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Bloomberg: Shell Unit Faces Criminal Charge for Destroying Russian Forest

By Torrey Clark

Sept. 20 (Bloomberg) — Royal Dutch Shell Plc’s Russian venture may be charged with destruction of forests, a criminal offence, as President Vladimir Putin extends government control of the nation’s oil and gas industry.

The construction of a pipeline by Shell’s Sakhalin Energy across Sakhalin Island caused at least 11 million rubles ($410,000) of damage to the forests, Oleg Mitvol, the deputy head of the Natural Resources Ministry’s environmental inspectorate, said at a press conference in Moscow yesterday.

“First, I think there will be criminal cases opened for destruction of the forest,” Mitvol said. “Then we’ll look at all other issues.”

The ministry is stepping up pressure on three projects operated by Shell, Exxon Mobil Corp. and Total SA under production-sharing agreements, which grant the government a share of oil after the investors recover expenses. The foreign-led ventures created in the 1990s have become embroiled in Putin’s program to increase state control of energy supplies.

Environmental concern is the ministry’s only interest in taking away the permit and stopping Shell’s project, known as Sakhalin-2, Mitvol said.

“Shell received permission to extract oil and gas, not to kill the environment,” he said.

Valentina Kiseleva, an employee in the external affairs office of Sakhalin Energy, said today she wasn’t aware of any charges, directing questions to a spokesman in Moscow.

The Russian agency responsible for environmental and industrial safety must agree with the ministry’s order to annul the permit. The agency is likely to cancel the permit today or tomorrow, Rinat Gizatulin, the ministry’s spokesman, said at a Moscow press conference.

Investment Concerns

Russia’s suspension of Sakhalin-2 may hurt relations between the countries, Japan’s Chief Cabinet Secretary Shinzo Abe said yesterday.

Japan, which imports more than 99 percent of its oil and gas, is relying on Sakhalin-2 to start contributing about 8 percent of the gas needs in Asia’s biggest economy by 2008, reducing a reliance on Middle East imports. The project is 45 percent owned by Mitsubishi Corp. and Mitsui & Co., Japan’s two biggest trading companies. Shell owns the rest.

The moves against Shell by the Russian government have intensified concerns about the safety of investments in the world’s largest energy supplier.

The European Union’s energy chief said he was taking “very seriously” the cancellation of Shell’s permit for Sakhalin-2, which is scheduled to begin deliveries of 9.6 million tons a year of liquefied natural gas to Japan and Korea in 2008.

“In order to ensure that companies are willing to invest in multibillion-euro energy projects, a secure and predictable investment climate is necessary in Russia as in the EU or indeed any country,” EU Energy Commissioner Andris Piebalgs said in a statement yesterday.

To contact the reporter on this story: Torrey Clark in Moscow at [email protected]

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