Evaluation of Conformity— Social Impacts Historically, Sakhalin Island has been a home to communities that depend on a healthy environment and healthy fisheries resources for their livelihood. The local population includes indigenous peoples, who continue to practice a traditional subsistence economies-based lifestyle as they have for centuries. Given the large scale of the overall Sakhalin II development project and the complex impacts of oil and gas extraction, transport, processing and disposal anticipated around Sakhalin Island, local communities are sure to experience long lasting social and economic impacts. At a minimum, these impacts should be assessed and mitigated in compliance with relevant international treaties and policies. In order to specifically comply with World Bank/ IFC environmental and social policies, SEIC’s 2005 social impact assessment addendum (2005 SIA) for the Sakhalin II project should more fully address issues concerning: • • • •
General community impacts; Special community impacts; Employment and the economy; and Overall economic impacts.
General Community Impacts Road access and safety The impacts of Sakhalin II on the general population of Sakhalin include impacts to safety and infrastructure, especially on rural roads (2005 SIA Section 4). First, these rural roads are not designed for heavy vehicles, and such heavy road use is having an economic impact on local communities. Sakhalin Energy utilizes these roads extensively, regardless of community concerns (Sections 4.2, 4.5.2). Although assessment documents claim local roads are being serviced by SEIC/Shell, the reality is that roads are often left in disrepair for months on end. This practice effectively results in stranding anyone living along the road who does not own a large enough vehicle to navigate the broken terrain. Since these isolated individuals are rendered unable to access public services, food or work, and since there is no compensation plan in place to respond to the problem, the situation reflects a violation of OP 4.30, which calls for full compensation to "households that have only partially lost their assets but are no longer economically viable" (4.30.14). Second, there is a concern with reckless driving by the contractors’ employees. On July 20, 2004, along the road from Yuzhno-Sakhalinsk to Korsakov in the vicinity of Tretya Pad village, a dump truck belonging to one of the companies constructing the LNG plant attempted to pass another vehicle with great speed directly in front of a pedestrian crossing. As a result of this traffic violation, the truck hit a woman that was crossing the road in the pedestrian crossing. The injured woman was taken to the Korsakov Central
District Hospital, where she died from the injuries received. The SEIC/Shell Sakhalin Road Safety Partnership was formed in June 2005, but this was too late to save this woman from a senseless death. The issue of drunk driving by drivers under contract with the SEIC/Shell is reiterated numerous times in the assessments. In one section (4.5.2.) it is mildly stated “Drinkdriving [sic] is a clear violation of the SEIC Code of Conduct and Camp Management Policy [and] is punished accordingly.” How many incidents of drunk driving in a driver operating heavy machinery are tolerated, exactly? Are the police called, or are the incidents handled internally? The assessment leaves the extent of this social impact and its remedy to our imaginations. No adequate solution to this problem has been presented. Housing Costs and Displacement Another social impact from the project is the dramatic increase of housing sale and rental prices due to the influx of foreigners, mainlanders, and people from the north of Sakhalin which is causing the economic displacement of local people (Sections 4.2, 4.3, 7.3.5). Demand caused by the influx of incoming workers and other inflationary pressures has caused a sharp spike in housing costs. The SIA states, "Yuzhno-Sakhalinsk housing prices are comparable to Moscow, or they can be more expensive if quality indicators are considered, such as the year of construction and the state of the housing" (2005 SIA p.32). Sakhaliners pay Muscovite prices, but get houses that are older or are built at a lower standard. Rental prices are increasing 30-50% faster than sale prices (Table 4-C, SIA-A p. 33). Growth of rent is attributed to foreign purchasing power, as flats are bought for the purpose of renting to foreign companies and foreigners involved with offshore development projects. This practice has fueled a real estate investment market boom. As a result, teachers, healthcare workers, and other important non-oil-industry workers are economically displaced. As