THE SHELL LEAKS FILES
SLF-2007-023
The Sakhalin Papers XIII: The British Government File — Export Credits, Environmental Warnings and the High Court Challenge
Archive reference: SLF-2007-023
Collection: The Sakhalin Papers
Principal record: UK Export Credits Guarantee Department records, Parliamentary evidence, Administrative Court papers and official Shell filings
Supporting record: Contemporaneous parliamentary statements and press reporting
Evidence standard: Government records, court documents and corporate filings are distinguished from campaign allegations and editorial commentary. Two separate legal proceedings are identified separately to avoid attributing a judgment from one case to another.
Introduction
The Sakhalin-2 documentary trail did not stop in Moscow.
Years before the confrontation between Shell and the Russian authorities reached its climax, the British Government had already become deeply involved in examining whether the United Kingdom should provide export-credit support for the project.
The involvement was not peripheral.
In February 2003, the Export Credits Guarantee Department — ECGD, then the UK’s official export credit agency — classified Sakhalin-2 as sufficiently sensitive to seek views across Whitehall. DEFRA, DFID, the Department of Trade and Industry, the Foreign and Commonwealth Office, the Ministry of Defence and what later became UK Trade & Investment were notified. The Foreign Office, DEFRA and DTI responded.
Approximately US$650 million of project finance was being sought. Mr Justice Mitting would later record in the High Court that the project potentially had a major impact on the habitat and feeding grounds of the endangered Western Grey Whale.
And there was another important fact.
Shell was not a remote supplier to this project.
An official Shell filing with the US Securities and Exchange Commission in May 2003 described Sakhalin Energy Investment Company as a 55 per cent Royal Dutch/Shell Group company. Shell’s own filing described Phase 2 as a project then expected to require approximately $10 billion of investment.
The British Government therefore had before it an application involving one of the world’s largest energy companies, one of the largest foreign investments in Russia, major UK contracts, substantial environmental controversy and ultimately a project that would become entangled in a geopolitical struggle for control.
What happened inside Whitehall deserves its own archive file.
1. February 2003: Whitehall Opens the File
The later High Court judgment provides an unusually clear starting point.
ECGD was a Department of State operating under the Export and Investment Guarantees Act 1991. In particularly complex or sensitive cases, it sought views from other government departments before deciding whether to provide support.
Sakhalin-2 was one of those cases.
On 28 February 2003, ECGD notified:
DEFRA, DFID, DTI, the Foreign Office, the Ministry of Defence and TPI, subsequently known as UKTI.
Responses came from the Foreign Office, DEFRA and DTI.
That establishes an important point.
Documentary fact
UK government oversight of Sakhalin-2 was underway by early 2003 and extended across several government departments.
This was not simply Shell negotiating privately with an export-credit bank.
Environmental, diplomatic and trade-policy considerations were being examined within government.
2. Shell’s Own Filing Shows the Scale of the Project
Shell’s May 2003 SEC filing announced the decision to proceed with Sakhalin-2 Phase 2.
It described Sakhalin Energy as 55 per cent owned by the Royal Dutch/Shell Group, with Mitsui holding 25 per cent and Mitsubishi 20 per cent. The filing called Sakhalin-2 the largest single foreign direct-investment project in Russia and put expected Phase 2 investment at approximately $10 billion.
Shell also stated that the project’s design and construction documentation included a substantial environmental impact assessment then progressing through approval stages.
That corporate record matters because subsequent legal arguments would focus heavily on when environmental assessment was sufficiently complete for ECGD to make any binding commitment.
The timing becomes critical.
3. The Environmental Questions Were Already Public
By February and March 2004, ministers were answering detailed Parliamentary questions about Sakhalin-2.
The Government acknowledged potential effects upon the Western Grey Whale and said ECGD would take advice from recognised independent whale experts and interested NGOs. Ministers said any agreed whale-protection measures could become contractual obligations if support was eventually provided.
On 5 March 2004, Trade Minister Mike O’Brien said ECGD was still seeking reassurance about such matters as the pipeline’s passage through the whales’ feeding grounds, river crossings, waste disposal and earthquake risks.
He stated that he would approve support only if satisfied that the issues had been addressed.
On 9 March, Parliament was told explicitly that ECGD had consulted DEFRA, DFID and the Foreign Office concerning Sakhalin-2.
What the public did not know was that a significant document had already been issued.
4. The 4 March 2004 Letter
The later judicial-review papers identify the document precisely.
On 4 March 2004, ECGD granted conditional support in relation to a series of preliminary contracts between Sakhalin Energy and UK suppliers.
