Consultations with Gazprom ended in nothing

The European Bank for Reconstruction and Development (EBRD) has made a final decision on its non-participation in the Sakhalin-2 project. The EBRD and Gazprom, which owns a controlling stake in the operator company Sakhalin Energy, have stopped their respective consultations. Gazprom announced that the bank’s decision will not affect the implementation of the second stage of the project. Last Tuesday, the European Bank announced that it was no longer considering providing loans to the operator of the Sakhalin-2 project. “By mutual agreement with OJSC Gazprom and other shareholders of the investment company Sakhalin Energy, it was decided that the EBRD will not resume negotiations on financing the Sakhalin-2 project,” the statement says.
The EBRD first announced its refusal to finance the project back in January of this year due to a significant change in the composition of Sakhalin Energy shareholders, when Gazprom consolidated 50% of the shares of the operating company. True, the bank nevertheless decided to hold informal negotiations with the gas monopoly. The EBRD loan was supposed to be approximately $300 million. The total amount of required investment in the second phase of Sakhalin-2 is estimated at $20 billion.
As the bank notes, at present Gazprom and the EBRD believe that “it is preferable to focus efforts on cooperation in the implementation of other projects, in particular, promoting sustainable energy.”
As part of the Sakhalin-2 project, the offshore Piltun-Astokhskoye and Lunskoye fields are being developed (reserves - 150 million tons of oil and 500 billion cubic meters of gas). It is planned to export 8 million tons of oil and 9.6 million tons of liquefied natural gas annually from 2008. All gas is contracted. The shareholding structure of Sakhalin Energy is as follows: Gazprom - 50% plus one share, Shell - 27.5%, Mitsui - 12.5%, Mitsubishi - 10%.
Officially, the European Bank explains their refusal by saying that they will not be able to provide financing within the time frame required by Sakhalin Energy’s work schedule. The Sakhalin Environmental Watch organization, which has repeatedly asked the EBRD not to provide loans for the project due to the fact that the operator of Sakhalin-2 violates the ecological state of the island, believes that it was the failure to comply with environmental measures that was the reason for the European Bank’s decision . “The arrival of Gazprom was just a pretext. The EBRD has been studying the issue of financing the second phase of the project for more than five years, and last year held public hearings on Sakhalin. If he wanted to finance the project, he would have done it a long time ago,” said the Ecological Watch.
Sakhalin Energy previously claimed that the EBRD’s refusal would not negatively affect the development of the Sakhalin-2 project: “It can do without project financing. To date, more than $12 billion has been invested in the project from the funds of its shareholders. And today we have a strong shareholder structure.” Gazprom official Sergei Kupriyanov said on Tuesday that the EBRD’s decision on Sakhalin-2 “will not in any way affect its implementation.”
In its message, the European Bank informed that Gazprom and other Sakhalin Energy shareholders have reached “an advanced stage of negotiations on financing the Sakhalin-2 project and now expect to finalize the financial aspects of the project in the coming months.”
Meanwhile, Otkrytie FC analyst Natalya Milchakova believes that Gazprom will have to make changes to the investment program for the second stage of Sakhalin-2, “and therefore the investment program, after all the changes, will increase to $30 billion from the previously planned $20 billion "
Pavel Usov

Kommersant (Khabarovsk) No. 141 dated 08/09/2007

The EBRD said goodbye to Sakhalin-2