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Financial Times: Russia threatens to revoke 19 Lukoil oilfield licences

By Neil Buckley in Moscow and George Parker in Brussels
Published: October 16 2006 03:00 | Last updated: October 16 2006 03:00

Russia’s natural resources ministry has threatened to revoke 19 oilfield licences belonging to Lukoil, extending to Russia’s biggest oil producer the sort of treatment recently shown to foreign energy companies.

The ministry said on Friday it might withdraw 11 Lukoil licences in Komi, northern Russia, because of failure to develop fields fast enough, and eight in Siberia’s Khanty-Mansi region.

Simultaneously, Oleg Mitvol, deputy head of the ministry’s environmental watchdog, said he had found numerous environmental violations by Lukoil on an inspection visit to Komi.

Mr Mitvol led last month’s threat to withdraw a key ecological permit from the Royal Dutch Shell-led Sakhalin-2 project in the Russian Far East because of alleged environmental breaches – a move that provoked widespread concern among international energy groups.

Prosecutors have since threatened to withdraw a licence from TNK-BP, the Anglo-Russian oil joint venture, to develop its giant Kovykta gas field in eastern Siberia, citing a failure to fulfil licence terms.

Officials said the action against Lukoil showed Russian groups were receiving equal treatment. Russia is understood to be systematically reviewing oil and gas licences to ensure it is getting maximum benefit from development agreements.

Russian television showed Mr Mitvol in Komi with inspectors, environmentalists and journalists, echoing a visit he made to Sakhalin-2 two weeks earlier.

The resources ministry gave Lukoil three to six months to deal with the violations. Lukoil said it would make every possible effort to comply. “Throughout its history, the company has always complied with regulations set by control bodies, and Lukoil has never lost a single licence,” it said.

Russia’s environmental campaign against Sakhalin-2 has been seen as a way of putting pressure on the Shell-led consortium over a doubling of estimated costs to $20bn (£10bn, €16bn), and attempting to get Gazprom, the natural gas monopoly, into the project.

In an interview with the FT, Vladimir Chizhov, Russia’s ambassador to the EU, insisted the dispute with Shell was purely environmental in nature. “It’s a shame that such a big and respected company should be so negligent about the environment,” he said.

But he admitted there was a certain “frustration” in Moscow at the way production-sharing agreements (PSA) such as Sakhalin had worked and the lack of early returns for Russia.

PSAs, awarded on certain projects in the 1990s when Russian legislation was poorly developed, are exempt from normal tax laws but instead give Russia a share of oil and gas produced once companies have recouped development costs.

People familiar with the Kremlin’s thinking have confirmed the main aim of the Sakhalin action is to get a domestic partner such as Gazprom into the project to increase income to Russia from what is now seen as a bad deal.

The cost overrun has exacerbated that impression, these people added. Russian officials believe they can get a Russian company into Sakhalin Energy, the Shell-led consortium developing the project, without changing the PSA contract.

Copyright The Financial Times Limited 2006 

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