Kuwait Energy Company KSCC Kuwait Energy Company KSCC (KEC or the Company), is one of the very few local privately-owned oil and gas exploration and production (E&P) companies in the Middle East and North Africa (MENA).  IFC is proposing to provide financing to KEC to:     - finance the development of its producing and development assets in Egypt and Yemen; and    - accelerate exploration in Egypt and Yemen (the Project).  In 2009, KECs work program in Egypt and Yemen includes conducting seismic and drilling 24 wells. The project will lead to further exploration, appraisal and development of domestic natural resources in Egypt and Yemen. Both countries have seen significant declines in their oil production in recent times, coupled with a fast increase in domestic demand.  Both governments are highly dependent on oil and gas revenues to maintain macro-economic stability as well as their social welfare programs.  In Egypt, oil production has declined from a peak of nearly 900,000 barrels per day (bpd) in 1997 to around 710,000 bpd in 2007. Given the rapid increase in domestic oil demand, Egypt is expected to become a net oil importer soon.  Oil and gas revenues account for 15% of Egypts Gross Domestic Product (GDP) and 46% of Egypts exports. The sector is also the most important source of fiscal revenues for the Government of Egypt (GOE), representing 25% of GOEs budgeted revenues for 2008/9. In Yemen, the poorest country in the MENA region, oil production is declining at an even more rapid rate, with 2008 output averaging just 293,000 bpd, compared to a peak of 457,000 bpd in 2001.  Production decline is expected to accelerate over the next few years if no significant new discoveries are made, with current forecasts predicting Yemen will run out of oil in the next 10 to 12 years. Yemens oil and gas sector accounts for over 90% of the countrys export earnings and an estimated 75% of Government of Yemens (GOY) revenue.   The Project is expected to produce significant development impacts:    - Contribution to Government Revenues: The Project benefits to Egypt and Yemen include revenues that accrue to these governments in the form of production share, royalties and corporate taxes.  In 2008, GOEs fiscal take from KECs operations in Egypt was US$58 million and GOYs take was US$19 million. As stated above, both governments are highly dependent on continuing fiscal revenues from the oil and gas sector in order to sustain their respective social programs. The net present value of the total payments to the GOE from 2009 to 2012 is expected to be over US$100 million. Given the exploratory nature of KECs assets in Yemen, future revenues to GOY will depend on the success of the Companys exploration activities in 2009.   - Employment and development of local skills: The Project will help sustain employment in both countries. In Egypt, the operating company currently employs approximately 50 full time employees and has 175 contractors. This is expected to rise to nearly 70 personnel and approximately 350 contractors by 2010, of which at least 90% will be Egyptian nationals.  Without this Project and the associated development and exploration programs, these jobs would be largely lost.  In Yemen, due to the early stage of operations, KEC currently has less than 10 people directly employed and approximately 125 contractors. With the start of significant exploration activity this figure is expected to rise to approximately 15 direct employees and an average of 175 contracted staff by 2010. Approximately 70% of direct personnel in Yemen are expected to be Yemeni nationals.   - Supporting the development of local independent E&P sector in MENA: Through this financing, IFC will play an important role in supporting the only sizeable private Kuwaiti E&P player and the only major Kuwaiti company run by a woman. The E&P sector in MENA has traditionally been dominated by large state-owned oil companies or Western oil and gas companies. KEC is one of the first significant attempts by the local private sector to participate in this sector. KECs ability to grow into a company on a par with other mid-size international E&P companies is hoped to encourage other such private sector initiatives.  The key development indicators to be monitored during the life of the IFC investment include:    (1) Payments accruing to governments; (2) Direct employment levels; (3) Local purchase of goods and services (including contractors); and (4) KEC 2P net reserves.