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This Environmental Review Summary is prepared and distributed in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC's activities, and this document should not be construed as presuming the outcome of the Board decision.
Any documentation which is attached to this Environmental Review Summary has been prepared by the sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.
Environmental Review Summary
Project number 11697
Project nameNiko Resources
SectorOil and Gas Production (Includes Development)
DepartmentReg Ind, Infra & Nat Res, ASIA
Company nameNiko Resources
Environmental categoryB
Date ERS disclosedDecember 20, 2002
Previous EventsInvested: August 12, 2003
Signed: June 19, 2003
Approved: April 29, 2003

Project description
Niko Resources Limited (Niko) is a Calgary-based Canadian oil and gas company, with its operations focused in India. Indian operations account for 99% of the company's total revenue and 70% of its total assets. The project entails provision of a corporate loan of up to $40 million to support growth of the company's oil and gas activities in India.

Environmental Category B disclosure requirements
IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors.

The Summary of Project Information (SPI) provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.

To view the Summary of Project Information(SPI) for this project, click here

Environmental and social issues
This is a Category B project, according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project consisted of appraising technical and environmental [/social] information submitted by the project sponsor. The following potential environmental, health and safety and social impacts of the project were analyzed:

· Corporate environmental management system (EMS)

. Environmental and social performance of existing holdings of Niko's existing operations and compliance of future operations;
· Coastal zone management;

. Air emissions;
· Water supply and disposal;
· Liquid and solid waste disposal;

. Noise from drilling and operations;
. Occupational health and safety issues including fire protection, emergency response, and control of employees exposure to noise and dust;
. Land acquisition;
. Community consultation and disclosure.

Proposed mitigation for environmental and social issues
Niko has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed by Niko is summarized in the paragraphs that follow.

Corporate Environmental Management System
Niko has an established environmental and health and safety policy. As part of the health and safety policy, Niko has developed procedures for hazard assessment, safe work practices, job procedures, personal protective equipment, training and safety meetings, inspections, and emergency preparedness.

Environmental Authority - Approval
Niko has obtained environmental license for the development of the Surat Block, for the Land Base Drilling Platform and is currently awaiting the approval for the Hazira offshore development.

Hazira Block

1. The Hazira block is located 25 km south west of the city of Surat. The proposed project has approximately 50 km2 for the development of gas wells and facilities. The area is surrounded by the Tapi River in the east and the Arabian sea in the west. The area is characterized by marshy lands and water bodies like creeks, estuaries and rivers. The proposed offshore drilling platform will be located approximately 1.36 km southwest of the Land Base Drilling Platform (LBDP), the depth of the water at the platform site is approximately 12 m.

2. The Government of India awarded the Hazira block to the consortium of the Gujarat State Petroleum Corporation Limited (GSPC) and Niko on September 23, 1994. Under the Production Sharing Contract (PSC), the consortium agreed to test the Hazira well #1 to confirm it’s deliverability. In addition, the consortium drilled five more wells (onshore) 3, 4, 5, 6 and 7. All wells were connected to the existing gas processing station. Subsequently, Hazira #1 was abandoned.

3. Given the positive results of the above wells, the Directorate General of Hydrocarbons (DGH) considered the possibility of drilling both onshore and offshore to take advantage of the location of the Hazira field. Therefore, the consortium approached the Ministry of Environment and Forest in New Delhi (MoEF) with their expansion programs and requested their approval. MoEF granted approval to drill wells onshore and to construct one artificial offshore island (Land Base Drilling Platform – LBDP) connected to the shore with a causeway of 1.2 km and pipelines from LBDP to the gas processing station. To date, 18 wells have been drilled (5 onshore and 13 from LBDP) in total and the consortium expects to drill 3 more wells after they present their plans and this are approved by DGH.

4. The current gas processing station is located in an area of 4 ha within 100 m from the Hazira well # 1. The processing station consist of a separator, metering facilities, a gas flare stack of 9 m, a condensate storage tank, generator sets, evaporation ponds and connecting pipelines. Upgrading of the gas facilities due to the Hazira development will be required. Gas collection from the offshore platforms will be done through a set of flow lines to the plant site, there will be no processing facilities at the platforms.

5. To assess air quality the sponsor undertook air sampling collection with a high volume sampler near the proposed location for the project, the samples were collected for a period of 8 hours for the analysis of the following parameters: Suspended Particulate Matter (SPM), SO2, NOx, H2S, CO and volatile hydrocarbons. The levels of H2S, HC and CO were below the detection limits of <1 g/m3 for H2S, <0.1 ppm for HC and < 10 ppm for CO. The concentration of SO2 and NOx were near detection limits and the levels of SPM were between 30 – 105 g/m3 during premonsoon.

6. The main sources of noise during the project development will be the drilling operations and associated activities. The background noise in the area were assessed between the ranges of 35-45 dBA during the daytime and between 41-51 dBA during night time near the wells 1-5. Near the gas processing station the noise ranges between 76-78 dBA during night time and 80-82 during the day time.

7. An assessment of marine water quality in the area of the Hazira field was carried out as part of the Environmental Impact Assessment. This included assessment of flow patterns, waves and tides physical and chemical characteristics, biological characteristics, total biomass and species diversity. In addition, the total amount of hydrocarbons and heavy metals were analyzed in sea life (e.g. fish), and the results showed that the waters in the area of the Hazira field are not contaminated with hydrocarbons.

