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MarketWatch: Sakhalin-2 full environment report due mid-December – regulator

Last Update: 5:21 PM ET Nov 28, 2006

LONDON (MarketWatch) — Russian environmental regulator Oleg Mitvol said Tuesday he expects to complete in mid-December a full report on alleged environmental damages by Sakhalin Energy Ltd.

Mitvol, the deputy head of the Russian Natural Resources Ministry’s environmental watchdog, has already threatened to pull the environmental license of the Royal Dutch Shell PLC (RDSA.LN)-led consortium. Sakhalin Energy is the operator of the Sakhalin-2 oil and liquefied gas project on the Russian Far Eastern island of Sakhalin.

“We have the results of the inspections in the (onshore pipelines) areas but we are waiting for the results of the aerial pictures. They are still being analyzed,” Mitvol said. “The full report will be ready mid-December,” he added.

He said the inspections had so far uncovered issues with landslides in rivers induced by the project and the mitigation of risks related to the crossing of tectonic faults by the pipelines.

Mitvol also mentionned the negative impact on fishing and the ecosystem of the construction of a jetty in Aniva Bay, in the south of the island.

The regulator said “we are waiting the company to give concrete solutions for the rivers.”

The official said “we are in consultations with jurists from New York” and was to meet some of them on Dec. 10. He said he was consulting three law firms “on the position the government of Russia” could adopt against Sakhalin Energy and the possibility of an arbitration at a Stockholm court.

He said the firm offering the best proposal would be hired and could get a percentage of any damages won in court.
“We have found problems, a cover-up” of issues at the project, he said, which could be used in a litigation.

He said the evidence of an alleged cover-up included e-mails sent by a Shell manager in 2002 expressing concern that the designs for oil and gas wells on Russia’s Sakhalin Island didn’t properly address seismic risks. Mitvol said they also included documents on the onshore pipeline.

Mitvol has previously aknowledged, however, that the final decision to sue is more likely to be taken by the Russian government.

In a statement Tuesday, environmental groups said they welcomed Mitvol’s efforts. “We believe that the Sakhalin II project should only be allowed to move forward after it is significantly changed to comply with Russian environmental regulations and best international practices,” said a press release signed by Sakhalin Enevironment Watch, WWF and Pacific Environment.

Shell couldn’t immediately comment.

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