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Reuters: Russia hits Shell with Sakhalin licence suspension

07 Dec 2006 12:35:47 GMT
By Tanya Mosolova

MOSCOW, Dec 7 (Reuters) – Russia stepped up pressure on Royal Dutch/Shell’s Sakhalin-2 venture on Thursday by saying it had suspended water permits in a move that could cause further delays to the $22 billion project.

Russia’s resources ministry said in a statement its water resources agency had suspended 12 water-use licences of Sakhalin’s top contractor Starstroi, a joint venture between Russian firms and Italy’s Saipem .

It gave Starstroi two months to put the violations right.

In September, Russia revoked environmental permits accusing Shell of violating their terms — a charge Shell denied.

“During the suspension period they cannot start new work, but can only rectify violations,” Anna Khitrova, a spokeswoman for the agency, told Reuters.

Analyst say the latest move is part of an attempt to force Shell and its partners Mitsui <8031.T> and Mitsubishi <8058.T> to concede to less favourable terms. They also see a wider Kremlin campaign to limit foreign involvement in energy.

The Sakhalin-2 oil and gas project on the mountainous Pacific island of Sakhalin is one of the world’s biggest energy projects, aimed at supplying growing Asian markets.

It has come under increasing pressure since last year when it doubled cost estimates, infuriating Russian gas monopoly Gazprom , which was planning to buy a stake.

Ballooning costs have also angered Russia’s government because under its deal with Shell, Sakhalin-2’s operators are allowed to recoup their costs before Moscow sees any profits.

Shell has spent around $10 billion on Sakhalin, which is due on stream in 2008 and much of the initial production has already found customers in Japan, South Korea and the United States.

Shell’s shares in London were down 10 pence, or 0.55 percent, at 1797p against a FTSE 100 that was up 0.4 percent.

In other moves against foreign energy firms operating in Russia, authorities have also threatened to take legal and administrative measures against BP Plc’s Russian venture, TNK-BP , and Exxon Mobil , an operator of another Sakhalin project, Sakhalin-1.

WORKS NOT TO BE AFFECTED

Russia’s environmental watchdog RosPrirodNadzor, part of the ministry, completed a major inspection of Sakhalin-2 in November and said it could sue the group for billions of dollars for violating Russia’s environmental laws.

Russia’s prosecutor general’s office has said it is considering opening criminal cases against the consortium.

Sakhalin Energy, the Sakhalin-2 operating company, said in a statement that it and Starstroi were analysing the documents and orders from the water resources agency.

“We remain committed to address any new issue resulting from the latest checks by RosPrirodNadzor, prosecutors and other authorities in the same efficient and fast manner as was used to correct the non-compliances identified during August checks,” the group said in a statement.

Starstroi said suspension of the licences would not delay Sakhalin-2.

“It should not affect the schedule as the pipeline construction and the river crossings have been 90 percent completed already,” said Starstroi’s spokesman Vladimir Kukharev.

“Next week we will send the water resources agency our report on resolving the issue,” Kukharev said.

He said the firm had already resolved all the problems raised after the August inspection.

Ecological campaigners at pressure group Bankwatch, which has long protested against Sakhalin-2, said without water-use permits the group would not be able to finish building onshore pipelines.

The 800 km (500 mile) pipelines are due to bring oil and gas from offshore fields in Sakhalin’s north to the island’s south, where an oil export terminal and one of the world’s largest gas liquefaction plants is being built.

The group has already postponed its first shipment by six months to summer 2008 after doubling its cost estimates last year.

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