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Shell in PR push for Sakhalin 2

Financial Times: Shell in PR push for Sakhalin 2

“The publication mirrors efforts by the embattled Shell elsewhere to stress its role as a responsible corporate citizen…”: “”The more a company does, the more it’s in trouble,” said an executive for a rival western energy group based in Moscow, commenting on the Sakhalin Energy document”

By Andrew Jack in Moscow

October 25 2004

Royal Dutch/Shell, the Anglo-Dutch petroleum group, and its Japanese partners are gearing up to launch a “charm offensive” to explain the benefits to Russia of their $12bn Sakhalin 2 project at a time of growing concern over attitudes to foreign investment in the country.

In a glossy 36-page booklet obtained by the FT and designed for widespread distribution, Sakhalin Energy, the partnership between Shell, Mitsubishi and Mitsui developing oil and gas in an offshore field off Sakhalin Island in Russia’s far east, argues that federal authorities will receive $45bn in direct income in the coming years from the project.

The company says its operations will also create “thousands of jobs for Russian nationals” and award “billions of dollars in contracts for Russian industry and businesses” over its planned 49-year life.

The publication mirrors efforts by the embattled Shell elsewhere to stress its role as a responsible corporate citizen, but comes at a time when there are particular worries about security of property rights, the attractiveness of the tax system and the desirability of foreign investment in Russia, notably in the strategic natural resource sector that is increasingly coming under the control of the authorities.

“The more a company does, the more it’s in trouble,” said an executive for a rival western energy group based in Moscow, commenting on the Sakhalin Energy document and expressing concerns about the negative effects of government policy on investment decisions.

A survey by AT Kearney, a management consultancy, this month suggested that Russia’s attractiveness as a destination for foreign direct investment had dropped over the past year from a record level of eighth to 11th position in the wake of terrorist attacks and concerns over the moves against oil group Yukos.

President Vladimir Putin has been keen to stress that he welcomes foreign investment, with Russian state television last Thursday prominently showing him welcoming Jeffrey Immelt, chief executive of US-based General Electric, to a meeting in the Kremlin.

However, his administration has rejected plans for tax changes and the creation of production sharing agreements (PSAs) designed to encourage investment by oil and gas companies in developing production in high-cost offshore fields.

Sakhalin Energy is one of just three PSAs approved in Russia in the 1990s, and the only one with no domestic partner.

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