Russians ratchet up pressure on Shell

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The Independent Online

A Russian official has for the first time raised the possibility that Shell could have its contract to develop what will be the world's largest offshore oil and gas field annulled.

Oleg Mitvol, the deputy head of government environmental watchdog Rosprirodnadzor, warned Shell that the Kremlin was ready to resort to extreme measures when it came to a dispute with the Anglo-Dutch firm over Sakhalin-2.

Moscow has accused Shell, which has a 55 percent stake in the project, of causing wanton damage to the environment in Russia's far east in its haste to get the operation up and running by 2008. It has also criticised Shell for allowing set-up costs on Sakhalin-2 to double to at least $20bn, a situation that delays the day when the Russian state gets its first rouble in profit from the venture. Environmental inspectors are conducting an audit of the damage that Sakhalin Energy - the Shell-led consortium - has allegedly caused on the island of Sakhalin.

Japan's Mitsubishi Corp and Mitsui and Co own the remaining stake.

Yesterday Mr Mitvol said he would press for the original production sharing agreement (PSA) with Shell and the Japanese companies to be cancelled unless the firms started showing a willingness to repair the damage they have caused.

He said his department had drawn up plans to pursue the matter in Stockholm's arbitration court on the basis of American law and that deteriorating relations would see him file a suit next summer.

Either way he made it clear that his agency expected the consortium to compensate the Russian state financially for the damage it has done and for any profits lost as a result of a delayed start to operations. He has already said that he expects that figure to run into "billions" of dollars. The consortium's efforts to correct its environmental sins were so far inadequate, he added.

"It is not serious. It is a joke collection [of proposals]. We will insist on a detailed technical action plan from them. Otherwise around next summer we could file for PSA cancellation." Russia's sudden concern for corporate environmental damage has been linked to state-controlled Gazprom's desire to take a stake in Sakhalin-2 on favourable terms though the Kremlin denies it and insists it has genuinely been let down by Shell.

Anglo-Russian oil firm TNK-BP is also having regulatory problems.

Yesterday it disclosed that it has paid a massive back tax bill of around $1.1bn having failed to negotiate a lower figure.

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