The Guardian: Russian threat to sue Shell for billions over Sakhalin

Tom Parfitt in Moscow
Saturday November 11, 2006

Russia has threatened to sue Shell for billions of dollars over alleged environmental violations at its vast Sakhalin-2 oil and gas development. Ratcheting up pressure on the Anglo-Dutch company, Oleg Mitvol, deputy head of environmental watchdog Rosprirodnadzor said it might even call for the project to be scrapped.

Moscow has been leaning hard on Sakhalin Energy, the Shell-led consortium building the $22bn (£11.5bn) development, in a move some analysts think is designed to force it to give up a chunk of the project to state energy company Gazprom.

Mr Mitvol told news agencies that Sakhalin Energy had produced a plan detailing how it would tackle environmental problems caused by construction work, but the proposed solutions were “not serious”. “It is a joke collection,” he said. “We had expected to see technical solutions and they are dealing with small local problems.”

An environmental permit granted to Shell for the project by the natural resources ministry in 2003 was revoked at the end of September. Mr Mitvol has estimated that putting right damage allegedly caused by Shell on Sakhalin Island in the Russian far east could cost up to $50bn.

“We are talking to lawyers and determining our position to file for damages according to international law,” he said. The lawsuit would be filed at the international arbitration court in Stockholm.

A Rosprirodnadzor source told Interfax the lawsuit would concern environmental destruction during the project’s implementation, compensation for lost benefits to Russia and the concealment of important information by contractors.

Shell has consistently denied causing large-scale damage to nature, insisting that “successful delivery of this strategic project for Russia goes hand in hand with preservation of the environment”.

Moscow is angry that Shell almost doubled the projected cost of Sakhalin-2 last year. Under a production sharing agreement Shell can recover its costs before sharing profits with the government.

Yesterday TNK-BP, the oil company 50% owned by BP, coughed up a $1.4bn back tax bill shortly after its Rospan division came under threat of prosecution for alleged environmental violations.

http://business.guardian.co.uk/story/0,,1945367,00.html

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