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The Moscow Times: Foreign Investors Press State for Clarity

Russian Minister Trutnev

(Vladimir Filonov / MT
Trutnev, pictured at the conference on Monday, appeared dissatisfied with Shell’s clean-up efforts in Sakhalin-2. )

Tuesday, October 17, 2006. Issue 3520. Page 1.

By Miriam Elder
Staff Writer  
Foreign executives appealed to Prime Minister Mikhail Fradkov and senior economic officials for clarity and transparency Monday amid a major review of many of the country’s largest foreign investment projects.

They warned that corruption, administrative barriers, entangled bureaucracy and selective application of the law were casting a shadow over the country’s strong economy and scaring away potential investors.

Yet state officials failed to provide the clarity foreign investors sought.

“There is a strong sense of optimism here, but also a strong sense of nervousness,” said Ernst & Young CEO James Turley, who co-chaired the conference with Fradkov.

Royal Dutch Shell CEO Jeroen van der Veer said the company had corrected all environmental problems at Sakhalin-2, a huge liquefied natural gas project that it is building with Japanese minority shareholders Mitsubishi and Mitsui. Sakhalin-2 — the country’s largest foreign investment project — is under review for the purported environmental violations.

“Although the project has faced significant environmental challenges, we firmly believe these have been fully and transparently addressed,” van der Veer said.

After meeting briefly with van der Veer on the sidelines of the conference, Natural Resources Minister Yury Trutnev appeared unsatisfied with Shell’s efforts.

“If the company presents a plan to deal with environmental damage, then there would be no point in stopping the project. If such measures are not proposed, absolutely any sanctions are possible from our side,” he said, without elaborating on what those sanctions might be.

The campaign against Sakhalin-2 has been seen as a means of putting pressure on Shell to increase the stake it is willing to give Gazprom in the project. So far, negotiations have centered on Shell giving state-run Gazprom a 25 percent plus one share stake in exchange for a 50 percent stake in Gazprom’s Zapolyarnoye field.

Shell spokesman Maxim Shub said talks were continuing and there were no plans to increase the stake offered to Gazprom.

“We are now working to just evaluate the assets to be swapped,” he said by telephone, declining to provide a timeline on when negotiations would be concluded.

Van der Veer reiterated the consortium’s willingness to hand over a substantial stake to Gazprom, which has spearheaded the state’s attempt to bring ever more oil and gas resources into its fold.

“We welcome the proposed entry of Gazprom into the Sakhalin-2 project,” he said.
Van der Veer stressed that the state would need foreign participation if it followed through on plans to invest about $400 billion in the oil and gas sector by 2020, with the bulk of new developments coming in difficult locations in the Arctic Circle and Siberia.

No participants made explicit reference to Gazprom’s shock decision last week to shut out foreign participants from development of the huge Shtokman gas field after years of negotiations.

But van der Veer said: “Fewer gas fields around the world can be developed by a single company.

“It’s about forming partnerships,” he said.

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