Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-7092 RU-UA

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

FOR TWO PROPOSED PARTIAL RISK GUARANTEES

OF UP TO $100 MILLION EACH

OF TWO SYNDICATED COMMERCIAL BANK LOANS

TO SEA LAUNCH LIMITED PARTNERSHIP FOR EXPENDITURES

IN THE RUSSIAN FEDERATION

AND UKRAINE

April 24, 1997

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQtJIVALENTS

Russia - Currency Units: RublesExchange rates: Rubles per U.S. dollar

April 17, 1997 5720.0 Rubles - US$1

Ukraine - Currency Units: Hryvnia (Hrv')Exchange rates: Hrv per U.S. dollar

March 28, 1997 1.842 Hrv = US$I

Weights and MeasuresRussia: Metric system

Ukraine: Metric system

FISCAL YEARRussia: January I to December 31

Ukraine: January I to December 31

Abbreviations and Acronyms

ACS Assembly/Command ShipCCLA Capital Contribution and Loan AgreementCOMSTAC Commercial Space Transportation Advisory CommitteeDTI Department of Trade and Industry of the United KingdomDOT U.S. Department of TransportationEBRD European Bank for Reconstruction and DevelopmentEMP Environmental Management PlanEUTELSAT European Telecommunications Satellite OrganizationFAA Federal Aviation AdministrationFSU Former Soviet UnionGEO Geosynchronous orbitGIEK Guarantee Institute for Export Credit (Norway)GOR Government of the Russian FederationGOU Government of UkraineINMARSAT International Maritime Satellite OrganizationLOSC Law of the SeaMTCR Missile Technology Control RegimeLP Launch PlatformSA Support AgreementUNCITRAL United Nations Commission on International Trade LawUSG United States Government

Vice President: Johannes F. Linn, ECADirectors: Yukon Huang, EC3

Basil G. Kavalsky, EC4Division Chiefs: Pradeep Mitra (EC3C2)

Wafik Grais (EC4C2)Task Manager: Alfred Watkins, EMTIE

On September 2, 1996, Ukraine introduced its new currency, the Hryvnia. Its former currency theKarbovanets (Krb) was exchanged for the Hryvnia at 200,000 Krb = I Hrv.

iii

FOR OFFICIAL USE ONLY

RUSSIA AND UKRAINECOMMERCIAL SPACE LAUNCH GUARANTEE PROJECT

TABLE OF CONTENTS

PART I. SECTOR BACKGROUND .......................................................1A. Summary ........................................................B. Financing Plan ........................................................ 2C. Previous IFI Support for Commercial Space Launch Projects .................................................... 2D. Role of MIGA, IFC, EBRD, and Export Credit Agencies ....................................................... 3E. Market Outlook ...................................................... 4

PART II. BANK STRATEGY AND GUARANTEE ....................................................... SA. Relationship to CAS ........................................................ 5B. Russian and Ukrainian Sponsors ........................................................ 6C. The Partial Risk Guarantees ........................................................ 8D. Military Usage Safeguards ...................................................... 13E. Environmental Analysis ...................................................... 15F. International Legal Issues ....................................................... 16G. Economic Analysis ....................................................... 17H. Auditing and Reporting Requirements ...................................................... 20I. Benefits and Risks ...................................................... 20J. Agreed Actions ....................................................... 21K. Consents of Relevant Countries ....................................................... 21L. Recommendation ...................................................... 22

Schedules

Schedule A - Summary of Terms and ConditionsSchedule B - Timetable of Key Processing EventsSchedule C - Russian Federation at a Glance

Ukraine at a GlanceSchedule D - Status of Bank Group Operations in the Russian Federation

Russian Federation - Statement of IFC InvestmentsStatus of Bank Group Operations in UkraineUkraine - Statement of IFC Investments

MapsIBRD Map No. 27188 R - RussiaIBRD Map No. 27828 R - Ukraine

This report is based on the findings of preparation and appraisal missions which visited Russia and Ukraine betweenDecember 1995 and April 1997 and included Alfred Watkins (Task Manager), Andrew Fitchie (Senior Counsel), OnnoRuh] (Guarantee Specialist), Bernard Baratz (Principal Environmental Specialist), Ashoka Mody (Principal FinancialEconomist) and Elizabeth Wang (Financial Officer). Claude Blanchi. Harold Wackman, Thomas Duvall, Charles DiLeva, Galina Mikhlin, Stephen Lintner, Michael Carter, Vladimir Drebentsov. Alexander Kaliberda, and OksanaZavalnaya provided support in Washington, Moscow, and Kiev respectively. Helene Touchette and Rich Manceprovided secretarial support.

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

FOR TWO PROPOSED PARTIAL RISK GUARANTEESOF UP TO $100 MILLION EACH

OF TWO SYNDICATED COMMERCIAL BANK LOANSTO SEA LAUNCH LIMITED PARTNERSHIP FOR EXPENDITURES

IN THE RUSSIAN FEDERATION AND UKRAINE

1. I submit for your approval the following report and recommendation on twoproposed partial risk guarantees of up to $100 million each in support of commercial bank loans toSea Launch Limited Partnership for the purpose of financing eligible investment expenditures inthe Russian Federation and Ukraine. The guarantees would protect private commercial banklenders to Sea Launch Limited Partnership against non-payment of scheduled debt service resultingfrom the occurrence of a limited, clearly defined set of non-commercial risks related to theproduction and export of commercial space launch vehicles from Russia and Ukraine.

PART I. SECTOR BACKGROUND

A. Summary

2. The Government of the Russian Federation (GOR) and the Government ofUkraine (GOU) have asked the Bank to provide partial risk guarantees to help mobilizecommercial bank financing for the Sea Launch project, an international joint-venture betweenBoeing Commercial Space Company (USA) with a 40% partnership interest, RSC Energia(Russia) with a 25% partnership interest, Kvaerner Maritime a.s. (Norway) with a 20%partnership interest, and YuzhnoyeI (Ukraine) with a 15% partnership interest. The Bank has beenasked to issue two, essentially identical, but legally separate partial risk guarantees -- one to coverup to $100 million of commercial bank loans that would finance the Sea Launch project'sdevelopment phase investment expenditures in the Russian Federation and one to cover up to $100million of commercial bank loans that would finance the project's development phase investmentexpenditures in Ukraine.

3 . The Sea Launch joint venture would provide a long term market for the productionand sale of commercial space launch vehicles from Russia and Ukraine, a rapidly growing, hightech sector in which both countries have an internationally recognized comparative advantage andwould generate at least $2 billion of incremental exports from Russia and Ukraine over the life ofthe project. The first and second stages of the Sea Launch launch vehicle, known as the Zenit, areproduced in Dnepropetrovsk, Ukraine, by Yuzhnoye. The third stage booster, known as the Block-

In the 1980s, Yuzhnoye was divided into three separate but interdependent organizations: (i) KBYuzhnoye which is responsible for design and engineering; (ii) Yuzhny Mashinostroitelny Zavod, orUMZ Yuzmash, which is the manufacturing arm responsible for production; and (iii) theDnepropetrovsk Scientific Research Institute for Technological Machine Building. Each is a legallyand financially distinct entity. KB Yuzhnoye and UMZ Yuzhmash are the actual participants in SeaLaunch. Yuzhnoye is the Russian name given to the organization during the Soviet era and means"southern" in Russian. Ukraine is changing all place and enterprise names to their equivalent in theUkrainian language. Yuzhnoye is known as Pivdeniye in Ukrainian.

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vehicle, known as the Zenit, are produced in Dnepropetrovsk, Ukraine, by Yuzhnoye. The thirdstage booster, known as the Block-DM, is built in the Kaliningrad district of Moscow by RSCEnergia. The launch vehicles produced in Russia and Ukraine would be sold to Sea Launchpursuant to the terms of a long term supply contract, which would use them to launchcommercial, earth-orbiting satellites from a mobile launch platform located at a remote spot (152degrees west) on the equator in the Pacific Ocean.

4. Sea Launch will utilize a launch platform (LP), an Assembly/Command Ship(ACS), and a smaller satellite tracking ship. A floating semi-submersible drilling platformpreviously used in the North Sea is being refurbished in Norway to serve as the self-propelledLP. Financing for the LP is supported by a loan guarantee from GIEK, the Norwegian exportcredit agency. The ACS is being built in Scotland for Sea Launch, with financing supported by aloan guarantee from the UK's Department of Trade and Industry (DTI). The adapter, whichholds the satellite payload on the rocket's third stage, and the nose cone fairing, which shieldsthe satellite from the atmosphere during launch, will be manufactured in the Seattle, Washingtonarea by the Boeing Company. The satellites themselves will be manufactured and owned byvarious companies who will pay Sea Launch to place them into orbit.

5. A typical launch vehicle production/launch operation is expected to proceed asfollows: (i) Yuzhnoye will manufacture the two stage Zenit booster at its facilities inDnepropetrovsk, Ukraine. The Zenits will be transported by rail to Vyborg, near St. Petersburg;(ii) Energia will manufacture the Block DM booster at its facilities near Moscow. The BlockDM's will be transported by rail to Vyborg; (iii) The components will be transported to the SeaLaunch home port in Long Beach, California on specially designed roll-on, roll-off cargovessels; (iv) The communications satellite will be delivered by the manufacturer/Sea Launchcustomer and prepared for launch at the Long Beach home port; (v) Launch vehicle assemblyand payload integration will be performed by Energia personnel aboard the ACS; (vi) Theintegrated launch vehicle and satellite will be transferred to the LP at the Long Beach base; (vii)The ACS and LP would then transit to a designated launch site in international waters in thePacific Ocean near the equator; (viii) Launch control would take place from the ACS which, forsafety reasons, would be located at a distance from the launch platform.

B. Financing Plan

6. The total development phase capital cost of the Sea Launch project isapproximately $650 million. Financing will consist of approximately (i) $280 million of equity,provided almost exclusively in the form of cash from Boeing and Kvaerner; (ii) $85 millionequivalent of loan guarantees from GIEK of Norway and $76 million equivalent of loanguarantees from DTI of the UK; and (iii) two syndicated commercial bank loans of up to $100million each to fund development phase investment expenditures in Russia and Ukrainerespectively. The IBRD guarantee would pertain only to the two commercial bank loans; itwould not cover the export credit agency or equity tranches.

C. Previous IFI Support for Commercial Space Launch Projects

7. The Sea Launch project would be the third commercial space launch projectsupported by Intemational Financial Institutions. In July 1993, the EBRD approved a $10.3million stand-by credit facility to support the launch of a communications satellite for theLondon-based International Maritime Satellite Organization (INMARSAT) using the Proton

3

Rocket produced by the Krunichev/Salyut enterprise in Russia.2 Under the terms of this project,iNMARSAT would provide $10.3 million of milestone payments to Krunichev over a 33 monthperiod to finance the design, production, transportation, and testing of the Proton rocket used forthe launch. The EBRD stand-by credit would ensure that Krunichev/ Salyut had sufficient fundsto return INMARSAT's milestone payments if a breach of contract by Krunichev/Salyutrendered the launch impossible or delayed the launch by four months. Via this structure, EBRDwould cover a portion of Krunichev/Salyut's commercial performance; political risk would beexplicitly excluded from coverage. The satellite was successfully launched into orbit onSeptember 6, 1996 by the Russian Military Space Forces from the cosmodrome in Baikonur,Kazakhstan.

8. In February 1996, the EBRD approved an ECU 36.1 million RepaymentGuarantee to the Paris-based European Telecommunications Satellite Organization(EUTELSAT).3 Under the termns of this second project, EUTELSAT would provide ECU 36.1million of milestone payments to NPO-PM, a 100% state owned enterprise in Russia.EUTELSAT's milestone payments would finance part of the cost of constructing a satelliteplatform, integrating and fitting of the satellite produced by Alcatel Espace of France with theplatform produced by NPO-PM, attaching the payload and platform to a Proton rocket, andlaunching the satellite. Via its Repayment Guarantee, the EBRD would ensure that NPO-PMwould return Eutelsat's progress payments if specified political risks prevent NPO-PM fromperforming under its supply contract with EUTELSAT. The political risks covered by the EBRDare, for all intents and purposes, identical to the risks that would be covered in the Sea Launchproject. (See Paragraph 27, below.) The EBRD's Repayment Guarantee was counter-guaranteedby the Russian Federation. The launch is tentatively scheduled for early 1999.

D. Role of MIGA, IFC, EBRD, and Export Credit Agencies

9. Although two export credit agencies -- GIEK of Norway and DTI of the UK --are financing Sea Launch's production and purchase of goods and services from Norway and theUK respectively, no IFI or official agency other than the IBRD could support the production andexport of goods and services from Russia and Ukraine. Thus, by supporting the Sea Launchproject, the Bank is acting in the role of lender or guarantor of last resort. Before turning to theBank for political risk coverage, Sea Launch explored the possibility of obtaining financialsupport from U.S. Ex-Im, OPIC, MIGA, and IFC. U.S. Ex-Im was unable to support the projectbecause there are no U.S. exports associated with the project. Similarly, OPIC declined tosupport the project because there is no U.S. equity investment in either Russia or Ukraine.MIGA also declined to support the project because the Sea Launch joint venture is not makingdirect equity investments in either Russia or Ukraine. IFC was unable support the projectbecause Yuzhnoye is still owned entirely by the Government of Ukraine. Finally, despite itsinterest in Sea Launch, EBRD will not participate in the project. This is not due to any policyproblems with the Sea Launch project per se, but rather because the EBRD wanted full sovereigncounter-guarantees -- covering commercial as well as political risks -- for its proposed operatingphase working capital loans to Energia and Yuzhnoye. Due to the difficulty of obtaining these

EBRD, Russian Federation: Design Bureau Salyut, BDS93-81, July 12, 1993.

