Fulll headline: International Herald Tribune: Reports: Russian official says Energy Ministry in talks on changing business model at Sakhalin-2
The Associated Press
Published: October 20, 2006
MOSCOW Russia’s Industry and Energy Ministry is in talks with investors in the Sakhalin-2 liquefied natural gas project on changing the business model of the giant endeavor after costs more than doubled to nearly US$22 billion (€18 billion), Russian news agencies reported.
The comments were made by Andrei Dementyev, the ministry’s deputy head, at a specially convened discussion of the Royal Dutch Shell-led project in Russia’s upper house of parliament.
Ivan Chernikovsky, a spokesman for Sakhalin Energy, the consortium developing the project, told The Associated Press that as long as negotiations on the budget overrun were continuing “we cannot comment on the contents and status of these confidential discussions.”
The project has come under intense pressure from environmental regulators. Analysts say the probes are being used to pressure the company to reconsider the terms of the original agreement to develop the fields, which are located off the Pacific island of Sakhalin, and to secure access for a Russian state-controlled company to the project.
The so-called production sharing agreement, which was signed in the 1990s, allows Shell to recoup all of its expenses before sharing any profits with the Russian state. The cost overrun announced last year would therefore massively delay the point at which the government would see revenues from the project.
Also speaking at the parliamentary hearing, Russia’s Natural Resources Minister Yuri Trutnev said that while he had received assurances from the consortium running the project that the oversights were being rectified, he could not rule out that work at the development may be halted.
“The Russian Natural Resources Ministry is responsible for the observance of environmental legislation. If Russian laws are going to be trampled on and if the environment is going to be damaged, then we will take measures to stop the project,” the Interfax agency news agency quoted him as saying.
Trutnev is due to met with representatives of the consortium on Sakhalin next week, at which they will present a plan to resolve the environmental violations.
“It will be proposed that Sakhalin Energy compensate for and resolve the damage,” Trutnev said in televised remarks. He said that the consortium’s chief executive officer, Ian Craig, had sent him a letter “in which the company acknowledges — virtually in full — … that it has violated the ecological legislation of Russia.”
In a statement, Sakhalin Energy said that it had notified Trutnev of the state of work to rectify “non-compliant environmental practices” identified in an August environmental audit and would respond “quickly and adequately” if further problem were identified in a check that began on Oct. 3.