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The Times: Putin signals end to overseas ownership of Russian energy

December 12, 2006
Carl Mortishead, International Business Editor

Firms to have subcontractor role
Shell faces fight over Siberian field

 
Foreign energy companies will be welcome in future as subcontractors but not as owners in Russia’s energy industry, the Kremlin signalled yesterday as Gazprom moved closer towards wresting control of Sakhalin-2, the giant Siberian gas project, from Royal Dutch Shell. 
 
The Russian gas giant confirmed that Shell had made a new proposal in negotiations over Gazprom’s participation in Sakhalin Energy, the company building a $20 billion (£10.2 billion) liquefied natural gas scheme in Eastern Siberia.

The project has been beset by claims and threats of prosecution from Rosprirodnadzor, the Russian environmental control agency, a campaign that is seen by Moscow energy analysts as calculated to weaken Shell’s negotiating position.

Sources within Moscow suggest that Gazprom will acquire 50 per cent plus one share of the Sakhalin Energy company, reducing Shell’s stake to 25 per cent, from 55 per cent. Mitsui and Mitsubishi, the current minority investors, would see their stakes reduced further.

Mounting pressure on Shell to concede control of Sakhalin Energy to Gazprom has coincided with nationalist sentiment. Dmitry Peskov, spokesman for President Vladimir Putin, yesterday said that the environment had changed and Russian companies no longer needed foreign help.

“Our companies have the opportunity to be owners by themselves, to attract finance and certain technologies. This changes the conditions for foreign investors. They won’t be so much owners, they will have opportunities as contractors and subcontractors,” Mr Peskov said.

“We understand that it is better to have a direct share but you have to understand these are Russian resources. No country in the world would want to give up its natural resources to foreigners.”

Existing agreements would be respected, he said, but he suggested that the contracts granting major concessions to companies, such as Shell, were a legacy of a past era. “In the 1990s, our country was in a poor economic state, we couldn’t develop energy by ourselves. We had to attract investors with extremely favourable conditions. Now the situation has changed drastically,” Mr Peskov said.

Shell confirmed yesterday that its chief executive, Jeroen van der Veer, had a meeting in Moscow on Friday with Alexei Miller, Gazprom’s chief executive, at which “Sakhalin-related issues were discussed”. The meeting, which was also attended by Viktor Khristenko, Russia’s Energy Minister, was described by a Shell spokesman as “positive”.

In Moscow, Gazprom said that Shell’s proposals were being analysed. “A decision will be taken in view of the existing problems at the Sakhalin-2 project, including ecological,” the Gazprom spokesman said.

Shell’s relationship with the Kremlin has been chilly since it signed a draft asset swap agreement with Gazprom last year, under which the Russian utility was to acquire a quarter of Sakhalin Energy in exchange for half of Zapolyarnoye, a large Western Siberian gasfield. A week after the agreement, Shell disclosed that Sakhalin’s costs had doubled to $20 billion.

PUTINISATION OF RUSSIA

Kremlin’s Attempts to Reclaim Control of Strategic Assets

Gazprom: Shell expected to cede control of Sakhalin II to Gazprom 
 
Yukos: Kremlin tax bill clears way for Rosneft to acquire Yugansneftgaz

EADS: Russian bank VneshTorgBank takes 5 per cent of EADS 
 
Ukraine: Row with Ukraine over Russian gas price settled when Kremlin acquires greater control of gas pipelines

Armenia: Kremlin acquires control of gas pipeline to Iran in return for agreed depressed gas price

Next in Putin’s sights

Belarus & Georgia: Threatening to increase price of gas but prepared to settle in return for control of distribution pipeline

Shtokman: Russia says it will not invite foreign partners to develop world’s second biggest gas field. To be developed by Gazprom alone

TNK-BP: Gazprom or Rosneft expected to buy out BP’s Russian private sector partner
 
http://business.timesonline.co.uk/article/0,,13130-2499998,00.html

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