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The Guardian: Moscow puts legal pressure on Shell to halt pipeline

· Ministry claims oil link is in danger from mudslides
· Gazprom denies move is ploy to gain Sakhalin stake

Terry Macalister
Friday August 4, 2006

Shell has clashed with the Russian government over an oil project off Sakhalin Island which has already attracted the wrath of environmentalists and run way over budget.

The latest setback comes days after Shell, BP and other western firms were hit by a back-tax claim, albeit much smaller than the one which finally sent Yukos into bankruptcy this week.

The natural resources ministry in Moscow says it will go to court to halt construction of a Shell pipeline that could be a safety hazard because part of it is susceptible to mudslides. “We are waiting for the end of August. We need to get some more documents. After that we’ll prepare a lawsuit for the arbitration court in Sakhalin demanding to suspend construction,” said Oleg Mitvol, deputy head of the ministry’s inspectorate.

Shell said it had seen reports but knew no more about the ministry’s actions. “We have not received official notification of this therefore we cannot comment on the statement made,” a spokesman said.
Shell has suffered a doubling of costs on Sakhalin 2, which provides for Russia’s first liquefied natural gas (LNG) export plant at the southern end of Sakhalin Island, off the east of the country. The pipeline is needed to bring gas from offshore fields further north. The route has already been changed to placate environmentalists angry that it goes near breeding grounds of endangered western grey whales. The move helped to double the costs of Sakhalin 2 but did little to halt the wave of criticism from green activists. Yesterday Friends of the Earth (FoE) attacked the Royal Bank of Scotland, which it says will today report huge profits on the back of supporting projects such as Sakhalin 2.

“Corporate responsibility and Shell’s Sakhalin 2 project just cannot go together. RBS should withdraw and start to work harder on its ethical positioning,” said Stuart Hay at FoE in Scotland.

Some industry experts were surprised at the statements from the natural resources ministry saying the pipeline had been approved by the Russian government. They wondered whether the move could be part of a wider negotiating ploy by the Russian state whose Gazprom company is trying to persuade Shell to sell it 25% of Sakhalin 2 in return for a 50% holding in its Siberian Zapolyarnoye field. Gazprom last night denied this.

The Russian government has been taking an increasingly active role in energy policy and last week the tax authorities landed the Caspian Pipeline Consortium, including Shell, BP and Chevron, with a tax demand for nearly $174m (£93m). A local Russian newspaper reported the federal tax service had frozen CPC’s accounts at a local subsidiary of ABN Amro bank.

An earlier multibillion-dollar tax demand ended in a bankruptcy court hearing this week for Yukos, once Russia’s biggest oil group, founded by the now jailed oligarch Mikhail Khodorkovsky. His lawyer, Robert Amsterdam, broke his silence on the bankruptcy yesterday with a ferocious attack on the Russian justice system – and those western firms which helped Rosneft to raise money on the London Stock Exchange. The Rosneft float was controversial because 70% of its assets were obtained in unusual circumstances from Yukos.

“So far all court processes relating to either Yukos or any Yukos-related defendants – let alone Mikhail Khodorkovsky – have been outside the rule of law,” he said. “Now these shameful judicial activities are occurring with the full and active complicity of western financial institutions such as … Deutsche Bank, and Citigroup, which is tantamount to the sponsorship of illegal state expropriation.” Neither of the two finance groups were able to comment last night.

The Yukos bankruptcy decision represented the latest chapter in the state campaign to silence Mr Khodorkovsky, destroy Yukos and damage investor value, Mr Amsterdam said. and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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