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IFC to Finance Gas Expansion Projects

The World Bank's private investment arm the International Finance Corporation (IFC) agreed to provide a total of US$105 million funding to two Chinese private energy companies in Shanghai Tuesday.

Up to US$35 million is provided for Xinao Gas Holdings, including US$25 million in debt financing to three of its subsidiaries and US$10 million inequity.

Hong Kong-listed Xinao was one of China's first private gas distribution companies.

It operates gas distribution networks in 43 cities under exclusive operating licenses across eastern and northern China, supplying a total population of nearly 20 million.

As part of the agreement, IFC plans to help Xinao develop a formal environmental and social management system to support its continued growth.

IFC's debt financing will be used to develop and expand Xinao's gas distribution infrastructure in three cities.

Assaad Jabre, vice-operations president of IFC, said Xinao is a good company that fits in very well with IFC strategy.

"Natural gas represents an important way in which energy consumption will become more environmental-friendly and pollution will be reduced," he said.

Natural gas accounts for only 3 percent of China's total energy consumption, far below the world average of 20 percent and Asia's average of 9 percent. China has committed itself to increasing natural gas as a proportion of total energy consumption to 5 percent by 2005 and up to 10 percent by 2010.

"IFC financing will support China's policy of developing the natural gas industry and reduce environmental costs," said Jabre.

"In addition, since natural gas is approximately 35 to 50 percent cheaper than China's primary household fuels, the project will result in greater disposable income for local households and improved access to a reliable energy source," he said.

In another deal, IFC has agreed to provide US$70 million in debt financing to a newly formed subsidiary of Shanxi Antai Group, one of China's largest producers of metallurgical coke, which is also listed in Shanghai.

The investment will support Antai's construction of a green production facility in Jiexiu in northern Shanxi Province. The modern facility will meet high environmental, health, and safety standards.

Upon completion, the plant will produce 1 million tons of coke a year to meet the needs of the domestic and global markets.

China currently accounts for 55 percent of the global metallurgical coke trade. Much of the region's coke production comes from heavily-polluting beehive operations which are harmful to the work force and local communities.

"This project will help accelerate the closure of outdated facilities," Jabre said.

He added that IFC's support for the project also came about because of significant environmental and health benefits achievable for the local community.

In the past 19 years, IFC has committed more than US$1 billion of its own funds and arranged US$497.87 million in syndications for more than 70 companies in China.

Jabre said yesterday that the IFC didn't lose much money in loans, but conceded that equity result was "not very exciting."

Looking ahead, he said he held high expectations for the private sector in China, especially those with sound corporate governance.

(China Daily May 26, 2004)


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