stated above in the World Bank/IFC policy on Involuntary Resettlement, it is recognized that there are forms of displacement other than physical displacement. These that include loss of access to “(a) public services and (b) customers and suppliers” (OD 4.30.15). The policy states “attempts must … be made to establish access to equivalent and culturally acceptable resources and earning opportunities.” In being denied access to a supply of affordable housing, the local population must be provided an adequate remedy for this economic displacement as required by OD 4.30. Worker Living Conditions, Inadequate Local Resources Meanwhile, the 2005 SIA does not assess social impacts from the initial lack of housing and basic services for the workforce that was brought in to begin construction on the LNG plant. According to the Korsakov-based NGO Knowledge is Strength thousands of workers were initially without company housing and so forced into inadequate temporary housing, or forced to descend on Korsakov and its surrounding areas. This dangerously
overwhelmed the community infrastructure for security, healthcare and sewage treatment. The fact that SEIC/Shell did not adequately assess this impact prior to project implementation represents a violation of OP 4.01 requirements to conduct an adequate community impact assessment. The subsequent 2005 SIA, which failed to address these early impacts, also represents a violation. The following illustrates the impacts of the early housing shortage, as reported by a member of the Korsakov community group Knowledge is Strength. At the very early stages of construction (from August to December of 2003), about 1,500 workers descended upon the town of Korsakov. These workers lived there for a year, either in the town itself or in one of the small villages nearby, and the living conditions that they experienced could hardly be called either civilized or humane. The various large and small sub-contracting companies, primarily from the island, decided to place their workers in whatever sort of living quarters were available, at least initially. Sometimes the most unpractical living areas were provided. One example of worker living quarters included a number of beds set up in open workshops, located in the first buildings erected for the plant. Workers were reduced to setting apart the living area by hanging fishing nets. In a few cases the number of workers living in one room of this sort reached as many as a hundred. There was only one washing machine to serve all of them, along with two toilets and only one shower. Each worker was given an iron cot that was only 2.5 feet wide, with a top and bottom bunk, and one mattress with one set of sheets that was supposed to last them several months at a time. There was no dryer in sight or any way to dry the clothes and the linens that needed to be washed. And since these workers were working round the clock, rain or shine, they could go weeks without being able to dry any of their wash. These imported workers became inhabitants of the town but paid no taxes, despite the fact that they were availing themselves of the town’s social services and infrastructures during this entire time. Irrespective of all the bonuses and the investments put into the development of Sakhalin, which SEIC/Shell boasts about in the assessment, the local government budgets have been forced to run large deficits over the last three years. There have simply not been enough social support resources to go around, even for the longterm local residents. Furthermore, the local government budgets on Sakhalin have no way of withstanding the influx of yet another 1,500 people. (By the fall of 2004, the number of imported workers in Korsakov had increased to nearly 3,000.) The local reservoirs have not been able to provide enough water for Korsakov for several years now. The water pipeline system is quite old as well, and has not been repaired or updated for at least ten years. There is systematic rationing of water now, with water turned on for three hours in the morning and three hours in the evening. Even so, in several parts of Korsakov, it is quite common for the water to be turned off anywhere from several days at a time to almost a month. The local communities is facing all this, despite the fact that, the company had promised, during the negotiations that allowed SEIC/Shell to build the LNG plant in the first place, that they would first build a so-called "pioneer" camp village for the 1,500 guest workers, from the very beginning of any construction work at the plant. This promise turned out to
