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International Herald Tribune: A clean bill of health for Sakhalin-2 energy project in Russia

By Sophia Kishkovsky Published: October 8, 2007

MOSCOW: An environmental impact report produced for potential lenders to the Sakhalin-2 oil and natural gas development project in Russia’s Far East gave an overall green light, with some reservations, to the project.

The report, to be released Tuesday, is important for the viability of the $20 billion project because it allows for a series of multibillion-dollar loans to be exercised.

Sakhalin-2 has been tangled in controversy for years, and the Russian government has cited environmental issues as a reason to exert economic control.

In 2006, Royal Dutch Shell and two Japanese partners sold a controlling stake in the project to Gazprom, Russia’s state-controlled natural gas monopoly, after persistent charges by Russian officials that pipeline construction would be harmful to salmon streams. Gazprom has not faced such problems during its involvement in the project.

The report was produced by AEA Technology, an international consulting firm, for potential lenders to the project: the Export Credits Guarantee Department of Great Britain, the Japan Bank for International Cooperation and the Export-Import Bank of the United States.

The report covered issues ranging from the impact on wetlands and whales to the effect on indigenous populations.

It cited some shortcomings like problems with erosion control, wetland crossings and construction in sensitive zones for bird nesting.

But the report praised the development for “commitments to many specific areas of laudable best practice” and underscored the benefits of Sakhalin-2 for the Pacific island, which is near Japan but has long been known for its poverty.

Because to its proximity to Japan, Sakhalin-2 is regarded as a main source for liquefied natural gas to the country in the future.

“The project will bring economic prosperity to the island, improved infrastructure and other benefits such as new skills and training,” the report said.

Ian Craig, chief executive of Sakhalin Energy Investment, presented the AEA report at a briefing Monday in Moscow. It was being formally released to the public and posted on the Web site www.sakhalinenergy.com on Tuesday.

“Because of the fact that there are many issues and commitments, the report doesn’t focus on what has been done correctly – it is more focused on the areas for improvement,” Craig said.

“But the key for me in this report is that it notes the high level of compliance with the requirements in the area of health, safety, environment and social that was achieved,” Craig said. “It also lists a number of best practices in the Sakhalin-2 project.”

Yuri Trutnev, the Russian natural resources minister, said at a news conference last week that he would be traveling to Sakhalin “around November” to assess the situation.

Nongovernmental environmental organizations in Russia have been highly critical of the course of Sakhalin-2’s development, highlighting the dangers to the region’s whales and rivers and regulatory violations by local contractors.

Evgeny Shvarts, director of conservation policy for the Moscow office of the World Wildlife Fund, stressed by telephone Monday that many problems remained but noted improving lines of communication with the corporate and Russian government participants in the project, including Gazprom.

“There is a dialogue with Craig,” Shvarts said, referring to the Sakhalin Energy chief.

“We can send a letter in the evening and receive an answer in the morning,” he added.

Shvarts said there was a recent meeting in Moscow in which officials from Sakhalin Energy, the government and, for the first time, Gazprom were present for the discussions.

“After meeting with Sakhalin Energy on a high level we discussed this separately with Gazprom representatives on a high level, and now we’re expecting answers,” Shvarts said.

http://www.iht.com/articles/2007/10/08/business/rusoil.php

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