“This deal marks the first commercial lending to Uzbekistan’s crucial natural gas industry and should pave the way for further private sector participation in this key exporting sector,” said Siddhartha Shah, Investment Specialist of ADB’s Private Sector Operations Department.

Natural gas exports are a vital driver of Uzbekistan’s economy, accounting for a significant share of gross domestic product. The project, located in the Bukhara-Hiva region, will also boost local employment and economic growth by providing thousands of jobs in a relatively poor rural area.

Lukoil Overseas Uzbekistan, part of the Lukoil Group, an international oil and gas operator, will use the US$100 million loan to develop the Kandym gas field under a 35-year production sharing agreement with the state-owned Uzbekneftegaz gas company. Production of the field, which has proven gas reserves of 84 billion cubic meters, is due to start in 2015. The gas will be sold to a Russian exporter and, possibly, to the People’s Republic of China, which will provide an attractive new source of revenue for the Uzbek government.

Since natural gas from the Kandym field has a high sulfur content, Lukoil will use state-of-the-art technology to extract gas in an economically viable and environmentally sound manner in line with ADB’s environmental safeguards policy. As a condition of ADB’s involvement, details of revenue paid to the government will be disclosed annually.

ADB’s loan from ordinary capital resources has a maximum term of up to 8 years, with a grace period of 18 months and an interest rate still to be determined. The Islamic Development Bank will also provide US$100 million in financing and the Multilateral Investment Guarantee Agency (MIGA) will provide a political risk cover of US$100 million. The political risk guarantee being offered is in close cooperation with MIGA and private market. It will cover loans from commercial lenders including BNP Paribas, Crédit Agricole Corporate and Investment Bank, and Korea Development Bank.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members – 48 from the region.