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Sakhalin II decision could be big test for Equator Principles

March 2006

One of the biggest tests yet is looming for the Equator Principles on ethical project finance lending, following a decision by the European Bank for Reconstruction and Development to conduct a four-month consultation on whether to provide money for the controversial Sakhalin II oil and gas project in eastern Russia.

The EBRD began the consultation after seeing documents on the project’s social and environmental impacts produced by the Sakhalin Energy Investment Company, which is 55 per cent owned by Shell and 25 per cent and 20 per cent respectively by the Japanese corporations Mitsui and Mitsubishi.

Despite protests from many non-governmental organizations, including WWF, the company’s documentation on the environmental, social, health and safety impacts of the project was deemed ‘fit for the purpose of consultation’.

The bank’s decision is expected to influence the decisions of other potential lenders, including the 39 public institutions and private banks that endorse the Equator Principles, a framework for incorporating environmental and social considerations into project financing. Many of the world’s biggest banks, including recent signatories Caja Navarra (Spain) and the Bank of Tokyo-Mitsubishi (Japan), have signed up to the principles, committing themselves to incorporate environmental and social criteria when deciding whether to provide loans for projects worth more than $50million (£28m).

There has been widespread criticism of Sakhalin II, the world’s biggest oil and gas project, relating to the impact on biodiversity and the livelihoods of local people. WWF says it will put pressure on endangered whales in the area, disrupt local fishing and interfere with salmon spawning areas.

Ian Craig, Sakhalin Energy’s chief executive, said the company had adopted ‘rigorous environmental and social standards’, had recently rerouted an underwater pipeline to minimize damage to whale habitats, revised its strategy to protect the salmon population, and developed a plan to reduce impacts on indigenous people, particularly in relation to fishing.



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