be an empty one, and the construction of the plant went on simultaneously with the construction of possible living quarters for the workers. Inadequate Health Care and Emergency Preparedness Another disturbing Sakhalin II impact has been on the local community’s health and health infrastructure. This includes an increased demand on the healthcare system, an increase in drug and alcohol abuse, Hepatitis B and C, HIV, and other sexuallytransmitted diseases. Health impacts were touched upon in the Executive Summary of the Phase 2 Environmental and Social Impact Assessment Process (ESIA, section 10.2.3), but further details were generally absent from the SIA. In particular, the workforce at Sakhalin II faces increased risk of tuberculosis, water-borne disease, and animal and insect-borne disease. Appendix I (SIA p. 111) covers a very brief set of mitigation measures for the most common health problems arising from the project. Aside from these mitigation measures there is little information about the health impacts: nowhere does SEIC/Shell address the problem of workers arriving on the island without getting a physical exam prior to entering the workforce. The SIA also ignores the issue of workers with chronic illness or trauma being sent to local medical facilities which are chronically underfunded and underequipped to handle even the population size they were intended to service. In addition, the health impact assessment does not mention one of the main reasons why Sakhalin medical facilities are increasingly underfunded. This is the fact that federal subsidies for services, such as health care, have been cut in direct proportion to the increase of oil companies’ investments on the island. Oil company investments are supposed to trickle down to the public health system through taxation, but in fact there are ongoing issues with lack of payment of taxes by the SEIC/Shell and consortium subsidiaries. As reported by a member of the Korsakov community group Knowledge is Strength, a 2004 incident at the Korsakov hospital provides a good example of the damaging impacts of Sakhalin II on the local healthcare infrastructure. A worker from the project sponsor’s LNG plant was brought in after he had gotten into a drunken brawl and injured his eye. As it turned out, the hospital had to spend the equivalent of about USD $4,275 on his treatment. For three months the doctors requested that his employers pay for the treatment. But in the end, the company refused to pay anything. This is not an unusual case. The underfunded, overburdened health infrastructure is also a concern in terms of local capability to care for worker health in the case of an oil spill or other accident. The Exxon Valdez tragedy, for example, resulted in acute and chronic worker health impacts as a result of toxic petrochemical exposures. On a smaller scale, at the beginning of 2004, there was a bad automobile accident at the LNG plant construction site. Nine workers were brought into the Korsakov hospital with various traumas. Because of the limited facilities, there were simply too many injured to be treated at one time: the injured had to wait for care. This means that if the number of injured from some future accident
runs into the tens or twenties, the Korsakov medical establishment will not have the capacity to manage even basic triage. The simultaneous overburdening and gutting of the public health infrastructure is as frightening as the revelation that SEIC/Shell improperly exposes dock workers and others to toxic levels of radiation through reckless handling of imported materials. On December 29, 2004, a South Korean businessman was arrested for smuggling radioactive testing devices onto Sakhalin Island, destined for the Sakhalin II Liquid Natural Gas plant contractor Daewoo. The source of radiation was thought to be iridium 192, which exceeds the normal allowable levels of radiation by between 20 and 200 times. An employee from the Customs Administration on Sakhalin reported in a February 1, 2006, meeting with Bank officials that there had been a series of incidents where SEIC/Shell brought radioactive cargo across the border. The customs employee stated that the radioactive cargo was discovered in the course of customs processing in Korsakov and detected only with the aid of equipment (but not information from the company). She stated that, in some of these circumstances, the level of radiation was several times higher than acceptable levels. The company took no safeguards: they did not even use special containers. This resulted in health risks to those who handled the cargo, and even after the removal of dangerous cargo, to people working in the area where the cargo was stored, as the storage containers themselves continue to emit radiation. It is a significant concern that