3 EBRD, Russian Federation: EUTELSAT Satellite Launch, BDS96-20, February 2, 1996.

4

sovereign counter-guarantees, Sea Launch agreed to finance Energia and Yuzhnoye's workingcapital requirements without EBRD support.

E. Market Outlook

10. The commercial space launch business is expected to grow rapidly in the comingyears. In May 1995, the Office of Commercial Space Transportation, US Department ofTransportation, published detailed historical launch data for the geosynchronous orbit (GEO)segment of the commercial space launch market.4 That analysis reported that 94 "competitivelybid" satellites (i.e., satellites for which launch services were open to international competitiveprocurement) were placed in GEO orbit between 1988 and 1994, for an average of 13.4 satelliteslaunched into orbit each year. The commercial launch market in those years was dominated byfirms from three countries: Ariane launched 62 satellites, giving it a 67% market share; USlaunch operators launched 27 satellites, for a 28% market share; and Chinese launch operators,with 5 satellites placed in orbit, captured a 5% share.

11. During the 1995 to 1998 period, the actual number of competitively bid satellitesplaced into GEO orbit each year is expected to double or triple the average of 13.4 registered inthe 1988 to 1994 period. Eighteen competitively bid satellites were placed in GEO orbit in 1995and 25 were placed in orbit during 1996. Based on contracts already signed and satellitescurrently under construction, approximately ̂6 to 40 satellites are expected to be available forcompetitively procured launches in 1997 and 1998. Although the number of satellites requiringcompetitively procured launch services is expected to decline slightly after the turn of thecentury compared with the projected 1997 and 1998 levels, the actual levels are still expected toremain far above the 1988-1994 historical average. Thus, although new entrants will claimmarket share from existing market participants, the absolute growth in the market should allowall commercial launch operators to experience a significant absolute increase in the volume ofbusiness.

12. Despite the rapid projected growth of the market, the Gore-Kuchma Agreement5

will restrain Sea Launch's penetration of the commercial GEO space launch market and pricingflexibility through December 31, 2001. Under the terms of this agreement, Ukraine and SeaLaunch's combined penetration of the commercial GEO space launch market will be restricted toa total of 16 launches through 2001. However, if the average annual number of internationallycompeted GEO commercial launches averages 24 per year during the first three years of theagreement, the combined Ukraine/Sea Launch ceiling on launches will increased to a total of 20launches over the life of the agreement. The agreement also triggers special bilateralconsultations if a bid for launch services from Ukraine/Sea Launch is 15% below a bid, offer, orcontract by a commercial space launch provider from a market economy country. Theagreement stipulates that these provisions are designed to ensure the orderly development of theinternational space launch market and Ukraine's transition to a market economy whilerecognizing the legitimate rights of other countries and space launch providers to enter the

Report of the Commercial Space Transportation Advisory Committee (COMSTAC) Technology andInnovation Working Group, Commercial Spacecraft Mission Model Update, Appendix 1: 1995Mission Model -History, 18 May, 1995.

Agreement Between the Government of the United States of America and the Government of UkraineRegarding International Trade in Commercial Space Launch Services, February 21, 1996.

5

market. Similar agreements with identical numerical targets are in existence between the US andRussia (which would govern the Lockheed-Krunichev joint venture to launch satellites usingProton launch vehicles produced in Russia) and between the US and China.

PART II. BANK STRATEGY AND GUARANTEE

A. Relationship to CAS

13. The CAS for both countries highlights the importance of restoring employment,production, and exports and attracting private investment for commercially viable activities. TheSea Launch project is consistent with these objectives. It will generate just under $2 billion ofincremental exports. It will provide an assured source of long term, full time employment formany of the 20,000 aerospace related workers currently employed in Yuzhnoye and Energia. Itis consistent with the Bank's strategy of allowing the private sector to pick winners and losers, toprovide the working capital needed to restore production in existing production facilities, and tobear the commercial risk of individual transactions. And it allows both governments to fulfilltheir pledge to restore production and employment without jeopardizing the recent macro-stabilization gains.

14. At a time when the Bank is perceived by some as supporting thedeindustrialization of the former Soviet Union and the closure, however well justified, of non-viable coal mines and other production facilities, it is critically important for the Bank todemonstrate that it is willing to support privately financed production in economically viableenterprises. And at a time when the Bank is attempting to be more responsive to client needs, itis important to note that Russia and Ukraine have special needs and a comparative advantagerelated to their unique historical, technological, and industrial heritage. Strategies, sectors, andlending programs that may be appropriate for one group of countries with different historicalexperiences and industrial structures may not be adequate to meet the unique development needsof other countries. Finally, the Sea Launch project has the important benefit of fosteringinternational industrial cooperation, not just with Western partners, but also between Russia andUkraine. Finally, a high-profile transaction like Sea Launch, supported by World Bank partialrisk guarantees, would provide both Russia and Ukraine with an excellent opportunity todemonstrate that they are reliable international business partners.

(1) Russia

15. The Country Assistance Strategy for Russia will be discussed in June, 1997. TheCAS recognizes that, while financial stabilization will make Russia increasingly attractive toforeign investors, the overall environment for investment is still perceived as highly risky, giventhe unstable political and legal framework. In this situation, selective involvement of the IFiscan be a determining factor in bringing the initial investments to closure, which can have animportant demonstration effect for the Government and other investors as well. On this basis,the CAS indicates that the Bank Group, including IFC, MIGA and the Bank, will positionthemselves to move forward more aggressively with an array of policy advice, technicalassistance, and financial instruments (including greater use of the Bank's guarantee instrument)to support high priority investments.

16. The Sea Launch project is considered to be a benchmark project by both theGovernment and the Bank in establishing greater familiarity with the Bank's guarantee

6

instrument and developing procedures so that it can be used more actively in the future. In thisregard, a number of potential projects have been identified that could possibly benefit from theuse of the guarantee instrument (including potential investments in natural resources,manufacturing, and consumer industries), and the Government and the Bank intend to see whichof these projects can move ahead most rapidly, based on the experience of the Sea Launchoperation.

(2) Ukraine

17. Until now, Ukraine has not been as successful as it would like in attractingforeign private investment. This was primarily a consequence of the country's image as a latereformer. It is important that, in parallel with the implementation of far-reaching reformns,Ukraine start building its reputation as a country where good investment and export opportunitiesexist and where the Government will allow foreign participation without undue interference.With this in mind, the Ukraine CAS6 lists the mobilization of foreign private financing as one ofthe Bank Group's principal objectives. The main instruments proposed for this are support forinvestors' conferences and other information dissemination activities, the provision of Bankguarantees, and MIGA insurance. The provision of IBRD partial risk guarantees to support theGovernment's commitment to high priority investment projects is a particularly effectiveinstrument for Ukraine because it directly addresses the Government's need to establish acredible track record of reform and policy stability. The Sea Launch project would be the secondpartial risk guarantee for Ukraine; a Pre-Export Guarantee Facility (P-6954 UA) was approvedby the Executive Directors on March, 18, 1997.

B. Russian and Ukrainian Sponsors

(1) Energia

18. Energia, which is both an equity participant in the Sea Launch LimitedPartnership and a supplier of Block DM third stage boosters to Sea Launch, is one of Russia'slargest aerospace companies. It currently employs roughly 20,000 workers, down from a peak of34,000 in 1988. It is a primary contractor for more than 200 subcontractors, 80% of whom arelocated in the Russian Federation, with the others in Ukraine, Belarus, and Kazakhstan. Since itscreation 50 years ago, Energia has played a leading role in the development of launch vehiclesand the former Soviet Union's manned space flight program.

19. The Energia complex was originally commissioned in 1946 to provide for thedesign and production of satellites and rockets for military7 , communication, and spaceexploration applications. It is now the premier Russian manufacturer of booster rockets for themanned space program. Energia's production contributed to the Mir and Soyuz manned spaceprograms. Energia also produced the first manned spacecraft sent into orbit in 1961 andparticipated in the development of the Soviet Union's moon program. The booster used in themoon program, now improved and renamed the Block DM, is a tested and proven booster thathas been used for more than 130 launches.

6 Report No. 15674 -UA, June 1996

Energia no longer has any links to the Russian military. For details, see Paragraph 38, below.

7

20. Energia registered as a joint stock company in July 1994. According to recentdata, the state currently owns 38% of Energia's charter capital and controls 51% of the votingshares. An additional 27% is held either by company management or is destined to bedistributed to the public via cash and voucher auctions and the remaining 35% is held in the formof preferred shares. The privatization process is expected to be concluded in 1997. In additionto aerospace production, Energia is involved in a wide variety of other manufacturing activitiesincluding the development and manufacturing of household appliances, the development andmanufacturing of prostheses, orthopedic appliances, pressure chambers and other medicalequipment, and the manufacturing of processing equipment for agricultural products. These non-space programs constitute a little over half of its total output.

(2) Yuzhnoye

21. Yuzhnoye, which is both an equity participant in the Sea Launch LimitedPartnership and a supplier of Zenit rockets to Sea Launch, was founded in 1944 to manufactureheavy machinery. In 1951, its focus shifted to the production of rockets. It is now the largestaerospace enterprise in Ukraine. At the height of production, it was the largest ballistic missilefactory in the world, responsible for designing and manufacturing many of the former SovietUnion's ICBMs, including the SS9, SS17, SS18, and SS24.8 Nevertheless, Yuzhnoye has been ahighly diversified company since its creation. Over the years, it has produced various consumergoods and numerous automotive products including trucks, tractors, and cars.

22. In addition to these long standing programs, Yuzhnoye initiated several newconversion programs in the past few years. These include, trolley bus production in 1991, tramproduction in 1995, ecological equipment for cleaning electric power plants, wind power plants,and consumer products including microwaves, telephones and kitchen equipment. At its peak,Yuzhnoye was staffed by 50,000 employees including 6000 in the design bureau. It is currentlya 100% state-owned enterprise with approximately 34,000 employees, of which 19,000 areemployed in aerospace related activities. Virtually all of the recent employment decline hasoccurred in the aerospace sector.

23. Both enterprises have suffered from a sharp decrease in employment andproduction stemming from declines in state orders for their goods and services. For example,Yuzhnoye produced only one Zenit in 1995, although at the height of production in the mid-1980s, it was producing 10 two-stage Zenits and 16 first stages per year. The production declineof Energia's Block DM is not as severe, although still significant. While both companies havesought to diversify into other activities, thousands of high-tech jobs are presently at risk due tothe contraction of the traditional Government market for space and space-related activities. Asprospects for Government funding of such activities are dim, entering the commercial spacelaunch business is of key strategic importance for both companies. A critical mass ofcommercial orders, such as that envisioned by the Sea Launch project, would allow bothcompanies to maintain their production capacity for commercial space work, preserving a largenumber of high-wage, high-skilled jobs at Energia, Yuzhnoye, and their subcontractors.

8 Yuzhnoye no longer has any links to the Ukrainian military. For details, see Paragraph 38, below.

8

C. The Partial Risk Guarantees

24. A schematic overview of the legal structure of the proposed guarantee ispresented in Figure 1. The IBRD would guarantee principal and interest payable under twoseparate commercial bank loans made to Sea Launch Limited Partnership. A 10 year,commercial bank loan of up to $100 million guaranteed by the Bank against specified politicalrisks would be disbursed (subject to standard World Bank auditing and reporting requirements)against eligible development phase investment expenditures in the Russian Federation. Anidentical 10 year, commercial bank loan of up to $100 million would be disbursed (subject tostandard World Bank auditing and reporting requirements) against eligible development phaseinvestment expenditures in Ukraine. The Sea Launch Limited Partnership, which is legallydomiciled in the Cayman Islands9, would be the borrower of record for each IBRD-guaranteedcommercial bank loan and would expect to repay each loan with launch revenue proceeds.However, if launch revenue proceeds are insufficient to service the loans for any reason otherthan an event that is covered by the proposed IBRD-guarantee, the commercial banks wouldhave recourse to Boeing and Kvaemer. Neither GOR, GOU, Energia, nor Yuzhnoye would bearany of the commercial risks associated with either loan.

9 This would be the first time that the Bank would be guaranteeing a commercial bank loan in whichthe borrower is an offshore entity. However, in compliance with the IBRD Articles of Agreement,the beneficiaries of the guarantee would be commercial lenders. In this respect, the project is nodifferent from other completed guarantee operations. In addition, although the borrower would be aCayman Islands joint venture, the financing is structured to ensure that the Bank-guaranteed loansfinance specific development phase expenditures only in Russia and Ukraine.

The Cayman Islands have been selected as a tax neutral location. Each partner receives dividends inthe Cayman Islands. Since the Cayman Islands has no income tax, the partners would not pay taxesto the Cayman Islands. However, each partner would be liable to pay taxes on its share of the profitsto the country in which it is domiciled. Thus, Boeing will pay taxes to the US, Kvaerner to Norway,Energia to Russia, and Yuzhnoye to Ukraine.

The use of a tax efficient offshore entity is relatively common in international project financing. TheBank will enjoy the same rights of audit as it would under any conventional project loan so that theuse of the guaranteed commercial funds can be transparently and independently monitored. Inaddition, the Credit Facility Agreements between Sea Launch and the syndicated commercial lenderscontain a standard set of financial compliance covenants by the borrower; a breach of these wouldtrigger a default under the commercial loan. Crucial also is each Government's acceptance of theCayman Islands location since (a) their nationals are partners in it and the offshore investmentparticipations require formal Central Bank consent in each case and (b) they will be issuing sovereigncounter-guarantees to the Bank underwriting performance of a contract they will have signed with theCayman Islands limited partnership.