The legal grounds filed by WWF and The Corner House described the decision as an exercise of the Secretary of State’s power under section 1(1) of the Export and Investment Guarantees Act 1991.
The importance of this letter should neither be exaggerated nor minimised.
It was not an issued £/$ guarantee covering the entire Sakhalin-2 project.
The later court papers describe it as conditional support relating to specified UK supply contracts.
But it was more than a casual expression that ECGD might one day be interested.
That became clear from ECGD’s own subsequent explanation.
5. “ECGD Is Bound by the Terms of That Letter”
On 15 March 2007, ECGD explained its legal position in correspondence later reproduced in the judicial-review papers.
ECGD stated that in March 2004 it had confirmed to Sakhalin Energy that, subject to specified conditions, it would provide support for financing payments under eligible UK supply contracts.
The crucial sentence was:
“As ECGD is bound by the terms of that letter, it has committed itself to support the financing of the relevant contracts if the conditions set out in that letter are satisfied”
That is not a characterisation invented by environmental campaigners.
It is ECGD’s own position as reproduced in filed Administrative Court grounds.
This creates one of the most interesting documentary tensions in the British Sakhalin file.
Because at the same time, ECGD continued to insist that no decision had yet been made whether to support Sakhalin-2 as a project.
6. Commitment — But No Decision?
The distinction sounds contradictory until the two propositions are separated.
ECGD’s position was essentially that:
a binding conditional commitment had been made in relation to specified eligible UK contracts, but
a substantive/final decision whether the project as a whole satisfied the outstanding conditions for ECGD support had not yet been made.
On 13 June 2007, ECGD supplied the 2004 decision letter to campaigners but simultaneously maintained that no decision had been made “to support the Project”, because it had not completed its assessment of whether the conditions had been satisfied.
The distinction subsequently appeared in official government publications.
ECGD’s 2006-07 Annual Review said it continued to consider support for the then $21 billion Sakhalin-2 project and that, as of publication, a decision had yet to be taken.
As late as January 2008, minister Malcolm Wicks told Parliament:
“ECGD has not made a decision on support”
and said environmental, financial and technical considerations remained under examination.
Documentary assessment
There is documentary support for both propositions.
There was a 2004 conditional commitment covering qualifying contracts.
There had not yet been a final substantive determination that ECGD would underwrite the overall project-finance package.
The controversy was partly about whether the public and interested parties had been given a sufficiently clear account of that distinction.
7. The Government’s Own Environmental Warnings
The next part of the story did not become fully visible until disclosure litigation forced internal departmental responses into the open.
Contemporaneous reporting in The Independent in April 2008 described documents showing that DEFRA had raised substantial concerns as early as March 2003 about possible effects on the endangered whale population, oil spills, salmon stocks and waste disposal. The Foreign Office likewise warned that environmental effects, particularly oil-spill and whale impacts, could be significant.
The same concerns subsequently entered the Parliamentary record through written evidence submitted by WWF and The Corner House to the Environmental Audit Committee.
Their evidence reproduced DEFRA’s preliminary assessment that the potentially severe local environmental consequences, particularly for the endangered whales and biodiversity, were not offset by the project’s possible positive climate effects.
This needs a qualification.
Established fact
DEFRA and the Foreign Office raised environmental concerns internally.
Not established by that fact alone
It does not follow automatically that ECGD ignored those concerns.
Government assessment continued for years, involved consultants and site visits, and no final project guarantee was ultimately issued.
The legitimate historical question is therefore not simply whether Whitehall knew about environmental risks.
It plainly did.
The question is how those warnings were weighed against the proposed export and financing benefits.
8. The Oversight Was Extensive
Whatever criticisms may be made of the process, it would be inaccurate to portray ECGD as performing no environmental review.
Its own 2006-07 Annual Review states that the largest part of the Business Principles Unit’s resources that year was devoted to the continuing Sakhalin-2 review, and that a number of site visits were made.
The following year’s Annual Review said ECGD’s Management Board had spent considerable time assessing developing evidence about environmental and social impacts.
That is substantial institutional involvement.
It also explains why the lack of transparency over the earlier interdepartmental warnings became so contentious.
The argument was not that government had failed to open a file.
The argument was over what was inside the file, what had been decided, and what outsiders were entitled to know about it.
9. The First Legal Battle: Friends of the Earth and the Hidden Departmental Advice
This is where two separate court disputes must be kept apart.
The first concerned disclosure.
Friends of the Earth asked ECGD in March 2005 for the departmental correspondence generated after Sakhalin-2 had been designated a potentially sensitive project.