8. It is proposed that gas will be transported from the offshore platform to the existing land base Niko gas processing plant via pipeline. The pipeline will cover approximately 4.5 km passing through sea, marshy land and dry land. According to the environmental assessment the pipeline will not cause a significant environmental impact to the area.

9. Niko will use water-base drilling muds. Drill cuttings water will be discharged to the sea. Toxicity tests have indicated that this will not cause any impacts on marine fauna. For the disposal of solid waste, Niko will utilize government sanitary landfills and will comply with the state and Ministry of Environment and Forest new guidelines for solid waste disposal.

10. Niko has developed a framework for emergency preparedness for implementation at their facilities. This framework includes existing training and awareness programs for Niko's employees. All contractors are required to have equivalent training to Niko standards. Community awareness begins with a public hearing at project inception and additional awareness programs are being developed.
    Surat Block

    11. The Surat block is located within the coastal plain of southwestern Gujarat (India) and has an approximate area of 419 km2 . The block is characterized by a flat topography and is crossed by the Tapi River and the Kim River which runs along the northern tip of the block. The southern part of the block contains industries such as Essar Power and Steel, Khribhco Fertilizer, Reliance Industries, NTPC Power Plant and ONGC’s Gas Processing Complex. In addition, the Surat block land use consist of agricultural production for sugar cane, rice cotton and other crops.

    12. According to the production sharing contract (PSC) signed in July 2001, between Niko and the Government of India, Niko is committed to drill 15 exploratory wells within the first two years of the contract. In the event that the exploration results in a commercial discovery, NIKO will present the appropriate authorities with plans for their approval to construct pipeline tie-ins and a processing facility. The exploratory well sites have dimensions of approximately 100 m x 100 m with well depth between 1300 –1800 m, mobile rigs will be used for drilling.

    13. Currently, Niko has identified the location of ten exploratory wells north of the Tapi River and none of these wells are locate near or within the coastal regulation zone (CRZ), the remaining five wells will be selected once the seismic surveys are completed. In general, the selection of exploratory wells will avoid dwellings, minimize the interference of crops, and will not disturb forested areas as well as areas of unique habitat.

    14. Wastewater generated by each well will be approximately 833 m3 and will be chemically treated prior to discharge. Wastewater will be tested twice prior to discharge, once prior to treatment and once following treatment.

    15. Background noise assessments show that the area of Surat block is well within the limits of the stipulated GPCB standards for day and time for residential and industrial zones, as well as with the World Bank guidelines.

    16. The region of Gujarat state, specifically the region of Surat block has adequate surface and groundwater, however, groundwater can be highly saline. The project will require water for the exploratory operations only and this requirement will be met by the existing water supply.

    17. The Environmental Impact Assessment (EIA) has indicated that in the area of the study there are no endangered species of flora or fauna. National parks or sanctuaries are not present in the area.

    18. Solid waste generated during the exploratory drilling will consist of drill cuttings and drilling mud. A portion of the drilling mud will be recycled for use in subsequent wells. The drill cuttings will be approximately 150 m3/well and will either be mixed and buried with subsoil on site, used for road fill or disposed at an approved site.

    19. As part of the Environmental Management Plan, Niko has prepared procedures for: (i) Environment Protection and Reclamation and (ii) Well Site Operation and Abandonment. The plan also includes measures for monitoring air emissions, noise, water and land environment. Niko has also established a policy for drilling activities. In addition, the project will adhere to the Indian Petroleum Act and Indian Mines Act as well as the American Petroleum Institute (API) standards and safety guidelines for drilling operations. Niko has also prepared a Risk Assessment for Exploratory Drilling in the Surat block.

    General Social Assessment

    20. The total land requirements for each well site are limited. Each of the 15 well sites sanctioned by the government for the Surat Block and the one onshore site in the Hazira Block requires a 100 x 100 meter area for exploration for a single cropping season and, if productive, a 30 x 30 area for the productive life of the well. Niko pays within a range equivalent to four/five times the market value of the land per square meter to the landowner in rent on an annual basis, and the prevailing market rate per measure for standing crops. The same compensation rates apply to land acquired for access roads.

    21. A public hearing to discuss the exploration and development of the Surat Block was convened by the Gujarat State Pollution Control Board (GPCB) on February 19, 2002. The major issues raised were: employment opportunities, public and worker safety, noise, water demand, waste disposal and social benefits accruing to the project area’s population. Representatives from three Gujarat-based environmental NGOs participated in the meeting. No significant issues were left unresolved from the meeting. Niko management has submitted a request to the GPCB for a public hearing on its exploration and development of the Hazira block. That hearing will not take place before mid-January 2003.

    22. As part of its community relation efforts, the Company has made contributions to local area schools and is planning the construction of a new school building in the Hazira area.

    Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environmental and social policies and the environmental, health and safety guidelines upon successful implementation of the agreed mitigation measures.

    Monitoring and compliance
    IFC will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering: (i) the status of implementation of any measures contained in the Environmental Management Plans and (ii) ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs. Periodic site supervision visits will also be conducted.

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