Petrom Environmental Loan

complete

The EBRD is considering providing a EUR 300 million corporate senior unsecured loan to the Romanian oil company Petrom S.A, the largest company in the country. The proposed project consists of establishing a framework that can be used to finance a series of sub-projects as part of an overall strategic environmental investment programme aiming at rehabilitating or enhancing the environmental and health and safety performance of facilities in the Exploration and Production (E & P) and Refining divisions of Petrom S.A. The scope of the specific environmental investments includes inter alia pollution clean-up, pipeline replacement, health and safety measures, energy efficiency and other environmental remediation investments and specifically excludes production related investments that do not have an over-riding environmental benefit. In addition the project will finance the implementation of two specific programmes at a corporate level: the development of a Road Safety Programme applicable throughout the company and a Geographic Information System (GIS), which will allow rapid coordinated response to possible accidents or incidents thereby minimising possible impacts on health and safety and the environment. The strategic environmental programme will be implemented over the life of the loan upon the communication by Petrom to the Bank of call-off notices for each individual environmental or health and safety investment providing detailed information on use of proceeds, schedule for major activities, required permitting process, public consultation requirements and reporting and monitoring by EBRD, as applicable. The Project is an environmental project designed to remedy past liabilities and enhance the environmental and health and safety performance of Petrom. The transition impact objectives are: (i) setting high environmental standards, guaranteeing the long term sustainability of oil and gas operations (ii) the demonstration effect to other oil and gas companies to tackle environmental weaknesses and undertake comprehensive and long term remediation programmes. Petrom is the largest company in Romania and has proved oil and gas reserves of 894 mn boe, a maximum refining capacity of 8 million tons per year, approximately 550 petrol stations in Romania and 257 petrol stations in the Republic of Moldova, Bulgaria and Serbia (as of end 2007). It is 51% owned by OMV A.G., an Austria-based integrated oil company with interests throughout central and eastern Europe. Petrom is also traded on the Bucharest Stock Exchange. The investment is a EUR 300 million corporate senior unsecured loan to Petrom to fund the Project, consisting an up to EUR 150 million A loan and an up to EUR 150 million B loan to be syndicated to commercial banks. EUR 300 million. All sub-projects to be financed under this loan facility are of an environmental or health and safety nature and the implementation of such will result in significant benefits. As part of environmental due diligence for this project EBRD retained an independent environmental consultant to review the environmental management structure and resources of Petrom and specifically the extent of environmental and social due diligence performed when approving projects, including the various sub-projects that may be put forward under this facility. The results of this review indicate that Petrom has a comprehensive environmental management system, although as some elements of this system have only recently been developed and therefore have not been fully implemented throughout all activities of the company. As part of the Environmental and Social Action Plan (ESAP) agreed with the company, a plan for implementing this management system throughout the company will be developed. Further, the consultant has confirmed that Petrom has a robust system for incorporating environmental and social aspects into the design, construction and operation of their projects. In fact, their environmental and social control is generally consistent with EBRD Performance Requirements. The main shortcoming in this regard is corporate auditing of Business Division operations, which has been agreed as part of the ESAP for this project. Another finding of the environmental review is that Petrom has a comprehensive approach to the identification and implementation of EU environmental standards throughout the range of their operations. Based on these findings, a framework has been developed for the future consideration of each sub-project proposed for financing. This framework includes provision of environmental data in the form of a pre-agreed call-off notice. Each sub-project will then be assessed based on the information provided in the call-off notice, or additional information as required. While it is anticipated that most sub-projects to be financed under this facility will be considered “B” level, it may be that a project is proposed that would be considered “A” level. If an “A” level project is proposed, this project will be reviewed in detail to ensure compliance with EBRD Environmental Policy and Performance Requirements. Following this review project details (including potential impacts, mitigation measures and public consultation) will be summarized in an updated PSD, which will be published for a minimum of 60 days prior to making a final determination about possible finance. As an example, one of the sub-projects targeted for this loan that could be considered an “A” level project is the treatment/remediation of refinery sludge wastes (noted as sub-projects R-1, R-3 and R-5 in the update below). These are legacy waste issues related to historical operation of the refineries, and a state of the art solution is planned for this treatment (confirming to EU environmental standards) which will include the recovery of hydrocarbons from this waste, for use in the refineries. The remediation of these wastes will result in overwhelming environmental benefits, including prevention of further contamination/degradation of underlying and adjacent soils and groundwater and possible reduction of associated impacts on communities. Below is a summary of the various sub-projects submitted for consideration to date. Sub-Project EP-1, Rationalization, closure and rehabilitation of surface facilities Over the years of petroleum exploration and production in Romania, thousands of wells and associated surface facilities (pipelines, manifolds, treatment stations and storage facilities) have been installed throughout the country. At this time Petrom is reviewing all of these facilities with the objective of improving overall efficiency and significantly reducing the number of in field facilities. As part of this program, the facilities identified as being redundant will be removed, and the surrounding land area rehabilitated and returned to original use, often times returned to agricultural use. These activities include termination