this radioactive exposure occurred without the knowledge of those exposed. Special Community Impacts Dacha Community Resettlement Concerns The impacts of Sakhalin II on specific populations of Sakhalin include the impacts on the dacha community (SIA Sections 4.4.1, 4.7). First and foremost, the Resettlement Action Plan, dated November 2005, was created only after the first dacha owners, farmers and other residents were resettled from the area where the LNG plant construction was to take place and the area within the one-kilometer health safety zone (“sanitary protection zone”). One farmer, in order to be resettled, had to blockade the road that Shell/SEIC was using (which crossed his land), hire a lawyer, raise a scandal in the press, and appeal for help to NGOs and the EBRD. Only after all that he was resettled. The delay in a resettlement plan, and the reluctance to resettle those in the project’s health safety zone are clear violations of policy OD 4.30. Members of the Korsakov Alliance of Dacha (Garden Home) Owners “Stroitel” assert that the one-kilometer health safety zone around the Sakhalin Energy LNG plant is not sufficiently large to protect the local community. The dacha owners joined with other community members to picket the LNG plant in January 28, 2006, and demanded an increase of the health safety zone surrounding the plant. SEIC/Shell had ignored this request from the community for years. The dacha owners believe that the health safety zone is much smaller than the area that would be impacted by dangerous atmospheric pollution and lethal injury in the case of an accident. Local community organizers assert that SEIC/Shell’s original plans and the
State Environmental Impact Assessment had set the LNG plant health safety zone at 3.5 kilometers distance. However, SEIC/Shell has persistently ignored its own original plans and the State EIA, continuing to limit the zone to no more than one kilometer. Thus, the members of the “Stroitel” cooperative, located 1,200 – 1,500 meters from the LNG plant, continue to be negatively impacted by LNG plant construction. Currently, local dacha owners complain of many problems cause by the plant, including the unresolved problems of dust (in addition to the air pollution’s impact on breathable air, it causes damage to gardens), damage to the road leading to the “Stroitel” settlement which results in the cars of the dacha owners needing frequent repair and, just last summer, the road needing to be repaired—at the cost of the dacha owners, and also the constant noise from the construction, day and night, particularly causing negative impact on the elderly who reside in their dachas and are not allowed to sleep. As plant construction progresses, the atmospheric pollutants (and resulting harm to local dacha owners’ health) will increase many times over. An accident at the plant would directly threaten the lives of people living at the dachas. Therefore, the dacha community has suffered displacement as a result of the environmental nuisance of the LNG plant. SEIC/Shell has substantially delayed responding to this problem, and the consortium has provided only minimal compensation for this impact. The project sponsor’s stand on the matter is seen in the Resettlement Action Plan (RAP 1.6.1) “Sanitary Protection Zone”: The extent of the operations phase Sanitary Protection Zone to be imposed… has been set at 1 km. This avoids the need for resettlement of any household adjacent to the LNG site other than those households relocated in 2003. The Executive Summary of November 2005 (ESIA 11.2.3. Table 2) indicates that talks with the dacha owners concerned about the health safety zone were to be held that very month. The organization of a picket in late January 2006 indicates that no meaningful progress was made on the issue of safety and possible resettlement compensation. Impacts on the Indigenous Peoples of Sakhalin The impacts of Sakhalin II on specific populations of Sakhalin include the impacts on the indigenous peoples (see SIA Sections 6, and also addenda on resettlement, the indigenous peoples’ plan, and the treatment plan for objects of cultural heritage). The indigenous peoples of Sakhalin have numerous concerns, some of which are shared by the general population, but some of which are specific to their communities. Principal among their concerns are the impacts to hunting, fishing, gathering, and reindeer pasturing grounds. They are also concerned that resettlement and compensation take into account negative impact to any of their main subsistence activities. Other complaints from the indigenous peoples include the long absence of any kind of indigenous peoples’ development plan for the project.
