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Mainichi Daily News (Japan): Japanese firms keep nervous watch on Russian suit over Sakhalin II

September 7, 2006

Japanese companies involved in the Sakhalin II energy development project are anxiously watching how a lawsuit filed by the Russian government to halt it will play out.

Russia’s natural resources management agency filed the suit with a Moscow court on Tuesday, seeking to annul the business license for the project, on the ground that Sakhalin Energy Investment Co., the project operator, has failed to take environment-protection steps demanded by the agency.

Mitsui & Co. has a stake of 25 percent in Sakhalin Energy, and Mitsubishi owns 20 percent. Utility firms such as Tokyo Electric Power Co. and Tokyo Gas Co. have concluded long-term contracts for liquefied natural gas supplies from Sakhalin Energy.

Royal Dutch Shell PLC controls 55 percent of the energy developer.

There is speculation that the Russian suit is aimed at forcing the project participants to cede the control of the 20-billion-dollar project to Russian interests.

But one industry watcher downplayed concern that the Russian government would take forceful steps to seize full control of the project, saying foreign capital is indispensable for Russian”s energy development.

Nonetheless, the Japanese companies will need to keep close tabs on how the lawsuit will develop. Officials at Mitsui and Mitsubishi said the companies are still gathering information about the suit.

A Tokyo Electric official predicted that even if the start of gas production under the project is delayed from the planned 2008 to 2009 due to the suit, it would not have a significant impact on the company. Tokyo Electric plans to procure only a small amount of LNG from Sakhalin Energy in 2008, the official explained. (Jiji Press)

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