Bankers working on Sakhalin II, one of the largest ever project finance deals, arrive at this weekend’s EBRD annual meeting supremely confident of the deal’s success – so much so that environmental NGOs fear that the bank’s consultation process is little more than window dressing.
EBRD president Jean Lemierre has said the bank will decide “between June and September” whether to participate in the financing for the $20 billion natural gas project operated by Shell in the Russian far east. But commercial bankers told Emerging Markets this week that there is no serious doubt that the deal will go ahead.
The Russian government, which in the past has clashed with Shell over cost overruns, is keen to push the project forward, now that Shell has agreed to swap a stake in it with Gazprom in return for an interest in west Siberian gas production. One source said: “Given the friction between the US and Russia since [vice-president Dick] Cheney’s speech [criticizing Russia’s energy strategy], we are being told that [Russian president Vladimir] Putin wants to go to the G8 summit in St Petersburg and report that Sakhalin is moving ahead.”
Discussions between banks, the EBRD, the Japanese Bank for International Cooperation and several export credit agencies, have led to an agreement that the $6 billion debt financing will be split into three tranches: $3 billion from JBIC; $1.4 billion from development banks and ECA-backed finance; and a $1.6 billion, 16-year commercial loan. The possibility that part of the deal might be sold into the capital markets, discussed previously, has been dropped.
Bankers close to the deal confirm that an expanded group of mandated lead arrangers has been formed for the commercial portion, including BNP Paribas, ABN Amro, the Royal Bank of Scotland, ING, Sumitomo, Mizuho and Bank of Tokyo-Mitsubishi. CSFB has been advising the project company, Sakhalin Energy. Due diligence procedures are in progress.
The EBRD is now surveying the results of its public consultation procedure, which ended in April. An alliance of environmental NGOs and community groups has urged the bank not to support the project because of potential damage to grey whale feeding grounds and onshore salmon habitats; they dispute Shell’s claims that their objections have been met.
Doug Norlen of Pacific Environment told Emerging Markets: “Shell is not following the recommendations of the panel of experts on whale habitats that the company itself agreed to consult, for example on halting construction work in the vicinity of whale feeding grounds. Nor has it followed recommendations on reducing acoustic impacts on the whales.
“We are afraid that the EBRD, with the bankers on one side and us on the other, is talking out of both sides of its mouth.”