Shell Faces Sakhalin Stumbling Block

[CHIMO]

The Natural Resources Ministry on Monday revoked its environmental approval of Shell's Sakhalin-2 project in an apparent intensification of the state's attack on oil and gas projects operated by foreign majors under production sharing agreements.

The move effectively pulls the rug out from under the feet of the project's operator, Sakhalin Energy, and its key shareholder, Shell, by halting work on the project's second phase.

The decision is the biggest threat so far to the multibillion-dollar project, and comes after months of gradually increasing state pressure.

It could also mean that the Kremlin wants to push for a change in the terms of all of the country's three existing production sharing agreements, or PSAs, analysts said Monday.

http://www.themoscowtimes.com/stories/2006/09/19/001.html

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http://www.themoscowtimes.com/stories/2006/09/19/041.html

[CHIMO]

1. EU, Japan Issue Warning on Sakhalin

The Natural Resources Ministry's decision to revoke approval of Shell's Sakhalin-2 project provoked sharp criticism Tuesday from the European Union and Japan, amid signs that the move was part of a broader attempt to put a state stamp on foreign-run energy projects.

EU Energy Commissioner Andris Piebalgs warned against the creation of an unstable investment environment that could halt future energy projects and disrupt global oil supplies. He took "this announcement very seriously indeed," Piebalgs said in a statement, adding that he would soon discuss the issue with Industry and Energy Minister Viktor Khristenko.

Shinzo Abe, Japan's government spokesman and the man tipped to succeed Prime Minister Junichiro Koizumi later this month, said the decision, which effectively suspends all work on the multibillion-dollar project, could harm diplomatic relations between the two countries, Reuters reported.

The Natural Resources Ministry canceled its approval of the Sakhalin-2 project on Monday, citing environmental violations during the construction of an oil and gas pipeline on Sakhalin Island. Shell, with a 55 percent stake in the Sakhalin Energy holding, is the project's operator on behalf of minority shareholders Mitsui and Mitsubishi of Japan.

http://www.themoscowtimes.com/stories/2006/09/20/001.html

[TheLastMohican]

2. Haha, Russia finally starts to take care after its natural resources

Those multinationals violate almost every environmental issue on Sakhalin one can think of. Those corporate bastards would be stripped right to their underpants in court for doing what they do in Sakhalin, were they to operate in US or Canada. But this is Russia right, bad Putin, right? Time to unleash the corporate media on that.

[lindisfarne]

3. I agree that the multinationals are violating environmental issues but

they're no worse than the Russian companies would be ... in fact, they may be better as they have a public image to protect moreso than do the Russian companies.

I knew 10 years ago something like this would happen. The Russian government wanted the investment but they also want the profit. Mind you, the oil companies got special laws which exempted most imported equipment from onerous duties and taxes (incl. VAT) virtually all (but the most privileged) industries paid at the time.
:nopity:

This may keep Shell from making massive profits but unfortunately, the money will simply go into other already well-lined pockets, rather than going for the public good.

[TheLastMohican]

4. Shell has a public image?

Give me a break.....They have lost every lawsuit on environmental issue and lost a lot of concession rights because of mercilessly plundering the natural resources. This cry of multinationals is just a preparation because the dog knows in advance it is going to be hit by a stick.

The most painful part in a human body is the wallet. The wallet worth 20 billion dollars is even more painful. They were not kicked yet, but they already feel the pain.

[lindisfarne]

5. You seem to have missed that I said the multinationals have a public

image to maintain AT LEAST MORESO THAN DO THE RUSSIAN COMPANIES.

You fail to appreciate the degree to which the Russian (Soviet) companies/government entities have, are, and will continue to destroy the environmental and natural resources. I agree all the multinationals have a bad track record. But the Russians are as bad, if not worse, if you compare the current efforts of each to minimize damage to the environment.

In fact, the Russian partners are the ones who pay the bribes to the Russian officials to get them to ignore the environmental violations.

[TheLastMohican]

6. Are you saying multinationals

and American multinationals don't do bribing?

AFAIK, it is a common practice up there, especially when we are talking 20+ billions of dollars.

I have a russian friend from up there. From what he says Shell managed to pollute every river and lake there was on Sakhalin. The local government gets no revenue from oil extraction, they have bribed a sort of "beneficial" contract with 0% tax on profit from gas sales. It looks like Russia just starts to look after its interests whether someone likes it or not.

Imagine a Russian company like ExxonMobil doing that sort of crap in Texas? I thought so.

[lindisfarne]

7. I don't believe I said any such thing. But in Russia, the bribers are

usually done by the Russian partner.

I have no doubt that oil exploration has done environmental damage on Sakhalin. I also have no doubt that your friend said what you say he said. But your friend probably doesn't understand how the partnership is set up. (reading all the articles linked to in this thread will clarify that to an extent:
http://www.themoscowtimes.com/stories/2006/09/20/001.html
"Under its production sharing agreement, or PSA, with Sakhalin Energy, the government must wait until investors recoup their costs before taking in revenue from the project."

The Russians ALWAYS have authorities overseeing you every step of the way - the bureaucracy is humongous. So why didn't these Russian authorities point out the violations long before they became so bad?

All the contracts had to be approved by high-level government authorities - nothing so important as oil would have been ignored by Moscow, not even 10 years ago. But perhaps the right palms were greased, perhaps Russia was too afraid of the investment falling through if the right incentives weren't granted.

From the article:
Economic Development and Trade Minister German Gref said Tuesday that PSAs were outdated investment mechanisms, and while the state would continue to honor its three existing PSAs, none would be signed in the future, Reuters reported.

"We can support far from all proposals regarding greater costs. In our opinion, some of them are not very well considered. There is room for improvement," Gref said, Itar-Tass reported. "As far as the existing agreements are concerned, we shall be obliged to ensure their observance."
============================

But be absolutely certain of this: this isn't about Russia looking after its interests to benefit the public. This to a large extent is about certain Russians (a very small group) wanting to personally benefit from the oil wealth.

If you think the people who hold up Shell can be ruthless, Russian businessmen and authorities can be even moreso. They wouldn't have gotten to where they are in the enviroment which has existed in Russia in the last 15 years otherwise.