The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has signed a landmark US$150mn loan to Cairn Energy to help alleviate India’s and Bangladesh’s energy shortage and partner in innovative community development programs in one of India’s economically underdeveloped states.

IFC’s nine-year term loan and IFC’s social and environmental due diligence have given a group of international commercial banks assurance to provide US$850mn in additional five-year term funding. The total US$1bn loan will finance UK-based Cairn’s capital expenditure programme, primarily the development of its recent discoveries in India’s northwestern state of Rajasthan.

As part of the project design, IFC and Cairn will help small, local firms to provide support services such as food, transportation, security, grounds keeping and others to the oil and gas operations. They will also work with farmers in developing cooperative dairy ventures to improve production.

Somit Varma, IFC’s associate director for oil, gas, mining and chemicals, says: “IFC’s partnership with Cairn goes beyond the sizable financing we are providing. We are working with them on extending their leadership on environmental best practices and social development. Ensuring that local communities benefit is both key for development and critical for the long-term success of extractive industry projects.”

With a target peak production of around 150,000 barrels per day, the Rajasthan development will equal around 25% of India’s current oil production and about 8% of its current oil imports.

“Support for private sector investments in oil and gas is key to IFC’s strategy in South Asia,” says Iyad Malas, IFC’s director for South Asia. “With our investment, we are supporting the local economy and helping to satisfy India’s demand for domestically produced fuel.”

A central component of the Cairn-IFC development programme will be the establishment of an Enterprise Center which will help to provide information and expertise on business practices to local small and medium-sized firms, putting them in the position to become potential suppliers and service providers to the oil and gas operation and other ventures.

The Enterprise Center is part of a joint community development programme that aims to maximise positive impacts of the large-scale oil and gas projects in the Barmer region of Rajasthan where more than 20% of households live below the poverty line.