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Kommersant: Audit Chamber Says Russia’s Profits from Sakhalin-2 Paltry

audit chamber

(Chairman of the Russian Audit Chamber Sergey Stepashin
Photo: Alexander Miridonov)

Oct. 07, 2006

Russia will get the smallest possible revenue from the Sakhalin-2 project which works on a production sharing agreement, the Russian Audit Chamber said. Experts believe that the new claims have been made to prompt the Sakhalin Energy operator to review the terms of the product sharing deal.

The Audit Chamber published a press release on Friday on auditing the Sakhalin-1 and Sakhalin-2 projects. Sergey Stepashin’s agency reported that Sakhalin-2 is still carried out with little profit to Russia as the country still gets only 10 percent of the produce. The product sharing agreement of Sakhalin-2 says that in case the operating company does not have spare money and everything is spent on operational expenses, Russia will get only 10 percent of the produce.

The Audit Chamber also criticizes Sakhalin Energy for growing expenses. Sakhalin Energy now says that the project may take up to $50 billion. The Audit Chamber is not happy that Russian companies have gained only 39 percent from contract operations.

Sakhalin Energy dismisses the accusations and says that even the oil price of $34 per barrel will secure Russia $50 billion of profits as long as the project is underway.

Industry experts believe that the claims show authorities’ striving to review terms of product sharing deals which were struck in the mid-1990s. Back in early September, Alexey Shuvalov, the Russian president’s aide, made the first step, suggesting “transferring these projects [Sakhalin-1 and Sakhalin-2] to the national taxation system.”

www.kommersant.com

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