Financial Times: Threat to Sakhalin-2 shakes confidence, warns Beckett

By Arkady Ostrovsky in Moscow, David Wighton in New York and Ed,Crooks in London

Published: September 23 2006 03:00 | Last updated: September 23 2006 03:00

Margaret Beckett, the UK foreign secretary, has warned that Russia’s threat to the future of the Sakhalin-2 project run by Royal Dutch Shell was the sort of move that “shakes confidence in foreign investors”.

She told the Financial Times she had raised the issue with Russia’s foreign minister at the UN meeting in New York this week.

Jan Peter Balkenende, Dutch prime minister, has sought an explanation from President Vladimir Putin for Russia’s tough line on the oil and gas project.

Earlier, senior Japanese and British officials criticised Russia for its heavy-handed approach. The US State Department said yesterday it was “very concerned” by Russia’s threat to revoke the environmental permit for Sakhalin-2.

Russia’s Ministry of Natural Resources this week cancelled the permit, which could lead to suspension of an exploration licence. The crackdown on Sakhalin-2 came after Shell doubled the estimated cost of the project to $20bn, rousing the Kremlin’s ire.

A spokesman for the Ministry of Natural Resources yesterday accused Shell of applying diplomatic pressure on Russia, rather than addressing the real problem. He said Russia had no intention of stopping oil and gas production from Sakhalin-2 or terminating the production-sharing agreement.

Rinat Gizatulin, a spokesman for the ministry, said the suspension of the permit was designed to put pressure on Shell to rectify its environmental breaches.

“As for now, we have no justification for revoking the licence from Sakhalin energy [a consortium which operates Sakhalin-2],” said Mr Gizatulin. But he added that such justification might arise on January 1 if Shell fails to fulfil the terms of the licence and start producing from one of the fields. He said the ministry’s lawyers had concluded that a licence could be revoked without breaking a production-sharing agreement.

The suspension of the Sakhalin-2 licence was supposed to be brought into force this week after being stamped by another federal agency responsible for industrial safety. But the agency, Rostekhnadzor, yesterday issued a statement saying it was not authorised to grant the request from the Ministry of Natural Resources. Then it swiftly retracted its statement, saying it had been sent in error. Observers said this suggested a crackdown on Shell was part of Russia’s hard-ball negotiating tactic with the company.

Gazprom, Russia’s state gas monopoly, wanted to take a 25 per cent stake in Sakhalin-2 project through an asset swap but suspended talks after Shell raised the cost of Sakhalin-2 to $20bn.

*Mr Putin, arriving in Paris for dinner with French President Jacques Chirac, yesterday said the rumour that Russian authorities could withdraw the licence for Total, the French oil group, to operate the Khar-yaga natural gas field in the Arctic Circle was “exaggerated”. “I want right away to reassure you. The rumours of withdrawal of licence for the company [Total] are exaggerated at best,” Mr Putin said.

Copyright The Financial Times Limited 2006

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