9

FIGURE 1GUARANTEE STRUCTURE

j ~~World Bank

Counter ComecilCounterGuarantee Guarantee

/ ~~~~Guarantee Guarantee\z ~~~~~Agreement Agreement

Ukraine l Russian Federation

|Government |Commercial Governmentof Ukraine / Banks of Russia

Loan Loanagreement Agreement

Yuzhnoye EnergiS

Sea EnergiaLaunchCO

(1) Use of Bank-Guaranteed Proceeds

25. The Sea Launch project will use technologically advanced launch vehicles andlaunch systems available only in Russia and Ukraine. In order to use this technology forlaunching rockets from a sea-based platform, the design of the launch vehicles needs to bemodified and specific dedicated infrastructure, including a mission control center at the Energiacenter in Moscow and port facilities at Vyborg near St Petersburg, needs to be financed duringthe project's development phase. Furthermore, (i) launch vehicles have a long production cycle -- currently up to two years per vehicle -- due to the specialized nature of the equipment andprecise tolerances required for each component; (ii) current production levels (e.g., one Zenitproduced in 1995) are below the levels that will have to be maintained to meet the productionvolumes required under the terms of the long term supply contracts with Sea Launch; (iii)Energia and Yuzhnoye need to place orders with, and provide advance payments to,subcontractors at the beginning of the development phase so that these firms can retool factories,rehire workers, and prepare the1r manufacturing facilities to meet the long term, increasedproduction levels required by Sea Launch; and (iv) neither Energia nor Yuzhnoye have sufficientcorporate funds or access to long term commercial bank credit to finance these expenditures ontheir own balance sheet. The IBRD-guaranteed commercial bank loans would finance thesedevelopment phase expenditures in Russia and Ukraine, including, inter alia, the (i) redesign of

10

the launch vehicles10; production and installation in the ACS and LP of launch equipment andlaunch systems; (iii) acquisition of the initial stock of raw materials, supplies, and otherexpenditures that are in the nature of an increase in permanent working capital needed for theexpansion of operations; and (iv) commissioning and operational testing.

(2) Support Agreement (SA)

26. Each Government will issue a separate Support Agreement (SA) to Sea Launchdescribing that government's agreed commitments to the project, including (i) the specific list ofcovered events; (ii) the circumstances in which the Government would be liable to pay claims;(iii) the government's maximum claims payment liability; and (iv) dispute resolution procedures,including provisions for final and binding international arbitration. Each SA will be independentof the other in the sense that Ukraine will not bear any financial responsibility for a coveredevent in Russia and visa versa. They are also independent in the sense that each Government'sfinancial liability pursuant to its SA could never exceed the scheduled debt service payments dueon the commercial bank loan disbursed in its territory; it would never be responsible for any debtservice payments on the loan disbursed in the other country.

27. Covered Events. Each SA establishes a clear distinction between thecommercial and technical performance of Sea Launch, Yuzhnoye, Energia, and theirsubcontractors, which would not be covered by the SA and related Bank guarantee, andspecified forms of Government interference with the production and export of launch vehiclesand components from Russia and Ukraine, which would be the only events covered by the SA.The covered events are limited to: (i) deprivation by the Government of property, resources, orservices required by a local enterprise for the performance of its contractual obligations to SeaLaunch; (ii) the introduction of limitations on transfers of foreign exchange into or out of thecountry; (iii) the imposition of new or increased taxes, duties or fees; (iv) revocation, suspensionof, or failure to renew licenses or permits; and (v) war and civil disturbance.

28. Any event that is not explicitly covered is automatically excluded. Thus, the SAand related IBRD guarantee would not cover such risks as the delivery of faulty launch vehicles,late deliveries caused by technical production problems in the factories, launch failures, orinsufficient demand for commercial launch services. In addition, the SA and correspondingIBRD guarantee do not carve out any special commercial privileges, legal benefits, or taxadvantages for Sea Launch or any of its local partners and suppliers. All companies participatingin the Sea Launch project will be subject to the same legal, tax and regulatory framework as anyother foreign or domestic enterprise doing business in that country. For example, under theterms of their respective SAs, each government could impose new taxes and fees on Sea Launch,provided that they are generally applicable and do not have the practical effect of being appliedsolely or primarily on Sea Launch activities. Finally, none of the covered events are unique tocommercial space operations or launch vehicle production and export. They are generic eventsrelated to the stability of government policies affecting the business climate and policy regime ineach country.

10Although the Zenit and Block DM that will be utilized by Sea Launch are standard design, somestructural modifications are needed to enable the Zenit to be launched from a sea based launchplatform and to fly with the third stage booster produced by Energia.

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29. Government Liability. The Government issuing the SA would be required topay damages to Sea Launch if (i) a covered event occurs in its territory and, (ii) as a direct resultof the occurrence of that covered event, Sea Launch is unable to pay the scheduled debt servicepayments on the IBRD-guaranteed commercial bank loan disbursed to finance expenditures inthat country. Thus, the fact that a covered event may have occurred and damaged Sea Launch is,by itself, not sufficient to trigger any Government liability.

30. Maximum Liability. Each Government's maximum liability for damagespursuant to its SA would equal the actual debt service shortfall (principal and/or interest) on theIBRD-guaranteed commercial bank loan disbursed in that country which Sea Launch can proveis the direct result of the occurrence of a covered event in that country. It would not equal theactual damages suffered by Sea Launch, including lost profits or dividends payable to any of thepartners, the cost of liquidated damages payable by Sea Launch for failure to achieve a launchdate because of that government's interference, the lost revenue resulting from that government'sinterference, or the debt service due on the IBRD-guaranteed loan disbursed in the othercountry. As a result, the value of the SA is not directly linked to the value of launch vehicles orlost revenues but to the impact of a covered event on Sea Launch's ability to meet its scheduleddebt service payments on the loan disbursed in the country which triggered the covered event.

31. Dispute Resolution. Before any payment would be due under the SA, thegovernment that is alleged to have caused the covered event would have an opportunity tocorrect the problem and avoid any liability. If the problem is not cured, Sea Launch could notcollect damages unless it proved in arbitration that (i) a covered event occurred and (ii) "but for"the occurrence of the covered event, Sea Launch would have been able to service the IBRD-guaranteed commercial bank loan disbursed in the country that caused the covered event. SeaLaunch must sustain this burden of proof during an amicable dispute resolution process or, if thatprocedure fails to yield a satisfactory resolution, via international arbitration under UNCITRALrules in Stockhom. The IBRD would not be a party either to the amicable dispute resolutionprocess or any international arbitration proceedings although it would have the right to observethe arbitration.

(3) Guarantee Agreement

32. The Bank would enter into two identical Guarantee Agreements with thecommercial bank lenders funding the Sea Launch project's development phase expenditures --one for the loan proceeds disbursed in Russia and another for the loan proceeds disbursed inUkraine. Each Guarantee Agreement would support the corresponding Government's claimpayment obligations specified in its SA with Sea Launch. Pursuant to the Guarantee Agreement,the commercial banks could issue a Demand Notice to the World Bank only if (i) Sea Launchhad proved by binding arbitration award or settlement agreement that it is entitled to paymentpursuant to its SA with that Government and (ii) that Government failed to pay the specified andascertained damages within the specified time period. Since the Government's paymentobligation would never exceed the scheduled debt service that Sea Launch was unable to pay onthe IBRD-guaranteed loan as a direct result of the occurrence of a covered event, the Bank'sliability under its Guarantee Agreement would also never exceed the debt service payments onthat loan. Pending a final arbitral award or binding settlement in Sea Launch's favor, thecommercial banks have required that (subject to certain limited standstill periods in respect ofprincipal payments) Boeing and Kvaerner provide temporary shortfall funding to Sea Launch tomeet the relevant debt service payment. This arrangement, embodied in a separate Capital

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Contribution and Loan Agreement (CCLA) between the commercial lenders and Boeing andKvaerner, addresses the issue of a time lapse between a claim by Sea Launch and adetermination of fault under the SA. It does not affect the purpose of the Bank's Guarantees orits obligations thereunder. Following a valid demand on the Guarantee, the Bank would makepayment to the commercial lenders of the amount awarded to Sea Launch. In the event thatshortfall funding had been provided under the CCLA, the commercial banks would beresponsible for ensuring that the shortfall funds are remitted to Boeing and Kvaerner.

33. Guarantee Fee. Beginning with the date of effectiveness of the Guarantee, aGuarantee fee of 25bp (0.25%) per annum will be paid semi-annually in advance to the Bank bySea Launch Limited Partnership, or through the lenders as the case may be. Concurrently, anadditional fee of at least 75bp (0.75%) per annum will be paid by Sea Launch LimitedPartnership or the lenders to the Government of Russia and to the Government of Ukraine,respectively. Failure by Sea Launch or the lenders to make timely guarantee fee payments to theBank or to either Government would result in a loss of coverage. The fee will be charged againstthe aggregate outstanding principal amount of the debt at the beginning of each interest period,plus interest due at the end of such interest period as determined by the lenders.

34. Syndicated Lenders. Chase Manhattan Bank, N.A. of the U.S. was awarded themandate by Sea Launch to serve as Arranger Bank and to raise the commercial financing for theproject. Chase Manhattan has fully underwritten the Bank-guaranteed loans, as well as the GIEKand DTI guaranteed loans. Other commercial lenders participating in the commercial bank loansyndicate are Bank of New York, Bank of Nova Scotia, Bank of Tokyo, Banque Nationale deParis, Canadian Imperial Bank of Commerce, Dai Ichi Kangyo Bank, Den Norske, DresdnerBank, Industrial Bank of Japan, Long Term Credit Bank, Mitsubishi Trust Bank, Sea First, andSumitomo Bank.

(4) Indemnity Agreement

35. In compliance with its Articles of Agreement, the Bank would also enter intoseparate Indemnity Agreements with the Russian Federation and Ukraine. Under the terms ofthese Indemnity Agreements, the Russian Federation or Ukraine, as the case may be, wouldindemnify the Bank "on demand or as the Bank otherwise directs" for any amount paid by theBank under the Guarantee. Pursuant to the Indemnity Agreements, Russia and Ukraine wouldcovenant not to cause or permit any Sea Launch project assets within their territory to bemanufactured, converted, used or stored (i) for any military, warfare, espionage, or paramilitarypurposes (See paragraphs 38-42 for a description of additional military usage safeguards that willpertain to the project); or (ii) in breach of applicable Russian or Ukrainian environmental laws.In the event of a failure by Russia or Ukraine to reimburse the Bank pursuant to the terms of theIndemnity Agreement, the Bank would have the right to exercise subrogation rights against SeaLaunch and to offer to buy out the commercial lenders as required by policy and the Articles.

(5) Project Agreement

36. Under a direct agreement with the Bank, Sea Launch will undertake to manageand operate the project at all times in accordance with appropriate legal, commercial, andtechnical standards. The Bank will have the right to (i) inspect all project activities, includingthose activities that are not directly supported by the Bank guarantee, (ii) receive regular auditedfinancial accounts from Sea Launch, and (iii) withdraw the Guarantee if Sea Launch fails to

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comply with its environmental and non-military usage commitments. Sea Launch would also berequired to obtain launch licenses only from USG (see paragraph 43, below) and covenants toadhere to all applicable international laws.

37. This financial and legal structure has the following advantages for Russia,Ukraine, and the Bank: (i) the maximum liability of each Government and the Bank would equalthe outstanding principal plus accrued and unpaid scheduled interest on the IBRD-guaranteedcommercial bank loan disbursed in its territory; (ii) the commercial bank loan used to financedevelopment phase investment expenditures in Russia would be guaranteed only against coveredevents in Russia. Similarly, the commercial bank loan used to finance development phaseinvestment expenditures in Ukraine would be guaranteed only against covered events in Ukraine.As a result, GOR and GOU would have financial responsibility only for covered events in theirrespective territories and neither government would bear the commercial risks of either loan; (iii)although the occurrence of a covered event in one country might prevent Sea Launch fromservicing both commercial bank loans, the commercial banks would have recourse to the IBRDGuarantee only for scheduled debt service payments that Sea Launch was unable to pay on theloan disbursed in the country that triggered the covered event. The commercial banks wouldseek repayment from Boeing and Kvaerner pursuant to the CCLA for debt service payments dueon the loan disbursed in the other country; and (iv) since Sea Launch would serve as theborrower and remain responsible for repaying both loans (absent the occurrence of a coveredevent), the IBRD-guaranteed commercial bank loans would not increase Yuzhnoye or Energia'sdebt, nor would they increase Russia or Ukraine's government-guaranteed external debt.

D. Military Usage Safeguards

38. Neither Energia nor Yuzhnoye has current links to the military.

• Energia and the Block DM. Energia has no known existing links to the military andis not subject to regulation by the Russian Ministry of Defense. Energia's maincorporate activities relate to Russia's manned space program and include suchactivities as operating the Mir space station, producing a docking module for theU.S. Shuttle, working with the U.S. on various Mir-NASA programs, coordinatingthe missions of foreign cosmonauts to the MIR space station, integrating foreignpayloads, and organizing the overall activity on the station. Energia is also theprime contractor for Russian involvement in the International Space Stationprogram and has several joint projects underway with the European Space Agency.The Block DM booster that would be used by Sea Launch is a modified version ofthe booster that was originally designed for the Soviet moon program and was neverused as an ICBM.

