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loan for Sakhalin II project bites the dust

February 2007

A high-profile loan sought by the business consortium developing the controversial Sakhalin II oil pipeline in Russia has failed to be approved by the European Bank for Reconstruction and Development - though not on social and environmental grounds, as campaigners had hoped.

The EBRD had been considering the social and environmental impact of the $20billion (£10.2bn) scheme for more than a year, but finally decided last month not to approve a $300million loan for largely technical reasons rather than concerns about damage to local communities and the environment.

It said it could no longer consider the loan because the recent acquisition by the state-run Russian company Gazprom of a majority stake in the Sakhalin Energy Investment Company had altered the structure of the consortium. The original main shareholders of Sakhalin Energy were Shell, Mitsui and Mitsubishi.

The EBRD's deliberations have been closely watched because have been seen as a major test for the Equator Principles, a framework for incorporating environmental and social considerations into project financing to which the Bank is a signatory. As it is, the nature of the EBRD's decision gives no lead to other potential lenders to the project, including the 39 public institutions and private banks that endorse the Equator Principles.

However, the EBRD claimed its involvement in developing the pipeline had resulted in new commitments on the treatment of indigenous people as well as re-routing of pipelines to help the rare western gray whale that feeds in the surrounding region.




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