kommersant: Ministry to Make Financial Claims against Sakhalin Energy

Sep. 25, 2006

Russia has found a new way to pressure the participants in Sakhalin 2. A complex audit by Rosprirodnadzor, the federal resources supervisory service, of the project begins today and may lead to stiff financial claims being made against the operator company, Sakhalin Energy, when it is finished.

Officials are making every assurance that the new tensions are related to the rising expenses for the project and are promising to make every effort to increase its financial attractiveness for the state.

The audit is to determine the extent of the ecological damage to the island from the project. Rosprirodnadzor may then make claims against the company for compensation.

A Kommersant source close to the situation said that “hundreds of millions of dollars” were potentially involved. The accompanying PR campaign has already begun. On Friday, there were reports of numerous fish, crab, shrimp and mollusks grounded on the shore near the Sakhalin 2 gas liquefaction plant.

The audit will last about a month. In that time, a Ministry of Natural Resources order is to take effect to annul state findings on the ecological impact on Sakhalin 2. It is being held up because Rosprirodnadzor chairman Konstantin Pulikovsky has not signed the order.

Independent analysts attribute that fact to Pulikovsky’s unwilling to take responsibility for others’ mistakes. “The cancellation of one document does not automatically the cancellation of others based on it. Officials have the difficult task ahead of them of saving face,” one lawyer commented.

Sakhalin Energy has made it clear that it will have demand “compensation for additional expenses” from the Russian Federation. Dow Jones, citing a source close to Shell on Saturday, reported that the company may take legal action to settle the situation. Diplomatic efforts may be brought into play as well. The United States, Great Britain and Japan have criticized Russia’s actions.

Russia denies that the project is under threat. “We are far from refusing the agreements that have been reached,” Russian Foreign Minister Sergey Lavrov said in New York on Saturday. “But we want our partners to fulfill their obligations.”

A source in the presidential administration stated that authorities are most concerned about the financial effectiveness of the project. Sakhalin 2 is the only project being implemented under a product sharing agreement, and that sharing begins only after compensation has been made for expenses. Deputy Minister of Economic Development and Trade Kirill Androsov told Kommersant that project expenses have risen to $22 billion.
 
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