* Yuzhnoye and the Zenit. Until recently, Yuzhnoye was one of the principalmanufacturers of ICBM's for the Soviet Rocket Command. However, Yuzhnoyeceased all military production more than three years ago. In addition, pursuant toits obligations under the START I treaty, Ukraine has relinquished all nuclearweapons and is committed to destroying all missile silos on its territory by 2001.While Sea Launch will contribute to the preservation of rocket making capacity atYuzhnoye, Ukraine and Yuzhnoye have no domestic launch capacity and, therefore,no ability to use these components for military purposes. The Zenit rocket is one ofthe very few rockets currently used for commercial space launch that is not a

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modified version of a ballistic missile. The Zenit booster that would be used by SeaLaunch was initially designed and developed to launch replacement communicationand surveillance satellites following U.S. attacks on USSR communicationsatellites. Zenits produced by Yuzhnoye in recent years were used to launchmeteorological and communications satellites and for various international spacecooperation programs related to ecological monitoring, astronomical research, andproduction of "super clean" materials. Yuzhnoye's only known contract with theUkrainian Ministry of Defense is to dismantle Ukraine's inherited stock of Sovietera ICBMs, in compliance with Ukraine's obligations under the START I Treaty.

39. All launches conducted by Sea Launch will be under civilian control and allsatellites placed in orbit by Sea Launch will be used for civilian purposes such as cable TVtransmissions, cellular telephones and paging, data transmission, etc. None of the satellites willbe used for military purposes. The proposed IBRD guarantees would lapse immediately if SeaLaunch permitted the project or any project-related assets to be used for any military or non bonafides commercial purpose.

40. Missile Technology Control Regime (MTCR). Sea Launch activities will beembedded in a variety of multilateral and bilateral arrangements designed to ensure that exportsof launch vehicles and launch systems are not diverted for military purposes. The MTCR is theprincipal international agreement controlling trade in missiles and related equipment. Theregime was originally designed to stem the spread of nuclear capable missiles but was expandedin January 1993 to cover missile systems capable of delivering other weapons of massdestruction including chemical and biological weapons. The regime is not designed or intendedto "impede national space programs" or international cooperation in space launch activitiesprovided that such programs do not contribute to the production of delivery systems for weaponsof mass destruction.

41. In compliance with their MTCR obligations, Russia and Ukraine control andlicense the export of rockets, rocket technology, and launch systems. As part of this controlfunction, and in fulfillment of their international obligations, Russian and Ukrainian governmentinspectors will accompany the launch vehicles from the factory gate to the launch platform toensure that they are not modified for military purposes or diverted to military use. Under theterms of each government's SA with Sea Launch, Russia or Ukraine could block the export oflaunch vehicles or components without incurring any liability to Sea Launch or triggeringpayments under the IBRD Guarantee provided that this action is required by the MTCR or otherapplicable international agreements. In conjunction with the launch license that is expected to beissued by the U.S. Department of Transportation and in compliance with the U.S. Government'sMTCR obligations, U.S. Government inspectors will also monitor the use of the rockets as wellas individual launch operations to ensure that Sea Launch technology is not diverted to militaryuse.

42. As a precondition for permitting U.S. companies to launch satellites with foreignlaunch vehicles, the U.S. requires the foreign country in which the launch vehicle or componentsare produced to be either a member or an "adherent" of the MTCR. The primary differencebetween an MTCR adherent and an MTCR member is that members attend MTCR meetings andare involved in revising and updating the regime's guidelines and technical annexes defining thegoods and services covered by the MTCR. Both adherents and members are committed to abideby the same set of missile technology export control regulations. In order to be accepted as an

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adherent, a nation must promise to adopt laws and policies to regulate the export of MTCR-controlled technologies in compliance with approved MTCR procedures. Becoming an adherentis the first step towards being invited by the other members to become a full member. Russia,the U.S., Norway, the UK and 25 other nations are MTCR members. The Russian Federationbecame a formal adherent in November, 1993 and a full MTCR member in August, 1995.Ukraine is currently an MTCR adherent.l'

E. Environmental Analysis

43. Environmental Assessment Category: For purposes of World Bankenvironmental screening procedures pursuant to OD 4.01, Sea Launch activities have beendivided into two analytic components:

* The World Bank partial risk guarantees support financing for the launch vehicleproduction activities undertaken by Energia in Russia and Yuzhnoye in Ukraine.These production activities must commence prior to the first launch. They havebeen identified as Component A by World Bank and given a Category Benvironmental designation, consistent with environmental screening procedures usedfor Bank projects involving production from existing factories. Environmentalissues associated with this component were addressed in environmental audits whichreported that (i) Energia and Yuzhnoye have proper environmental licenses andpermits to conduct these activities and (ii) the Sea Launch related productionactivities supported by the World Bank guarantees comply with nationalenvironmental laws and regulations.

* The ocean transport of Sea Launch assets, their assembly and deployment at thelaunch site, and the launch operation itself have been identified as Component B bythe World Bank and given a Category A designation for purposes of the Bank'senvironmental screening. Although the World Bank is not directly supporting anyof these activities, as a condition for issuing its guarantee the Bank has required thatthey be subject to detailed environmental scrutiny and that they comply with allapplicable national and international environmental rules, regulations, and laws. Tosatisfy this requirement and to identify the relevant scope of issues inherent in theseactivities, Sea Launch prepared an Environmental Management Plan (EMP) forinternal review by the World Bank. In addition, because of the Boeing participationin the Sea Launch Limited Partnership, the U.S. Government (specifically the U.S.Department of Transportation/ Federal Aviation Administration, or DOT/FAA),must issue a launch license before Sea Launch can commence launch operations.USG has initiated its detailed environmental review and assessment, which will becompleted prior to the issuance of the license. During this process and followingthe issuance of the launch license, USG officials have responsibility for monitoringcompliance with the environmental safeguards identified in the license and canwithdraw the license or refuse to issue licenses for subsequent launches if

On July 27, 1995, the Ukraine Cabinet of Ministers approved the legislation needed to become anadherent. See, Decree No. 563 "On the Procedure for Controls on the Export, Import and Transit ofItems of Missile Technology, as Well as Equipment, Materials and Technologies That are Used in theCreation of Missile Weaponry."

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environmental compliance is found deficient. A World Bank review of USGenvironmental procedures and standards for issuing a launch license concluded thatthey meet or exceed all applicable international law and treaty obligations and areconsistent with World Bank environmental requirements. As a further safeguard,the World Bank has the right to revoke its guarantee if Sea Launch fails to obtain aUSG launch license or if the USG determines that Sea Launch has failed to complywith the provisions of the launch license.

44. Component B, as defined by World Bank, consists primarily of the oceantransport of the launch vehicles, LP, and ACS and the launch of the rocket and satellite from alocation on the equator in the Pacific Ocean. Key environmental issues associated with theseactivities are as follows:

* The fuel, kerosene, is the same fuel used by commercial airliners. When burnedwith oxygen, primary emissions are water and carbon dioxide. Since kerosenedisperses rapidly, there are no long term impacts associated with an accidentaldischarge into an open ocean environment. The fuel is safer to store, handle, and usethan solid fuels typically used in other space launch vehicles.

* The proposed launch site is in international waters in a remote portion of the PacificOcean that is relatively free of life forms and isolated from migratory mammal,reptile, and bird routes. As currently designed, the launch operation should be ableto comply with relevant international treaties and agreements.

e All vessels will comply with international standards established for their respectivecargoes.

F. International Legal Issues

45. A number of rules and standards imposed by international law will be applicableto Sea Launch and must be complied with to ensure that Sea Launch activities are conducted inaccordance with international law. On their face, none of the project's operations infringe anygeneral principles or rules of international law. The applicable international law issues concern(i) the transportation of the rockets to and from the launch site; (ii) the launch itself, and (iii) theflight and landing of the rocket and satellite.

46. Transportation. After manufacturing and testing in Russia and Ukraine, thelaunch vehicle components will be shipped through the Panama Canal to Long Beach, Californiaand then to the launch site on the equator in the Pacific Ocean. Until the rocket is fullyassembled and fueled, the only international law issues that arise are those that would apply toany international cargo shipment. The vessels should comply with the best internationaloperational standards, including compliance with the MARPOL 1973/1978 regime regardingship-generated discharge of waste.

47. Launch. The launch will be conducted from a floating launch platform that willbe partially submerged to provide stability but which will not be in contact with the sea bed. Theapplicable law, therefore, is the public international law of the sea, codified by thecomprehensive United Nations Convention on the Law of the Sea, signed in Montego Bay inDecember 1982 (LOSC). The general regime of the high seas is set out in Part VIII of the LOSC

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and is based upon the general principle of freedom of use of the high seas. The approach taken isthat any specific activity not expressly prohibited (rocket launches, in this instance), can primafacie be considered as permissible subject to general proscriptions such as the reservation of thehigh seas for peaceful purposes. Maneuvering and stabilizing a floating platform is within therange of reasonable commercial uses which the convention envisages.

48. The LOSC provisions regarding the marine environment impose obligations toavoid environmental damage during launch activities. However, an environmental reviewdemonstrates that nothing in Sea Launch launch operations would be intrinsically harmful to themarine environment. Another issue which may arise is the need to establish a safety area aroundthe platform at least at the time of the launch operations. Although this would be on a temporarybasis, this would involve a restriction of access to all users of the high seas and would need to beconsistent with the LOSC provisions dealing with the establishment of safety zones. The LOSCindicates that safety zones should not impede the lawful access of shipping to particular maritimezones or navigation along international sea lanes. In addition, there should be no intent toexercise sovereignty in that zone and the enclosed zone should be the smallest consistent withthe safety of other ocean users for the shortest feasible length of time. The remoteness of thechosen launch site and the absence of any fixed anchorage are both compatible with LOSCprinciples.

49. Launch. Flight, and Landing of Rockets and Satellites. International law issueswith respect to this aspect of the Sea Launch project relate to (i) the registration of satellites,pursuant to the 1974 Convention on Registration of Objects Launched into Outer Space.Satellites launched by Sea Launch will be registered in the U.S., which will take exclusiveresponsibility once a license has been issued by the Department of Transportation; (ii)requirements of supervision and control pursuant to the 1967 Treaty on Principles Governing theActivities of States in the Exploration and Use of Outer Space, including the Moon and otherCelestial Bodies. The relevant provision makes it clear that the "launching state" must assumeresponsibility for authorization and supervision of the space object whether conducted by its owngovernment agencies or other entities; and (iii) issues of financial responsibility imposed by the1967 Treaty as supplemented by the 1972 Convention on International Liability for Damagecaused by Space Objects. The 1972 Convention imposes absolute liability on the launch state tocompensate for any damage caused by its space objects.

G. Economic Analysis

50. Although Sea Launch will not receive any direct financial support from eitherGOR or GOU, an economic analysis was performed in order to demonstrate that the projectwould generate positive value in Russia and Ukraine and to ensure that the project's financialviability is not based on government subsidies to Energia, Yuzhnoye, or Sea Launch. Thisanalysis was done by evaluating (i) the direct economic benefits flowing to Energia, Yuzhnoyeand their subcontractors from producing and selling launch vehicles to Sea Launch and receivingdividends from their participation in Sea Launch Limited Partnership; (ii) the costs incurred inRussia and Ukraine, including the value of Energia's and Yuzhnoye's capital contribution to SeaLaunch, the economic cost of producing launch vehicles, and each Government's opportunitycost of providing partial risk guarantees; and (iii) a sensitivity analysis to evaluate risks anduncertainties.

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51. Using the same base case assumptions found in the Sea Launch business plan,the IERR for the project is estimated at just above 30% for each country. To arrive at this figure,the reservation requirement for the political risk guarantee was assumed to be 40%. Theprojected benefits from the production of launch vehicles and participation in the Sea Launch JVwas based on the actual contract prices for the sale of launch vehicles and dividend flowsprojected in the base case financial model. The financial model, in turn, is based on the actualnumber of launches that can be conducted pursuant to the terms of the Gore-Kuchma Agreement(see Paragraph 12, above) and actual contract prices for launch vehicle components.

52. Sensitivity Analysis. The scenario supporting this IERR projection is robustwhen subjected to a variety of sensitivity tests. For example, a 100% cost overrun in Russia andUkraine during the development phase would still leave the IERR at just below 20% for eachcountry; a two year delay of operations -- and thus of expected revenues -- would yield the sameresult. Finally, a scenario in which only half the expected launches would be sold would stillleave the ERR above 12% for both countries. Thus, even under adverse conditions, the IERRremains acceptable:

IERR (%)Russia Ukraine

Base Case 31.4 30.8100% cost overrun in development phase 19.0 19.4Only 50% of projected launches performed 12.5 13.5Two year delay, revenues lost forever 19.8 19.7

53. To support this economic analysis, an independent assessment was done of theRussian and Ukrainian enterprises involved in Sea Launch. The main objective of this exercise,which was conducted by independent aerospace consultants at the request of the World Bank,was to assess the extent to which the prices charged by the Russian and Ukrainian companiesreflect economic costs, rather than Government subsidies. Since the consultants had alreadycompiled detailed cost estimates for Energia and Yuzhnoye, the additional analysis focused onthe most important subcontractor, Energomash, the manufacturer of the engine for the first stageof the Zenit rocket. Based on physical inputs of labor, capital and raw materials, the analysisdemonstrates that the economic cost of production for major components is less than the pricepaid for that component.

