RIA Novosti: Russian envoy seeks to downplay Sakhalin II scare with Japan

16:19 | 20/ 09/ 2006

TOKYO, September 20 (RIA Novosti) – Russia’s envoy to Japan sought to defuse Thursday a potential conflict with Tokyo over the fate of the Sakhalin II energy project, saying Moscow had no intention of closing it down over claims of environmental damage.

Japan’s Chief Cabinet Secretary Shinzo Abe, who is poised to replace Junichiro Koizumi as prime minister, said Tuesday a decision made by the Russian Natural Resources Ministry to annul its own approval of an ecological study of the project could harm bilateral relations.

Companies controlled by Japan’s Mitsui and Mitsubishi hold 45% of the stock in project operator Sakhalin Energy, which is supposed to start supplies of liquefied natural gas to Tokyo in 2008.

But Russian Ambassador Alexander Losyukov sought to downplay the situation at a news conference in Tokyo.

“The problem is a source of concern for investors both in Japan and other countries, including in Russia,” the envoy said. “But it is a ‘hyper-reaction’ to say that this could affect Russian-Japanese relations and is most likely based on inaccurate information.”

And he went further, saying Russia did “not have the slightest intention of halting or freezing the project.”

The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and controlled by Royal Dutch Shell, has encountered problems since its inception in 1994. Development costs have reportedly doubled to about $20 billion as global commodity prices have risen and Russia’s environmental watchdog has claimed illegal tree felling was carried out on the island.

The watchdog, the Federal Service for the Oversight of Natural Resources, said Tuesday work on the project should be suspended until specific engineering proposals are in place on each of the pipeline’s sections. The move could mean Shell will be unable to execute plans to develop a crucial LNG plant with supplies to Japan supposed to start in 2008.

Losyukov said he shared concerns of the Japanese investors about possible delays in future supplies of energy to Japan but said the production-sharing agreement on Sakhalin, signed in the mid-1990s as a way to attract investment given the poor state of the economy, would be honored.

But the ambassador suggested the deal was likely to be one of the last. “The production-sharing agreement [on Sakhalin II], which was concluded more than 10 years ago, does not satisfy us at all at present, it is not profitable for Russia and we will not sign such agreements in the future,” he said.

Russia’s Economic Development and Trade Ministry previously defended PSAs being implemented. “Every signed PSA is a law,” Kirill Androsov, a deputy minister said September 6. “So far, we have not terminated a single PSA, and I see no reason for doing that,” he said.

The Sakhalin-II project comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal. The two fields hold reserves totaling 150 million metric tons of oil and 500 billion cubic meters of natural gas.

Losyukov said the situation with Sakhalin II could be resolved soon and it would not affect the supplies schedule.

“In any case, Russian-Japanese relations have reached a level of maturity when disputes between two economic entities cannot affect them,” the Russian ambassador said.

Even prior to the latest developments around Sakhalin II, ties between Moscow and Tokyo were strained over the status of four disputed Kuril Islands – an argument that has prevented the signing of peace treaty marking the end of World War II – and an incident in August that led to Russian border-guards shooting dead a Japanese fisherman after they attempted to stop his vessel for alleged poaching.

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