Here is Rich Cookson’s second blog from Sakhalin Island, off Russia’s east coast.

Rich writes: “The Sakhalin Energy (SE) project, Sakhalin II, is the second of nine planned extraction projects around Sakhalin. Exxon holds a 30 per cent stake in Sakhalin I, an oil development on the northeastern Sakhalin Shelf. Affiliates of the Russian oil company Rosneft hold a 20 per cent stake.

BP (49 per cent) and Rosneft (51 per cent) have formed agreement to explore another area to the north of the feeding ground, called Sakhalin V. Planning in progress for the other projects.

But the controversy over Sakhalin II is likely to have an impact well beyond Sakhalin. Shell has already shown significant interest in the Arctic region, including the Barents, Beaufort and Berings Seas, where it “would face similar challenges to the Sakhalin project, in terms of ice conditions, marine mammals, indigenous peoples and important fisheries,” according to a report from the World Wildlife Fund, published in November 2005.

The report also warned that the project “represents a key test for the latest generation of investment principles and policies of both public and private banks. For public institutions it presents a test of whether environmental policies result in meaningful standards… or are merely weak statements that can be ignored due to political processes”.

Among the public banks that have been asked to invest a total of USD 6.9bn in the Sakhalin project are the European Bank for Reconstruction and Development (EBRD), the Export-Import Bank of the United States, Japan Bank of International Co-operation and Britain’s own Export Credit Guarantee Department, which could offer a similar amount. EBRD is likely to be the first to make a decision, which will heavily influence the other lenders. Its announcement is due in September.

EBRD’s Director of the Environment, Alistair Clark, has just arrived in Sakhalin on a fact-finding mission. In the manicured grounds of the Mega Palace Hotel in Yuzhno-Sakhalin, the island’s capital, he says that to receive funding, SE has to demonstrate that the project meets the bank’s tough environmental standards, which are in line with those of the World Bank. “It is a mega project that deserves all the attention is has got,” he says. He refuses to say whether the loan will go ahead – but it is more than likely, given EBRD’s views on the value of its own involvement here. “It’s a bad thing for the environment and people if public institutions don’t have involvement because we bring transparency to the process,” says Clarke.

But he refuses to answer a straight question about the impact of the project: will great western whales still be here in 30 years time? “We’ve got the world’s leading experts on this issue willing to work with the company not only on the mitigation measures but on a long-term study of the species,” he says. Pressed, he admits: “But there are no guarantees in this business.”

At the offices of Sakhalin Environment Watch, a local NGO, Yevgeny Konovalov is describing the environmental impact of a new onshore pipeline that Sakhalin Energy (SE) is building to take oil and gas from the north of the island to an export terminal in the south. “According to Russian legislation, you’re not allowed to make river crossing over spawning grounds, but SE has done so on 92 rivers,” he says. “This construction work has led to silting up of rivers and there are many examples of where fish haven’t spawned.” According to SE’s own figures, 400 of the 1,100 rivers and streams the pipeline crosses are ‘significant’ because of their ecological sensitivity or importance for commercial fishing.

“You are also not allowed to build a pipeline underground where there are tectonic breaks – but they have done that too. SE has built temporary bridges over rivers, which have had an impact on water quality.” He shows pictures of cages filled with rubble – used to reinforce river banks where the pipeline crosses them – marooned in the middle of a flooded river, and of bio-materials barriers – which SE says prevent silt from reaching salmon spawning grounds – overcome by flood waters.

SE dismisses claims like this and says it is working with independent assessors to ensure that stringent standards for river crossings are met. It adds that is activities have not had an impact on the salmon – and if they ever did the rivers would recover in two years”.

Read more from Rich tomorrow.