Notice

Petrobras Line of Credit - Phase 3

Published 15 May 2018

1. Project Description

UK Export Finance (UKEF) 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 a UK exporter 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 within the Campos, Santos and Espirito Santo Basins:

• 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 (referred to as ‘LOC III’) follows two similar and existing LOCs: LOC I, provided by HSBC and guaranteed by UKEF in 2011, and LOC II, provided by JP Morgan and guaranteed by UKEF in 2015.

2. Project Sector

The Project is in the oil and gas sector.

3. Project Sponsor

Petrobras.

4. UK Exporters

The currently identified exporter is Baker Hughes, a GE Company, LLC (BGHE). Additional exporters may be identified in the future.

5. Export Credit Agent Bank

Credit Agricole Corporate Investment Banking.

6. Amount of UK Export Finance Support

The loan facility amount is US$400 million.

7. OECD Common Approaches and Equator Principles

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 Organisation for Economic Co-operation and Development (OECD) 2012 (Revised 2016) Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the “Common Approaches”) and the Equator Principles (2013).

As required by the Common Approaches, UKEF disclosed its possible involvement in the Project at least 30 days prior to any support being provided. A notification was posted on the UKEF website on 4th December 2017, 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. UKEF did not receive any comments from interested parties.

8. ESHR Standards

Project-related ESHR information was reviewed by UKEF’s Environmental and Social Risk Management Team (E&S Team) 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 III. Economic displacement of fishing communities was avoided by Petrobras 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

10. Assessment of ESHR Impacts

In 2011, the E&S Team 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). This due diligence included an in-depth review of emergency response and spill prevention, including well blowouts, led by external consultants, and conducted in consultation with the UK Department of Energy & Climate Change (DECC) and Health and Safety Executive (HSE).

In 2015, the E&S Team undertook a new ESHR due diligence process for LOC II, which updated the due diligence for LOC I, benchmarking the Project against the updated IFC PS (dated 2012) and considering new information on Petrobras’ corporate Environmental Social and Health and Safety (ESHS) systems, policies and procedures along with the ESHS performance of the Project during the course of LOC I.

The ESHR due diligence process for LOC III is, in effect, a continuation of the ESHR due diligence and monitoring conducted for LOC I and LOC II. This process considered:

• project-related information provided by Petrobras and UK exporters in 2012 to 2017, 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 site visits which took place in September 2015, November 2016, and October 2017, involving meetings with Petrobras and, in 2015, meetings with the Brazilian National Agency of Petroleum, Natural Gas and Biofuels (ANP) and UK exporters

Taking account of UKEF’s E&S Team review, the Project was deemed to have potential to cause adverse environmental and social impacts. However, a proposed suite of controls implemented as part of Petrobras’ ESHS management systems facilitates the appropriate management and mitigation of these impacts.

11. Decision

After taking account of the review undertaken by the E&S Team, it was concluded that the Project should meet the relevant international standards. UKEF therefore decided to provide support to a third LOC to Petrobras in respect of the supply of capital goods and services by a UK exporter to the Project.

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