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Agence France Presse: Russia moves to ease energy giants’ concerns by Nick Coleman

17 October 2006

Russia moved to ease concern among energy majors, pledging to abide by all contractual obligations with foreign firms and dismissing fears that Moscow might renege on earlier promises.

Energy and Industry Minister Viktor Khristenko vowed specifically that Russian state-controlled companies would abide by the terms of three key energy production sharing agreements (PSAs) and expected foreign investors to do the same.

“We approach these agreements as the existing obligations of Russia and the existing obligations of investors,” he said. “Everything contained in these agreements is for us the obligations we have to fulfil, just as the investors have to.”

The idea that “everything that’s happening is a revision of the existing agreements has no basis,” Khristenko told reporters.

But he added that ecological violations — an area that Russian authorities have particularly criticised investors over — were not covered by the PSAs.

“In all these agreements there are norms under Russian legislation in the spheres of ecology, crime… that are not covered by these agreements and in these areas investors are subject to the same rules as any other kind of operation,” the minister said.

The three production sharing agreements involve an oil field being developed by Total in Siberia, as well as two oil and gas projects led by ExxonMobil and Shell on the island of Sakhalin in Russia’s far east.

The three deals were all signed with the Russian state during the 1990s.

Russian authorities have ratcheted up the pressure on all three projects in recent weeks, with sweeping checks and official comments criticising the terms of the agreements.

“If I had to sign the agreements today, I wouldn’t do it in their present form, but if there are signatures, obligations, they have to be fulfilled,” Khristenko said.

Production sharing agreements generally offer investors favourable tax conditions and a stable legal environment, while governments do not have to spend capital to develop expensive projects.

Earlier Tuesday a Moscow court refused to consider a complaint by the state environmental inspectorate against the consortium developing the Sakhalin 2 project, saying it was not competent to hear the case.

Khristenko on Tuesday went on to say that energy giant Gazprom was ready to use all necessary foreign expertise to develop the vast Shtokman gas field in the Barents Sea.

Earlier Gazprom announced that no foreign partner would be offered an ownership stake in the field — sending shockwaves through the industry as several Western oil majors had vied to participate.

Instead Russia will call on the expertise of sub-contractors, Khristenko said.

“Undoubtedly this project requires use of technology subcontractors for extraction and processing,” he said pointing to the unique nature of the Shtokman field.

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