Notice

Petrobras line of credit phase II, Brazil

Published 22 December 2015

1. Description of project

UK Export Finance has agreed to provide a Line of Credit (LOC) to Petróleo Brasileiro S.A. (Petrobras) to finance the supply of oil and gas related equipment and services by UK exporters to Petrobras’ oil and gas exploration and production activities within the Campos Basin, Santos Basin and Espirito Santo Basin geological units, located in the southern Atlantic Ocean off the coast of Brazil (the ‘Project’). The Project includes the following activities:

• installation of subsea and surface oil and gas pipelines
• installation of Floating Production Storage and Offloading (FPSO) vessels
• drilling and completion of production and injection wells
• operational efficiency activities to improve the performance of operating units
• other operational activities, such as flaring, ship movement, employment of personnel, waste management and disposal, and exclusion zone enforcement

The Petrobras LOC is a potential new financing (LOC II) that follows a similar and existing LOC (LOC I) being provided by HSBC and guaranteed by UKEF, which was issued in 2011.

2. Project sector

The project is in the oil and gas sector.

3. Project sponsor

Petrobras

4. UK exporters

Currently identified exporters are Subsea 7 and (GE) Wellstream International Limited. Additional exporters may be identified in the future.

5. Export credit agent bank

JP Morgan

6. Amount of UK Export Finance support

The loan facility amount is US$500 million.

7. OECD Common Approaches

UK Export Finance categorised the Project as Category A (having potentially significant environmental, social and human rights (ESHR) impacts) in accordance with the definition in the 2012 OECD Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the OECD Common Approaches).

As required by the OECD Common Approaches, UK Export Finance disclosed its possible involvement in the Project. A notification was posted on the UK Export Finance web site on 2nd September 2015, which contained links to published environmental impact assessments for the Santos, Campos, and Espirito Santo Basins and directed interested parties to a contact point for any enquiries related to ESHR matters. UK Export Finance did not receive any comments from interested parties.

8. ESHR standards

Project-related ESHR information was reviewed by the Environmental Advisory Unit (EAU) of UKEF for alignment against the 2012 International Finance Corporation (IFC) Performance Standards (PS) on Environmental and Social Sustainability and the World Bank Group Environmental, Health and Safety (EHS) Guidelines. The applicable IFC PS and World Bank Group EHS Guidelines were:

• PS1: Assessment and Management of Environmental and Social Risks and Impacts
• PS2: Labour and Working Conditions
• PS3: Resource Efficiency and Pollution Prevention
• PS4: Community Health, Safety and Security
• PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
• World Bank Group EHS Guidelines, of which the following are relevant:
• General EHS Guidelines (2007)
• IFC Industry Sector Guidelines for Offshore Oil and gas Development (2015)

IFC PS7 (Indigenous Peoples) and PS8 (Cultural Heritage) do not apply as potential activity occurs in deep offshore waters. No land acquisition will take place as part of LOC II. Economic displacement of fishing communities was avoided by Petrobras during the course of LOCI as the rigs and associated exclusion zones are located in areas not frequented as fishing areas prior to development of the Project and, therefore, PS5 is not considered to be applicable.

9. Nature of ESHR impacts

The review of potential ESHR risks and impacts took into account the following impacts, receptors and issues:

• emissions to the atmosphere (including water and air)
• wastewater and process water treatment
• waste and hazardous material management
• marine habitats and biodiversity
• water and energy efficiency
• emergency planning and response, including spill response planning, containment systems and well blowouts
• management of third party contractors and suppliers
• grievance mechanisms
• occupational health and safety
• community safety
• decommissioning
• worker conditions of contract
• community engagement

10. Assessment of ESHR impacts

In 2011, the EAU undertook ESHR due diligence in respect of LOC I, which focused on the Petrobras Health, Safety and Environment Management System and related policies and procedures, to ensure that these met the requirements of the relevant IFC PS that were in effect at the time (i.e. 2006 IFC PS). The ESHR due diligence process for LOC II effectively updates the existing due diligence for LOC I, taking into account:

• project-related information provided by Petrobras and UK exporters in 2012 to 2015, including environmental and social management policies, procedures, management plans, audits of third party contractors, emergency planning and response procedures and plans, and other relevant ESHR documentation
• findings from visits which took place in 2013 and September 2015, involving meetings with Petrobras and additional key parties, including the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) and UK exporters

Taking account of EAU’s review, the Project was deemed to have potential to cause adverse environmental and social impacts. However, a proposed suite of controls as part of Petrobras’ EMS facilitates the management of these impacts.

11. Decision

After taking account of the review undertaken by the EAU, it was concluded that the Project should meet the relevant international standards. UKEF therefore decided to provide an LOC to Petrobras in respect of the supply of capital goods and services by UK exporters to the Project.

A condition of support is that Project will be subject to monitoring by UKEF so it can be satisfied that the Project is aligned with the relevant international standards throughout the duration of LOC II.