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RIA Novosti: Water management agency mulls Sakhalin II license withdrawal

14:39 | 13/ 12/ 2006 

MOSCOW, December 13 (RIA Novosti) – Russia’s water management watchdog said Wednesday the issue of withdrawing water use licenses issued to the operator of the Sakhalin II oil and gas project in the country’s Far East could be raised February 1.

“If they fail to rectify the violations that have been exposed, the licenses will be withdrawn. The date for the next consideration is February 1, 2007,” the head of the Federal Agency for Water Resources, Rustem Khamitov, said.

Project operator Sakhalin Energy is accused of causing serious damage to Sakhalin Island’s ecology, including deforestation, toxic waste dumping and soil erosion. In September the Russian Natural Resources Ministry canceled its 2003 approval of Sakhalin II.

Russia’s environmental watchdog said Tuesday that court proceedings on compensation for environmental damage would most likely begin in March 2007.

Checks have uncovered the illegal routing of an oil pipeline through the territory of a national conservation area and environmental damage to the island’s Aniva Bay.

Khamitov said that on December 6 a decision was made to suspend 12 water use licenses of Starstroi, a contractor working on the Sakhalin II project. He said the company must fix violations, in particular its laying of pipelines across rivers, within two months, or it could have its licenses removed.

The official said the water tax rate had been raised fivefold for Starstroi as of December 5. “This measure is a sanction for violations,” he said.

The environment watchdog said earlier it will present a final report on Sakhalin II by mid-December, adding that its expert group had identified several serious violations, some of which fall under the provisions of Russia’s Criminal Code.

The Russian government and the Sakhalin administration signed a production-sharing agreement (PSA) on Sakhalin II in 1994.

As well as the environmental impact, the PSA, which allows Shell to comfortably recoup all of its expenses before sharing any of its profits with the state, is hugely unpopular with the Russian government.

Shell’s doubling of its cost estimate to $22 billion infuriated Russian authorities and scuppered a previous agreement on an asset swap, which would have given Russian energy giant Gazprom a 25% stake in Sakhalin II. Following talks between Shell and Gazprom, and months of intense pressure from regulators, industry insiders now expect the Russian gas monopoly to gain a controlling stake in Sakhalin II.

Royal Dutch Shell holds 55% in Sakhalin Energy, Japan’s Mitsui controls 25%, and Mitsubishi 20%.

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.

The two fields have estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas.

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