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EBRD set to reject $300m loan for Sakhalin

The European Bank for Reconstruction and Development is unlikely to approve a loan for the giant Sakhalin 2 oil and gas project in Russia's Far East, following its effective re-nationalisation by the Kremlin, according to officials.

The recent emergence of Gazprom, the Russian state-controlled gas company, as the majority owner of the project "made it more difficult" for the EBRD to approve a $300m loan to the $20bn project, the London-based multi-lateral bank said on Monday.

No formal decision on whether to proceed with a loan has been made yet. With almost 80 per cent of the project completed the EBRD loan would anyway mainly have been of symbolic value.

But formally walking away from the largest energy project in Russia, would be considered a snub to the Kremlin and it's policy of taking control over private sector assets.

Anthony Williams, an EBRD spokesman, said Gazprom's entry into the project in December made the bank's participation harder and "may make it less needed".

The EBRD's brief is to back projects which contribute to the transition towards a free market.

The bank also aims to provide financing where no other commercial source is immediately available. Recent developments in Sakhalin 2 appear to contradict both these rules. Gazprom secured control of the project after months of pressure from the Kremlin on the foreign shareholders who finally agreed to halve their stakes in return for $7.45bn.

Gazprom said that since the EBRD had never lent money to the project, the bank's decision would have little material impact.

The EBRD had been considering a syndicated loan for the Sakhalin 2 project for several years, using it as leverage over shareholders, including Royal Dutch Shell, Mitsui and Mitsubishi of Japan to make them comply with environmental rules.

Non-involvement by the EBRD would be a blow to environmentalists in Russia who relied on the bank to apply pressure to limit damage to the surrounding environment.

© Financial Times

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