it has been noted that progress against meeting the requirements of that policy have been satisfactory to date. The current 2008 Policy however has additional requirements, in particular with regard to Stakeholder Engagement. The Company's policies and practice in regard to Stakeholder Engagement and also driver training (to promote community safety) were noted during due diligence to require upgrading to meet the 2008 Policy. An ESAP was agreed to address these issues. None. Mane Akopyan, Manager Concern Galnaftogaz 72 Turgenieva St. Lviv, Ukraine 79015 Tel: + 38 032 298 88 89 E-mail: MAkopyan@gng.com.ua Website: http://galnaftogas.com/