Material Breach: Environmental Consultant Report on Sakhalin II Phase 2

A Review of AEA’s Independent Environmental Consultant Final Report to Agency Lenders Regarding Sakhalin II Phase 2

Prepared by Pacific Environment and Sakhalin Environment Watch
November 7, 2007

EXTRACTS

At an October 8, 2007 Moscow press conference, SEIC announced that the “independent” Report gives Sakhalin II a “clean bill of health.” However, a review of the Report confirms that it is neither independent, nor does it give Sakhalin II a clean bill of health.

…the Report records systematic and chronic violations of policies and standards of international lenders and other standards. Furthermore, the Report documents how SEIC has subverted key environmental assessment processes relevant to international lenders in order to make the results of these assessments meaningless. Finally, the Report documents that if public international financing is provided to SEIC for Sakhalin II, SEIC would be in immediate default on contractual terms of the financing due to numerous material breaches of the international lenders’ policies and standards agreed to by SEIC.

Since 2001 the UK-based consulting firm, AEA, has worked under contract with the Bermuda-registered Sakhalin Energy Investment Company, Ltd. (SEIC) to review the environmental and social impacts of the Sakhalin II oil and gas project, located at Sakhalin Island, Russian Far East. This review is required by public financial institutions which are considering financing for the project.1 In September, 2007, SEIC released an AEA report, entitled, “Independent Environmental Consultant Final Report – Agency Lenders: Sakhalin II Phase 2 Project Health, Safety, Environmental and Social Review” (hereafter “the Report”).

While the Report is a requirement of potential public lenders, it is not an independent report commissioned by these lenders. Rather, the Report was financed by SEIC; it lists SEIC as its “customer;” and states that it was prepared based on a contractual Terms of Engagement issued by SEIC.2 Efforts to obtain the public disclosure of this Terms of Engagement have been unsuccessful. While this method of developing consultant reports for lenders has become common practice, the resulting conflict of interest nonetheless renders the Report as something other than independent.

LINK TO READ THE REPORT

31 PAGE REPORT: SAKHALIN 2: MATERIAL BREACH

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