Notice

Category A project supported: KNPC Clean Fuels Project

Published 22 May 2019

1. Project description

UK Export Finance (UKEF) has agreed to provide a Buyer Credit Guarantee in respect of a US$6.2bn multi-ECA financing for Kuwait National Petroleum Company (KNPC) as part of the Clean Fuels Project (the ‘project’ or ‘CFP’). UKEF’s participation in the financing is US$250m, which will support the provision of project management and consultancy services by Amec Foster Wheeler Energy Limited, registered in the UK. Other ECAs involved in the provision of financing are: Japan Bank for International Cooperation (JBIC), Nippon Export and Investment Insurance (NEXI), Korea Trade Insurance Corporation (KSURE), Export-Import Bank of Korea (KEXIM), and Atradius Dutch State Business.

The project is one of KNPC’s key projects and comprises the refurbishment and expansion of 2 of its 3 refineries. The third refinery is being decommissioned concurrently with the project. All 3 are mature refineries, first established in the late 1940s, which receive crude feedstock from Kuwait Oil Corporation to produce a full product slate ranging from light gases through aviation and motor fuels to heavier fuel oils, but with a bias towards heavier and higher-sulphur products. As part of the project existing assets are being reconfigured and expanded to deliver a higher value, lighter product slate with diesel compliant with stricter low-sulphur specifications required for export to Europe.

Specifically, the project comprises the following:

• construction of new process units on previously standalone plots on each of the existing Mina Al Ahmadi (MAA) and Mina Abdullah (MAB) refineries
• refurbishment and upgrade of a number of existing process units on the MAA and MAB refineries
• retirement and closure of a number of existing process units on the MAA and MAB refineries

Supporting infrastructure considered as part of the project includes a number of worker accommodation facilities under the control of the CFP contractors. Associated Facilities^{[footnote 1]} are considered to include:

• a new 8km 36-inch crude oil line and four new water pipelines within existing pipeline corridors off-site
• a new gas pipeline internally from the MAA gas plant to CFP units
• equipment lay-down areas and office facilities for the CFP contractors

Concurrent with the CFP is the decommissioning and closure of the Shuaiba (SHU) refinery. As part of the decommissioning, some of the existing SHU tankage will be retained to serve the reconfigured MAA and MAB refineries post CFP.

In addition to producing a more valuable product slate, the CFP is designed to deliver benefits with respect to: enhanced environmental performance from the new and upgraded process units; enhanced energy efficiency; enhanced safety performance; and an enhanced operability by migrating to a new more modern control platform.

2. Project sector

The project is in the oil and gas sector.

3. Project sponsor

Kuwait National Petroleum Company K.S.C. (KNPC).

4. UK exporters

Amec Foster Wheeler Energy Limited.

5. Export credit agent bank

BNP Paribas Fortis SA/NV (Brussels).

6. Amount of UKEF support

The Buyer Credit Guarantee facility amount is US$179 million.

7. OECD common approaches

In December 2015 UKEF screened and 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, UKEF disclosed its possible involvement in the project. A notification was posted on the UKEF web site on 8th June 2016, which contained a description of the project, its location and a contact point for any enquiries to signpost interested parties to environmental and social information. No enquiries were received by UKEF or the contact point as a result of this notification.

8. Environmental, Social and Human Rights (ESHR) Standards

Project-related ESHR information was reviewed by UKEF for alignment against the 2012 International Finance Corporation (IFC) Performance Standards (PS) on Environmental and Social Sustainability and the World Bank Group (WBG) Environmental, Health and Safety (EHS) Guidelines. The applicable IFC PS and WBG 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
• PS5: Land Acquisition and Involuntary Resettlement
• PS6: Biodiversity Conservation and Sustainable Management of Living Natural Resources
• PS8: Cultural Heritage
• General EHS Guidelines, 2007
• EHS Guidelines for Petroleum Refining, 2007

IFC PS7 (Indigenous Peoples) is not considered relevant for the project as people in the nearest communities are not considered Indigenous Peoples for the purposes of the application of PS7. In addition to the standards above, the EBRD/IFC Worker Accommodation Processes and Standards, 2009, was also included within the ESHR review.

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), including greenhouse gas (GHG) emissions, noise and light emissions
• noise and vibration
• wastewater and process water treatment
• waste and hazardous material management
• water and energy efficiency
• contaminated land
• process safety
• emergency planning and response, including fire, toxic release and oil spill
• management of third-party contractors and suppliers
• grievance mechanisms
• occupational health and safety
• community safety, including major accident hazard risk and security management
• road traffic management
• decommissioning
• worker conditions of contract and accommodation
• cultural heritage
• community engagement

10. Assessment of ESHR impacts

In line with the requirements of the OECD Common Approaches a review was undertaken, to identify potential ESHR issues for the project and how these would be effectively managed. The review was conducted with the support of an Independent Environmental and Social Consultant (IESC), who was commissioned to undertake an environmental and social due diligence assessment of the project for the financing parties.

The approach taken by the IESC and UKEF consisted of:

• a review of project-related documentation from April 2016 – February 2019 including environmental and social baseline studies and impact assessments; worker welfare assessments, ESHR management and mitigation plans; stakeholder engagement procedures; corporate policies and procedures; relevant documents from KNPC, the project Management Consultant, Engineering, Procurement and Construction (EPC) contractors, and environmental and social consultants acting on behalf of KNPC
• site visits, including a walk-through of the project area, interviews with relevant KNPC, Project Management Consultant and EPC personnel
• follow-on meetings with Government of Kuwait representatives

The review formed the basis for the evaluation of the project’s alignment with relevant international standards, and recommendations for future compliance and monitoring.

The review found that a suite of ESHR controls has been developed to mitigate and manage the significant project-related environmental and social impacts and risks over time.

11. Decision

Various actions have been agreed between KNPC and the lenders involved in the financing which are necessary to ensure the project’s on-going alignment with international standards. Following agreement of these commitments, it was concluded that the project should meet the relevant international standards over the project cycle and UKEF therefore decided to provide support to the project 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 an Independent Environmental and Social Consultant so it can be satisfied that the project is aligned with the relevant international standards throughout the duration of support.

1. OECD Common Approaches defines “Associated Facilities” as: those facilities that are not a component of the project, but that would not be constructed or expanded if the project did not exist and on whose existence the viability of the project depends; such facilities may be funded, owned, managed, constructed and operated by the buyer and/or project sponsor or separately from the project. ↩