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The EBRD is considering providing financing to ZAO UgraGas Processing for engineering, construction and operation of gas treatment facilities for commercial usage of associated petroleum gas, which otherwise is mostly burned, thus reducing flaring and GHG emission and improving energy efficiency. The project includes set up of gas processing plant in the Zapadno-Salymskoe oil & gas field and a 44MW gas piston power plant in the Nizhne-Shapshinskoe field in Khanty-Mansiysk region. As a part of the project the company will implement an Environmental and Social Action Plan. The transition impact potential of the Project derives from: i) Increased private sector participation in the oil & gas downstream/processing sector; ii) Demonstration effect of new products and processes, by demonstrating the commercial viability of a business model that introduces new techniques in Russia to process associated gas that is currently flared and produce LPG and power and may potentially qualify for a carbon credits transaction under the Kyoto Protocol; and iii) Setting higher standards of corporate governance and business/environmental conduct. UgraGas Processing is a privately-owned company incorporated in Russian Federation, part of Roza Mira group of companies, a well established medium-size independent oil products trading group in Russia. Up to USD 55 million senior loan as a part of USD 120 million debt financing to be syndicated to commercial banks and parallel financing is also under consideration. The Company intends to spend over USD 185 million on construction of the project over the 2009-2010 period. 1. Environmental classification and rationale Following an Initial Environmental and Social Examination (IESE), the project has been categorised as B under the Bank’s Environmental and Social Policy (2008). The project categorisation was based largely on the fact that the project facilities (e.g. Associated Petroleum Gas Processing plant, Gas Piston Power plant, and Booster Compressor Station) are located on existing industrial sites, while the proposed pipelines do not pass through inhabited areas or sensitive natural habitats. Accordingly, potential adverse environmental and social impacts associated with the project are considered site specific and readily identified and addressed through mitigation measures 2. Due Diligence Outcomes and Management and Mitigation Measures An integrated corporate Environmental, Health & Safety and Social (EHSS) audit was carried out by an independent consultant retained by the Bank, which included the review of the Company’s EIA and related management plans. Results of the audit suggest that the company is progressing in accordance with national and international standards. To address the conclusions and recommendations from the independent EHSS audit, an Environmental and Social Action plan (ESAP) has been developed and agreed upon with the client. Key issues in the ESAP include, but are not limited to: i) the requirement for an Annual Environmental, Health and Safety Report to be submitted to EBRD, ii) implementation of the Environmental Management Plan during construction and operations, iii) the Company is to obtain all outstanding environmental permits and approvals necessary for construction/operations (eg. waste, water consumption / discharge, air emissions, safety declaration etc.), iv) the requirement for transport management and emergency response plans, v) additional flora and fauna investigations to be carried out along the proposed pipeline corridors, vi) the development of chance find procedures for construction, and vii) the implementation of a Stakeholder Engagement Plan (including a grievance procedure for workers, affected communities and consultations and compensation to indigenous peoples). In addition to the ESAP, a Stakeholder Engagement Plan and Non Technical Summary, which outlines the key findings of the Bank’s due diligence, have been disclosed locally in Khanty Mansiysk at the Company’s offices (Gagarin Street 65, Khanty-Mansiysk, Tyumen Province, 628011 Russia) and at the Nefteyugansk District Administration, Committee for Indigenous Peoples Affairs, (Neftyanikov street, Nefteyugansk, Tyumen Province, 628309 Russia) None. Andrey Nepomnyashiy, General Director E-mail: anepo@rozamira.ru Tel +7 495 225 15 25