Dire straits - EBRD backing for oil transportation in the Kerch Strait appears belatedly on public radar

A European Bank for Reconstruction and Development loan to the SVL group, granted with no public oversight, threatens new oil-related catastrophes.

In November 2011 the board of directors of the EBRD approved a USD 20.1 million loan to the Solvalub (SVL) Group to partially finance the acquisition of new tankers classed as ‘sea-river’. SVL, a Russian company though registered in the British offshore territory of Jersey, received a parallel credit for acquiring the tankers from the Russian bank JSC ‘Unicredit Moscow’. The tankers will transport oil along the River Volga, the Don, the Volga-Don canal and the Sea of Azov, for subsequent transhipment to the Kerch Strait. In March 2013, the first tankers were constructed as part of the project at the Kherson shipbuilding factory in southern Ukraine.

The official documentation for the project on the EBRD’s website states that the building of these tankers does not present a serious ecological threat. As a result the project was rated by the bank as category ‘B’, thus requiring neither consultation with the public nor the conducting of an environmental impact assessment. As a result, the granting of the EBRD credit proceeded with minimal public knowledge or scrutiny. Equally, SVL made no public announcements about its intention to apply for such a loan from an international financial institution.

The relative secrecy surrounding the project, therefore, has avoided inevitable questions that would have been raised by environmentalists on account of the project’s nature – oil transhipment in this particular area carries huge ecological risks after all – and of SVL’s checkered history.

Indeed, the fact that the tankers would be carrying oil and oil products in the Kerch Strait also appears to have been concealed by both the EBRD and SVL. The EBRD project summary document provides no mention of the Kerch Strait, even though this is key information in relation to the ecological aspects of the project.

The precarious nature of the Kerch Strait

In 2007, a major ecological catastrophe took place in the Kerch Strait. As a result of extreme storm condition, the tanker ‘Volgoneft-139’, classed as ‘sea-river’ and carrying fuel oil, broke in two. Resultant oil pollution affected a large part of the coast of the Taman, and also the Crimean coast.

After the catastrophe the question of prohibiting the transhipment of oil and oil products in the Kerch Strait was repeatedly raised. This was due to the inability of Russia and Ukraine to guarantee safe navigation and loading work in the strait, which is excessively dangerous for navigation. Moreover, the high ecological value and vulnerability of the Kerch Strait’s maritime waters, where the preservation of biological diversity is crucial and also where fish stocks are replenished in the Sea of Azov and the Black Sea, had resulted in heightened concerns.

Transhipment in the Kerch Strait is carried out in dangerous proximity to the waters of the Taman-Zaporozhski reserve and the wetland site ‘Taman and Donskoi bays of the Black Sea’, which has now been designated as a potential Ramsar Convention site.

Clearly, the SVL-EBRD deal should have been a category ‘A’ project from the outset, deserving – as with any project that presents a very serious environmental danger – of close public scrutiny and rigorous assessment.

Not learning from the past

The EBRD has encountered difficulties with similar acute projects in this region in the past. Public consultations over a planned credit to the company ‘Tolyatyazot’ for the building of a terminal for the transhipment of ammonia on the Taman peninsula saw vigorous opposition from the local population and environmentalists. In the end, the EBRD loan was not issued.

Furthermore, SVL’s previous activities in the Kerch Strait raise issues about the EBRD’s criteria for this particular client, especially as the bank’s project documentation consists of a very favourable description of SVL Group as ‘a serious and effective operator, which adheres to internationally proclaimed ecological standards and demands for the protection of health.’ Yet, this description takes no account of the company’s previous environmental miscreance.

Yugkhimterminal Ltd. and Yugnyeftekhimtransit Ltd., both part of the SVL Group, have previously been identified as major abusers of the preservation of nature and sanitary legislation in the Port of Caucasus. In one case dating from 2006, Yugkhimterminal Ltd. built a chemical terminal for the transhipment of toxic cargo directly in the village of Chushka in the northern part of the Kerch Strait. As a result, villagers found an ecological disaster on their doorsteps – a once flourishing resort settlement was transformed into a lethally dangerous zone.

SVL failed to provide resettlement for the inhabitants of Chushka, many of whom continue to live in intolerable circumstances, suffering from cancer, cardiovascular illnesses and other dangerous diseases.

Yugkhimterminal Ltd. and Yugnyeftekhimtransit Ltd., and officials from these companies, have repeatedly been called to administrative account for flagrant violations of legislation related to environmental protection. In June 2011 the activity of the companies for the transhipment of a variety of dangerous chemical substances in the Port of Caucasus was halted for a period of 60 days by the Tamrukski regional court.

Given such a dubious track record, it is concerning that the EBRD has recognised SVL as a company ‘which adheres to internationally proclaimed ecological standards and demands for the protection of health.’

Over the years, EBRD investments have regularly been criticised by civil society organisations for supporting dangerous projects that, from the point of view of ecological responsibility, are implemented by questionable companies. The ongoing project with SVL Group provides further evidence in this regard – the EBRD appears willing to continue down the same path, placing commercial interests from the realisation of certain projects higher than the public interest in the countries that it is supposed to serve.