54. Before entering into long term supply contracts, the Sea Launch western partnersalso carried out their due diligence of the viability of the main Russian and Ukrainiansubcontractors that would be supplying critical components to Energia and Yuzhnoye. Thisanalysis focused mainly on assessing (i) the likelihood that the subcontractor would stay inbusiness for the life of the project; and (ii) the efficiency of the production process and thequality of the component to be delivered to Sea Launch. The first issue was assessed byevaluating the amount of on-going business at each company. Extra credence was given tobusiness generated by commercial contracts on the grounds that over a ten year period,Government contracts were less likely to be a reliable source of revenue compared with privatecontracts. In addition, a subcontractor's ability to obtain private sector orders was seen as proofof that enterprise's underlying competitiveness. The analysis indicates that most subcontractorssupplying goods and services to Energia and Yuzhnoye have overcome their previous reliance onGovernment orders and were able to show healthy order books from commercial customers,

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especially in the oil and gas sectors. For the small number of subcontractors who are still largelyreliant on Govemment orders (and who have the emptiest order books), the Sea Launch venturewill provided a much needed altemative and stable source of revenue.

55. With respect to the efficiency of the production process, the main conclusions ofthe Sea Launch assessment are as follows:

* most subcontractors use somewhat older, more labor intensive technologies thanproducers of comparable parts in the West;

* production facilities were, without exception, very well maintained and operational,although in some cases utilized below full capacity;

* the final product of all subcontractors was described as "very competitive;"

* the prices of the parts are generally lower than those for comparable parts in theWest. However, this price difference can be explained by a combination oftechnological and labor cost differences (see below);

* the raw materials are generally less expensive than those utilized in the West;

* the raw material requirements are otherwise similar to what would typically befound in the West.

56. Based on the above, the production process can be deemed to be both efficientand economical. Any difference with comparable producers in the West can be explained as arational economic response to the lower labor cost in the FSU. Price differences remain withinthe boundaries of what can be explained by both the technological difference and the direct laborcost differential. The conclusion of industry experts is that the final product meets or exceedsWestern quality standards in all cases, and its production generates positive value added inRussia and Ukraine.

57. In addition to these quantifiable economic benefits, the project would help topreserve the existing knowledge base and production capacity for civilian launch vehicleproduction. Furthermore, by increasing the effective demand for Zenits and Block DM's, the SeaLaunch project will generate substantial direct and indirect employment in both Russia andUkraine, including the creation or preservation of highly skilled, high wage jobs at Energia,Yuzhnoye, and their primary subcontractors.

* Energia. The direct employment impact in Energia and its primary subcontractorsis estimated to be at least 10,000 design, engineering, and manufacturing jobs. Bycomparison, between 1990 and 1994, Energia's employment declined from 13,000to 10,000 in the design bureau and from 20,000 to 10,000 in the manufacturingdivision. Almost all of the decline occurred in the aerospace production sector.

* Yuzhnoye. The Sea Launch project will also be essential for maintaining a criticalmass of rocket production employment at Yuzhnoye, including 12,000 productionjobs and 500 design bureau jobs. According to Yuzhnoye, 12,000 employees is thebare minimum of skilled technicians, machinists, testing specialists, etc. that must

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be retained to produce even one rocket. Hence, Yuzhnoye is keeping theseemployees on the payroll in the hope that the Sea Launch project will materialize inthe near future. Once employment drops below the 12,000 level, the critical massof skills will be lost and Yuzhnoye will no longer be able to produce rockets. Manyof the employees are currently "earning their keep" producing ice cream makingmachines and beer vats. Many others are working only one or two hours per weekand getting paid correspondingly.

H. Auditing and Reporting Requirements

58. Pursuant to the Project Agreement between Sea Launch and the Bank, SeaLaunch would be responsible for maintaining its accounts and financial statements in accordancewith sound accounting practices and for having those accounts and statements audited inaccordance with appropriate auditing principles by independent auditors. At the end of eachfiscal year, Sea Launch would be required to furnish the Bank with certified copies of the auditedreports. The audited reports would be prepared in sufficient detail to enable the Bank toascertain that all disbursements of the IBRD-guaranteed loans were used to finance eligibleexpenditures in Russia or Ukraine. The guarantee would not cover any disbursements that weredeemed to have financed ineligible expenditures. Pursuant to the Project Agreement, SeaLaunch would also be required to provide the Bank with all relevant financial informationprovided to the commercial lenders and with copies of all correspondence and documentationwith each government concerning the alleged occurrence of a covered event. In order to monitorthe progress of the project and implement the Support Agreement, each government willdesignate one agency to issue the Support Agreement on its behalf, to receive communicationsfrom Sea Launch, and to represent it in arbitration.

1. Benefits and Risks

59. Benefits. The project would help to preserve high-tech production capacity in asector in which both Russia and Ukraine have an internationally recognized comparativeadvantage. Under the terms of the Gore-Chernomyrdin agreement, Energia would be permittedto produce only 20 Block DM's through the year 2000 to launch commercial communicationssatellites. By teaming with Yuzhnoye under the auspices of the Sea Launch project, Energia'smarket for Block DM boosters would potentially double. In the late 1980s, Yuzhnoye producedas many as 10 two stage Zenits and 16 first stages per year; production has currently fallen toone or two Zenits per year. Sea Launch would provide a long term firm market for substantialZenit production. By increasing the effective demand for Zenits and Block DM's, the SeaLaunch project would generate close to $2 billion of incremental exports for Russia and Ukraine,thereby helping to maintain 20,000 - 30,000 high skill, high wage jobs in Russia and Ukraine. Inaddition to these direct benefits, the project would generate numerous indirect catalytic benefitsfor Ukraine and Russia. These would include such benefits as (i) introducing local high-techfirms to the international market place, (ii) teaching local firms how to structure internationaljoint ventures by exposing them to international business and financial practices, (iii)demonstrating that Ukraine and Russia are reliable places in which to do business, (iv)promoting cooperative ventures between Russian and Ukrainian firms, and (v) promoting thedevelopment of a high-tech sector in which both Energia and Yuzhnoye have a clearcomparative advantage. Finally, the experience gained by processing the Sea Launch project inRussia and Ukraine should facilitate the preparation of additional guarantee operations for otherhigh priority investment projects in both countries.

21

60. The catalytic impact generated by Bank participation is substantial. Boeing andKvaerner had indicated that they would not finance the project unless the proposed IBRDguarantee were available to stabilize the policy environment and deter both governments fromactions that would prevent the timely production and export of launch vehicles and components.Their decision reflects the perceived risks of attempting to do business concurrently in Russiaand Ukraine as well as the perceived "halo" or "deterrent" value of IBRD guarantees backed bysovereign counter-guarantees. Boeing and Kvaerner's financial support is critical for the project.Although they have a 60% share of the equity (Energia and Yuzhnoye have the remainder),Boeing and Kvaemer are funding 100% of the cash equity (approximately $280 million) andjointly and severally guaranteeing $200 million of commercial bank loans against all risks notcovered by the IBRD guarantee. In view of Boeing and Kvaerner's stated decision not to financewith the project in the absence of a Bank guarantee, the Bank guarantee is critical for mobilizingthe $650 million of development phase financing which, in turn, will generate approximately $2billion of incremental exports from Energia and Yuzhnoye during the life of the project.

61. Risks. The main risks that could lead to the failure of this project arecommercial, technological, and policy related. (i) Commercial risks relate both to theperformance of Energia and Yuzhnoye in producing a quality product on time, the success of theactual launches, and the size of the market for launching commercial communications satellites.No commercial risks would be covered by the proposed World Bank guarantee, nor by the GORor the GOU. (ii) Technology risks relate to the fact that launching satellites from a mobilefloating launch platform is a new concept. However, these risks are mitigated by the engineeringexpertise of the sponsors. Boeing is one of the world's leading aerospace firms and Kvaerner isone of the world's leading shipbuilders with extensive experience in developing offshoreplatforms. Yuzhnoye and Energia are the leading rocket design and manufacturing firms in theFormer Soviet Union, with extensive experience in launching rockets, managing mission controloperations, and placing payloads into precise orbits. According to the sponsors, "The technicalissues associated with the launch of a Zenit rocket from a semisubmersible platform are judgedto be low to moderate in terms of risk. There are no issues which are considered 'technically notfeasible.'... Elements of risk have been reduced through the conceptual design work to apotentially low-risk level." (iii) Policy risks refer to Government interference with theproduction and/or export of launch vehicles. This risk is covered by the proposed Guarantees.However, the strong support of the Governments, evidenced by their willingness to issue the SAand a counter-guarantee to the proposed World Bank guarantee, mitigates this risk. In addition,the incentives of all partners in the project are clearly to keep the project going, maintainingemployment and production. This increases the probability of a problem being resolved, ratherthan the Guarantee being called.

J. Agreed Actions

62. For the guarantees to become effective, all loan documents for the commercialfinancing must be signed and all conditions precedent thereunder met. In addition, each SupportAgreement, Indemnity Agreement and the Project Agreement must be effective.

K. Consents of Relevant Countries

63. In accordance with Article IV, section l(b) of the Articles of Agreement, theconsents of all the relevant governments have been obtained.

22

L. Recommendation

64. I am satisfied that the proposed partial risk guarantees would comply with theArticles of Agreement of the Bank and I recommend that the Executive Directors authorize theBank to issue the guarantees substantially in accordance with the terms and conditions describedin this Memorandum and schedules hereto. As of the date of this Memorandum, drafts of theBank's Guarantee Agreement, Project Agreement, and Indemnity Agreement have beendistributed to and discussed with the lenders, Sea Launch Limited Partnership, and GOR andGOU respectively and all major items are agreed. The final terms and conditions of theguarantees shall be as determined by the Vice President, Europe Central Asia, and the ExecutiveDirectors will be informed when the guarantees are effective. If there is any substantial changein the terms and conditions of the Guarantee Agreements, Indemnity Agreements, or the ProjectAgreement from those described in this Memorandum and schedules hereto, the approval of theExecutive Directors will be sought.

James D. WolfensohnPresident

by Caio Koch-Weser

Washington, D.C.April 24, 1997Attachments

Schedule APage 1 of 6

SUMMARY OF TERMS AND CONDITIONS OFTHE SEA LAUNCH SYNDICATED LOANS AND PARTIAL RISK GUARANTEES

LOANPROVISIONS:Borrower: Sea Launch Limited Partnership ("Sea Launch" or "the Borrower") a

private limited partnership established pursuant to the Exempt LimitedPartnership Law 1991 and the laws of the Cayman Islands.

Partial Risk International Bank for Reconstruction and Development (the "WorldGuarantor: Bank" or the "Guarantor") under the terms of the World Bank Partial

Risk Guarantees (the "Guarantees") detailed below.

Facility Amount: Two identical loans (the "Loans") of up to US$100,000,000 each willbe made to Sea Launch. The proceeds of one loan will be applied tofinance project expenditure in Ukraine and the proceeds of the other forthe same purpose in the Russian Federation.

Currency: US Dollars for both Loans.

Arranger: The Chase Manhattan Bank

Lenders: A syndicate of international banks ("Lenders").

Administrative The Chase Manhattan BankAgent:

Use of Proceeds: Disbursements under the Loans will be for eligible expenditures for theProject to finance goods and services supplied by Russian andUkrainian contractors to Sea Launch, including design and productioncosts and capitalized interest. Sea Launch will provide the World Bankwith periodic reports on the use of the funds for eligible expenditures,including information accompanying notice of drawdowns and yearlyaudited financial statements.

Availability Periods: Subject to satisfaction of all conditions precedent, 3 years from date ofsignature.

Drawdown: Drawdowns on both Loans will be on the third business day after thecommencement of the Availability Period and thereafter as notified bythe Borrower.

Term: 10 years.

Repayment: Both Loans will be repayable in two equal installments on the ninthanniversary of the first drawdown (or December 31, 2005 if earlier)

Schedule APage 2 of 6

and its tenth anniversary (or December 31, 2006 if earlier).

Interest Rate: At Borrower's option (i) six-month London Interbank Offered Rate(LIBOR) plus 25 basis points, 35 basis points and 50 basis pointsrespectively over years one to five, years six and seven, years eight toten or (ii) the greater of Chase Manhattan Bank's prime rate plus 50 bpor federal funds rate plus 50 bp.

Commitment Fee: 125 basis points per annum on undisbursed amounts under the Loansuntil the end of Availability Period.

Guarantee Fees: A Guarantee fee of 0.25% per annum will be payable to the WorldBank by the Borrower in respect of each Guarantee from the date ofsignature of the Guarantee Agreement and semi-annually in advancethereafter. A guarantee fee of at least 0.75% per annum will be payableby the Borrower direct to each government. Non-payment will resultin the lapse of the relevant guarantee.

Conditions The Guarantees will be effective upon execution and receipt by thePrecedent: World Bank of:

(i) Indemnity Agreements with the Russian Federation andUkraine in full force and effect;

(ii) the Russia and Ukraine Project Support Agreements betweenthe respective Governments and Sea Launch in full force andeffect;

(iii) the Project Agreement with Sea Launch in full force and effect;

(iv) all relevant finance, project and security documents for theproject;

(v) legal opinions satisfactory to the World Bank;

(vi) confirmation from the Agent of satisfaction or waiver (with theWorld Bank's consent, where required) of all conditionsprecedent to first drawdown under the Sea Launch Loans; and

(vii) the first installments of the Guarantee fees described above.

Assignment: Assignment of loan participations can only be made to parties pre-approved by the World Bank or to financial institutions consented to bythe World Bank.

