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Russia
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Polar Lights Company
Following the collapse of the Soviet Union in 1991, the Russian oil sector opened up to foreign investment in exploration and development. Large undeveloped resources awaited investors, but the legal and fiscal framework was uncertain and political risk remained high. One of the first companies to make a major investment in developing a Russian oil field was Conoco. In January 1992 Conoco established the Polar Lights Company (PLC) as a 50/50 joint venture with a local company (now known as AGD and since joined by Rosneft) to develop the Ardalin oil field, in the Timan-Pechora basin some 1,000 miles Northeast of Moscow. The field has over 120 million barrels of proved reserves. Production began in 1994 at 25,000 per day ("bpd"), increasing to an average of 35,000 bpd in 2000. Investments to date have exceeded US$400 million.
In 1993, IFC joined with EBRD and OPIC to put together a non-recourse financing for PLC amounting to US$200 million, of which IFC provided US$60 million. The financing allowed Conoco to mitigate its risk and to proceed with its commitment to the joint venture in a climate of considerable uncertainty about legal, fiscal, political and oil market conditions in Russia. As part of the World Bank Group IFC was able to provide comfort to the largest foreign investor in Russia at the time, and to act as a neutral go-between in the developing relations between PLC and the Russian authorities. The presence of IFC and the other senior lenders in the project also helped to stabilize relations between foreign and local partners and focus all parties on the financial bottom-line.
The Polar Lights project has demonstrated the potential for the development of oil reserves in Russia through a partnership between major Western investors and Russian companies. Production has exceeded expectations and the project has helped to transfer Western technology for oil development in Arctic regions to Russian conditions. It also has an exceptionally good environmental and safety record, and has served as a model for environmental and safety management for the Russian industry. Taxes paid by the project have been the major source of revenue for the remote region in which it is located, and have also helped to bolster central government revenues from oil, which are a key element in Russia's economic recovery. The joint venture has operated successfully for longer than almost any other foreign business enterprise in Russia. As a result of the success of the project, Conoco is committed to further investments in the Timan Pechora region with its Russian partners.
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