The business consortium developing Russia’s controversial Sakhalin II oil and gas project has withdrawn from efforts to secure export credits from two government agencies, prompting suggestions that the $22billion (£11bn) scheme is becoming off-limits for lenders concerned about its social and environmental impacts.
Sakhalin Energy, the consortium that includes Shell and is led by Russian gas giant Gazprom, will no longer pursue applications to Britain’s Export Credit Guarantee Department (ECGD) and the US-based Export-Import Bank (Ex-Im) for millions of dollars in credits because ‘their involvement in the financing now risks additional delays’.
An alliance of campaign bodies, including Bank-Track, Pacific Environment, Sakhalin Environmental Watch and WWF-UK, called the abandoned attempt at seeking public-backed financing a ‘victory’.
They claim that both export credit agencies had been on the brink of refusing credit to the project on social and environmental grounds, and that Sakhalin Energy was privately offered the face-saving option of withdrawing its applications.
The ECGD told EP
that at the time the application had been withdrawn, the agency ‘had not completed its assessment of the project, and so had not made a decision on whether it met the criteria for support’.
Sakhalin II, the world’s largest integrated oil and gas project, has been criticized for its impact on endangered western grey whales, wild salmon spawning grounds and indigenous fishing communities around Sakhalin Island in eastern Russia.
‘We are happy that Ex-Im Bank and ECGD ultimately did not support a project that would compromise the integrity of their environmental policies,’ said Doug Norlen, policy director of Pacific Environment. ‘However, the banks had a responsibility to state their rejection publicly, rather than sneaking out the back door by asking Sakhalin Energy to withdraw its application.’
The campaign groups claim the latest move will increase the likelihood that other lenders will decline to become involved – and may even prompt backers such as the Japan Bank for International Co-operation (JBIC) to reconsider their support.
The financial setback is not the first for Sakhalin II. Last year a $300million loan it had sought from the European Bank for Reconstruction and Development was rejected, though not officially on social and environmental grounds (EP8, issue 9, p3
). However, Igor Ignatiyev, Sakhalin Energy’s Moscow chief, said the consortium was still in talks with lenders. He added that JBIC will remain the largest contributor, although the volume of its financial support has not been disclosed.
With 60 public institutions and private banks having now adopted the Equator Principles, a framework for incorporating environmental and social considerations into project financing, campaign groups believe it will become increasingly difficult for Sakhalin Energy to find financial partners. However, ABN Amro committed $1billion to the project prior to its acquisition by the Royal Bank of Scotland, and both banks are signatories to the principles.