MosNews: Russia Says Will Sue Shell in International Court for Sakhalin-2 Environmental Damages

Created: 22.11.2006 10:41 MSK (GMT +3), Updated: 10:41 MSK, 1 hour 1 minute ago

Russia’s Natural Resources Ministry said on Tuesday, Nov. 21, that the country should claim compensation through an international arbitration court for environmental damage and lost profits caused by violations in the Shell-led Sakhalin-2 oil and gas project in the Far East.

MosNews has reported earlier in November that the country’s environmental watchdog Rosprirodnadzor said Russia could turn to the International Arbitration Court in Stockholm to demand around $10 billion in compensation from Sakhalin Energy, the project’s operator.

The Natural Resources Ministry backed the environment agency’s move, but questioned the sum involved. The figure cited by the agency reflects Shell’s own estimate of losses to both the company and the state budget that any “significant delays” to the project could cause.

Deputy Natural Resources Minister Alexei Varlamov said, quoted by RIA Novosti: “I agree, but not with the specific figures, since this is the individual opinion of the Federal Service for the Oversight of Natural Resources; but I am sure that if damages have been inflicted on the environment, which they certainly have, then the company [operator Sakhalin Energy] must take responsibility for its actions.”

Sakhalin Energy, controlled by oil major Royal Dutch/Shell, came under pressure from authorities in September, when the Natural Resources Ministry accused it of breaching environmental laws, and ordered an investigation.

Analysts linked the probe with Shell’s decision last year to double project costs to $22 billion. Under conditions of the Sakhalin-2 product sharing agreement Shell is allowed to comfortably recoup all expenses before sharing its profits with the state. Doubling the project costs meant putting off the date by which Russia will benefit from the vast hydrocarbon project. Russia’s state-controlled giant Gazprom was in talks on gaining a stake in Sakhalin-2 project offering Shell a share of its vast Vankor field in exchange. When the project costs for the project were doubled, Gazprom said that negotiations would have to take that into account and that Shell would now get a smaller stake in Vankor field. The change in Gazprom’s position put negotiations in peril and the move of Russian authorities was seen by many observers as a means of securing a stake in Sakhalin project for the gas monopoly.

Oleg Mitvol, the environmental watchdog’s deputy head, said two weeks ago he was not satisfied with Sakhalin Energy’s report on rectifying environmental damage, and that even though the company had been aware of the problems in advance, it had not provided information on time.

Allegations against the multibillion-dollar project’s operator include illegal deforestation, the dumping of toxic waste, soil erosion, the illegal routing of an oil pipeline through the territory of a national conservation area, and environmental damage in the island’s Aniva Bay.

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