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EBRD less likely to give loans to Gazprom-led Sakhalin project

The European Bank for Reconstruction & Development said it's less likely to provide loans to Russia's Sakhalin-2 oil and gas project now that state-run OAO Gazprom will become the major shareholder in the $20 billion venture

Gazprom, Russia's gas export monopoly agreed last month to buy a 50% stake in the venture on Sakhalin Island in eastern Russia from foreign partners Royal Dutch Shell Plc, Mitsui & Co. and Mitsubishi Corp. „This new development makes the thing more difficult and may make the bank less needed for the project,” said EBRD spokesman Tony Williams in London. No decision has been made, he said. The EBRD, which is funded by western governments, was already under pressure from environmentalists who say the project's impact on salmon and whales, and other environmental, social and safety matters, make it unworthy of a proposed loan of about $300 million.

The Sunday Telegraph newspaper reported on December 31 that the bank is unlikely to grant loans now that Gazprom has joined the project, citing an unnamed industry executive. The London-based EBRD was set up by western governments in 1991 to help build market economies in eastern European and former Soviet states. About 80% of its loans are to private sector enterprises. The Hague-based Shell and Japanese partners Mitsui and Mitsubishi will own 27.5%, 12.5% and 10%, respectively, once the equity sale to Gazprom is completed, probably by the end of next month. The project, now 80% complete, is building 800-kilometer pipelines to carry oil and gas from ice-choked offshore platforms to a site that will house Russia's first export terminal for liquefied natural gas.

The deal bolsters Russian President Vladimir Putin's control over the country's energy industry and ends a yearlong campaign in which the government threatened to cancel building permits on environmental grounds and refused to approve project budgets. The EBRD has been monitoring the project since 2002 as part of its due diligence process, including holding public consultations on Sakhalin Island last year. EBRD backing would make it easier for state-owned credit agencies and commercial banks to provide another $7 billion in credit, though Shell says the project will proceed with or without EBRD funding. Regardless of whether financing is granted, the EBRD says its involvement has helped limit environmental damage. „We have worked very close together with all parties to help work toward high environmental standards,” Williams said. (Bloomberg)