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energycurrent.com: Sakhalin shelves huge funding bid

By Billy Youngson
Filed from Aberdeen 3/4/2008 10:17:02 AM GMT

RUSSIA:  Sakhalin Energy shelved its bid to grab hundreds of millions of dollars of public financing for the world’s largest integrated oil and gas development. Delays in getting approval have led the Gazprom- and Shell-led venture to withdraw applications with the U.S. Export Import (Ex-Im) Bank and the UK Export Credit Guarantee Department (ECGD).
 
The U.S. and British lenders have been studying whether the US$22 billion project meets their funding criteria, with environmental groups such as World Wildlife Fund (WWF) highly critical.  Sakhalin II, located off Russia’s eastern coast, has been plagued by environmental problems, including threats to the endangered Western Gray Whales, damage to wild salmon spawning grounds, and negative impacts to indigenous and fishing cultures.
 
Ivan Chernyakhovsky, a spokesman for Sakhalin Energy, said it was important for finance to be in place before the end of construction, with major work targeted for completion before the end of the year.  The Japan Bank for International Cooperation and commercial banks are expected to finalise project funding in the first half of this year. Sakhalin Energy, the shareholders of which include Japan’s Mitsui and Mitsubishi, plan to raise at least US$5 billion to fund the development.

Sakhalin Environment Watch Chairman Dmitry Lisitsyn said, “Since its inception over a decade ago, Sakhalin II has committed severe environmental violations of these public banks’ policies.  Every day new negative impacts are being seen, including now in Aniva Bay, where project sedimentation is negatively impacting our local scallop fisheries.”

Lisitsyn noted that in 2007 the public European Bank for Reconstruction and Development withdrew its consideration for financing of Sakhalin II in large part because the project could not demonstrate environmental policy compliance.  This came soon after Gazprom took control.

The withholding of Ex-Im Bank and ECGD financing for Sakhalin II greatly increases the political, financial and reputational risks of any other bank still considering financing the project, say environmental campaigners.  Also, the withholding of financing sends a strong message to oil companies seeking approval and financing for highly risky projects in the Arctic region.

WWF’s James Leaton said, “Shell’s consistent failures on Sakhalin II provide a stark example of why oil companies shouldn’t be allowed into vulnerable Arctic regions such as the U.S. Bristol Bay and Chukchi Sea.”

Copyright © 2008, ODS-Petrodata Inc.

http://www.energycurrent.com/index.php?id=4&storyid=9213

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