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New York Times: Shell Could Face Criminal Charges in Russia

Sakhalin II

(Joseph Sywenkyj for The New York Times
Shell’s $22 billion Sakhalin 2 project, under construction on Sakhalin Island, will have about 500 miles of natural gas and oil pipelines.)

October 26, 2006

MOSCOW, Oct. 25 — A Russian official threatened criminal prosecutions against employees of Royal Dutch Shell, ratcheting up pressure on the company’s $22 billion oil and gas project on Sakhalin Island on Wednesday.

The remarks suggested a further unraveling of the relationship between Western energy companies and the Russian government, which is intent on gaining control of the energy sector.

Shell and two Japanese partners were accused of violating Russian environmental law at their Sakhalin 2 project. The project consists of two offshore platforms, a pipeline, the world’s largest liquefied natural gas plant and an oil terminal. A Russian state company, Gazprom, wants a 25 percent share. Mitsui and Mitsubishi, of Japan, are minority owners.

“The breaches at Sakhalin 2 fall under five articles of the criminal code,” Yuri Trutnev, the minister of natural resources, said after touring a pipeline Wednesday, in remarks shown on Russian television news. “This falls under criminal law and we think it’s necessary to apply it. All the relevant documents should be sent to the prosecutor general within two weeks.”

Lower-ranked Russian officials had threatened criminal charges earlier this month. The statement by Mr. Trutnev, however, carried more force and suggested an escalation because he is a member of the cabinet.

Mr. Trutnev said the ministry would calculate the cost of environmental damage from Sakhalin 2 within four months. He also said work on some pipeline sections should halt immediately and that he was preparing to cancel a water use permit, needed by the company.

President Vladimir V. Putin denied during a question-and-answer session on Russian television Wednesday that environmental laws were being selectively enforced against foreign energy companies.

Mr. Trutnev, whose ministry inspected Sakhalin 2 in August and again in September, had said the second inspection provided enough grounds to revoke a major environmental permit. He had said the permit would very likely be canceled this week. He delayed a decision on that permit, however, by one month for further study.

On Wednesday, Shell provided the ministry with its response to the August inspection; the company said 98 percent of the infractions cited had been rectified.

“I am pleased that Minister Trutnev has taken the time to visit Sakhalin to see firsthand the work in progress,” Ian Craig, chief executive of Sakhalin Energy, the operating company, said in a statement Wednesday. “There is no question of our commitment to correct any errors that we or our contractors may have made,” he said.

A company spokesman, Ivan O. Chernyakhovsky, said he could not respond to the threats of criminal prosecution made by Mr. Trutnev. “A lot was said today; we aren’t ready to comment on it all in detail,” he said. “We think we have complied with Russian legislation.”

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