EBRD Presentation on“Tier II”
II” Oil Spill Response Requirements in theFormer Soviet UnionPAJ Conference, Tokyo, February 2121-22, 2007
Paul Shapiro
Senior Banker, Natural Resources
European Bank for Reconstruction andDevelopment

EBRD Energy portfolio
EBRD's Commitments in the Energy Sector 2000 - 2004:€3,162 mln
Dist rict heating
3%
Pipelinetransportat ion
9%Energy efficiency
12%

Elect ric PowerDist ribution
6%

Electric Power
Generat ion
17%Electric PowerT ransmission
15%
Petroleum refineries
5%

Oil and gasextraction
25%

Gasoline st at ions
1%

Other Power deals
7%1Natural Resources portfolio
As of today €2.1 billion have been lent to €13.9
billion projects
Petroleumrefineries 10%

Metal ore mining
9% Gasoline stations
1%

Pipelinetransportation 24%

Oil and gas extraction
57%

EBRD is instrumental in a wide variety oflandmark projects in the RegionSeverTEK (Lukoil-Fortum)

Nations EnergyBuryatzoloto

Sakhalin II, Phase I

Baku–Tbilisi–Ceyhan oil pipelineAzeri–Chirag–Gunashli oil fieldShah Deniz gas fieldUkrainian Gastransit gas pipelineGalnaftogaz2

EBRD Environmental Mandate– Environmental mandate: EBRD is seen as a pioneer intransactions with complicated or multi-boundary
environmental aspects.
– Critical area for many natural resource related projects due
to potential involvement of environmental groups andstakeholders.
– All countries of operation are shareholders of the Bank andthe Bank’s involvement will facilitate relevant contacts aswell as enable a better understanding by these governmentsof the project and potential mitigations.

Oil and Environmental Pressure no.1
Upstream / midstream disbalance
Total upstream: 5.00Mbd?


Azerbaijan export potential

Total midstream: 3.75Mbd?
West bound potential– ACG: 1.10Mbd– CPC: 1.60Mbd– Others: 0.10Mbd– BTC: 1.0Mbd

Kazakhstan export potential– Kaz-Russia: 0.50Mbd– Karachaganak: 0.50Mbd– Baku-Supsa: 0.14Mbd– Tengiz: 0.70Mbd– Baku-Novo: 0.11Mbd– Kashagan: 1.20Mbd– Others: 1.00-1.50Mbd?

East bound potential– Kaz-China: 0.20-0.40Mbd?

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Oil and Environmental Pressure no.2
Limited transtrans-caspian shipment capacity
Routes forcrude/productEst 2010capacity

Aktau-Russia

3.0Mt

Aktau-Iran

1.5Mt

Aktau-Azerbaijan

3.2Mt

Turkmenbashi-Russia

1.0Mt

Turkmenbashi-Iran

2.2Mt

Turkmenbashi-Azerbaijan

2.4Mt

Total

13.3Mt

Capacity out of Kazakhstan
is only 150Mbd vs. large
volumes of Kashagan oil
shipped to Sangachal/BTC
Only ca. 70 tankers in theCaspian, most over-aged
Significant legal issues still
outstanding notably flag
restrictions and Caspiansea dispute
Environmental concerns

Oil and Environmental Pressure no.3
The Bosphorus straitExploding oil exports thru Black Sea– 2000: 60Mt / 2004: 100Mt / 2010(e): 160Mt ?

Costly Bosphorus straits delays– 2004: 8 days / 2010(e): 16 days ?

Major environmental risks– 10 million people metropolis

Tightening traffic regulation by Turkey

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Mounting Pressures for OSR







The pressure on companies and authorities to increase
responsibility and requirements for environmental priorities
is evident.
Marked increase in number of applications regarding
environmental projects supported by the relevant
authorities in the regions.
The authorities recognise that there is a requirement forincreased spill response in addition to other environmental
protection services however, the solution is not easily
available.

Sakhalin II - Key Project infrastructure
Detail 1

PA-B
O kha
Nikola yevsk
na-Amure
PiltunBoa ta syn

Oil & Gas
pipelines
stretching
the lengthof theisland

172 kmPiltunshoreline toOPF

DeKastriRussia

41 km PA-B toshore

1 4” G as
Line

Detail 1

Detail 2

Nys h20” Oil Line20 ” G asLine

Boatasyn

636 km24” Oil Line
Porona ysk
Oil Bo os ter(BS# 2)

Additional offshore
platform

1 7.5 k m PA-A tos ho re

Detail 220 ” O il lin e

Sakhalin
IslandGa s Compression(BS#2 )

PA-A

Noglik i
Katangli

Aleks andro vskSakh alinsk iy

636 km4 8” G as Line14 ” O ilLine

On sho re Tie -in p ointwith pig traps for all
pip elin es

20 ” G as lin e

172 km onshore
to OPF48” Ga sNysh
636 kmOPF
to O ET

LNG
Plant
YuzhnoSak ha linsk

4.5” glycol
returnBS#1O PFLNG Tanker

2 x 30”multiphase

Development ofLunskoye gas field
through offshore
platform

2 4” Oil
Domestic Supply
Off-Take

Detail 3

24” Liquid Line48” Gas LineOil Export Terminal
36” 5.5 kmLoading Line

Detail 3

LUN-A

Construction of LNG
plant and oil exportterminal

TLU

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Negotiated Environmental Achievements in
Sakhalin II (Prior to change of Ownership)