ECGD disclosed its own request for views but refused to release the three departmental responses, relying on the Environmental Information Regulations exemption for internal government communications.
Friends of the Earth challenged the refusal.
The Information Commissioner initially upheld ECGD’s position.
Friends of the Earth then appealed to the Information Tribunal.
The Tribunal ruled that the departmental responses should be disclosed.
ECGD appealed that decision to the High Court.
The resulting case was:
Export Credits Guarantee Department v Friends of the Earth [2008] EWHC 638 (Admin)
Mr Justice Mitting examined the competing public interests in confidential internal governmental advice and disclosure.
He accepted that confidentiality between government departments can carry genuine public-interest weight. He also found that the Tribunal had expressed parts of its reasoning imperfectly.
But he did not overturn its ultimate decision.
On 17 March 2008, he concluded:
“For the reasons which I have given, this appeal is dismissed.”
The departmental responses therefore had to be disclosed.
That judgment is an actual High Court determination.
10. What the High Court Did Not Decide
This distinction is crucial.
Mr Justice Mitting did not rule that ECGD’s support for Sakhalin-2 was unlawful.
He did not decide that Shell or Sakhalin Energy had breached environmental law.
He did not quash the March 2004 conditional-support letter.
The case was about whether government departmental responses had to be disclosed under environmental-information law.
The High Court left the Information Tribunal’s disclosure order intact.
That is important because the Sakhalin archive contains a second legal challenge, and the two should never be merged into one.
11. The Second Legal Battle: WWF and The Corner House
The second proceeding was a judicial-review application brought by WWF and The Corner House Research against the Secretary of State for Business, Enterprise and Regulatory Reform.
Its focus was the legality of the 4 March 2004 conditional-support decision itself.
The claimants argued, among other things, that the Secretary of State may have:
predetermined the statutory requirement that ECGD support should facilitate British exports; committed to support before the environmental assessment was complete; failed adequately to consult or disclose the 2004 decision; and placed himself under a binding commitment whose legality they disputed.
They sought a declaration that the 2004 decision had no legal effect or alternatively an order quashing it, together with an order preventing support for the preliminary contracts.
These were grounds advanced by the claimants.
They were not judicial findings.
That qualification determines how the case should be described historically.
12. The Environmental Assessment Question
The judicial-review papers alleged that the environmental impact assessment required under ECGD policy was incomplete when the March 2004 commitment was made.
The claimants argued that entering a binding conditional arrangement before the EIA was complete created a legal difficulty, particularly because some relevant contracts were already underway.
This issue went to the heart of the dispute.
Could an export-credit agency make a binding commitment to support qualifying contracts, subject to later environmental conditions, while still telling stakeholders that no project-support decision had yet been reached?
WWF and The Corner House said the process was unlawful.
ECGD maintained that the project as a whole remained under assessment.
The court never had to determine which legal analysis was correct.
13. Sakhalin Energy Withdraws
On 29 February 2008, Sakhalin Energy withdrew its application for ECGD support.
The official 2007-08 ECGD Annual Review later recorded that the company withdrew before ECGD was in a position to take its substantive support decision. It said ECGD had been considering the $21 billion project since 2003.
Once the application disappeared, WWF and The Corner House decided not to proceed with their judicial review.
Their subsequent evidence to Parliament explicitly recorded that decision.
Consequently:
No merits judgment exists in that judicial review.
There was no High Court ruling declaring the 2004 conditional-support decision lawful.
There was no High Court ruling declaring it unlawful.
The claim became effectively academic because Sakhalin Energy no longer sought the financing.
This evidential boundary matters.
14. The Two Cases in One Sentence
For clarity:
Friends of the Earth won the disclosure battle when ECGD’s High Court appeal was dismissed.
WWF and The Corner House did not obtain a judgment on the legality of ECGD’s 2004 conditional commitment because Sakhalin Energy withdrew its application and the judicial review was discontinued.
Those are separate proceedings with separate outcomes.
Any historical account that says a British court ruled the original Sakhalin financing commitment unlawful would therefore be incorrect.
15. What Was Really Being Guaranteed?
There is another detail easily lost beneath the rhetoric.
The March 2004 decision concerned preliminary contracts between Sakhalin Energy and UK suppliers.
The statutory power relied upon by the Secretary of State existed to facilitate UK businesses supplying goods or services overseas. The judicial-review papers describe ECGD support mechanisms as forms of credit or guarantees designed to reduce the commercial risks associated with exporting.
The case was therefore not primarily about the British Government writing Shell a cheque.
It concerned whether the state would assume financial risk connected with qualifying export contracts if specified conditions were met.
