OUTSTANDING CONCERNS REGARDING ECGD'S HANDLING
OF THE SAKHALIN II PROJECT
Following the withdrawal by Sakhalin Energy
Investment Company Limited (SEIC) of its application for support
from ECGD on 29 February WWF and The Corner House decided not
to proceed with their application for judicial review relating
to that support.
Notwithstanding that withdrawal, we consider
that the issues raised by our application remain relevant and
that our application raises serious questions about the manner
in which ECGD executes its statutory duties.
These issues include the following:
1. ECGD'S "FACILITATING"
It is common ground that in relation to the
SEIC application, the secretary of state was purporting to exercise
his powers under section 1(1) of the Export and Investment Guarantees
Act 1991, namely to make financial arrangements "with a view
to facilitating, directly or indirectly, supplies by persons carrying
on business in the United Kingdom of goods or services to persons
carrying on business outside the United Kingdom".
It appears to us that legitimate questions persist
as to the extent to which ECGD can be said to be fulfilling this
objective in this instance. Despite repeated requests in correspondence,
we were never given a satisfactory explanation as to how, even
at the time of the contested March 2004 conditional support letter
and certainly thereafter, the support offered by ECGD could amount
to "facilitating" British exports given the already
advanced stage of the contracting and construction processes.
In the interests of future transparency, we
believe that absolute clarity needs to be provided on what ECGD
considers to be covered by "facilitating" and that any
decision must include a clear appraisal of the application's compliance
with that fundamental statutory obligation.
2. ECGD'S LACK
The judicial review application arose because,
in March 2004, ECGD gave a commitment to provide support for Sakhalin
II subject to certain conditions being met, yet failed to disclose
this fact or consult interested parties on what was clearly a
significant stage in the application process.
ECGD is under legal obligations with regard
to adequate disclosure and consultation. ECGD has been resistant
to disclosing information, with many Freedom of Information requests
regarding Sakhalin II unduly delayed or refused. It should be
encouraged to review its disclosure, consultation and reporting
policies and improve its performance in these areas.
3. THE NEED
For over three years stakeholders have requested
the initial responses from other Government departments to ECGD's
notification of Sakhalin II Phase 2 as a potentially sensitive
case. ECGD refused to disclose this information. Two court hearings
subsequently confirmed that this was information which should
be released in the public interest.
Upon disclosure we learnt that Defra indeed
had serious concerns, stating in correspondence: "Our preliminary
view on this project is that the potentially devastating effects
of this project on the local environment and in particular on
an endangered population of whales and biodiversity in a sparsely
populated region are not compensated for by the positive effect
of this project".
As the court found, these concerns should have
been disclosed. More to the point, there is little outward evidence
that these views were given due consideration by ECGD in its subsequent
handling of the application.
4. THE LACK
ECGD maintained that no decision had yet been
made on whether to support the Sakhalin project. Yet the March
2004 letter clearly amounted to more than simply a "minded
to" indication of support. The conditional decision had more
significance than was ever acknowledged and had "real world"
effects. In the light of this, there is obviously a need for greater
clarity with regard to the process from start to finish, with
an explanation of when and why "minded to" or conditional
support statements will be issued, and the differences between
these. It should be noted that the current ECGD Case Handling
ProcessInformation Note makes no reference to the category
of legally binding but conditional support decision which was
the subject of contention here. On the contrary, it remains ECGD's
stated policy in the Information Note that preliminary indications
on cover "are given entirely without commitment".
(ESIA) SHOULD BE
As a matter of principle, and based upon European
and domestic authority on ESIA, it is impermissible to take a
binding decision to support a project while leaving ESIA to be
dealt with as a condition subsequent. A decision-maker which applies
an ESIA requirement cannot rely on conditions and undertakings
as a surrogate for the ESIA process. But that is exactly what
ECGD purported to do in the March 2004 letter.
Furthermore, we believe that the ECGD needs
to consider carefully its application of ESIA procedures in situations,
as here, where the developer has already begun construction on
a project. The purpose of imposing ESIA requirements (as ECGD
has chosen to do) is to ensure that adverse environmental impacts
are prevented "at source, rather than subsequently trying
to counteract their effects" (Environmental Impact Assessment
Directive, first recital). In the present instance, with completion
of the final Sakhalin ESIA delayed until over 90% of the project
itself was completed, it should have been ECGD not SEIC that brought
the application to an end.
In the response to WWF's letter before claim,
it was argued that ECGD was not obliged to require ESIA before
making a binding decision on the project (and/or before the project
was carried out). That argument is put forward on the basis of
general statements in ECGD's Case Impact Analysis Process ("CIAP")
and Case Handling Process Information Note to the effect that,
respectively, the CIAP is "not a statement of what will be
done in every case as [ECGD] will exercise its professional judgment
on the basis of the actual circumstances of each individual case";
and (as to the Information Note) that "it is difficult to
provide a succinct statement that will cover every circumstance"although
the Note adds that it "seeks to illustrate the general process
adopted for handling cases".
In general, but certainly in relation to something
as fundamental as the ESIA, we do not believe that the degree
of discretion which ECGD seeks to reserve to itself is acceptable
or can be justified. Having chosen to impose ESIA requirements,
these need to be implemented effectively and consistently. Some
flexibility in process may be necessary but when discretion leads
to uncertainty and possible abuses, such discretions can no longer
be justified and should be curtailed.
7. ECGD'S "CONSTRUCTIVE
ECGD has never rejected an application on environmental
grounds. The reason for this is set out in Para 2.8 of the ECGD's
Case Impact Analysis Process: "Projects that do not meet
the relevant international standards will normally be considered
unacceptable. ECGD's approach in these circumstances is to engage
the exporter and/or the project developer in discussions with
the objective of raising the project standards to an acceptable
While such an engagement policy may be laudable
in many respects, it has to be questioned in circumstances in
which there seems little prospect of the project reaching a standard
which could ever be considered environmentally acceptable. The
policy of constructive engagement made little sense in this case.
One final and vital issue which should be raised
in light of the above is how ECGD's continued support for carbon
intensive projects overseas is coherent with the government's
climate objectives. ECGD does not even mention climate change
in its policies, nor does it report publicly on the emissions
associated with the projects it supports. This is despite the
prevalence of carbon intensive projects in its portfolio.
The ECGD has a track record of supporting some
of the most controversial and environmentally damaging projects
of our time. Sakhalin would have fallen into that category had
the application been approved and it seems that the forthcoming
Jindal Steel project in Orissa, may prove equally controversial.
If ECGD is to continue playing a role in supporting
such projects then it is absolutely imperative that its procedures
are rigorous and above reproach.