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Sunday Express: Shell faces loan freeze over Sakhalin fiaso

By Tracey Boles
Sunday 24 September 2006

Banks delay multi-billion dollar loan to oil giant

SHELL bosses have been dealt an unprecedented blow by international lenders who are threatening to freeze up to $5 billion in funding for its flagship Russian project.

The threat is due to a legal wrangle following Russia’s decision last week to pull a
crucial environmental licence for Sakhalin, the mammoth Siberian oil and gas development.

The Anglo-Dutch oil giant was hoping to finance the next phase of its operation on the island of Sakhalin from a consortium of banks, including the European Bank For Reconstruction And Development (EBRD), the Japanese development bank JPIC and the US Import Export Bank.

Last week EBRD decided to postpone a decision on its share of the loan. State-backed JPIC is reviewing its position.

Shell heads the Sakhalin Energy consortium, developer of a controversial $20 billion oil and gas project on the island off the Siberian coast. Japan’s Mitsui and Mitsubishi are minority partners.

“Until there is clarity as to the status of the Russian environmental permit there won’t be a decision either way,” said an EBRD spokesman.

The loan decision had been expected this month or next but the bank is said to be divided on whether a loan of around $500 million should be made at all, with some feeling the project does not meet its strict environmental standards.

JPIC’s London spokesman Kohei Doyoda said: “The issue of environmental permits will affect our decision. EBRD’s decision will also affect what we do. But I don’t know how yet.”

Loss of the licence also led Britain’s Export Credits Guarantee Department to put off a decision on insuring the project with taxpayers’ money.

The Sakhalin project, now $10 billion over budget, drew fire because of claims it impinges on feeding grounds of an endangered whale species and salmon spawning grounds. It also allegedly caused erosion and landslides by laying 800 km of pipeline.

Shell believes it has addressed all environmental issues raised so far and is said to be keen on EBRD involvement to boost the project’s green credentials.

Failure to secure the loans may mean Shell, its partners and the Russian government must stump up the money themselves. The funds are needed for Sakhalin’s development costs until 2014.

Early this week, Russia’s federal agency for environmental, technological and nuclear control (a second environment agency), is expected to back its natural resources ministry in revoking Shell’s licence after inspections revealed workers allegedly went into protected forests on Sakhalin.

Shell declined to comment. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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