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Business Week: Moscow’s Eco-Crusader Aims at Big Oil

By Jason Bush

Oleg Mitvol, head of Russia’s EPA, is targeting the Sakhalin II oilfield and making enemies—possibly even in the Kremlin.

He’s fast becoming one of Russia’s best-known public figures. His face is regularly on television, the pages of newspapers, and the covers of magazines. Now, his activities are making waves internationally, causing one of the biggest stirs to affect foreign investors in Russia for years. Not bad going for the deputy head of a small government agency that, until a few months ago, very few people had heard of, even in Russia.

Meet Oleg Mitvol, deputy head of Rosprirodnadzor, Russia’s environmental protection agency. Over the last four months, Mitvol has waged a highly public campaign against the Sakhalin II oil and gas project in the Russian Far East, where Anglo-Dutch energy giant Royal Dutch Shell (RDS-A, RDS-B) is the major investor. Royal Dutch Shell is a 55% partner in Sakhalin Energy Investment, which is drilling for natural gas off the icy coast of remote Sakhalin Island.

The project involves building drilling platforms off Sakhalin in the Sea of Okhotsk. Pipelines from those platforms snake through the island, which is rich in forests and salmon-filled streams (see BusinessWeek.com, 5/15/06, “Sakhalin Island: Journey to Extreme Oil”). Mitvol has alleged environmental damage worth up to $50 billion.

Show and Tell Sakhalin Energy acknowledges that the project has faced environmental challenges but argues that it is doing its best to meet Russian demands. “We try to make that pipeline in line with all regulations,” say Jeroen van der Veer, CEO of Shell. “But if we make a mistake we have to correct that full stop. Whether reasonable or unreasonable we have to work within the rules.” The comments come after Russia’s Minister of Natural Resources (and Mitvol’s boss), Yuri Trutnev, accused Sakhalin Energy of criminal violations during a visit to the project on Oct. 25.

Still, Mitvol isn’t satisfied, and says he intends to sue the operators for billions of dollars in damages. “Under the law, we should defend Russia’s environment, and we’ll defend it openly and we’ll show and tell everybody,” he says. If environmental damage “happened in America or Germany or Britain, our colleagues would perform in exactly the same way,” he adds.

Mitvol’s highly public and personal campaign is certainly unusual behavior for a Russian official, generally a cautious breed not known for courting publicity. But then Mitvol, 40, is no ordinary Russian bureaucrat. He cut his teeth in business before taking up his government job in 2004. Like many early Russian entrepreneurs, he turned his back on a prestigious scientific education to make money during the heady early days of Russian capitalism in the early 1990s.

Unique Role: He got his start organizing trips for tourists. Later, Mitvol took advantage of Russia’s privatization program to buy and sell shares, making himself a tidy profit. In 1997 he branched into the media, teaming up with tycoon Boris Berezovsky to set up the Noviye Izvestiya newspaper. Mitvol sold out of the venture in 2003.

By then, Mitvol had made a small fortune that he values at around $20 million, and decided to quit business. “I was bored sitting at home,” he says simply. That’s when he decided on his new vocation, figuring that no other public figures were focusing on the environment. “I wanted to do something that no one else did,” he notes.

Mitvol didn’t waste time putting the issue on the agenda. Even before his campaign against Sakhalin II drew international attention, Mitvol had already made a name for himself in Russia as the country’s environmental troubleshooter. One of his most public and popular campaigns came in 2004, when he began targeting luxury homes built on or near protected land by rich and famous Russians, including pop stars, businesspeople, and politicians.

Hidden Agenda? During a recent unsuccessful campaign to stop the construction of a large shopping center in central Moscow, Mitvol called himself “a sort of Robin Hood.” The moniker stuck. Many use it ironically, but environmentalists are grateful for Mitvol’s high-profile support. “In the last year and a half, [Rosprirodnadzor] has done a great deal of good—certainly much more than in the preceding five years,” says Ivan Blokov, campaign director of Greenpeace Russia.

In the course of Mitvol’s aggressive showdown with Sakhalin II, many have questioned his motives. Most analysts and commentators have assumed that the Kremlin is simply using environmental concerns as a way to put pressure on Shell. The real object, according to this theory, is to force a renegotiation of Russia’s agreement with the project’s operators and gain a stake in the project for Gazprom, Russia’s state-owned gas concern.

But Mitvol gives that argument short shrift. He argues that as a result of the huge extra costs imposed on Sakhalin II by his investigation, Gazprom would also have to foot a bill for “billions of dollars” if it enters the project, to pay for the alleged environmental damage. He also denies that he’s following orders from on high. “No one tells me what to do,” he says. Indeed, he says that far from encouraging his campaign, senior government officials are trying to put the brakes on it.

Enemies in High Places: Evidence is mounting that Mitvol may indeed be pursuing his own agenda. In a mysterious plot twist, Rosprirodnadzor was raided by police on Oct. 18. Although Mitvol says he wasn’t personally the target, the police seized documents relating to the agency’s investigations into Sakhalin II, including hotel bills and plane tickets from business trips.

It may be no coincidence that Rosprirodnadzor has recently extended its crackdown to target Russia’s own oil and gas companies, challenging 19 licenses held by Lukoil, Russia’s largest oil company, and raising concerns about environmental violations by Russia’s two state-owned energy players, Gazprom and Rosneft. Lukoil argues that Mitvol’s agency is interfering too much in licensing issues, which it says aren’t its responsibility.

“We think Rosprirodnadzor should concentrate more on preserving nature and ecology,” says Lukoil spokesman Vladimir Simakov. But Mitvol says he plans to investigate all of Russia’s natural-resource companies over the next two years—even if that means making enemies among state-owned companies with connections in high places.

Bush is BusinessWeek’s Moscow bureau chief

OCTOBER 26, 2006

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