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EBRD no longer considering Sakhalin investment

EBRD President Jean Lemierre.jpg

The European Bank for Reconstruction and Development said on Thursday it will no longer consider investing in the $20 billion Sakhalin II energy project after Russian state-owned Gazprom became majority owner.

"We can no longer consider this project because the new shareholder structure and because the majority shareholder has changed," EBRD President Jean Lemierre told reporters.

He said the bank would however remain open to discussing future investments in the world's largest liquified natural gas project (LNG) if approached by the shareholders.

"If in future they want to speak to us we would be ready to speak. The key point will be that the project meets the standards we have," Lemierre emphasized.

The bank said in a statement: "The closer the project comes to completion, however, the less value EBRD financing could add."

Gazprom has taken the majority stake in the company from Royal Dutch Shell in a move that many analysts say amounts to an effective renationalisation.

The other shareholders in the project are Japan's Mitsui and Mitsubishi.

The project has been controversial because environmental groups have alleged for years that it endangered the feeding grounds of the endangered Western Gray whale and damaged rivers and forests on Sakhalin Island off the Pacific coast of Russia.

It ran into more serious trouble by last autumn when the Russian environmental authorities raised their concerns with the former top shareholder Shell. Shell subsequently ceded control to Gazprom at the end of 2006.

The EBRD's potential participation in the project was estimated at around $300 million. It had been considering for the past five years whether to commit funds to the project.

An investment by the bank would have given the project a seal of approval that would have unlocked billions more in commercial funding because of its high standards.

"As a bank and as a public institution we have a job to make money, but also we have standards," Lemierre said.

"We don't know the views of the Sakhalin Energy company," he said adding: "If Gazprom thinks we have a role, then we would have discussions."

Lemierre said the Sakhalin outcome did not reflect on Russia as a whole, and the bank still believes it is a good destination for investment capital.

"In Russia we have to understand what is happening. There are good opportunities... margins are good. It is good business provided some conditions are met," Lemierre said, noting that finding the right partner was important.

Overall investments by the bank are forecast to drop to around 4 billion euros in 2007 from 4.9 billion euros committed last year.

However, investment into Russia, which remains its biggest country of operation, would hold steady. Lemierre said the bank will likely invest between 1.8-1.9 billion euros in 2007, similar to 2006 levels.

The EBRD was established in 1991 to aid the transition of communist bloc countries of the former Soviet Union to market economies.

© Reuters

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