Select Committee on Environmental Audit Minutes of Evidence


Annexe I

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" ROLE

  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 OF TRANSPARENCY AND CONSULTATION

  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 PROPERLY TO TAKE INTO ACCOUNT THE VIEWS OF OTHER GOVERNMENT DEPARTMENTS

  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 OF CLARITY REGARDING THE STATUS OF APPROVALS WITH CONDITIONS SUBSEQUENT

  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 Process—Information 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".

5.  ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENTS (ESIA) SHOULD BE COMPLETED BEFORE CONDITIONAL SUPPORT GRANTED

  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.

6.  EXCESSIVE DISCRETION

  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 ENGAGEMENT" POLICY

  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 level."

  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.

8.  COHERENCE WITH CLIMATE POLICY

  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.


 
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