Eighteen environmental organizations today sent a letter assailing the Japan Bank for International Cooperation (JBIC) and four commercial banks’ reported plan to provide approximately 5.3 billion dollars in financing for the problematic Sakhalin II oil and gas project in the Russian Far East.[1]

The groups are asking JBIC, Bank of Tokyo-Mitsubishi, Mizuho Corporate Bank, Sumitomo Mitsui Banking Corp. and French BNP Paribas to refuse all funding to the Sakhalin II project. According to the letter, Sakhalin II’s environmental damage violates the banks' funding requirements and should be deemed ineligible for loans.

“Sakhalin II has consistently committed severe violations of JBIC and commercial bank environmental and social policies. Financing of Sakhalin II will damage these bank’s environmental credibility and expose them to increased reputational and financial risks,” said Eri Watanabe, FoE Japan.

The environmental groups’ fourteen-page letter cites a litany of examples of violations of bank policies, internationally accepted practice and Russian law that have been documented over several years by a diverse array of professional experts appointed by Sakhalin Energy, public and private banks, international and Russian scientific institutions, and Russian government authorities.

“The broad range of experts that have documented environmental damage and policy violations represents a growing consensus that Sakhalin II is an environmental and social failure,” said Dmitry Lisitsyn, Chairman of the Sakhalin Island-based Sakhalin Environment Watch.

The environmental groups’ letter also stresses that financing by JBIC and the commercial banks consortium for Sakhalin II will be in conflict with decisions against financing by the international banking community:

“Sakhalin II never achieved environmental clearances from the European Bank for Reconstruction and Development, UK Export Credit Guarantee Department and the US Export-Import Bank. The project’s fundamental environmental and social shortcomings contributed to the ultimate unwillingness of these public banks to finance the project.”(from the letter)

Reportedly, JBIC, the Japanese government’s export credit agency, will lead the syndicate of banks which is to provide financing for Sakhalin II this month.

“Financing under such conditions undercuts the international banking community’s efforts to maintain minimal environmental and social policies of public and private banks world-wide,” said Doug Norlen, Policy Director, Pacific Environment.

The letter also presents the results of environmental groups’ fact-finding mission on the pipeline route that they conducted in early June 2008.

“The extensive and ongoing environmental damage that we documented is the result of poor project design and implementation that has also led to over a year’s delay in the completion of the project,” said Lisitsyn.

“Commercial banks should stay out of the project. The fact that multilateral financial institutions and export credit agencies have decided to steer clear of the Sakhalin II project ought to send a signal of warning to private banks: Pursuing this project involves a multitude of complex risks and threats that could do serious damage the banks’ public image, especially in the light of the wide media exposure of mismanagement in Sakhalin II,” said Jeni Tasheva, Campaigner for BankTrack.

Notes:
[1] Sakhalin II is operated by Sakhalin Energy Investment Company, Ltd, which is comprised of Gazprom, Royal Dutch Shell, Mitsubishi and Mitsui.

Further Information:
- Sakhalin II Oil and Gas project
- Find a copy of the letter to the banks here