Medanito SA Medanito S.A. is a mid-size Argentinean company active in oil and gas exploration and production (E&P), liquefied petroleum gas (LPG) production, and natural gas treatment services. The companys main assets are the Aguada del Chivato/ Aguada Bocarey E&P concession in the Neuquen Province, and the Catriel Gas Complex in the Rio Negro Province. The company holds three other exploitation concessions and seven exploration licenses in the Neuquen basin, as well as an early-stage forestry business.  Current oil and gas production net to Medanito is 1,185 barrels per day (b/d) and 14,600 thousand cubic feet per day (mcf/d), respectively. The company also produces 177 tonnes per day (T/d) of LPG, and 72 T/d of natural gasolines.  Medanito has a 2011-2013 capital expenditure program, consisting of: (i) drilling programs aimed to develop hydrocarbon reserves; (ii) expansion of processing and storage facilities; and (iii) exploration activities. The project will lead to further exploration, appraisal and development of primary energy sources in Argentina. The expected benefits will come in the form of:

1.	  Increased supply of hydrocarbons, particularly natural gas: IFC expects that Medanito's upstream production will increase from the current level of 3,600 boe/d. About 60% of this upstream production consists of natural gas.  Continued support for gas production and displacement of more carbon-intensive fuels is a key part of the World Bank Group's strategy, as natural gas is endorsed as a bridging fuel in the transition to a low carbon economy. The increased levels of gas production will also mitigate Argentina's dependence on gas imports. 

2. 	Contribution to Government revenues: the project will result in increased sales of natural gas, LPG, and crude oil. The associated provincial taxes, royalties, and federal income taxes will provide an important source of income to the Federal and Provincial Governments (incremental fiscal revenues are estimated at more than US$150 million over the next decade). 

3.  Creation/preservation of local employment and sourcing in Argentina: by extending the life of the Company's reserves, the project will help to secure direct and indirect jobs in the Provinces of Neuquen and Rio Negro. The project will also have an impact on regional economic activity through local purchasing. 

IFC plans to monitor the following indicators during supervision: (i) annual production of natural gas in Argentina (mcf); (ii) payments to governments (US$); and (iii) purchases of domestic goods and services (US$).

Governance risks assessment

It is expected that benefits from the project will accrue to different levels of government in Argentina in the form of taxes and royalties. Benefits to the local population are also anticipated in the form of direct and indirect employment. In coming to a view on whether to support this project, IFC has reviewed a range of governance and transparency metrics including, but not limited to, The World Bank Institute's Governance Indicators and Transparency International's Corruption Perceptions Index. The Government has committed to strengthening public sector performance within Argentina's federal system, with a view towards improving the effectiveness of basic service delivery and building transparency and trust, objectives that are supported by the World Bank Group. In addition, the Governments of Neuquen, La Pampa, and Rio Negro adhere to the 2004 "Ley de Reponsabilidad Fiscal", meant to promote fiscal discipline at the provincial level. Separately, IFC requires all its extractive industry clients to publicly disclose taxes, royalties and other payments made to governments.  On balance, given the governance situation in the country and the project's expected development benefits, IFC believes that this is a project which it should support.