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Bloomberg: U.K. Ecologists Take Government to Court to Prevent Shell Loan

By Eduard Gismatullin

Aug. 16 (Bloomberg) — U.K. environmentalists campaigning against Royal Dutch Shell Plc’s oil and gas project in Russia began legal proceedings against the British government in an effort to prevent it from loaning funds to the venture.

World Wildlife Fund, or WWF, and The Corner House, an environmental and social justice group, yesterday filed a case against the U.K.’s Export Credit Guarantee Department, challenging its 2004 proposal to underwrite 1 billion pounds ($2 billion) in contracts for Shell’s Sakhalin venture in Russia.

The case “will certainly draw more attention to what we think is a ridiculous situation, when they are still considering it after three years,” James Leaton, a WWF policy adviser in London, said today by telephone. “They have enough reasons not to fund it on environmental grounds.”

Russia’s OAO Gazprom, Shell’s partner in the Sakhalin-2 project and the controlling shareholder, said Aug. 7 it expected to secure financing for the $22 billion venture “within the next several months.” The Sakhalin Energy Investment Co. has been in talks with the Japan Bank for International Cooperation, the U.K.’s ECGD and the U.S. Export Import Bank to raise at least $5 billion in loans.

“The key issue is that ECGD has not made the decision to fund the Sakhalin project,” Steve Roberts-Mee, a spokesman for the department, said today by phone from London. “All we did in 2004 was we said to Sakhalin Energy company that, provided certain conditions were met, we would support the project.”

No Deadline

The department set conditions relating to the project’s financial and political risk, along with environmental and social standards, before funding could be decided, Roberts-Mee said. ECGD is still evaluating the venture and doesn’t have any deadline for making a decision, he said.

Sakhalin Energy and its shareholders “have significantly advanced in talks about financing of the Sakhalin-2,” Gazprom, Russia’s state-owned natural-gas export monopoly, said last week. The partners are building Russia’s first liquefied natural gas plant, which is more than 80 percent complete.

“Sakhalin Energy will continue close and ongoing cooperation with the public lending institutions and some private banks,” Ivan Chernyakhovsky, a spokesman for the investment company, said Aug. 7. He declined to give any further details.

On the same day, the European Bank for Reconstruction & Development said it won’t resume talks on financing Sakhalin-2. The EBRD withdrew from negotiations with Sakhalin Energy in January after Gazprom took control of the venture.

The EBRD, set up by Western governments in 1991 to help build market economies in eastern Europe and former Soviet states, came under pressure from environmentalists who said Sakhalin-2’s impact on salmon and whale populations, as well as other environmental, social and safety matters, made the project unworthy of funding.

To contact the reporter on this story: Eduard Gismatullin in London at [email protected]

Last Updated: August 16, 2007 09:57 EDT

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