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International Herald Tribune: Russia’s environmental watchdog says Shell’s efforts to undo damage at Pacific island inadequate

13 November 2006

The Associated Press

A top Russian environmental official said Monday that proposals by a Shell-led energy consortium to resolve violations at its giant liquefied natural gas project in the Far East were insufficient, in the latest official criticism of the development.

Russia’s Natural Resources Ministry has accused the consortium of silting rivers and illegal logging in the course of its pipelaying work on the Pacific island of Sakhalin.

But observers suggest that the pressure is aimed at reconfiguring to the Kremlin’s benefit the terms of the deal under which Royal Dutch Shell PLC acquired the rights to develop the huge fields, as well as securing favorable terms for gas monopoly OAO Gazprom to enter the project.

“The measures proposed by Sakhalin Energy to compensate the damage done to the environment of Sakhalin do not take into account the whole scale of the violations,” Oleg Mitvol, the deputy head of the Ministry’s environmental watchdog, Rosprirodnadzor, said in a statement.

Russian officials deny any hidden motivation for the environmental checks, which are due to conclude at the end of November. But they denounce as unfair the terms of 1990s deals — called production sharing agreements — that handed control of difficult energy projects to foreigners at a time of low oil prices.

Under the PSAs, foreign companies were allowed to recoup their costs before the state took a share of the profits.

Shell, which controls Sakhalin-2 with two Japanese companies, infuriated the Russian government when it said last year that the costs at the project would double to nearly US$22 billion (€17 billion).

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