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The St. Petersburg Times: Greens Praise EBRD Stance Over Sakhalin

Issue #1237 (103)
Tuesday, January 16, 2007
By Tom Bergin

LONDON — The European Bank for Reconstruction and Development said it had decided not to invest in the Shell-operated Sakhalin-2 oil and gas project after state-owned Gazprom agreed to become majority owner.

Environmental campaign groups welcomed the bank’s pullout Friday, and said they would now focus their pressure on commercial banks and government lenders considering loans to the project.

The EBRD said in a statement late Thursday that it had ended discussions on a loan to the project, which is expected to cost over $20 billion.

Environmentalists have long criticized Shell’s management of the project, saying it poses risks to the endangered Western Gray Whale and that it has caused damage to rivers and forests on Sakhalin Island.

“I, as well as my colleagues, welcome this decision very much,” Dmitry Lisitsyn of Sakhalin Environmental Watch said in an e-mail from the island.

“Sakhalin Energy is not able to meet the high international standards and to follow the Russian environmental legislation.”

While the EBRD was under pressure to rule that the project did not meet its strict environmental and social criteria for lending, the decision to pull out was prompted by the new shareholder structure.

Gazprom’s purchase of a controlling stake in Sakhalin-2 at a knockdown price amounts to renationalization of the offshore fields and this is at odds with the EBRD’s role of helping the former Soviet bloc move toward a market economy, analysts said.

State-backed Japan Bank for International Cooperation and Britain’s Export Credits Guarantee Department said Friday that they were still considering whether to extend financing to Sakhalin-2.

A number of banks, including ABN-Amro and Royal Bank of Scotland, are also considering loans, said James Leaton, an oil and gas policy officer at environmental group WWF.

After years of badgering the EBRD, the nongovernmental organizations will now target their campaigning on these other lending institutions.

Some analysts say Russian control of Sakhalin-2 will make it harder for NGOs to exert influence over the project.

Leaton said he was not concerned about a loss of NGO influence. “Shell hasn’t responded to our suggestions, so I don’t think that it can get worse,” he said.

One environmental benefit of the involvement of Gazprom is that the island is now more likely to have a gas network installed, Lisitsyn said.

Currently, Sakhalin generates power and heat by burning low-grade coal at a plant in the capital, Yuzhno-Sakhalinsk.

“You cannot imagine how dirty the air in our city is in the winter. We really need the gas, at least for the Yuzhno power station,” Lisitsyn said.
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