Schedule APage 3 of 6

GUARANTEEPROVISIONS:

Guarantee: Each Guarantee of the World Bank (the "Guarantee") will cover thepayment obligations of the relevant Government under the RussianSupport Agreement and the Ukraine Support Agreement (see below).Any demand will be conditional upon (i) Sea Launch securing a finaland binding arbitration award or settlement agreement (pursuant to therelevant SA) establishing liability to pay damages to Sea Launchrepresenting the amount of debt service the Government's breach of theSupport Agreement has caused Sea Launch to be unable to meet, and(ii) failure of the Government to pay against such award/agreementwithin 30 days of written demand.

Guaranteed Principal of advances under the Sea Launch Development LoansAmounts: expended for eligible expenditure and scheduled interest on such

advances.

Guaranteed Events: Upon the occurrence of a Covered Event under the SupportAgreements, the Guarantees may be called only by written demandfrom the Lenders after the relevant Government has failed to honor afinal arbitral award or settlement agreement. A demand on oneGuarantee does not result in a demand on the other.

Offer to Purchase Following a default by the Borrower, a demand by the Lenders andLoan: payment under the Guarantee and a failure by the relevant Government

to indemnify the World Bank, the World Bank shall have the right, atits sole discretion, to offer to purchase the relevant Loan from theLenders at par for an amount equal to outstanding principal andaccrued but unpaid interest on the Loan together with any outstandingcommissions, fees, or default interest. In the event the offer topurchase is accepted and the World Bank acquires the Loan, the WorldBank will have the right under its Indemnity Agreement with theGovernment to be reimbursed for any debt service payment which theBorrower is unable to make on the Loan due to a SA Covered Eventand will enjoy all rights which the Lenders enjoyed against theBorrower.

Claims: Claims under the Guarantees must be made within 60 days of the duedate under the SA in respect of which a failure to pay by the relevantGovernment has occurred. Claims will only be permitted under theGuarantees up to the date falling 90 days after the maturity date of theLoans. The World Bank will make payments to the Agent within 15days following receipt by the World Bank of a demand. Demands mustbe accompanied by documentary proof of SA award and demand forpayment to the Government. At the request of Sea Launch, the FinalDemand Date may be extended for up to 6 years to enable theGuarantee to remain in force beyond the Final Maturity Date while

Schedule APage 4 of 6

dispute resolution under the SA is completed. Such extension issubject to an annual fee of 25 bp and certification by the Borrower ofongoing arbitration proceedings.

Limitation of The World Bank may, by written notice to the Agent during theLiability: Availability Period, inform the Agent that no further advances under

the Sea Launch Development Loan(s) will be covered by theGuarantee(s), if: (i) Sea Launch has breached its obligations to theWorld Bank under the Project Agreement between Sea Launch and theWorld Bank, (ii) the World Bank or IDA has suspended lending to therelevant country, or (iii) the relevant country is suspended frommembership in the World Bank or the International Monetary Fund. Ifsuch notice is served, the World Bank's Maximum Liability under theGuarantee will be limited to the principal of advances (and scheduledinterest thereon) made prior to the date of such notice. If the event thatgive rise to the limitation notice is, in the Bank's opinion, remedied,the limitation notice may be revoked.

If Sea Launch at any time breaches its covenants under the ProjectAgreement (i) not to use or permit any project assets to be used formilitary or espionage purposes (ii) to comply with all applicableenvironmental laws and regulations (including the ProjectEnvironmental Management Plan), the Bank may revoke theGuarantees. No cure period is allowed for a breach of the militarycovenant; 60 days (remedy in the opinion of the Bank) is permitted inthe case of environmental non-compliance.

Subrogation: The World Bank will retain subrogation rights. Following a paymentunder the Guarantee, the World Bank will be entitled to exercisesubrogation rights against Sea launch if there has been a default by SeaLaunch and a failure to indemnify under the Indemnity Agreement bythe relevant Government for one year. In the event Sea Launch is agoing concern, the Bank may enforce recovery when Sea Launchsatisfies an agreed debt service coverage ratio. However, until theLenders are repaid fully, the World Bank will not be subrogated to anyvoting entitlements of the Lenders nor be entitled to direct the Lendersas to how to exercise such rights. Following repayment in full throughthe Guarantee(s), the Lenders must exercise their rights as directed bythe World Bank. The World Bank may waive its rights of subrogationand rely exclusively on its rights against the relevant Governmentunder the Indemnity Agreement.

PROJECTSUPPORTAGREEMENT:

Covered Events: Claims would be paid pursuant to the Support Agreement for lossesresulting from the following covered events occurring after the

Schedule APage 5 of 6

effective date of the Guarantee Contract:

(i) deprivation by the Government of property, resources, orservices required by a local enterprise for the performance of itscontractual obligations to Sea Launch;

(ii) the introduction of limitations on transfers of foreign exchangeinto or out of the country;

(iii) the imposition of new or increased taxes, duties or fees;

(iv) revocation, suspension of, or failure to renew licenses orpermits; and

(v) war and civil disturbance involving the relevant Government.

Government The Government issuing the SA would be required to pay damages toLiability: Sea Launch if (i) a covered event occurs and, (ii) as a result of the

occurrence of that covered event a launch failure occurs causing SeaLaunch to be unable to pay the scheduled debt service payments on theIBRD-guaranteed commercial bank loan disbursed to financeexpenditures in that country.

Maximum Liability: Each Government's maximum liability for damages pursuant to its SAwould equal the actual debt service shortfall (principal and/orscheduled interest) on the IBRD-guaranteed commercial bank loandisbursed in that country which Sea Launch can prove is the directresult of the occurrence of a launch failure. For years 1 to 8, interestpayments only are due on the Loans.

Dispute Resolution: Amicable dispute resolution followed, if necessary, by internationalarbitration in Stockholm conducted under the Arbitration Rules of theUnited Nations Committee on International Trade Law currently inforce.

Fee to Government: Sea Launch will pay an additional support fee (over the 25bp payableto the Bank) directly to each Government. The level and structure ofthis fee is under current negotiation between Sea Launch and GOR andGOU respectively.

Amendment: Any amendment to be made to an SA must be notified to the WorldBank whose consent is required if such amendment may affect itsrights and obligations under the Guarantee.

Governing Law: Law of New York State.

INDEMNITY BY Each country will enter into separate Indemnity Agreements with theGOVERNMENTS: World Bank in respect of its Guarantee supporting the Sea Launch

Development Loan being disbursed to meet expenditure in that

Schedule APage 6 of 6

country. Under such Indemnity Agreement, the Russian Federationand Ukraine, as the case may be, undertake to (i) perform allobligations under the Indemnity Agreement and the SupportAgreement and (ii) reimburse and indemnify the World Bank ondemand, or as the World Bank may otherwise direct, for any paymentmade by the World Bank under the Guarantee and for all liabilities andexpenses incurred by the World Bank with respect to the Guarantee.

The Russian Federation and Ukraine will also covenant not to cause orpermit any project asset to be manufactured, used, converted ordeployed for any military, warfare, espionage or paramilitary purposeand to enforce their environmental laws and regulations with respect tothe manufacture, use, conversion, deployment, transport and storage ofproject assets in their respective territories. The Indemnity Agreementwill follow the legal regime, and include dispute settlement provisions,which are customary in agreements between member countries and theWorld Bank.

THE PROJECT Sea Launch will enter into a Project Agreement with the World Bank.AGREEMENT: Under such Project Agreement, Sea Launch will agree to pay the

Guarantee fee and use the proceeds of each advance under the Loansexclusively for the Project, in accordance therewith and with the termsand conditions of the Sea Launch Development Loan Agreements. SeaLaunch will provide reports and financial information and reasonableaccess to the Project and give representations, warranties, andcovenants with respect to the performance of the Project, including (i)full compliance with applicable health and safety and environmentallaws (ii) maintenance of adequate insurance and (iii) non-military use.

Governing Law: The Guarantee Agreements, the Project Agreement and the SupportAgreements will be governed by the law of the State of New York.

Schedule B

Schedule B

COMMERCIAL SPACE LAUNCH GUARANTEE PROJECT

Timetable of Key Processing Events

Operations Committee March 1996

Appraisal February 1997

Green Cover March 1997

Board Presentation May 1997

Planned Effectiveness August 1997

Schedule CPage 1 of 4

Russian Federation at a glanceEurope & Lower-

POVERTY and SOCIAL Russian Central middle-FederUon Asia Income Developmentdiamond

Population mid-1995 (millions) 147.3 488 1 154GNP per capita 1995 (USS) 2,230 2,240 1,700 Lfe expectancyGNP 1995 (billions US$) 328.4 1,093 1,962

Average annual growth, 1990-96

Population (%) -0.1 0.4 1.4 GrLaborforce (%) 0.0 0.6 1.8 GNP --- pGrossper prnmaryMost recent esamate (latest year available since 1989) capita enrollment

Poverty: headcount index (% of population) 31Urban population (IX of total population) 73 66 56Life expectancy at birth (years) 65 68 67Infant mortality (per 1,000 live births) 18 23 36 Access to safe waterChild malnutrition (% of children under 5)Access to safe water (% of population) .. .. 78Illiteracy (% of population age 15+) 2 .. ..Gross primary enrollment (% of school-age population) 107 97 104 Russian Federation

Male 107 97 105 Lower-middle-income groupFemale 107 97 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1975 1986 1994 1996Economic ratios*

GDP (billions US$) .. .. 277.1 363.7Gross domestic investment/GDP .. .. 28.9 28.0 Openness of economyExports of goods and non-factor services/GDP .. .. 27.7 25.8Gross domestic savings/GDP .. .. 31.6 30.7Gross national savings/GDP .. .. 30.1 29.5

Current account balance/GDP .. .. 1.1 1.5 S \Interest payments/GDP a/ .. .. 1.8 1.7 Savings InvestmentTotal debt/GDP .. .. 34.0 28.5Total debt service/exports a/ .. .. 26.2 19.5Present value of debt/GDP ..

Present value of debt/exports .. Indebtedness

1976-84 1986-96 1994 1995 199644(average annual growth) Russian FederationGDP .. .. -12.6 -4.0 5.1GNP per capita .. .. -12.6 -4.1 5.4 Lower-middl-ncome grupExports of goods and nfs .. .. 11.8 3.6 4.8

STRUCTURE of the ECONOMY

(%ofGDP) 1975 1986 1994 1996 Growth rates of output and Investment(%)Agriculture .. .. 7.8 9.4 20Industry .. .. 34.8 33.9 0

Manufacturng .. .. 0Services .. .. 57.4 56.7 -20

Private consumption .. .. 47.5 ..

General government consumption .. .. 20.9 .GDI GDPImports of goods and non-factor services .. .. 25.0 23.1

197644 1986-96 1994 1995(average annual growth) Growth rats of export and Import (%)Agriculture .. .. -9.0 -6.0 30

Industry .. .. -25.5 -3.6Manufacturing ., ., ,s

Services .. .. -2.9 -4.0 o

Private consumption .. .. .. .. 95Total consumption .. .. 2.2 -2.8Gross domestic investment .. .. -33.1 -4.5 -sImports of goods and non-factor services .. .. 22.0 7.1 Exports lmPOrtsGross national product .. .. -12.7 -4.2

Note: 1995 data are preliminary estmates.The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Schedule CPage 2 of 4

Russian Federation

PRICES and GOVERNMENT FINANCE197S 19865 1994 1995

Doam stc prices InfatIon (%)(9 change) 1,500

Consumer prices . 303.2 189.2 1,0001Implicit GDP deflator .. .. 307.6 182.8

Govemment finance(% of GDP) oCurrent revenue .. .. 37.7 29.8 90 1 92 93 94 95Current budget balance -GDP def. --- CPIOverall surplus/deficit .. .. -10.0 -4.8

TRADE1976 1985 1994 1996

(milflons USS) Export and Import leveIa (mill USS)Total exports (fob) .- .. 69,400 81,400 25,00

Petroleum, crude and processed 16,454 18,162 TNatural gas .. .. 12,632 13,834Manufactures .. .. .. .. 150,000

Total imports (fob) 55,200 63,500 1Y,000FoodFuel and energy 50.000Capital goods .. A A

Export price index (1987=100) .. .. .. .. 89 91 92 93 94 9fImport price index (1987=100) .. .. .. .. Exports animportsTerms of trade (1987=100) ..

BALANCE of PAYMENTS1976 1985 1994 1996

(millions USS) Current account balance to GOP ratio (%)Exports of goods and non-factor services .. .. 76,900 93,800 3Imports of goods and non-factor services .. .. 69,400 84,000Resource balance .. .. 7,500 9,800

2.Net factor income .. .. -4,300 -4,900Net current transfers .. ,. -100 500

Current account balance,before capital transfers .. .. 3,100 5,400

Financing items (net) ., .. -7,000 0 0 . ,Changes in net reserves .. .. 3,900 -5,400 a go 91 92 93 94 95

Memo:Reserves induding gold (mill. US$) .. .. 6,475 17,275Conversion rate (local/USS) .. .. 2,204.7 4,561.6

EXTERNAL DEBT and RESOURCE FLOWS1975 1986 1994 1996

(millions USS) Compostion of total debt, 1995 (mill. USS)Total debt outstanding and disbursed b/ .. .. 94,232 103,800 G A

IBRD 684 1,524 7400 1524 CIDA . .. 0 0 9815

DTotal debt service paid .. .. 3,661 6,411 -9307

IBRRD 38 57IDA . .. 0 0 F

37000Composition of net resource flowsCapital transfers, net .. .. 800 -600Offcial creditors .. .. ..- 5,363Private creditors .. ,. ., -740 EForeign direct investment .. .. 600 1,956 48000Portfolio equity -200 -1,434

World Bank programCommitments ., .. 1,590 1,635 A - IBRD E -BilateralDisbursements .. .. 283 840 B-IDA D -OtfermtlvAblral F -PrivatePrincipal repayments .. ., 0 0 C -IMF G - Short-termNet flows .. .. 283 840Interest payments .. .. 38 57Net transfers .. .. 245 783

Russia Country Operations Division and Intemational Economrics Department 1019/96

Note: Estimates for economies of the former Soviet republics are subject to more than the usual range of uncertafty.a. Scheduled payments before debt relief. b. Debt owed to China, former Yugoslavia, and the members of ex-CMEA is exduded.

