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Associated Press: Kremlin Turns Up Heat on Shell Project

Oct. 4, 2006, 5:13AM

© 2006 The Associated Press

MOSCOW — The Kremlin turned up the pressure on a giant Shell-lead energy project Wednesday after a top economic adviser to the president said Russia would never accept a doubling of its costs, the Interfax news agency reported.

“It was clear that the Russian side would never accept this,” Arkady Dvorkovich was quoted as saying. Shell enraged the Kremlin last year when it announced that its costs at the giant Sakhalin-2 liquefied natural gas project would double to US$20 billion (euro15.75 billion).

Under an agreement signed in the 1990s, Russia will only receive a share of the oil once costs have been covered. Analysts have said a recent decision to pull a key environmental permit at Sakhalin-2 by Russia’s Natural Resources Minister is aimed at allowing the Kremlin to see profits from the development before costs have been covered, as well as securing better terms for state gas monopoly OAO Gazprom, which is seeking to join the project.

The decision has shocked investors and prompted criticism from western governments.

Britain’s ambassador to Russia, Tony Brenton, on Wednesday warned that the current situation had harmed Russia’s reputation as a “business partner and a supplier of energy resources” and defended Shell’s environmental record at the project, according to Interfax.

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