Development of a robust strategy for river crossings
Development of international good practice for addressing soil erosion protection
measures to be applied during construction
Development of international panel of experts to review and approve monitoring andmitigation measures associated with the Western Gray WhaleComprehensive review of the hazards posed by geological processes (earthquakes andlandslides)
Evaluate potential impacts to Hokkaido, due to a possible tanker spill in Aniva Bay (andsubsequent communication with potentially affected people on Hokkaido)
Increased public disclosure, including six public meetings held by EBRD ( London,Moscow, three on island and one in Hokkaido)
Application on international standards for social issues, including the resettlement,
indigenous peoples and the grievance mechanism

Experience in Sakhalin

Russian system and requirements are fairly
robust/comprehensive
Sensitive environment, with the commercial salmon andWestern Gray Whales as highlights, but numerous othersensitive and endangered species

Oil in ice does not make it easyRemoteness of the production areas do not make it easyLack of infrastructure

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Special Challenges: Sakhalin







There is a necessity for special types of equipment for oil
recovery in open sea and oil in ice conditions.
There is little or no capability to manage hazardous waste
even though injection wells are planned
Oil waste has to be treated within a reasonable distance.
Export to other countries is not a feasible and sustainable
alternative.
As the oil industry develops, additional capabilities must
be developed and provided

Other Special Areas: Siberia





The main problems of the Region are leaking oil transfer pipelines aswell as the drilling flakes, oil contaminated land and other by-products
formed while drilling holes are made into this vast area.
Main environmental needs relate to land remediation of oil polluted
land as well as other environmental concerns.
These polluted basins accumulate in the vicinity of drilling towers.
Leaks are significant and have created huge environmental problems
with vast oil ponds and polluted land with practically no treatment.
Currently 133 different types of vehicles are used for transporting andexcavating the oily polluted land to the landfills
Oil spill technologies for swampy wet and cold areas required7

Other Special Areas: CaspianMany new oil drilling platforms planned to be operational
Artificial new islands being developed, south of Atyrau. New oil drillingrigs will be installed on the islands.
Estimated that protecting all these sites will demand three TIER II leveloil spill response centres in Kazakhstan alone.
18 new oil tankers to operate and to transfer oil on the Caspian Sea
from Kuriq to Baku in Azerbaijan: significant increase in tanker traffic
will also increase oil pollution risks.
Large onshore legacy and new onshore fields require clean-up andnew protection
Rising Caspian water-levels threaten to swamp some near-onshore
wells risking seepage

Lack of Tier II Response Capability

Most operators have some local equipment (Tier I)
There are organisations to provide major accident
response (Tier III) e.g. OSRL
There is a general shortage of medium response (Tier II)
Centres able to be mobilised on a timely basis.
This shortage is especially acute in the Bank’s countries ofoperations due to a lack of investment and meagre
resources of local authorities.

8Tier II Response Concept– Establishment of Tier II crude oil spill response centres inkey locations in the Bank’s countries of operation andprovision of regional training, prevention and remediation
services.
– Underlying economics for each centre based on fixed
response contracts to cover overhead costs and equipmentin place– equity upside rests in sales of additional services throughthe individual centres and developing synergies among thenetwork of centres.

EBRD Framework Facility Concept– Framework concept: Large facility which can be used tofinance a series of Centres based on a pre-agreed financing
criteria.
– EBRD to provide up to 35% of financing consisting of Equity
Investment and Senior Loans.
– significant co-financing in the form of export credit and other
equity contributions from local partners

9Benefits of Framework FacilityAssured financing gives Service Providers ability tonegotiate best terms for individual Centres
Substantial framework size enables pursuit of a pipeline ofprojects across the region to build synergies and diversify
risk
Structure flexible to permit additional third party financing
and loans as available on a case-by-case basis.
Limited risk as key investors along side EBRD will provide
modest initial capitalisation and must approve eachindividual disbursement.

Sources of returns

“Stand-by” fees.

Additional Revenues20%+ annual return on assets employed after
finance costs.
Potential exit to Management or other service
partners expected to be involved with the centres

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EBRD what role can it play?
– Due Diligence– Funding of up to 1/3 of project cost
– Monitoring compliance of Sponsor(s)– Policy dialogue with Governments related toinvestment climate, transparency and revenue
management– Managing complex financing– Risk Sharing– Established client trust

EBRD and civil society engagement
Engage with NGOs from an early stage– Ensuring NGO issues are addressed with Sponsors– Acting as “catalyst” to facilitate dialogue with all partiesConsultation through Multi-Stakeholder Forums– E.g. BTC Pipeline Project: forums in all three countries
seeking direct dialogue– Verify ‘mood on the ground’

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EBRD Risk sharing
EBRD may

Take financial risks
Take political risks both on sovereign and
sub-national basis

Accept long maturities

Share equity risk

Sponsors should have sound management and assume
operational and completion risks

Why EBRD

EBRD is uniquely capable of supporting service providers
across all the critical oil response areas of the FSU
Strong, internationally recognised financial partner withlong-term perspective and mission
Extensive knowledge of local economy, businessenvironment and practices
Environmental mandate: EBRD is seen as a pioneer intransactions with complicated or multi-boundary
environmental aspects.

12Natural Resource Team Contacts

Kevin Bortz, Director, Natural Resources– Tel: +44 20 7338 7119
– BortzK@ebrd.com

Paul Shapiro, Senior Banker, Natural Resources– Tel: +44 20 7338 6244
– ShapiroP@ebrd.com

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