EBRD to buy $85 mln stake in East Siberia oil firm

MOSCOW, May 18 (Reuters) - The European Bank for Reconstruction and Development said on Sunday it would buy an $85 million minority stake in East Siberian oil firm Irkutsk as part of its plan to invest in energy efficiency projects.

The EBRD, which says improving energy efficiency and boosting agricultural output are key to combating soaring prices, said the investment would allow Irkutsk Oil Company to cut greenhouse gas emissions from oil fields.

"The project is in line with the government's drive to slash drastically the wasteful and environmentally damaging flaring of gas, which, according to some estimates, burns up to five per cent of Russia's total gas output," the statement said.

Russian gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research) is the world's largest gas producer, supplying a quarter of Europe's needs.

"According to the World Bank, Russia flares more gas than any other nation, having in the last decade overtaken Nigeria," the EBRD said.

The EBRD will take an 8.15 percent stake in the holding company for the privately-owned Irkutsk Oil, via a new share issue in a rare investment in the Russian oil and gas sector. The investment values Irkutsk at over $1 billion.

The bank did not reveal the names of the owners of Irkutsk, nor did it say whether the firm might eventually go public. The firm will cut greenhouse gas emissions by re-injecting gas produced alongside oil, known as associated gas, instead of flaring it.

Russia's government wants oil firms to cut associated gas flaring to five percent of total output by 2011 from around 40 percent now.

"One way in which the Russian government hopes to solve the problem is through the creation of a local market for the gas by giving consumers access to gas in Eastern Siberia, a vast territory rich in natural resources which is now being opened up for development," the EBRD said.