Sakhalin's Phase 2 HSES Report Gets High Marks from AEA

AEA, in its capacity as an independent consultant to potential Lenders of the Sakhalin II Phase 2 Project, has produced a final report on Sakhalin Energy Investment Company Ltd’s (SEIC’s) commitments as laid out in the publicly available Health, Safety, Environmental and Social Action Plan (HSESAP) and assessed the Phase 2 Project against a comprehensive set of standards, guidelines, legislative requirements and international treaties and conventions.

The report observes that the HSESAP incorporates commitments to a number of important environmental, social development and research plans and programs.

The AEA report states: “As far as implementation of the plans are concerned there is a high level of compliance for most of the Project’s facilities/assets* .” It also states that: “…SEIC’s written assessments and plans fully meet a large majority of the individual requirements against which the Project has been assessed and indeed there are examples of laudable best practice. Where non-conformances with requirements have been identified in the documentation these are either minor in nature or else SEIC has plans in place for their resolution**. ”

Whilst much of the report obviously focuses on areas for improvement, it is generally positive in its conclusions. It is broadly supportive of the Company’s approach in addressing new challenges. It highlights examples of best practice and commends SEIC’s pivotal role in the establishment of the independent Western Gray Whale Advisory Panel (WGWAP), the management of drilling muds, the upgrade of municipal landfills, year round use of double hulled tankers, road safety campaigns and other HSES commitments.

There are however two broad areas where the report argues that some “non-compliances” in execution have occurred, namely in some aspects of onshore pipeline construction and some issues relating to the protection of Western Gray Whales (WGWs).

Regarding the onshore pipeline issues, the report comments that, despite initial execution problems, final reinstatement of the route to appropriate standards is achievable. The key issues of river bank and erosion control improvements are already being addressed in the company’s Environmental [Remedial] Action Plan which was produced after the latest of the AEA assessment visits.

As far as the refinement of measures to protect the WGW are concerned, these will continue to be the subject of discussion with Russian Authorities and the WGWAP, which next meets in November.

The AEA report goes on to state that the general approach to the protection of the Western Gray Whales has been precautionary in nature. “AEA Technology concurs with the Vancouver I review findings and we consider that without further demonstration the actual risks to the WGW feeding grounds from oil spills may be slightly higher than predicted on the SEIC screening study, but are still low*** ”.

“Overall Vancouver-II indicated many areas where SEIC had made good progress (e.g. scheduling of noisy construction activities to minimise impacts) as well as making several recommendations for improvement****. ”

Reference to AEA Report: * Page xv
** Page xiv
*** Page 79
**** Page 67

AEA is a leading international company specializing in consultancy and with large practice in the field of energy and environment.

AEA is the independent environmental consultant of the potential lenders to the Sakhalin II Phase 2 Project. In this capacity AEA has been assessing the Project since September 2001.

The potential lenders selected AEA as their independent consultant on technical strength.

The AEA report focuses on an assessment of the Health, Safety, Environment and Social performance of the Project against the following requirements:

• IFC/World Bank guidelines;
• the regulatory requirements of the Russian Federation and Sakhalin Regional Authorities;
• international law including relevant conventions and treaties;
• industry best practice standards;
• European Union environmental assessment guidelines;
• requirements of the Agency Lenders;
• SEIC’s own health, safety and environmental (HSE) standards.

This report is needed to enable the potential lenders to make an informed decision, based on independent expert advice, on whether to provide funds or other financial support to the Project and whether the Project conforms with the lenders’ own policies and standards, RF legislation, etc.

The investigations were carried out against a scope of work and standards agreed with the potential lenders. The Company adopted an open-book approach with AEA whereby they were provided access to the HSE and social documents they requested.