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AP Worldstream: Russian prosecutors may launch criminal case over violations at Shell-led energy project

Published: Oct 27, 2006

Russian prosecutors said Friday they may launch a criminal case over alleged environmental violations at a giant Shell-led energy project as officials crank up the pressure at the troubled multibillion-dollar development.

“The Prosecutor General’s Office plans to inspect materials provided by the Natural Resource Ministry on ecological violations during the Sakhalin-2 project,” prosecution spokesman Konstantin Nikonov told The Associated Press. “If there are sufficient grounds after this inspection, a criminal case will be opened,”

After a visit to the Pacific island of Sakhalin in Russia’s Far East to inspect the liquefied natural gas development, Natural Resources Minister Yuri Trutnev said Wednesday that the company had violated five articles of the criminal code.

He asked the environmental watchdog to submit details of the violations to the Prosecutor General’s Office within two weeks.

While Trutnev said that some of the violations were punishable by prison terms of up to seven years, a prosecution spokeswoman quoted Friday by Interfax said that the penalty for environmental crimes ranged from fines to sentences of up to five years.

The Sakhalin-2 project, led by Royal Dutch Shell PLC, has been accused of inflicting large-scale damage on Sakhalin’s ecosystem, including illegal deforestation, silting salmon-spawning rivers and soil erosion.

The troubles at Sakhalin-2 have been closely watched by Western governments over fears that the environmental checks, which began in August, are a smokescreen for reshaping Shell’s original deal in the Kremlin’s favor.

Regulators froze a key environmental permit at Sakhalin-2 last month. Work would have to be suspended at massive expense if a decision to revoke the permit is taken as a result of the probe.

Analysts have suggested the Kremlin is seeking to secure better terms for state natural gas monopoly OAO Gazprom to enter the project as well as renegotiate the deal.

Shell infuriated the Russian government when it said last year that the costs at the project it leads would double to nearly US$22 billion (A17.5 billion). Under an agreement regulating Sakhalin-2, it is allowed to recoup its costs before the state takes a share of the profits.

Several Western oil companies that control energy projects in Russia after signing similar deals in the 1990s have come under heightened environmental scrutiny in recent months, which analysts say reflects a Kremlin drive to increase the state role in the strategic oil and gas sector.

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