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Green groups welcome EBRD Sakhalin-2 pull-out

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Green groups welcomed an international development bank's decision not to invest in the Royal Dutch Shell Plc operated Sakhalin-2 oil and gas project, but said on Friday they will focus their pressure on commercial banks and government lenders considering loans.

The European Bank for Reconstruction and Development said on Thursday it had ended discussions on the project, which is expected to cost over $20 billion, after Russian state-owned Gazprom agreed to become majority owner.

Environmentalists have long criticised Shell's management of the project, saying it poses risks to the endangered Western Gray Whale and that it has caused damage to rivers and forests on Sakhalin Island off the Pacific coast of Russia.

"I, as well as my colleagues, welcome this decision very much," Dmitry Lisitsyn of Sakhalin Environmental Watch said in an email from the island.

"Sakhalin Energy is not able to meet the high international standards and to follow the Russian environmental legislation."

While the EBRD was under pressure to rule the project did not meets its strict environmental and social criteria for lending, the decision to pull out was prompted by the new shareholder structure.

Gazprom's purchase of a controlling stake in Sakhalin-2 at a knock-down price amounts to renationalisation of the offshore fields and this is at odds with the EBRD's role of helping the former Soviet bloc move toward a market economy, analysts said.

State-backed Japan Bank for International Cooperation (JBIC) and the UK's Export Credits Guarantee Department (ECGD) said on Friday they were still considering whether to extend financing to Sakhalin-2.

A number of banks, including ABN AMRO and Royal Bank of Scotland (RBS), are also considering loans, James Leaton, oil and gas policy officer at environmental group WWF, said.

After years of badgering the EBRD, the non-governmental organisations (NGOs) will now target their campaigning on these other lending institutions.

"We'll be making sure they're in full possession of the facts," Leaton said.

A spokesman for ABN said the Dutch bank was undertaking environmental due diligence before making a loan decision. RBS declined immediate comment.

Some analysts say that Russian control of Sakhalin-2 will make it harder for NGOs to exert influence over the project.

The Russian oil industry has a poor environmental record compared with other countries, environmentalists say, while, under President Vladimir Putin, Russia has taken moves to limit the influence of NGOs.

Leaton said he was not concerned about a loss of NGO influence. "Shell hasn't responded to our suggestions so I don't think that it can get worse," he said

One environmental benefit of the involvement of Gazprom, whose core business is selling gas cheaply to consumers across mainland Russia, is that the island is now more likely to have a gas network installed, Lisitsyn said.

Currently, Sakhalin generates power and heat by burning low-grade coal at a plant in the capital, Yuzhno-Sakhalinsk.

"You cannot to imagine how dirty the air in our city is in winter. We really need the gas, at least for the Yuzhno power station," he said.

Shell declined comment on the EBRD's decision.

Until the stake sale completes, Sakhalin-2 is controlled by oil major Royal Dutch Shell Plc while Japanese firms Mitsui and Mitsubishi hold the balance of the shares.

© Reuters

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