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The Alaska Journal of Commerce: Russian official hints at seeking $15B from Shell

Oleg Mitvol

(Oleg Mitvol, the deputy head of Rosprirodnadzor, Russia’s environmental watchdog, shows photos of pipe-laying work on Far Eastern Sakhalin island during a Oct. 16 press conference in Moscow. Mitvol suggested Nov. 14 that the Russian government could seek $15 billion from a Shell-led consortium for environmental damages. AP PHOTO/ Mikhail Metzel)

By Mike Eckel
Associated Press Writer

MOSCOW – A top environmental regulator suggested Nov. 14 that Russia could seek up to $15 billion for environmental damages and other losses it blames on a Shell-led consortium involved in a liquefied natural gas project in the Far East.

Oleg Mitvol, deputy head of the Natural Resources Ministry’s environmental watchdog, also called for stripping Sakhalin Energy Ltd., the consortium led by Royal Dutch Shell PLC that operates the Sakhalin-2 project, of its official water-use licenses.

Mitvol’s statements and moves reflected rising government pressure on the consortium. Observers see it as a Kremlin-dictated effort to secure favorable terms for state-controlled gas monopoly OAO Gazprom to enter the project.

Mitvol’s agency, Rosprirodnadzor, has accused the consortium of illegal logging and of damaging rivers in the course of its pipelaying work on the Pacific island of Sakhalin.

On Nov. 14, Mitvol sent a letter to the water resources agency that is part of the same ministry, urging it to revoke 19 water-use licenses issued to Sakhalin Energy, the Interfax news agency reported.

Earlier, Mitvol acknowledged to reporters that the final decision to sue Sakhalin Energy is likely to be taken by the Russian government, not his agency.

“Maybe the Russian government will decide it doesn’t need $15 billion,” he said, suggesting that might be the amount sought if a suit is filed.

He did not quantify his estimate of the actual environmental damages, saying only that Russia had already sustained damage that it could never be compensated for.

According to Russian news agencies, Mitvol also said the consortium itself has indicated Russia could lose $10 billion because of the problems with the project.

In a statement, Sakhalin Energy accused Mitvol of making an “unsubstantiated attack containing exaggerations and distortions of the facts” and said his remarks appeared to be outside of his agency’s purview. The company also maintained that any environmental damage caused during the project’s construction phase would be “short-term and reversible.”

“The company completely rejects the suggestion that information regarding environmental hazards was knowingly withheld from regulators or shareholders,” Sakhalin Energy said.

Russian officials deny any hidden motivation for environmental checks of the project, which are due to conclude at the end of November. But they say terms of deals in the 1990s that handed control of difficult energy projects to foreigners at a time of low oil prices were unfair.

Under the deals, called production sharing agreements, 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 $22 billion.

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