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. Russia Threatens Shell-Led Energy Group With Criminal Charges

Dmitry Belanovich said that among other environmental harm, the Shell-led consortium had caused 100 million dollars of damage to the Aniva Bay, where it is building a liquefied natural gas (LNG) plant. Photo courtesy AFP
by Stephen Boykewich
Moscow (AFP) Oct 25, 2006
Russia turned up the heat on a giant Shell-led oil and gas project off Russia's Pacific coast Wednesday, threatening possible criminal prosecutions and license withdrawal over environmental violations. "Violations at Sakhalin-2 concern at least five articles of the criminal code," Natural Resources Minister Yury Trutnev was quoted by ITAR-TASS as saying during a trip to the far east island of Sakhalin, where an environmental commission has been inspecting the massive project.

"Documents from the inspections will by sent to the general prosecutor within two weeks," the minister said.

Sakhalin-2, a 22-billion-dollar (17.5-billion-euro) project operated by Shell of Britain and Japan's Mitsui and Mitsubishi, has been under fire from environmental regulators as the Russian state pushes for greater control over the country's largest energy deposits.

Dmitry Belanovich, the regional head of environmental monitoring agency Rosprirodnadzor, said the inspection commission was preparing evidence to have the project's crucial water use license removed.

Nearly simultaneously, crusading Rosprirodnadzor deputy head Oleg Mitvol told Ekho Moskvy radio that the loss of the license would make contsruction work on the project "impossible."

"Working without the license is criminally punishable," Mitvol said.

Belanovich said that among other environmental harm, the Shell-led consortium had caused 100 million dollars of damage to the Aniva Bay, where it is building a liquefied natural gas (LNG) plant.

Sakhalin-2 contains 150 million tons of oil and 500 billion cubic meters of gas, most of which is expected to be exported in the form of LNG.

Shell owns 55 percent of the Sakhalin-2 consortium, know as Sakhalin Energy, with the rest split between Mitsui (25 percent) and Mitsubishi (20 percent).

"There is no question of our commitment to correct any errors that we or our contractors have made," Sakhalin Energy CEO Ian Craig said in a statement.

Craig maintained that "environmental impacts across the project are essentially short-term and reversible."

Belanovich took another view.

"It's not going to take three years to remove these violations, as the company says, it's going to take 10," the regulator said.

Trutnev said environmental inspections of the project should continue until November, and that the commission should produce a final calculation of the amount of harm to the environment within four months.

Sakhalin Energy also sought to play up the profits Russia would reap from the project, apparently responding to charges that massive cost overruns -- after the initial project cost was set at 10 billion dollars -- would rob the state of billions.

Under the terms of the operating contract for the project, Sakhalin Energy begins paying the Russian state only when it has recouped its costs and starts making a profit.

The company said in a statement that Russia would reap 50 billion dollars from Sakhalin-2 with oil prices of 35 dollars per barrel, and 80 billion dollars with oil prices of 50 dollars a barrel.

The current price of oil is about 60 dollars a barrel.

The company added that 80 percent of cost overruns would be borne by the investors, and only 20 percent by the state.

"The project's management is transparent -- all actual costs can be checked," the company said.

A recent campaign of environmental pressure on foreign energy companies has led to protests of unfair treatment by foreign officials, though regulators have since threatened domestic and even state-controlled companies with license removals as well.

Source: Agence France-Presse

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