Schedule CPage 3 of 4

Ukraine at a glanceEurope & Lower-

POVERTY and SOCIAL Central mnIddle-UkraIne Asia incomo Development diamond'

Population mid-1995 (millons) 51.6 488 1,154GNP per capita 1995 (US$) 1,630 2,240 1,700 Life expectancyGNP 1995 (billons USS) 84.1 1,093 1,962

Aveage annual growth, 1990-95

Population (%) -0.1 0.4 1.4 GNP GrossLabor force() -0.1 0.6 1.8

per primaryMoet recent etimate (latest year available since 1989) capita enrollment

Poverty: headcount index (% of population) 32Urban population (% of total population) 70 66 56Life expectancy at birth (years) 69 68 67Infant mortality (per 1,000 lve births) 15 23 36Child malnutrition (% of children under 5) Access to safe waterAccess to safe water (% of population) 97 .. 78Illiteracy (X of population age 15+) 2 .. r..Gross primary enrollment (% of school-age population) 87 97 104 Ukraine

Male 87 97 105 Lower-middle-income gmupFemale 87 97 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1985 1994 1996EconomIc rstko'

GDP (billons USS) .. .. 99.6 86.2Gross domestic investmentlGDP .. 27.3 8.8 8.9 Openness of economyExports of goods and non-factor serviceslGDP .. .. 64.5 45.6Gross domestic savings/GDP .. 28.4 3.0 5.6Gross national savingslGDP .. .. 2.7 4.7

Current account balance/GDP .. .. -1.4 -1.8Interest payments/GDP .. .. 0.1 0.6 Savings InvestmentTotal debtUGOP .. .. 5.5 9.8Total debt service/exports .. .. 2.1 6.1Present value of debtGDP .. .. 5.0Present value of debt/exports .. .. 34.8 Indebtedness

197544 1985-96 1994 1996 1996-04(average annual growth) UkraineGDP 3.5 -6.6 -23.5 -11.8 5.1GNP per capita 3.1 -6.8 -21.6 -13.7 -0.3 Lower-middleincome groupExports of goods and nfs .. .. -11.0 6.7 8.1

STRUCTURE of the ECONOMY1975 1986 1994 1995

(% of GDP) Growth rates of output and Investment (%)Agriculture .. 19.3 17.4 17.8 r0Industry .. 45.6 45.4 42.3 30

Manufacturing .. 38.0 40.5 38.7 0

Services .. 35.2 37.2 39.9 30 _

Private consumption .. 53.7 77.2 77.2 soGeneral govemmentconsumption .. 17.9 19.8 17.2 GD1 GDEImports of goods and non-factor services .. . 70.3 48.9

1976484 1986-95 1994 1996(average annual growth) Growth rates of exports and Imports (%)Agriculture -3.6 -22.0 -9.0 10Industry . -8.9 -29.9 -17.0 s

Manufacturing 2.2 -23.9 -15.0 /Services .. -6.0 -33.8 -97

go 91 92 93 9

Private consumption -2.7 -23.1 -17.8 09General govemment consumption .. -9.7 -23.1 -28.6 1: TGross domestic investment .. -18.6 -15.5 45.0 lImports of goods and non-factor services .. . -7.2 -2.3 Eports --- ImponsGross national product 3.5 -6.6 -23.5 -12.7

Note: 1995 data are preliminary estimates.The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Schedule CPage 4 of 4

Ukraine

PRICES and GOVERNMENT FINANCE1975 1985 1994 1995

Domestic prices Inflation (%)(% change) 5,000Consumer prices .. .. 891.1 376.0ImplidttGDPdeflator -0.5 -1.3 903.1 427.4 2.500

Govemment flnance(% of GDP) oCurrent revenue .. .. 45.3 38.6 so O1 92 93 94 ssCurrent budget balance .. .. -4.6 -0.7 GDP def. CPIOverall surplus/deficit . . -8.2 -4.7 G

TRADE1975 1986 1994 1995(millions US$) 1975 1906 1994 1995 Export and import levels (mill. USS)

Total exports (fob) . .. 12,111 13,647 20,000 TCommodity 1 .. .. 3,980 4,542Commodity 2 . . 496 567 15,000Manufactures . .. 2,800 3,000 _

Total imports (cif) 14,471 15,945 1, 000Food .. . 676 700Fuel and energy 6,305 6,753 tU00LCapital goods . .. 2,978 3,815 _______

Export price index (1994=100) 100 112 | 9 9o 9l 92 93 94 05Import price index (1994=100) 100 115 | Exports cm ImportsTerms of trade (1994=100) .. .. 100 97

BALANCE of PAYMENTS11976 1985 1994 1995

(millions US$) Current account balance to GDP ratio (%)Exports of goods and non-factor services . . 14,713 16,408 _ o _ _ , , , _Imports of goods and non-factor services . 16,044 17,615 | 9 | s 91 92 93 94 00

Resource balance . -1,331 -1,207

Net factor income . . -74 -507Net current transfers .. .. 9 200 7 +

Current account balance,before official transfers -1,396 -1,514

Financing items (net) 1,301 487Changes in net reserves 95 1,027 -2 l

Memo: IReserves including gold (mill. US$) 646 1,129Conversion rate (locaWIUSS) 1.OE+05 1.7E+05

EXTERNAL DEBT and RESOURCE FLOWS1976 1985 1994 1995

(millions US$) Composition of total debt, 1995 (mill. US$)Total debt outstanding and disbursed .. . 5,438 8,465 G A

IBRD 102 491 255 491IDA .. .. 0 0

Total debt service 300 918 j 1 54 CIBRD 0 82347 // IDA 0 0 °

Composition of net resource flows '128Official grants 216 240 /Official creditors 98 400Private creditors 208 -20Foreign direct investment 250 300 EPortfolio equity 0 0 3702

World Bank programCommitments 500 146 A - IBRD E -BilateralDisbursements 102 401 |- BIDA D- Ottr multlateral F - PrivatePrincipal repayments 0 0 C- IMF G -Short-ternNet flows 102 401 1 9Interest payments 0 8Net transfers 102 393

International Economics Department 8120196

Note: Estimates for economies of the former Soviet Union are subject to more than the usual range of uncertainty.

MOP Schedule DGenerated: April 22, 1997

Status of Bank Group Operations in RussiaIBRD Loans and IDA Credits in the Operations Portfolio

DifferenceOriginal Amount in us$ Millions Between actual

Loan or Fiscal and expectedProject ID Credit Year Borrower Purpose IBRD IDA Cancellations Undisbursed Disbursements a!

No.

Number of Closed Loans/credits: 7

RU-PE-8809 L36233 1993 RUSSIAN FEDERATION OIL REHAB. 10.00 0.00 0.00 8.55 -1.45RU-PE-8809 L36231 1993 RUSSIAN FEDERATION OIL REHAB. 158.00 0.00 41.60 15.68 -100.72RU-PE-8810 L35460 1993 RUSSIAN FEDERATION PRIVATIZATION 90.10 0 0.00 0.00 39.89 39.89RU-PE-8809 L36232 1993 RUSSIAN FEDERATION OIL REHAB. 170.00 0.00 0.00 46.13 -123.87RU-PE-8809 L36230 1993 RUSSIAN FEDERATION OIL REHAB. 272.00 0.00 142.15 3.88 146.09RU-PE--8822 L35320 1993 RUSSIAN FEDERATION EMPLOYMENT SERV. & S 7 0 . 0 0 0 . 00 10 . 00 35.18 4 5 .18RU-PE-8805 L37682 1994 RUSSIAN FEDERATION OIL REPAB. II 90.40 0.00 0.00 8.23 -82.17RU-PE-8805 L37681 1994 RUSSIAN FEDERATION OIL REKAB. II 51.10 0.00 4.72 5.57 -40.81RU-PE-880S L3768C 1994 RUSSIAN FEDERATION OIL REhAB. II 99.60 0.00 0.00 96.31 -3.29RU-PE-8805 L3768A 1994 RUSSIAN FEDERATION OIL REHAB. II 125.30 0.00 0.00 124.51 122.89RU-PE-8811 L37570 1994 RUSSIAN FEDERATION AGRIC. REFORM IMPL. 240.00 0.00 30.00 203.96 151.46RU-PE-8828 L3734A 1994 RUSSIAN FEDERATION FINANCIAL INSTITUTIO 187.62 0.00 0.00 174.92 151.43RU-PE-34579 L37560 19 94 RUSSIAN FEDERATION LAND REFORM IMPL. SU 8 0 . 0 0 0 . 00 0 . 00 72.11 4 0 .6 2RU-PE-8839 L3763A 1994 RUSSIAN FEDERATION ENTERPRISE SUPPORT 196.00 0.00 0.00 196.00 90.15RU-PE-8805 L3768B 1994 RUSSIAN FEDERATION OIL REHAB. II 108.90 0.00 0.00 105.28 -3.62RU-PE-8805 L37680 1994 RUSSIAN FEDERATION OIL REHAB. II 24.70 0.00 0.00 5.40 -19.30RU-PE-8808 L37060 1994 RUSSIAN FEDERATION HIGHWAY REHAB & MAIN 300.00 0.00 0.00 154.16 19.67RU-PE-8806 L38850 1995 RUSSIAN FEDERATION URBAN TRANSPORT 329.00 0.00 0.00 220.01 44.51RU-PE-40409 L38726 19 9 5 RUSSIAN FEDERATION EMERG. OIL SPILL MIT 29.60 0 . 00 0 . 0 0 2 6.96 -2 . 64RU-PE-8823 L38440 1995 RUSSIAN FEDERATION PORTFOLIO DEVELOPMEN 40.00 5.00 0.00 34.60 24.09RU-PE-8821 L38060 1995 RUSSIAN FEDERATION ENVIRONMENT MANAGEME 110.00 0.00 0.00 90.71 -7.64RU-PE-8826 L38240 1995 RUSSIAN FEDERATION MANAGEMENT AND FINAN 40.00 0.00 0.00 31.67 1.48RU-PE-38572 L38530 1995 RUSSIAN FEDERATION TAX ADMINISTRATION 16.80 0 . 00 0 . 00 16.21 7.87RU-PE-8803 L38760 1995 RUSSIAN FEDERATION RUSSIA ENERGY EFFICY 106.50 0.00 36.50 70.00 46.76RU-PE-8831 L40350 1996 RUSSIAN FEDERATION LEGAL REFORM PROJECT 58.00 0.00 0.00 57.31 3.31RU-PE-45622 L40590 1996 RUSSIAN FEDERATION COAL IAP 25.00 0.00 0.00 23.85 .15RU-PE-42622 L40290 1996 RUSSIAN FEDERATION CAPITAL MARKET DEV. 89.00 0.00 0.00 89.00 1.00RU-PE-38571 L40330 1996 RUSSIAN PEDERATTON MEDICAL EQUIPMENT 270.00 0.00 0.00 267.15 2.15RU-PE-36973 L40120 1996 RUSSIAN FEDERATION ENTP.HOUSING DIVESTI 700.00 0.00 0.00 298.14 1.64RU-PE-35764 L39900 1996 RUSSIAN FEDERATION BRIDGE REHABILITATIO 350.00 0.00 0.00 348 91 35.51RU-PE-8837 L39610 1996 RUSSIAN FEDERATION , STANDARDS DEVELOP. 24.00 0.0 0 0.00 23.65 1.75RU-PE-35761 L40090 1996 RUSSIAN FEDERATION COMMUNITY SOCIAL INF 200.00 0.00 0.00 194.72 -. 28RU-PE-42720 L41440 1997 RUSSIAN FEDERATION ST. PETERSBURG REHAB 31.00 0.00 0.00 31.00 0.00

Total 4,292.53 0.00 264.97 3,119.65

Active Loans Closed Loans Total

Total Disbursed (IBRD and IDA): 907.91 1,822.05 2,729.96

of which has been repaid: 0.00 0.00 0 00 plo

Total now held hy 1BRD and IDA: 4, 027.56 1,822.05 5,849.61

Amount sold : .0.0 0.00 0.00 (D (DOf which repaid 9 .00 0 .00 0 .010 f

Total Undisbursed 3,119.65 0.00 3,119.65 1-

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. 0HDb. Rating of 1-4: see OD 13.05. Annex D2. Preparation of Implementation Summary (Form 590). Following thb FY94 Annual Review of Portfolio performance

(ARPP), a letter based system will be used (HS = highly Satisfactory, S = satisfactory, U - unsatisfactory, HU - highly unsatisfactory): see proposed AImprovements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

c. Following the FY94 ARPP, Implementation Progress" will be reported here.

