Judicial Review Application
Against the Secretary of State for Business, Enterprise and Regulatory Reform (Sakhalin II)

by WWF-UK and The Corner House

first published 15 August 2007

The Anglo-Dutch petrochemical multinational Shell formally applied in December 2003 and January 2004 to Britain's Export Credits Guarantees Department (ECGD) for financial support to develop two oil and gas fields off Sakhalin Island in Russia's Far East and to build an associated pipeline across Sakhalin Island.

Phase 2 of the Sakhalin II project would enable oil and gas extraction to take place all year round. It includes building an offshore oil platform, an offshore gas platform, undersea pipelines, onshore oil and gas processing facilities, 800 kilometres of onshore pipelines, and one of the world's largest facilities for processing and exporting natural gas and oil.

The Sakhalin II project, which has already been substantially constructed, threatens the critically endangered Pacific Gray Whale, salmon fisheries, internationally-important wetlands and migratory bird habitats. Local communities have been adversely affected without having been consulted or provided with adequate compensation.

Under the Freedom of Information Act, The Corner House obtained a letter written by ECGD to the Bermuda-registered Sakhalin Energy Investment Company (SEIC) on 4 March 2004. The letter confirms that ECGD has approved conditional financial support for $650 million of contracts for two British sub-contractors of SEIC (with interest, the amount of public money at risk amounts to $1 billion according to ECGD's figures). (Until December 2006, Royal Dutch Shell was the majority shareholder of SEIC, but has since sold most of its holdings in the company to the Russian state-owned Gazprom.)

The application for a judicial review -- a court proceeding in which a judge reviews the lawfulness of a decision or action made by a public body -- argues that the ECGD contravened its own policies. In the 4 March 2004 letter, which ECGD since acknowledged to be legally-binding, ECGD gave its conditional support for the project before assessing the environmental and social impacts arising from Sakhalin II. Yet its policies stipulate that support can be given only after such assessments have been made.

ECGD's policies also preclude legally-binding commitments being made at a preliminary stage in assessing whether or not to provide support.

Many of the impacts of the Sakhalin II project cannot be mitigated as construction work has now been substantially completed.

The judicial review application also argues that the 4 March 2004 letter indicates that the ECGD made a decision to support the Sakhalin II project, yet government ministers have continued to tell Parliament that no decision on ECGD support has been taken.

In March 2008, one month before the judicial review was due to be heard in court, Sakhalin Energy withdrew its application for ECGD support, citing "delays in getting financing approval", and specifically referring to the judicial review as one of the factors in the delays. As a result of the company's withdrawal, the legal challenge was also withdrawn.

In 2009, the UK government changed the law governing ECGD [see Industry and Exports (Financial Support) Bill] so as to allow the agency to give financial support an exporter after the goods and/or services have been exported.

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