Dewan Petroleum Dewan Petroleum (Pvt.) Ltd. (DPL) and Rally Energy Pakistan Ltd. (Dewan Petroleum or the companies) are oil and gas exploration and production companies with a combined 60% working interest in the Safed Koh block in Punjab province in Pakistan. DPL is the operator of the block. The project involves:     - the development of the discovered Salsabil gas and condensate field in the Safed Koh block, and    - ongoing exploration programs towards establishing additional oil and gas reserves.     DPL has also been awarded concession rights to five new exploration blocks. The project activities in these blocks will be limited to initial exploration.     The project investments will:     - help augment domestic availability of natural gas, and   - seek to establish additional hydrocarbon reserves, addressing Pakistans growing energy needs. The project will support development of discovered natural gas reserves in Pakistan and further investments towards exploration for new hydrocarbon reserves in the country. The sector is critical to Pakistans economy. Natural gas, a relatively more affordable and environmentally friendly fuel, currently meets about half of the countrys primary energy needs. Increasing domestic demand is projected to lead to supply deficits with the prospect of imports in the coming years. The gas supplied by the project is a relatively clean source of fuel and will be at significantly less cost than the alternative cost of imports. In addition to contributing to increased availability of a relatively cheaper and clean fuel, the projects additional development impacts will come from outlays in social programs, estimated, based on the concession agreement, to range at least between $20,000 to $75,000 annually depending on production levels; generating jobs and providing training; and in the form of incremental revenues to the governments from royalties, production bonuses and taxes, forecast at about $137 million over the twenty year life of the projects current proved reserves based on gas prices calculated using World Bank forecast oil prices.      IFC will track the projects development benefits annually based on information provided by DPL in respect of gas production, outlays on social development programs, creation of direct and indirect jobs, and revenues paid to the government and their agencies in Pakistan.       Governance Context        Payments to the government from the project in the form of royalties and taxes are expected to be small, amounting to less than 0.1% of annual federal government revenues in Pakistan. While Pakistans performance on governance reveals weaknesses as evidenced by low scores on the Transparency International and World Bank Institute indicators, the country has made considerable progress in this area. Local governments have been created to increase responsiveness and accountability for provision of key public services, the tax administration bureaucracy is being overhauled, financial reporting and auditing systems have been modernized, and institutions of accountability like the Auditor General and the Parliamentary Public Accounts Committees have been revitalized. In the hydrocarbons sector, largely managed by the federal government, new legislation and regulations have been introduced, regulatory authorities have been established, and information dissemination (through website postings etc.) has been strengthened. In addition, revenue payments made by the company to the government and their agencies will be disclosed by the company on an annual basis.       Beyond revenue benefits discussed above, the project will also benefit domestic gas users by providing gas at a cost below that of non-gas alternative commercial fuels. Mandatory investments stipulated in the concession agreement in respect of social welfare programs will be made directly in coordination with the local civil administration or the relevant provincial government. Unspent amounts are otherwise to be deposited with these agencies. The partners intend to apply these directly in suitable social development programs; these expenditures will be tracked by the company annually.   In coming to a view of whether to support this project, the IFC has considered the value of all of the projects benefits, and governance and other risks to these benefits. It has also considered in this respect a range of indicators of governance, and the current level of engagement between Pakistan and the World Bank and IMF. IFC believes the risks to project benefits not being realized, due to governance in the country, as relatively small. The non-revenue benefits which are significant, such as strengthening domestic energy production and provision of relatively clean and lower cost fuel, generating jobs and direct social welfare contribution are unlikely to be impacted by weak governance. The project is also consistent with overall World Bank Group objectives in Pakistans oil and gas sector, including helping strengthen local private sector participation in development of these sectors.