LUKOIL Overseas Uzbekistan Ltd.

On May 16, 2012, MIGA issued a guarantee of $119.5 million to BNP Paribas (Suisse) SA of Switzerland—acting for itself and Crédit Agricole Corporate and Investment Bank and the Korean Development Bank—to cover a non-shareholder loan to LUKOIL Overseas Uzbekistan Ltd. for the Khauzak-Shady Block and Kandym Field Group project. The coverage is for a period of up to seven years against the risks of transfer restriction, expropriation, breach of contract, and war and civil disturbance.[1]

The project involves phase two of an upstream gas development of the Khauzak-Shady Block and the Kandym Field Group in Uzbekistan. The proceeds of the loan will be used to finance further development of gas production infrastructure at the Khauzak-Shady Block and the development of the Kandym Field Group, which will include a gas-processing facility. This project furthers development begun in 2005 under a production sharing agreement (PSA) between LUKOIL, the national holding company "Uzbekneftegaz", and the Republic of Uzbekistan represented by the Ministry of Economy.

This project represents one of the largest foreign investments in Uzbekistan and one of few foreign companies operating under a PSA together with Uzbekneftegaz.

Through this project, MIGA supports an investment by a strong technical company in a remote and relatively poor region of Uzbekistan. MIGA’s involvement provides an external validation of the company’s efforts to meet international best practice when it comes to managing the governance, environmental, and social impacts of oil and gas projects. This is particularly important as Uzbekistan has begun to attract large-scale foreign investment into its upstream gas sector.

Benefits include significant direct and indirect employment. Locally-sourced employees will not be less than 80 percent of staff and locally-sourced contractors will not be less than 60 percent of all contractors. LUKOIL will provide training to all staff, with a specific focus on the training of managers. Local procurement of materials is also expected to be significant.

The project is expected to be a major source of foreign exchange and government revenues. In addition, as part as of the company’s commitment to corporate social responsibility, LUKOIL supports social development projects for the community. Recent examples of these include the donation of medical equipment and supplies, construction of playgrounds, and support of education programs through provision of computers, books, and sports equipment.

At a broader level, MIGA is supporting an important investment in a developing economy that has been lagging behind its peers in the region in attracting foreign direct investment. MIGA’s role in this project complements the World Bank’s efforts to foster responsible and sustainable private sector-led growth in Uzbekistan. The project is also aligned with MIGA’s commitment to supporting more investments in complex deals in infrastructure, as well as those in countries eligible for concessional lending from the International Development Association. As beneficial ownership of the project accrues to LUKOIL of Russia, it also addresses MIGA’s commitment to supporting South-South investments.

[1] The Guarantee was cancelled on July 1, 2016.