of well casing below the ground surface, plugging the well casing with concrete below the ground surface, removal of all concrete or metal material from the site, removal of any contaminated soil from the site and final site grading/contouring to mimic that of the surrounding land surface. The overall result of this project will be to maximise production from a minimum of facilities and the return of significant areas of land to original use. Sub-Project EP-2, Boiler upgrades Petrom operates a number of boilers throughout the country. Most of these boilers are old and based on outdated technology. Petrom has requested funding under the terms of this loan for upgrading boilers at up to 20 locations. These upgrades will improve the overall operating efficiency of the boilers, thereby reducing the emissions. These projects have been designed in accordance with Energy Efficiency Design - BAT. Sub-Project EP-3, Pipeline Replacement Petrom operates thousands of kilometres of pipelines (including in-field gathering lines and flow lines) throughout the oil production areas of Romania. These pipelines vary in diameter from 3 inches to 20 inches. Most of these pipelines are old and are subject to periodical leaks. Petrom has requested financing to perform a strategic upgrading/replacement of these pipelines. This task includes both the replacement of pipelines and also the re-lining of the interior of the pipelines (to limit internal corrosion). This task does not address new pipelines, only the replacement/upgrading of existing pipelines. This project will result in a significant decrease in the number of pipeline leaks experienced in the fields. Sub-Project EP-4, Construction of Bio-remediation treatment facilities and landfills As part of the Sub-Projects EP-1 and EP-5, any observed contaminated soil or sludge will be excavated from the existing production sites and will be treated using bioremediation. The resulting treated soil will either be used as a backfill material (where permitted by the local environmental authorities) or transferred to a landfill for disposal. These facilities will be constructed throughout the country, to minimise the trucking/transportation of the contaminated soils. As part of the appraisal of this project, EBRD ESD staff have visited one of these sites, and conducted interviews with site personnel. The following environmental mitigation measures have been included for these sites: Environmental Impact Assessments (EIA) have been or will be completed for each facility, along with local public disclosure/consultation for each site. In accordance with EBRD Environmental and Social Policy these projects would be considered A level, requiring an EIA. EIAs for these facilities are or will be made available on the Petrom web site. Implementation of this project will significantly reduce the volume of contaminated soil, thereby lowering the risk of ongoing contaminant migration and possible impacts to soil and groundwater. Implementation of this sub-project will significantly lower the environmental risks throughout the operating areas of Petrom. Sub-Project EP-6, Well abandonment and removal of residual sludge As part of the rationalisation of surface facilities and return of land to original use, Petrom will abandon up to 11,000 wells. These wells will be terminated below the ground surface and pressure grouted with a cement slurry. This pressure grouting will contain the fluids within the wells and reservoir and prevent migration/uncontrolled flow that could contaminate aquifers of the ground surface. In addition, forty-four sludge pits are present in the fields, containing over 300,000 m3 of sludge. This sludge must be removed and treated in accordance with EU Waste Directive 2006/21/EC, and the intention is to treat this sludge at the in field facilities as presented in Sub-Project EP-4. This Sub-Project will therefore not be approved for finance until Sub-Project EP-4 has been approved. Sub-Project R-1, Sludge Remediation from PetroBrazi refinery Sludges generated during the refinery operations of the last 50+ years of operation have been stockpiled near the Petro Brazi refinery. These sludges are recognised as a legacy waste issue associated with the past operations of the refinery as part of the state oil company, and are known to be sources of contamination of soil and groundwater. Petrom has held open tenders for the treatment of these contaminated sludges, and has selected the firms Amec and ReCon. These companies have established specific waste treatment facilities for this project. These projects have been developed consistent with EU environmental standards applying BAT for the technology. Further, EIAs have been developed (according to national and EU requirements) for these facilities and public consultation (as required by National and EU) has been completed. The arrangement for these projects is that Petrom will pay the contractors for treatment of the sludge on a per cubic meter basis, and the treatment facilities are available to treat other wastes (ie, from other sources) as well. Therefore, while this project requires and has an EIA with public consultation, EBRD has considered the Petrom contracting for material to be treated on a per cubic meter basis as a B category project. The EIAs for this project are or will be available at the Petrom web site. Sub-Projects R-3 and R-5, Remediation of legacy waste sludges These projects are as described in Sub-Projects R-1 above. Sub-Project R-4, Upgrade of Wastewater Treatment System, PetroBrazi This sub-project is for upgrading the existing wastewater treatment plant at the Petrobrazi refinery. These upgrades will address the sewage collection system (ie, piping), balancing tanks, biological treatment facilities, pumping stations and instrumentation/monitoring. The upgrades will help the plant achieve compliance with EU Environmental Standards and will significantly increase the amount of water recirculated at the refinery and decrease the overall pollution load. Sub-Project C-1, Road Safety Program Recognizing that road accidents pose a risk to the entire population of Romania as well as employees of the company, Petrom is embarking upon a program to increase road safety within the company. This program will include training, medical surveillance and monitoring operational performance of the fleet. Data collected during the monitoring will be used to assess performance of individual drivers. All actions required by applicable EBRD procedures relevant to the prevention of money laundering, terrorist financing and other integrity issues have been taken with respect to the project, and the project files contain the integrity checklists and other required documentation which have been properly and accurately completed to proceed with the project. None. Petrom SA 239 Calea Dorobanţilor, 010567 Bucharest Tel/Fax: +40 21 4060 000 Web: www.petrom.com Enquiries: crem.services@petrom.com