Royal Dutch Shell Plc  .com Rotating Header Image Shell agreed to hand over 30% share of Sakhalin 2 to Gazprom

Tuesday 19 December 2006

Shell CEO Jeroen van der Veer at a meeting with Gazprom CEO Alexei Miller today gave his consent for the Russian gas monopoly’s becoming a stockholder of the biggest Russian gas project Sakhalin 2 and handing over 30% shares to it. Earlier, Gazprom Chairman of the Board of Directors Dmitry Medvedev announced that share of the company in the project may total up to 50%.

As a result of the last large-scale inspection held by Rosprirodnadzor, numerous violations of the environmental legislation were found which brought about withdrawing 12 licenses for water use from Starstroy Company, subcontractor of Sakhalin Energy Company. According to spokeswoman for the Federal Agency for Water Resources Anna Khitrova, “annually, about a hundred licenses for water use are taken away.” So, licenses withdrawn at a time from the single Starstroy total practically 10% from the annual amount of licenses withdrawn all over the country.

Experts shared their opinions on the problem with REGNUM.

Despite numerous hints in the media that Rosprirodnadzor was acting in the interests of Gazprom, according to Denis Borisov, analyst of Solid Research Company, actions of the environmental watchdog contradict to interests of the monopoly: “Without having ground for accusing Rosprirodnadzor of acting in interests of any company has no sense. All the violations announced, if they were really committed and if there are relevant documents on it, are a formal reason for claiming to eradicate those violations. On the other side, Gazprom that has announced its willingness to enter the project is not interested in violations being found there.”

At the same time, debates have continued on expediency of the project for the Russian side. On December 10, Russian Audit Chamber released information on results of an inspection of the Sakhalin 1 and Sakhalin 2. According to the chamber, “the Sakhalin 2 project is still being implemented under conditions unfavorable for Russia that will receive not more than 10% of produce.” Meanwhile, on November 3, Deputy Industry and Energy Minister Andrei Dementyev announced at the State Duma that “up to date the Sakhalin 2 brought the country $374 million, on the whole over 45% of the aggregate profit will go to the Russian budget.” Our analysts tried to look into reasons of such a substantial difference in the percentage.

According to Denis Borisov, “until the project enters its ground phase of the full-fledged extraction it is very difficult to determine ho the profit will be divided. The basic criterion, on which it depends how soon expenditures of the project organizers will be refunded, are hydrocarbon prices, the figures cited by the Audit Chamber 10%-90% are actual for the current moment. But, possibly, in future the proportion can change.”

Meanwhile, Borisov’s colleagues assess the situation differently. Analyst of Prospect Company Dmitry Mangilyov believes that “it goes about different indices. The government receives 10% of the gain (sales volume), which is 45% of the project’s profit.” At that despite numerous statements of the production share agreement that apart from the royalty of 6%, the Sakhalin Energy pays no taxes to the Russian budget, in reality, the foreign company “pays the profit tax of 32%.”

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