INTERNATIONAL FINANCE CORPORATION Helping Russian Chemical and Petrochemical Companies Succeed

1. INTERNATIONAL FINANCE CORPORATION Helping Russian Chemical and Petrochemical Companies Succeed Prepared for the Conference “Business Strategy of Russian Chemical and Petrochemical Companies” Moscow, September 2002 http://www.ifc.org/ogc

2. InternationalFinanceCorporation Chemical Sector Activities Working with IFC

3. IFC is the private sector arm of the World Bank Group • Promotes economic development by encouraging foreign and • domestic private investment in emerging markets • Supports private sector ventures that are financially viable, benefit the host country economy, promote high environmental standards, and provide strong demonstration effect • Provides long-term financing, capital mobilization and advisory services • Three guiding principles for supporting an investment: • - Catalytic: minority role, investment limit, mobilization of capital • - Business partnership: same risks as other investors, no government guarantees, satisfactory returns as well as benefit • to host country • - Additionality: private sector not displaced

4. 174 member countries AAA rated member of World Bank FY02 commitments: US$3.6 bn in 204 projects, including US$518 million in syndicated “B” loans (June 2002) IFC is the largest source of loan and equity financing for the private sector in emerging economies US$14.3 bn portfolio (own account) Since 1956, approximately US$55 bn invested in 2,840 companies in 140 developing countries

5. IFC combines the resources of a development bank with the flexibility of a merchant bank, reassuring investors and Governments • Long Term Financing • Corporate / Project Loans • Equity / Quasi-equity • Innovative Instruments Industry knowledge & contacts • Capital Mobilization • B loan syndications - exempt from withholding tax & provisioning requirements • Export Credit Agency co-financing • Partial Credit Guarantees IFC’s Products Sensitivity to Government priorities Commercial and technical skills in emerging markets • Advisory Services • Country, industry, financial and technical

6. Market approach coupled with political risk mitigation adds value to sponsors • Fixed/floating rates, US$, Euro and some local currencies available • Commercial rates, repayment tailored to project needs • Long maturities: 7-12 years, appropriate grace periods • Range of security packages suited to project/country Flexible Loans Credit Enhancement • Partial guarantee on local / foreign currency bonds or bank loans • Credit enhancement mechanisms for asset securitization • “Neutral broker” between foreign and local owners • Technical /commercial knowledge as partner • Long-term partnership without controlling interest Equity Participation Capital Mobilization • B Loan Program – International bank syndications • Co-financing with Export Credit Agencies and other multilaterals

7. InternationalFinanceCorporation Chemical Sector Activities Working with IFC

8. IFC supports upstream & downstream projects in developing countries Upstream: • Onshore/Offshore • Appraisal & development (no pure exploration) • LPG / LNG • Oil field services • Oil and gas pipelines Downstream: • Oil refining • Petrochemicals • Fertilizers • Other chemicals • Biotechnology • Infrastructure (terminals, etc.)

9. FY 01 Oil, Gas and Chemicals Portfolio : US$ 2.6 billion US$ 1.2 billion for IFC’s account / US$ 1.4 billion held by participants

10. Petrochemicals Refineries Naphtha crackers PP/PE VCM/PVC PTA/PET Ethylene derivatives Methanol Inorganics Hydrogen peroxide Chlor-alkali Carbon black Other inorganics Infrastructure Storage facilities Marine terminals LPG distribution Chemicals Sector Experience to Date • Fertilizers • Ammonia/urea • Phosphoric acid • DAP • Soda ash

11. Investments Cabot C.S. – Carbon Black, Czech Republic Dunastyr – Styrene, Hungary Gaspol – LPG Distribution, Poland Strategic Overview Oltchim - Romania Chemicals Sector Experience in Eastern Europe

12. Retrofit/Modernization: Refineries, Chemicals, Petrochemicals, Fertilizers The need to retrofit/modernize existing operations can result from the following factors: • Limited local availability of hydrocarbon feedstocks • Pressure on prices as tariff protection/price supports are reduced • Plants based on outdated technologies at a competitive disadvantage compared to modern facilities • Non-compliance with current or proposed standards of environment, waste treatment, and handling of hazardous materials • Rising energy costs • Inefficient material handling systems which cause loss of material, environmental problems and health hazards.