In SEIC/Shell’s assessments, any impacts on indigenous peoples by Sakhalin II are inadequately represented. Where indigenous peoples are concerned, the principal focus of the Resettlement Action Plan is on the community of reindeer herders, which represents only about one-tenth of the indigenous peoples of Sakhalin. Fishing, marine mammal hunting, forest hunting, and berry gathering are the predominant subsistence activities of Sakhalin’s indigenous peoples. The project sponsor rejects the idea that there will be significant impact on these activities: “Pipeline impacts will be relatively minor in that they will be localized…”(RAP 5.1.5.4.). The project sponsor is focusing on five herding families only, “as the project pipeline traverses through a very small percentage of their reindeer pastures” (Exec. Summary ESIA 11.2.6). This is too narrow a focus to represent the broader range of concerns already stated by local indigenous peoples. On January 21, 2005, a letter was sent to EBRD President Jean Lemierre from the Russian Association of Indigenous Peoples of the North, Siberia, and Far East (RAIPON), calling for the Bank to require that the Sakhalin II project conduct an independent Cultural Impact Assessment, create a Sakhalin Indigenous Peoples' Development Fund, and act immediately to mitigate the harmful impacts of the Sakhalin II project on indigenous peoples. On January 20 through 24, 2005, over 200 members of Sakhalin Island’s Nivkh, Uilta, Nanai and Evenk peoples endured minus 30 degree Celsius temperature to blockade Sakhalin II, protesting the project’s impacts on their native fisheries, reindeer pastures and overall livelihoods. According to RAIPON: Experts have challenged the economic benefit for Russia from the Production Sharing Agreements signed between the Russian Federation and transnational companies. Eight years of oil and gas extraction on Sakhalin Island have provided no significant benefit to the island's population, and certainly not to the indigenous Nivkh, Nanai, Evenki, and Ulta who depend on the land and marine resources of northern Sakhalin. Indigenous peoples have already begun to feel the damaging effects of project implementation, especially to our fishing and reindeer herding. The indigenous peoples of Sakhalin - the Nivkhi, Nanai, Evenki, and Ulta, who have a traditional self-subsistence economy based on fishing, hunting, reindeer herding and wild plant gathering - disproportionately suffer the negative ecological consequences of project implementation. Structural engineering has destroyed reindeer pastures and forests and construction on the shelf has led to an abrupt decline in fishing and fishing limits for the indigenous population. Indigenous peoples in northern Sakhalin are being left without any sustainable, long-term source of livelihood.
In response, the Bank committed to require that SEIC/Shell prepare an Indigenous Peoples’ Development Plan and Cultural Heritage Plan pursuant to policies OP 4.20 and OPN 11.03. This development plan was released in October 2005, after project construction was already 60% complete and after much damage was done. Furthermore, several months of pipeline construction have occurred since the release of the plan. However, after the EBRD financed Sakhalin II Phase One in 1997, SEIC/Shell committed to following World Bank/ IFC policies. The fact that the project sponsor only produced a draft plan nearly eight years later, after more than half the project was constructed, indicates a lack of serious concern for Sakhalin’s indigenous peoples, and a
lack of commitment to these policies. The long delay in developing an Indigenous Peoples’ Development Plan and Cultural Heritage Plan resulted in several policy violations. Policy OD 4.20 dictates: (8.) The Bank's policy is that the strategy… must be based on the informed participation of the indigenous people themselves. Thus… incorporation of indigenous knowledge into project approaches, and appropriate early use of experienced specialists are core activities for any project that affects indigenous peoples and their rights to natural and economic resources. (14.) Prerequisites of a successful development plan for indigenous peoples [include]: (14b.) Studies should make all efforts to anticipate adverse trends likely to be induced by the project and develop the means to avoid or mitigate harm. (14g.) Successful planning for indigenous peoples frequently requires long lead times, as well as arrangements for extended follow-up. (15.) The development plan should be prepared in tandem with the preparation of the main investment. (15d.) Mechanisms should be devised and maintained for participation by indigenous people in decision making throughout project planning […].
Taken together, these provisions demonstrate that compliance with the OD 4.20 would have meant integration of indigenous peoples into the Sakhalin II project planning prior to construction, over seven years ago. Compliance with the policy also would require an acceptable Indigenous Peoples Development Plan and Cultural Heritage Plan to have been developed far sooner than the start of construction. For Shell/SEIC only now to begin to seriously address indigenous peoples’ displacement issues demonstrates that the project sponsor has not acted competently or in compliance with World Bank/ IFC policy. Meanwhile, the project sponsor has committed to compliance with the spirit of International Labor Organization Convention 169, concerning indigenous and tribal people in independent countries.1 The USSR signed ILO Convention 169 “Concerning Indigenous and Tribal Peoples” in 1989. ILO Convention #169, Article 7, paragraph 3 states, regarding the rights of indigenous peoples: Governments shall ensure that, whenever appropriate, studies are carried out, in cooperation with the peoples concerned, to assess the social, spiritual, cultural and environmental impact on them of planned development activities. The results of these studies shall be considered as fundamental criteria for the implementation of these activities.
