Melrose II Expansion Melrose Resources plc (Melrose or the company) is an Edinburgh-based oil and gas exploration and production company with operations in Bulgaria, Egypt, France and the United States.  Melrose has a balanced portfolio of producing assets, development projects and exploration interests.  The company holds a 100% interest in the Bulgarian Galata field through its wholly owned subsidiaries Melrose Resources Sarl and Petreco Bulgaria EOOD, and is also exploring in four adjacent offshore exploration concessions.   In Egypt, Melrose currently has 100% interest in the Qantara, El Mansoura and South East El Mansoura concessions, all located in the onshore Nile Delta.  Melrose also has mature assets in the Permian basin and in East Texas in the US and exploration assets in offshore France.    Due to the global increases in drilling and capital costs in the oil and gas sector, Melroses expected capital expenditure plan over the next 12-18 months has increased. The company is planning to support the additional capital expenditure program over the next few years by increasing its current debt facilities, committed in November 2006, by $85 million. Fit with World Bank Group Strategy   In Egypt the World Bank Group (WBG) Strategy is to:    - facilitate private sector development;  - enhance the provision of selected public goods; and  - promote social and economic equity.      IFCs strategic objective outlined in the WBG strategy is to focus on:     - supporting PPI initiatives,  - assisting the development of new financial sector institutions and instruments for the private sector, - catalyzing new private sector investment in manufacturing, petrochemicals, oil and gas, as well as the social sectors, and  - supporting SME initiatives.    In Bulgaria the objectives of WBG are to:    - address productivity and employment;  - implement fiscal sustainability and proper absorption of EU funds; and  - target poverty reduction through social inclusion.      IFCs strategic objective outlined in the WBG strategy is to support Bulgarias EU integration by helping Bulgaria improve its competitiveness through supporting domestic companies and attracting foreign private investors in the country.      The proposed project is consistent with WBGs overall strategic priorities in these countries by developing its natural resources, attracting foreign investment and providing training and jobs, while helping the company to operate in an environmentally and socially responsible manner.    Development Impact  The project is expected to contribute to the benefits provided by Melroses continued operations as follows:  - Promoting Natural Gas Development and Use:      The project will contribute to increased natural gas production in Egypt; production is expected to increase from an average 70 mmcf/d in 2005 to 200mmcf/d by year-end 2007.  Natural gas is believed to be the primary growth driver in the Egyptian energy sector.  Melroses operations support both the development of gas for domestic use and the governments strategy of promoting gas as a domestic fuel of choice.  Bulgaria has limited indigenous gas production and its domestic market for natural gas is still at an early stage of development.  The Galata field development, the first upstream oil and gas development undertaken by the private sector in Bulgaria, has supported the governments objectives to include the private sector and develop a competitive gas market.  In 2005, the company provided 16% of the natural gas consumed domestically.  The Project will contribute to sustaining this positive impact on the countrys gas sector.  Moreover, it is expected that the Galata field, upon depletion, will be used as a gas storage facility, thus strengthening Bulgaria''s role as a gas transit country with its corresponding revenue generating benefits.  - Creation and Preservation of Direct and Indirect Employment:       The project will help sustain employment in both countries.  In Egypt, the operating company currently employs approximately 500 personnel and contractors, of which more than 95% are locals.  In addition, given the large development program envisioned over the next couple of years, the project is expected generate additional employment of about 200/300 contractors per annum.  In its Bulgarian operations, Melrose employs 43 people directly. Over 95% employees are locals.   - Supporting Local Communities and Suppliers:      The company is committed to the local communities in which it operates, recognizing that engagement with the communities in the area of its operations is integral to the long-term success of its investments.  In Egypt, Melrose and its partner Merlon have contributed to schools, mosques and the construction of roads and other infrastructure within the concession areas.  In Bulgaria, the Company sponsors a daycare center for children with disabilities by providing heating fuel during the winter months and is presently rebuilding a local church.   In addition, with the exception of specialized equipment Melrose aims to procure approximately 70% and 70% of its purchases locally in Egypt and Bulgaria, respectively.    - Benefits to Government:     The project benefits to Egypt and Bulgaria include continued revenues that will accrue to these governments in the form of production share, royalties and corporate taxes.  The estimated net present value of future aggregate revenues to the Government of Egypt (GoE) and Government of Bulgaria (GoB) is expected to be about $300 million and $5million, respectively, over the life of the proposed IFC investment, representing less than 0.09% and 0.01% of annual federal government revenues. (nb 2005 revenues - $9.9bn Bulgaria & $32.9bn Egypt)  IFC plans to monitor the following development impacts for both Bulgaria and Egypt during the life of the IFC investment:   - employment levels;  - local/national purchasing;  - production sharing and fiscal payments accruing to the governments of Egypt and Bulgaria; and  - investments in community programs.