EBRD will not help fund Gazprom-led Sakhalin-2 energy project

The European Bank for Reconstruction and Development said Tuesday it had pulled out of funding the giant Sakhalin-2 energy development off Russia's Pacific coast, as the project's new majority owner, state-controlled gas monopoly Gazprom, hurried ahead with its financing plans.

The decision was unlikely to have any effect on the implementation of the project. The EBRD had reportedly been considering a loan of US$300 million (EUR 217 million) to the project - a small portion of the US$20 billion (EUR 15 billion) it is expected to cost overall.

The EBRD has a rigorous system for vetting loans that takes into consideration any environmental issues surrounding the projects it might fund. At the far eastern island of Sakhalin where the project is based, environmentalists have raised concerns about its impact of work and infrastructure on salmon-spawning rivers and the summer feeding grounds of rare gray whales. In June 2005 the EBRD delayed its approval over possible problems with the project's pipeline.

"The EBRD withdrew from active consideration of the project in January because there was a significant change of shareholding ... and the new shareholders were reviewing financing plans," the bank said in a statement.

"In informal discussions with the EBRD since then, it became clear that in the light of the timetable envisaged by the shareholders, the financing from the EBRD was not feasible."

Gas giant Gazprom agreed to acquire a controlling stake in Sakhalin-2 in December, nudging Royal Dutch Shell PLC into a minority position. The deal came after environmental regulators threatened to pull the project's license over ecological concerns. Since the deal, questions over the future of the project's license have not been raised on environmental grounds.

Financing talks had moved on "significantly" and could be concluded in the "coming months," Gazprom said in a statement. "The EBRD's decision will not be a factor that hinders the project," it said.