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Business Week: Shell-led project in Russia scrutinized

The Associated Press December 6, 2006, 10:43AM EST

MOSCOW

Russian prosecutors have uncovered more than 100 violations of environmental, labor and migration law at a giant oil and liquefied natural gas project run by Royal Dutch Shell PLC on the Russian island of Sakhalin, according to a report Wednesday.

The report by news agency RIA-Novosti, which cited an unidentified source in the local prosecutor’s office, is the latest in a steady flow of charges from Russian officials, who have threatened since this summer to pull key permits at the Sakhalin-2 development and hit it with economic sanctions.

A spokesman for the Moscow Prosecutors’ Office was not immediately able to confirm the report. Ivan Chernikovsky, a spokesman for Sakhalin Energy, the consortium which Shell leads, was not immediately available to comment.

Observers, however, contend that the attention is aimed at pressuring Shell to secure more favorable terms for state-controlled gas monopoly OAO Gazprom to join the project, and comes as the Kremlin is increasing its role in the lucrative energy sector.

Shell enraged the Kremlin at the end of last year when it announced that the cost of the project would double to $22 billion. Russian officials have yet to approve the costs, which under the terms of Shell’s original agreement must be paid in full before Russia can receive a share of the profits.

The Sakhalin Energy consortium is 55 percent controlled by Shell.

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