RIA Novosti: Court proceedings on Sakhalin II likely to start in March

14:26 | 12/ 12/ 2006 

MOSCOW, December 12 (RIA Novosti) – Court proceedings on compensation for environmental damage inflicted by the Sakhalin II oil and gas project in Russia’s Far East are likely to start in March 2007, the environmental watchdog said Tuesday.

The $22-billion project, controlled by Royal Dutch Shell, has been accused of causing serious damage to Sakhalin Island’s ecology, including deforestation, toxic waste dumping and soil erosion.

“I think we must be ready to start court proceedings by early March,” said Oleg Mitvol, deputy head of the Federal Agency for the Oversight of Natural Resources.

He said the agency will prepare legal proposals for the government within ten days, and set the terms of contracts to be signed with legal firms acting for the government.

Mitvol said the proceedings are likely to be launched in various courts, in Russia, Sweden, Belgium, Britain, Italy, Japan and possibly the United States. Russia will use international laws that envisage triple compensation of damages plus payment of legal costs, the official added.

He said the level of compensation will be calculated by next summer.

Project operator Sakhalin Energy, controlled by Shell, has been under scrutiny since September, when the Natural Resources Ministry canceled its 2003 approval of Sakhalin II.

Following months of intense pressure on Shell from Russian authorities, the country’s state-run energy giant Gazprom [RTS: GAZP] looks set to gain a large stake in Sakhalin II, after brokering a deal with the oil major.

A Gazprom spokesman said Monday that Gazprom CEO Alexei Miller had held a working meeting with Shell CEO Jeroen van der Veer on Friday, at which the Shell chief put forward proposals on Gazprom’s participation in the project. The spokesman declined to give details, but said the company was analyzing the offer.

The production-sharing agreement behind the project signed in 1994, which allows the operator to comfortably recoup expenses before sharing its profits with the state, has been harshly criticized by Russian officials.

Shell’s doubling of its cost estimate to $22 billion, which threatened to delay the date by which the Russian government was to benefit from the project, infuriated Russian authorities and scuppered a previous agreement on an asset swap, which would have given Gazprom a 25% stake in Sakhalin II. Some analysts now expect the energy giant to gain as much as 50% in the project.

Shell holds 55% in Sakhalin Energy, Japan’s Mitsui controls 25%, and Mitsubishi 20%. Much of the liquefied natural gas from the project is set to be exported to Japan, which is seeking to diversify its energy imports.

Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant, and an LNG export terminal.

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