Financial Times: Putin appoints Rosneft ally to Sakhalin

By Isabel Gorst in Moscow
Published: August 7 2007 21:05 | Last updated: August 7 2007 21:05

Vladimir Putin on Tuesday accepted the resignation of Ivan Malakhov, the governor of Sakhalin Island, and named Alexander Khoroshavin, the mayor of Okha, an oil town on the north-east of the island, as his temporary replacement.

The Russian president earlier criticised Mr Malakhov’s administration for its slow response to an earthquake last week that left thousands homeless on Sakhalin Island, a narrow strip of land bordering one of the world’s biggest untapped oil and gas provinces.

Mr Khoroshavin is understood to be close to Sergei Bogdanchikov, the president of Rosneft, Russia’s state oil company, with whom he worked at an oilfield near Okha in the 1980s. Mr Bogdanchikov moved to Moscow to take the helm at Rosneft in 1998 after a 12-year stint in the Sakhalin oil industry.

If the local Duma, or parliament, supports Mr Putin’s choice of governor, Rosneft will have won a useful ally in the battle for new opportunities in the area where Gazprom, the state natural gas monopoly, is competing for acreage.

Mr Malakhov is reported to be a supporter of Gazprom, which broke into Sakhalin last December with a controlling stake in the Sakhalin 2 oil and LNG project from a group led by Royal Dutch Shell.

Rosneft has been involved in the Exxon-led Sakhalin 1 group tapping an oilfield off Sakhalin for almost a decade and is exploring two other blocks in the area in a partnership with BP.

The European Bank for Reconstruction and Development on Tuesday announced it would not resume talks on financing Sakhalin 2. The multilateral bank said that the decision to disengage from the loan negotiations had been taken in consultation with Gazprom and foreign shareholders in Sakhalin Energy, the consortium operating Sakhalin 2.

The EBRD withdrew from active negotiations with Sakhalin Energy in January after Gazprom muscled into the group.

The partners caved into Gazprom’s demand for shares after the Kremlin – which has made clear it wants state-controlled companies to dominate Russian natural resource developments – complained about damage inflicted by Sakhalin Energy on the area’s environment.

The EBRD’s statement made no mention of the environment, instead explaining its exit from the project on grounds that that there was not enough time to complete loan negotiations before Sakhalin 2 began producing LNG, expected in the second half of next year.

During five years of talks with Sakhalin Energy, the EBRD has come under pressure from environmentalists determined to block the development in ecologically fragile waters off the east coast of Russia.

Banking sources said the EBRD’s exit would pave the way for Japanese multilateral lenders to support Sakhalin 2, providing Japan with a significant source of oil and gas on its doorstep.

Sakhalin Energy said: “We will continue close and ongoing co-operation with other public lending institutions including the Japan Bank of International Co-operation, US Export Import Bank and British Export Credit Guarantee Department plus various commercial banks.”

Sakhalin Energy is looking to raise about $6bn (€4.3bn, £2.9bn) of the full $20bn cost of the Sakhalin 2 development in project finance.

Copyright The Financial Times Limited 2007

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