Therefore, pursuant to ILO Convention 169, project sponsors must consider the various impacts to indigenous peoples as fundamental criteria in developing the project. Furthermore, indigenous peoples’ rights with respect to "natural resources pertaining to their lands shall be specially safeguarded" (Article 15, paragraph 1). 1
Health, Safety, Environmental, Social Action Plan Annex B, International Conventions
Also, under OD 4.30 on Involuntary Resettlement, if compensation is to occur following involuntary resettlement or displacement, then the "Bank's resettlement policy is to ensure that the population displaced by a project receives benefits from it" (4.30.3). This means the population should, at a minimum, not be worse off economically or socially than before. Furthermore, "the resettlement plan must include land allocation or culturally acceptable alternative income-earning strategies to protect the livelihood of these people" (4.30.16). In other words, displaced indigenous peoples and communities must also be situated in a lifestyle that comports with their existing culture of subsistence hunting, fishing, gathering, and reindeer herding. Finally, "households that have only partially lost their assets but are no longer economically viable should be entitled to full resettlement" (4.30.14). This means that if a family loses a critical part of its fishing or herding livelihood, compensation should be made for the full value of its livelihood. When should this occur? Policy OD 4.30 includes provisions that call for resettlement planning and implementation to occur early in order to be integrated into the project design: Planning and financing resettlement components or free-standing projects are an integral part of preparation for projects that cause involuntary displacement (OD
4.30.01). Involuntary resettlement is an integral part of project design and should be dealt with from the earliest stages of project preparation... (OD 4.30.03). During project preparation, the feasibility of resettlement must be established, a strategy agreed upon, the resettlement plan drafted, and budget estimates prepared. The full costs of resettlement should be identified and included in the total cost of the main investment project, regardless of financing source (OD 4.30.29).
Once again, SEIC/Shell is not in compliance with either the spirit or the letter of World Bank/IFC policies. As with the Indigenous Peoples Development Plan and Cultural Heritage Plan, an adequate plan for compensation for destruction of the indigenous peoples’ livelihood should have been developed long before project construction was more than 60% complete.
Employment and the Economy Loss of Skilled Workers Employment is the top concern of the people of Sakhalin, according to the 2003 public consultation (2005 SIA 2.3 Fig. 2-A). Yet, according to the 2005 SIA Sect. 3.2, 3.4, Sakhalin II is already having a negative impact on local employment patterns and the economy. Impacts) include the outflow of skilled workers from local businesses, and it
should be noted that this is a cumulative impact, due to several large oil and gas projects occurring at the same time (SIA Sections 3.2, 3.4.4). This loss of skilled workers and resulting economic displacement is a serious concern that must be addressed. The World Bank/IFC policy on Involuntary Resettlement recognizes forms of displacement that include loss of access to “customers and suppliers” (OD 4.30.15). The policy states “attempts must … be made to establish access to equivalent and culturally acceptable resources and earning opportunities.” The unremedied loss of skilled workers for communities represents a violation of OD 4.30.15, since the local public and private industries have lost the supply of a skilled workforce. Variable Job Access for Locals In addition, local residents are not gaining equal access to employment and training opportunities, to the extent that such employment opportunities have been promised by SEIC/Shell. Although SEIC/Shell is targeting 70% Russian input, actual hires from the local workforce have been highly variable (SIA Sections 3.2, 3.4.1, 3.5). In fact, not one contractor has met its target goals for local hires. Lack of Contractor Accountability Another issue is the questionable accountability of contractors and resulting economic displacement of community members. In particular, documented problems include nonpayment for food and services by contractors to workers and local businesses (2005 SIA Section 3.4.2). SEIC/Shell recounted one such event, when 109 residents from one local community submitted grievances concerning non-payment of wages or nonpayment for services by a single contractor. While SEIC/Shell handled this particular set of grievances, the assessment acknowledged that Russians are very reluctant to submit formal grievances for fear of reprisal (2005 SIA, footnote 2, page 24). Furthermore, it was clear that SEIC/Shell retained the offending contractor, despite the serious level of the infraction. One wonders—if 109 angry residents are insufficient grounds for terminating the offending contractor, then what is the threshold for termination? Although some contractor management system is in place the actual standards for monitoring contractor accountability are not available. SIA Section 3.2 Table 3-A states that “Contractor behaviour will be monitored and managed as described in the HSESAP Section 4, using incentives and penalties as appropriate…” This is an overly vague standard, especially given that the section 4 referenced is not available on the project sponsor’s website. In summary, however grievances are handled, the ongoing problem of non-payment of wages and non-payment for services represents a form of economic displacement prohibited by OD 4.30.