Generated by the Operations Information System (OIS) Page I

Schedule DPage 2 of 4

MOP Schedule DGenerated: April 22, 1997

RussiaSTATEMENTOF IFC's

Committed and Disbursed PortfolioAs of 31 -Mar-97

In Millions US Dollars

Committed Disbursed-------- IFC------------- -------- IFC-------------

FY Company Loan Equity Quasi Partic Loan Equity Quasi ParticApproval

1993 Intl Moscow Bank 14.10 0.00 0.00 0.00 2.10 0.00 0.00 0.001993 Polar Lights 33.95 0.00 0.00 0.00 33.95 0.00 0.00 0.001993 Vasyugan 5.63 0.00 1.50 0.00 5.63 0.00 1.50 0.001994 Framlington Fund 0.00 8.00 0.00 0.00 0.00 8.00 0.00 0.001994 Russia Registry 0.00 1.50 0.00 0.00 0.00 1.50 0.00 0.001994 RTDC 0.00 7.50 0.00 0.00 0.00 7.50 0.00 0.001995 A.O. Volga 30.00 11.00 0.00 39.38 30.00 11.00 0.00 39.381995 Depsona Z.A.O. 5.30 1.50 0.00 0.00 0.00 1.50 0.00 0.001995 First NIS Fund 0.00 15.00 0.00 0.00 0.00 15.00 0.00 0.001995 Russ Tech Fnd 0.00 2.00 0.00 0.00 0.00 .50 0.00 0.001995 SCDC 0.00 .47 0.00 0.00 0.00 .35 0.00 0.001995 SCF 0.00 4.53 0.00 0.00 0.00 1.26 0.00 0.001996 Alpha Cement 0.00 13.49 0.00 0.00 0.00 13.49 0.00 0.001996 Pioneer First 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.001996 UNEXIM Bank 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001997 Aminex 17.00 6.10 0.00 0.00 0.00 6.10 0.00 0.00

Pending Commitments1996 * ALPHA CEMENT 20.00 0.00 0.00 0.001996 * BORSTEKLO 0.00 9.15 0.00 0.001997 * DEPSONA B LOAN 0.00 0.00 0.00 5.201997 * NIKITAS BROKER. 7.00 .01 0.00 0.001997 * TROIKA DIALOG 0.00 0.00 2.99 0.001995 * VOLGA FUND 0.00 20.00 0.00 0.00

Generated by the Operations Information System (OIS) Page I

MIOP Schedule DGenerated: April 8, 1997

Status of Bank Group Operations in UkraineIBRD Loans and IDA Credits in the Operations Portfolio

DifferenceOriginal Amount in USS -lillions Between actual

Lcan -r Fiscal and expectedProject ID -redit 11^. Year Borro.wer Purpose IBRE IDA Oancellations Undisbursed Disbursements a

Number of Ilosed L ass :redits: 1

UA-PE-9136 L3614: 1995 ISIIISTRY OF FIIRIT-AE, UKRA ITISTITUTIDII BUILDING 27.:- -.- D D. 2-.-4 23. 14UA-FE-911' L,381- 1995 ;O*':T. OF UKRAINTE AGRIO'. SEED DEVELDPTI 32.3: 3.-D 3.D3 31.8-: 23.31UA-PE-3S823 13865- 1995 00(0. OF TUiRAIIIE MYDPICER REHAB. 114.:-- D.3D 3.D0 11:.36 24.3DUA-PE-35B14 I,4-57 1996 UKPAIITE ENTER. DEV. ADJUST. 31'.3- D.:D CCC 219.6' -10D.33UA-PE-34

581 L39655 1996 UKPAIITE H-USIIIG 1'.-3 D. -D.3: 1'.?.

UA-PE-44113 L4-16 1996 &-'EPREIITET OPF UrAIllE COAL PILOT 15.81 :.01 33 14.76 -1.15UA-PE-4D'564 L411S 199- IC-'.'EPIIIEIIT -F UKRAINE -OAL SECAL 3DD.-' -. 3D :.D3 15?.3D -15.19UA-PE-44351 L41?7? 199- STATE EXFPRT INPKRT BANIK EXP-RT DEVELDPMENT 6?. '.3 6D.-'UA-PE-44851 L413'1 199- STATE EXPORT IMPORT BANIK EXPRT DE-.ELOREIIT 1-.3D 8'.96UA-PE-4594- L,4-9- 1997 UKRAINE SOCIAL PROTECT. SUPP 2.5' 1.3. 2.63UA-PE-9113 L41-3? 199- UKPAIIIE ASRIOULTURE SECAL 31:.0? -. D - 15 .40UA-PE-44444 L4398 199' UiKPAIIIE ELE-TRI-ITY MARPKET 245.4? -. : 5.4UA-PE-44444 L40981 199- UKRAINE ELECTRICITY iAPRKET '1.63 . _ _ '1.60

Total 1,535.41 D. .3 1,f92.2D

Active Loans Closed Loans TotalTotal Eisbursed *IBRC and IEA: 412.18 511.1 912.18

of w-:hich has been repaid: .:. . :.D3Total not: held b,- IBRL and IDA: 1,5D5.41 5,D.-- 2,315.41

Amount sold : .3 . i

Df w.hich repaid :

Total Undisbursed : 1,092.2D D.3D 1,192.20

a. Intended disbursemenits to date minus actual disbursements to date as piojected at appraisal.b. Rating cf 1-4: see _E 13.15. Annex E2. Preparation of Implementation Summary rForm 596' . FcllcwFin3 the FY94 Annual Review of Portfolio performance (ARPP),

a letter bared system w:ill he used 'HS = hi;hly Satisfactory, S = satisfactory, U = unsatisfactory, HU = highly unsatisfactory): see proposed Improvementsin Project and Portfolio Performance Rating Methodology rSecM94-91I), August 23, 1994.

oc Pollo:inj the FY94 ARPP, "Implementaticn Progress" wiill be repurted here.

tQJ(D (D

O (DFhh

Generated by the Operations Information System (0IS) Page I

Schedule DPage 4 of 4

MOP Schedule DGenerated: April 8. 1997

UkraineSTATEMENTOF IFC's

Committed and Disbursed PortfolioAs of 02/28/97

In Millions US Dollars

Committed Disbursed----- -- IFC ------------- ------------IFC -------------

FY Company Loan Equity Quasi Partic Loan Equity Quasi ParticApproval

1994 Ukraine VC Fund 0.00 2.00 0.00 0.00 0.00 1.58 0.00 0.00

1996 Ukraine VC Fund 0.00 1.50 0.00 0.00 0.00 .30 0.00 0.00

Pending Commitments1996 * FUIB 10.00 6.50 0.00 0.00

Generated by the Operations hifonnation Systeim (0IS) Page I

IBRD 271 88RI Ec c o oTED 5JITAT or AMECA

Th. -i-=re. lr d--omwios -'ond -ty-tofoco -scchown on RUSSIAN FEDERATION Ch.k,bisho m=,p do cot .ctply. on the poct of V J AI IL A _ Cuci L The Wodld 3nk G-p, coy d-cent R

A. Ig.t ",,N, -Y I-ii-y' ~REPUBLICS, KRAIS, OBLASTS, OKRUGS=cy -cdo.,ece-t or fcceptonce o,_h b boundor es \ ¢ NATIONAL CAPITAL 3

II RIVERS See

ECONOMIC REGION BOUNDARIES

UNITED - I ,,,-., '~i. 3OLAST, KRAI, OR REPUBLIC BOUNDARIES

KINGDOM . N oO. w S5o 3 AUTONOMOUS OBLAST, OKRUG, OR REPUBLIC BOUNDARIES-INTERNATIONAL BOUNDARIES Foot S;boc,n

o~ ~ ~ ~ ~~~~~~~eldo I cednypubMoc oA6y9eg Aei KonchoeoecO,,do, ood G,hofosip 08 s

NORWAY ' oc

| BO ts !t.t _ t 9 n .~~~~~~~~~~~~~~~~~~~~S

'tTcRETP,c-B DtNctMA- E SWEDEN o -O G I A 2

I Arkhongel 7 Novgorod 12 Bryrhnsk I2 Tul cHROYtt 3.Cehn4 srkrn 4 hvs 3 ohotso 1Ai7 BSro 0Au

4ERMANY 10K. Se- 1

Sc,, Murmonsk I NLA D f O El

O lAND 75 K o 85 oR

BELEARS S

18. e IS. 69rt OseB34 rerrtn5 dur 7Tmn7.Evn86Cu

I ~ ~~~~~ 20 Smolens 38. SIoroo 47Uynvk6.I3aoNnt 8Tii 8 oh3

ROMANIA ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~ A

CE YINEA

6 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~oCr-~~~~~~~~~~~~~~~~~~~~~

29 ~ ~ ~ ~ ~ O 0 lB 201000 Octt6

T1W ~~~~' Soc .10 PR~~~~~

cRAB Ott ,.* >.. \,,~~~~~~~~cltK U 0 200 000 000~~~~~% 0073EIR OE

I OTH I. OTWRTII ETR ~ V ETALVNOT CUAUS V VLAVI O~OVAIA VIIK -~ 7R 87TR E ESENSBRA S FA ES

1 Achcc9l 7 oogood 2 Bcoook 22. toloCItRNOZOP.t 30. kochc 4 Aotokko 68 kocok 5. Bokkoroeto 61 lto TO odYo E6 nto2 Necto Pokc 1. Icocco 23 lodipip 5. Blgood S Dogeotn dlKoloykto d9 K,co Sd Chlyobosk 2 Gocy lto, 71 CitoEl Kotolot -

3 Kocol,o 9.Lec.cgcoc 16KoIOEO 2d Sooolool 26 K,~L 22 IcEco Kholncg Tonob SO Mopiy l 55. Kccgc 62 Keonecco 72 Agic Bopot E2 Kory4

TURK0SEYtcoc Iy 5Kscoo 7Lptk33Kbc,cBokp 6 eco5 odc56 rrbr 6.Nosbro 3IEtkA2KoocoS Mc,c,ocsk 16. Mo~~~~~~~~~~~~0cco 28 Z ToK o 36H S T d.Aopp 5.N Ni o79o 7Pec 5.Ock7d ~-cdnBrTt E oc,hA

6 Vologdc 17 Moocctc City 29 VotocezE100 00 30 350 A-yEo d4S62 o5 ctPrt,l 6 c,k7 Kocy k8 ooo

-8 0 200 400 ~~~~1. Rcoo 3.6 Roto d6Vlc 8 o 0 c,,oo,68KoT-Mni77 kko 7Pooc

I A,kh. ~qil 7 N-g-cl 20 Bc,y-kl2eTroHENOYO 30. CSth,o,cc 67 Ulyon8cC-ok51 69 l.iYoooNot 7E To,ytci EE. AoIcl

5 M__ iiogrd 62 Tsoo2,T6o 39. K--l, A3hooc..-C2he,zhi Necl5nEo5 O k79 4.o BR-,d ., 84k J.I, Okt

DECEMRBER 1995

\ I - I ' w I I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IBRD 2782820 , 2'1 30° i ' 5- 0

- j ~~~~~~~ ~ ~~~~~BELARUS (& tRUSSIAN ROADS. \ *J ~~~~~~~~~~~~~~~~~~~~~~~~~~~~FEDERATION RAIllROADS

-g \ >> ' / X o ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SELECTED TOWNS AND CITIES

>> < ' _ / *,j, ^ \ * ~~~~~~~~~~~~~~~~~~~~~~~~~~~NATIONAL CAPITAL

roSress T o M o gi A e v \ * A / ^ yS * _ ~~~~~~~~~~~~~~~AUTONOMOUS REPUBLC ORI ssr _ \O ar . 5 EShosSkrut ~~~~~~~~~~~~~~~~~~~~~~OBLAST BOUNDARIES

POLAND ,8> ~~ 9 ,o / (°, ! _ _ INTERNATIONAL BOUNDARIES.r.. . hniiv ,S rMso RIVERS

TO Wc,r- 4 Kovei Sin ( { fi.>s\ Q L

_50A = t 0 ffi -~~.A Lutstww<k n to,SVN;45

, /' _ 1 -@ 72~~ ' .' - Zkhytomyr-6~ '~.Krm,i..------ K okili

REPUBLIC st, X R>nflonR----Terno'pilo Tser6o{ UNGARY _ fF _ - ' ' Drohobyc s- 0 \- kmelnytnky

) I * \; ; fJtencomiuk. gKyiRi .zpozha ,

~~ROAI ofhrSt MLDOVAK 01 ese-t -Rui z. n!s n. t>Ad .. , .0l deno~~~~~~~~~~ rnoons and mv oX fnfbO8 If¢~~~~~~~~~~~~~sieww\

ti.sdowr,owi o<eawsOraln/wifrweire of { W\ Aw o \+} w 4 S sJ /'I 1 Reervoir he-kcneeoRoolnwrorermcEPULInef25 C $** n8 yOOiV£* /arpo /

. zkoo Franki,ftFg erins

[ -_ 1 , <w RUSSIANFeDeRA:llON || X ;,) (t ~~~~~~~~~1, 0 UCLC- .t 9 ~ C/arnaors?EU A PO2AND ).~~~~~~~ '~~..,_ ffi A_ -45° il k o v a riia ' ; ' ~~~~~~~~~~~~~~~~~~~~~ r Noffrosnodord ionyn

HUNGARY .kOD>A( \ '2'~Svsotf-~5

~ \ ROMANIA 6z' YaltaOMANIA LD VA

of ED EP tS , * - B, A Y S EA I2,

qusj LAT--GORIVBLAIAIoAo lo - ; A,cJcReEcD Jy TURKEY -- 1 30- 3'i° MILES~~~~~~~~~~~~~~~~Se

IMAGING

Report No.: P 7092 RUType: MOP