16 January 2007
The European Bank for Reconstruction and Development (EBRD) has decided not to fund the largest oil and gas project in the world, Sakhalin II, on Russia’s Far Eastern island after several years of consultations.
Gazprom’s recent acquisition of a majority of shares in the project has changed the nature of the project and the dynamics of the consortium, also changing their approach to financing. The EBRD says that this makes funding the project at this point unrealistic, and also claims that the closer the project gets to completion, the less the EBRD can really contribute. They do state, however, that if the new stakeholders were to meet the EBRD’s requirements and reapply for financing, that they would reconsider.
The hotly debated issue of public financing of the project evokes mixed responses from the NGO community. While many say that this is an important positive step towards moving public money away from oil and gas projects, others are skeptical that it will bring any meaningful change. Nonetheless, civil society groups working on the issue call for potential contributors to the Sakhalin project such as U.S., U.K. and Japanese export credit agencies as well as private banks to follow the EBRD’s lead and not participate in the project.
Though the EBRD claimed that it was the consortium’s ownership structure, the project also violates the bank’s own environmental standards and Russian law. The decision was expected since the state-owned gas monopoly Gazprom took majority ownership of the project. The EBRD could not have continued to finance the project without facing serious criticism for the environmental abuses discovered not only by the host government, international environmental groups, but also the bank’s own Environmental Department.
Additional Resources
- Press release, EBRD, January 11 (EBRD website)
- CEE Bankwatch Press Release, January 15 (Bankwatch website)
- 50% Share of Sakhalin energy was purchased by Russian ‘Gasprome’ for seven and half million USD, Imedinews, January 15 (Imedinews website)
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EBRD drops work on loan for Sakhalin-2, January 12 (Financial Times website)
- Bank withdraws Sakhalin support, BBC News, January 12 (BBC News website)
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Bank will not finance Russian gas project, January 12 (New.com.au website)
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EBRD will not finance Russian gas project, AFP, January 11 (Yahoo News website)