Overall Economic Impacts As a public finance institution that is concerned about the economic well-being of its member countries, the Bank should be concerned about whether the extractive sector
projects it supports generate adequate revenue flows to the host government. Expert analysis of the Sakhalin II Production Sharing Agreement (PSA) shows its failings: [T]the particular terms of the Sakhalin II PSA are not typical of those incorporated in most PSAs throughout the world. The Sakhalin II PSA is particularly disadvantageous to the Russian Party, and it is surprising that the Russian Party agreed to these terms… The benefits which flow to the Russian Party under the Sakhalin II PSA (‘Base Case’) fall a long way short of those which would have been received had a ‘standard’ type PSA been used (with the same ‘Base Case’ price scenario). Under a ‘standard’ type PSA (even a relatively weak one compared with many operational PSAs worldwide) the Russian Party would receive 45% more economic rent.2 Furthermore, Russia has recently enacted a new policy that requires that the majority of oil and gas revenues, which previously went to the regions, be withheld at the federal level. As a result, even less of Russia’s dwindling share of Sakhalin II revenues will benefit the sustainable development of the region. The problems of the PSA identified by Dr. Ian Rutledge, and the otherwise dwindling resources available to the island, are not addressed in the 2005 SIA, although they represent a substantial negative economic impact (or substantial lack of positive economic development). Meanwhile, the Bank boasts of its requirements for SEIC/Shell to publish what it pays to the Russian government, under the guidelines of the Publish What You Pay initiative. (See the Bank’s website fact sheet on Sakhalin II.) The Bank’s and SEIC/Shell’s publishing of payments to the Russian governments— while concealing the income shortfall created by the PSA and new Russian policy— can be more accurately be described as a Publish What You Didn’t Pay initiative. Because the PSA and its negative impacts on the host country are not examined in SEIC/Shell’s assessments, Policy OP 4.01 (2.d.), requiring the assessment of baseline data, has been violated. The Environmental Assessment is required to "take[] into account the variations in project and country conditions [and] the country's overall policy framework and national legislation” (OP 4.01.3). This implies an examination of the PSA, not just existing Russian law and World Bank/ IFC policies.
Conclusion Because of the above violations of World Bank/IFC policies, the Bank should resolutely refuse credit to Phase Two of the Sakhalin II project under the operation of Shell/SEIC. Financing this project at the current stage of completion could only contribute to the project’s ongoing negative social and economic impacts. It could not change the negative 2
Rutledge, Ian, The Sakhalin II PSA – A Production ‘Non-Sharing’ Agreement, Analysis of Revenue Distribution, available at http://www.pacificenvironment.org/downloads/SakhalinPSA-www1.pdf
impacts already suffered by the people of Sakhalin. Further attaching the Bank’s name to this project could also bring ruin to the Bank’s reputation, and possibly open up the way to lawsuits against the Bank from project-affected people, due to the project’s noncompliance with World Bank/ IFC policies.