13. IFC designs financing plans of greenfield projects to meet sponsor needs Pakistan - Engro Asahi • Construction of a greenfield 100,000 tpy PVC manufacturing plant at a cost of US$83 million • JV between Engro Chemical Pakistan, Asahi Glass Co. and Mitsubishi Corporation • IFC committed US$14.25 mm A Loan Thailand - Vinythai • Fully integrated PVC plant with a capacity of 195,000 tpa at a total cost of US$416 million • IFC assisted the company through the Thai crisis by providing restructuring advice and facilitating a capital increase • Total IFC financing was US$115 million (A Loan US$28 million, B Loan US$70 million and C Loan US$17 million)

14. IFC funds not only greenfield but also expansion and modernization projects India – Continentals Carbon India Limited • Modernization/expansion of carbon black plant at total cost of US$34 mm • The project will retrofit and clean up an existing carbon black plant and bring production to globally accepted environmental, technical and quality standards • IFC investment of US$20.5mm (A Loan US$9mm, B Loan US$11.5mm) Philippines – Philipinas Shell Petroleum Corporation • Replacement of old refinery with modern 110,000 bpd refinery with thermal cracking unit at total cost of US$667 mm • IFC investment of A Loan US$35 mm and B Loan US$85 mm)

15. IFC facilitates financing in difficult environments China - Chengdu Chemical • Modernization and expansion of a 30,000 tpa potassium hydroxide facility at a cost of US$30 million • IFC enabled a 100% local company to access international financial markets • IFC provided loans and equity of US$19 million China – Darong • Expansion of calcium cyanamide production from 50,000 tpa to 150,000 tpa at a total cost of US$30 mm • Environmental upgrade of existing calcium carbide furnaces to reduce air emissions and recover waste heat • IFC investment of US$18 mm (A Loan US$10 mm, B Loan US$8mm)

16. IFC supports chemical infrastructure and distribution China – Zhong Chen LPG Facility • Construction of 50,000 ton liquefied petroleum gas (LPG) storage and harbor facility at a total cost of US$99 mm • IFC finalizing investment of US$57 mm (A Loan US$25 mm, B Loan US$32 mm)

17. IFC provides financial and technical advisory services Bangladesh – KAFCO Fertilizer Complex • Helped negotiate offtake and feedstock supply agreements needed to ensure financial viability of the company • Developed capex program needed to mitigate technical issues • Helped the company secure US$250 mm of ECA restructured debt and US$30 mm of equity infusion

18. International Finance Corporation Chemical Sector Activities Working with IFC

19. Companies or entrepreneurs setting up facilities in emerging markets can approach IFC • Foreign or domestic sponsors can request IFC financing • New venture or expansion; private sector majority ownership required • Project must be developmentally sound as well as commercially viable • Sponsor commitment is required • Equity participation; pre-completion support/guarantees • Submit preliminary business plan or feasibility study • Brief project description, including technical feasibility / market study • Information on sponsors and operator • Environmental studies • Information on investment requirements, financing plan and cash flow projections

20. Beyond its own investment limits, IFC can help mobilize financing from commercial banks, export credit agencies and bilaterals/ multilaterals Project type IFC's investment for its own account Greenfield, total cost Up to 35% of project cost less than $50 mn Greenfield, total cost Up to 25% of project cost more than $50 mn Expansion or Up to 50% of project cost rehabilitation · IFC's total financing must be less than 25% of total company capitalization, and IFC does not manage or have largest stake. . IFC umbrella for B Loan participants: IFC lender of record, immunity from taxation and provisioning requirements. ·

21. IFC team works closely with theclient/sponsor to finalize the investment Internal to IFC As Seen By Client Initial Discussions Initial Review & Authorization to Appraise Mandate Letter Appraisal Financing Negotiations Management Approval Information Memo and Syndication Legal Documentation Disbursement Board Approval Supervision

22. How can we help?Please contact us for further information: Alzbeta Klein Senior Investment Officer, IFC Moscow tel: 7-095-755-8818 E-Mail: aklein@ifc.org Address: 7/5 Bolshaya Dmitrovka Str Moscow, 103009 Russia Telefax: 7-095-755-8296 www.ifc.org/ogc