Russia says Shell facing $50bn Sakhalin bill

Shell is facing growing uncertainty over the future of its Russian Sakhalin-2 oil and gas project after a senior official yesterday called for construction work to be halted over "barbaric" damage to the environment which he claimed it would cost $50bn (£27bn) to put right.

The Kremlin has also set its sights on BP's Russian venture, TNK-BP, with a director of the state-controlled Gazprom saying the energy giant was interested in buying BP's local partners out.

The hard-hitting statement on Sakhalin-2 from Oleg Mitvol, the deputy head of government environmental watchdog Rosprirodnadzor, came as Russian Foreign Minister Sergei Lavrov said he thought the matter could be resolved amicably, suggesting a turf war between different government agencies.

Mr Mitvol is on an inspection visit to Sakhalin, an island in Russia's far east, and said he was alarmed by what he had seen.

A Shell-led consortium is constructing what will be the world's largest offshore oil and gas field but faces criticism from the Kremlin that it has badly damaged the environment in the process.

Shell is known to think that the government's complaints are driven more by the Kremlin's desire to force it to give up a portion of its 55 per cent stake in the project in favour of state-controlled Gazprom. The Japanese companies Mitsubishi and Mitsui own the remaining stake.

However, Russia strongly denies the suggestion that it is being disingenuous and Mr Mitvol argued yesterday that he had gathered concrete evidence of what he called "barbaric" violations of Russia's environmental laws.

"We want criminal cases for every destroyed tree or damaged river," he said. "If the criminal cases are opened for everything, the company will read the criminal code, come to its senses and stop the barbaric activity. We must stop the project and start over again." Mr Mitvol's estimate of $50bn worth of damages has yet to be substantiated however; yesterday he outlined damages caused by illegal logging along pipeline routes worth just $1m.

His hard-line message was sharply at odds with that of Mr Lavrov, the Foreign Minister who said: "In my contacts with the leaders of Sakhalin Energy I have seen their sincere desire to solve these problems. I am convinced that a dialogue with the relevant Russian government agencies... will allow these issues to be settled."