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MosNews: Shell Signs Secret Protocol on Sakhalin Project with Russian Government

Created: 28.12.2006 12:45 MSK (GMT +3), Updated: 13:29 MSK

Royal Dutch/Shell signed a secret protocol with the Russian government as part of its deal to sell half of the Sakhalin-2 project to Gazprom, allowing Shell to boost spending but not as much as it wanted, Russian business daily Vedomosti reported on Thursday, Dec. 28.

Shell is now allowed to boost spending in the giant Sakhalin project to $15.8 billion from the previously approved $12 billion, the daily said.

Shell’s spokesman in Moscow Maxim Shub told Reuters the protocol was confidential and he would not comment on it. He said details of project costs would be discussed in February at a meeting with the Russian government.

The oil major had initially asked the government to allow it to spend $22 billion. But the government opposed the idea, saying the extra expenditure would delay the moment when the state starts getting its profits from the production sharing agreement (PSA).

Under PSA legislation, all costs of the project can be reimbursed before the Russian state starts receiving profits.

The paper said Shell would spend an additional $3.6 billion on top of the approved $15.8 billion and this extra cost would not be reimbursed under the secret protocol.

Earlier this month Shell and its partners in the project, Japan’s Mitsui and Mitsubishi agreed to sell Gazprom half of the project for $7.45 billion.

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