That remains significant taxpayer-backed support.
But precision matters.
Conditional export-credit support is not the same thing as a cash subsidy, and a conditional commitment is not the same thing as an issued guarantee.
16. What Whitehall Knew
By assembling the records chronologically, the scale of British government knowledge becomes clearer.
By 2003-04, Whitehall knew that:
Shell held a majority interest in the Sakhalin Energy consortium; the project was enormous; ECGD had been asked to consider hundreds of millions of dollars of project finance; the development raised significant questions involving Western Grey Whales, oil spills, fisheries, river crossings and seismic risk; DEFRA and the Foreign Office had expressed environmental concerns; and the project was regarded as sensitive enough to require interdepartmental consultation.
By 2006-07, ECGD’s own specialist unit was devoting more of its resources to Sakhalin-2 than to any other project under review and was carrying out site visits.
This is not merely evidence of awareness.
It is evidence of sustained governmental oversight.
17. The Donovan Archive Reaches Parliament
There is an additional archival connection.
When WWF submitted evidence to the House of Commons Environmental Audit Committee in 2008, its supporting references included a January 2008 article published on royaldutchshellplc.com concerning Sakhalin-2 whistleblower warnings.
That citation does not mean Parliament endorsed the article or adopted its allegations as findings.
Parliament was publishing evidence submitted by an external organisation.
But it does demonstrate something historically interesting.
The documentary route had now broadened again:
Shell and Sakhalin documents → whistleblowers and campaigners → Russian regulators and international media → UK government scrutiny → court proceedings → Parliamentary evidence.
The archive was becoming interconnected across institutions that had very different interests in the project.
18. Contemporaneous Journalism After Disclosure
When the departmental material finally emerged following the disclosure litigation, The Independent reported on 13 April 2008 that internal government documents had revealed substantial environmental warnings predating the March 2004 conditional-support letter.
The newspaper portrayed the episode aggressively, arguing that Britain had agreed conditional backing despite the environmental advice.
The underlying documents justify the narrower statement that serious warnings existed and that conditional support was nevertheless issued.
Whether that constituted improperly “ignoring” the warnings is an interpretation.
The subsequent years of ECGD assessment, site visits and environmental review complicate any claim that the concerns were simply discarded.
This is exactly why the documentary record should be separated from headline language.
19. Documentary Findings
Established fact
The British Government began interdepartmental consideration of Sakhalin-2 by February 2003.
Shell then held a 55 per cent interest in Sakhalin Energy.
Around $650 million in project finance was sought.
DEFRA, the Foreign Office and other departments were consulted.
ECGD issued conditional support for specified qualifying UK contracts on 4 March 2004.
In 2007 ECGD itself described that letter as binding if its conditions were fulfilled.
Government officials simultaneously maintained that no substantive/final project-support decision had yet been taken.
Established by court record
Friends of the Earth successfully resisted ECGD’s attempt to keep departmental responses confidential. The Information Tribunal ordered disclosure, ECGD appealed, and the High Court dismissed that appeal in March 2008.
Alleged in judicial-review proceedings, but never adjudicated
WWF and The Corner House alleged that the March 2004 conditional-support decision was unlawful for several reasons, including its timing, statutory basis, environmental-assessment status and lack of consultation.
Those allegations never produced a merits judgment because Sakhalin Energy withdrew its application before the hearing proceeded.
Not established
There is no basis in the records examined here for saying that the UK Government financed Sakhalin-2 in the end.
There is no judgment holding that ECGD’s 2004 conditional commitment was unlawful.
There is no evidence that the UK Government caused Shell to lose control of Sakhalin Energy.
And the fact that government departments expressed environmental concerns does not by itself establish that the completed project breached the standards those departments were considering.
Commentary
The most revealing feature of the British Government file is not a spectacular smoking gun.
It is the gap between different meanings of the word “decision.”
To an ordinary reader, a government agency saying in writing that it is legally bound to provide support if specified conditions are met sounds very much like a decision.
To ECGD, the major substantive decision — whether the conditions were satisfied and the overall project should actually receive support — still lay ahead.
Both propositions can coexist legally.
But the distinction was sufficiently opaque that campaigners spent years seeking documents, pursued information proceedings to the High Court and then launched a separate judicial review of the underlying conditional commitment.
That is the real documentary story.
Not that Whitehall knew nothing.
Whitehall knew a great deal.
Not that there was no oversight.
There was extensive oversight.
The controversy was over what the Government had committed itself to, when it had done so, what environmental advice it had received beforehand, and how much of that process the public was entitled to see.
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