WASHINGTON (press release) – The Multilateral Investment Guarantee Agency (MIGA) – the political risk insurance arm of the World Bank Group – announced today it is supporting a gas development project in Uzbekistan expected to have a significant positive impact on the economy. MIGA issued an investment guarantee of US $119.5 million to BNP Paribas (Suisse) SA of Switzerland – acting as a political risk guarantee agent for a consortium of banks – to cover a non-shareholder loan to LUKOIL Overseas Uzbekistan Ltd. for the upstream gas development of the Khauzak-Shady Block and the Kandym Field Group. Other banks in the consortium include Crédit Agricole Corporate and Investment Bank and the Korean Development Bank.

Lukoil Uzbekistan is seeking financial assistance for the development of the Kandym Group of gas field located in Bukhara Region. The Project will start production in 2017 and will reach its peak production of 8 billion m³/year of natural gas in 2019 and will continue production till 2039. It is part of a development program governed by production sharing agreements signed by the Government of Uzbekistan and a consortium of investors including Lukoil and Uzbekneftegaz. The prospecting works for the Kandym Group started in 1960-63. The Project plans to drill 126 production wells and develop gathering stations, field pipeline transfers, gas processing plant, gas main pipelines and other infrastructure facilities such as power substations, access roads and railway for logistics and supply.

The project has an important demonstration effect for foreign investors in Uzbekistan, especially given the country’s need to attract foreign direct investment to improve the economy. MIGA’s support for this project in a remote and relatively poor region of Uzbekistan validates the company’s efforts to meet international best practice with respect to the governance, environmental, and social impacts of oil and gas projects.

“We have witnessed first-hand the attention this project has received, mainly for its ability to enable a consortium of international banks to provide project finance in Uzbekistan for the first time,” said Abir Burgul, MIGA’s senior underwriter who worked on the transaction.

Oktay Movsumov, Head of Project and Structured Finance, OAO LUKOIL noted, “Without multilateral organizations’ involvement in this project, we would have been hard-pressed to find financing. Indeed, it was the synergies among MIGA, the Asian Development Bank, the Islamic Development Bank, and then the consortium of commercial banks that enabled project finance of this magnitude and importance for the country.”

“From our perspective, MIGA’s participation was critical as the availability of political risk insurance was a condition for the commercial banks’ participation,” said Nicolas Jobert, Director of BNP Paribas Suisse.

The project is required to comply with MIGA’s performance standards on social and environmental sustainability. In addition, LUKOIL has prepared a biodiversity action plan pertaining to activities near an important wetland area, Lake Dengizkul. Once the Kandym project is completed, it will be a major employer, foreign exchange earner, and source of revenue for the Uzbek economy.