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Bloomberg: EBRD May Delay Sakhalin Loan Decision on Permit Halt (Update1)

By Stephen Voss

Sept. 20 (Bloomberg) — The European Bank for Reconstruction and Development needs to know whether Royal Dutch Shell Plc’s $20 billion Sakhalin-2 project in Russia has a valid permit before it can decide whether to provide funding.

The bank has already twice delayed its decision on a loan as an internal EBRD team examines whether the oil and gas project in eastern Russia meets its environmental and sustainable development standards.

Russia’s industrial safety inspectorate is expected to authorize by tomorrow a Natural Resources Ministry order canceling a key Sakhalin-2 operating permit on environmental damage grounds, ministry spokesman Rinat Gizatulin said yesterday.

“The bank needs clarity of the status of the permit before it can take a decision,” EBRD spokesman Tony Williams in London said today. “If there is no permit, there is no question of EBRD financing.”

EBRD President Jean Lemierre told reporters on May 10 a decision would probably be made by the end of this month.

The second phase of Sakhalin 2, which is already under construction, includes 800-kilometer (497 miles) of pipelines and Russia’s first liquefied natural gas export terminal.

Influence on Lenders

The EBRD loan of about $200 million would be a small fraction of the cost, though its stamp of approval could influence other potential lenders, lowering overall financing costs. Its decision may influence commercial banks and loan guarantee agencies in the U.S., U.K. and Japan that have been asked to provide about $7 billion in credit.

Williams couldn’t say whether managers at the EBRD would be able to take a decision this month, as planned.

“If management makes a positive decision on Sakhalin 2 then it goes to the EBRD board,” he said. The board would then have 30 days to decide on it, he added.

Shell has a 55 percent stake in the project and the rest is owned by Mitsui & Co. and Mitsubishi Corp. Shell and Russia’s state-run OAO Gazprom have been negotiating an asset swap that would bring Gazprom into the project.

The EBRD was set up by western governments in 1991 to help build market economies in eastern European and ex-Soviet states. Shell shares have fallen about 9 percent in the past month.

To contact the reporter on this story: Stephen Voss in London at [email protected]

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