International Herald Tribune: Kremlin threatens to criminally prosecute Shell within two weeks

Headline: Russia raises pressure on Sakhalin-2 project 
By Andrew E. Kramer The New York Times
 
MOSCOW The Kremlin ratcheted up pressure Wednesday on Royal Dutch Shell’s $22 billion oil and natural gas project on Sakhalin Island when a minister threatened to criminally prosecute employees of the British-Dutch oil company within two weeks.
 
The remarks suggested a further unraveling of the relationship between Western energy companies and the Russian government, which is intent on gaining control of the energy sector.
 
In the case of Shell, the company and two Japanese partners are accused of violating Russian environmental law in the construction of the project, called Sakhalin-2.
 
The project consists of two offshore platforms, a pipeline, the world’s largest liquefied natural gas plant and an oil terminal.
 
A Russian state company, Gazprom, wants a 25 percent share of Sakhalin-2.
 
The Russian government also has rejected a cost overrun by Shell, which, according to the terms of the 1993 contract, would cut into the state’s royalties.
 
“The breaches at Sakhalin-2 fall under five articles of the criminal code,” Yuri Trutnev, the minister of natural resources, said after touring a pipeline Wednesday, according to Reuters.
 
“This falls under criminal law and we think it’s necessary to apply it. All the relevant documents should be sent to the prosecutor general within two weeks,” he said.
 
Russian officials had threatened criminal charges earlier this month.
 
Trutnev’s statement, however, suggested an escalation because he is a cabinet member and because he also promised a two-week timeline for criminal cases.
 
Trutnev said the Natural Resources Ministry would calculate the cost of environmental damage from Sakhalin-2 within four months.
 
He added that work on some pipeline sections should be halted immediately and that he would prepare documentation to cancel a water-use permit.
 
Also on Wednesday, President Vladimir Putin denied that environmental laws were being enforced selectively against foreign energy companies. Putin, speaking during an annual televised call-in show, said Russia was balancing the need for economic development against the inevitable environmental damage.
 
Trutnev, whose ministry inspected Sakhalin-2 in August and again in September, had said earlier this month that the second inspection provided grounds to revoke a key environmental permit.
 
He said the permit would “likely” be canceled this week.
 
However, on Wednesday he delayed a decision on that permit by one month to allow for further study.
 
Meanwhile, Shell on Wednesday provided the ministry with its response to the initial inspection in August; the company said 98 percent of the infractions cited had been rectified.
 
“I am pleased that Minister Trutnev has taken the time to visit Sakhalin to see first hand the work in progress,” Ian Craig, chief executive of Sakhalin Energy, said in a statement.
 
A company spokesman, Ivan Chernyakhovsky, said he could not respond to Trutnev’s threats of criminal prosecution.
 
“A lot was said today. We aren’t ready to comment on it all in detail,” Chernyakhovsky said. “We think we have complied with Russian legislation.”
 
Wednesday marked the third anniversary of the arrest of Mikhail Khodorkovsky, then chief executive of Russia’s largest private oil company, Yukos, on tax evasion and fraud charges.
 
Khodorkovsky is serving an eight year sentence in a Siberian penal colony not far from the Chinese border.
 
He is employed in the prison workshop, his attorneys said this week.
 
Yukos, once a concern very much in vogue with Western investors, is now in liquidation proceedings.
 
 MOSCOW The Kremlin ratcheted up pressure Wednesday on Royal Dutch Shell’s $22 billion oil and natural gas project on Sakhalin Island when a minister threatened to criminally prosecute employees of the British-Dutch oil company within two weeks.
 
The remarks suggested a further unraveling of the relationship between Western energy companies and the Russian government, which is intent on gaining control of the energy sector.
 
In the case of Shell, the company and two Japanese partners are accused of violating Russian environmental law in the construction of the project, called Sakhalin-2.
 
The project consists of two offshore platforms, a pipeline, the world’s largest liquefied natural gas plant and an oil terminal.
 
A Russian state company, Gazprom, wants a 25 percent share of Sakhalin-2.
 
The Russian government also has rejected a cost overrun by Shell, which, according to the terms of the 1993 contract, would cut into the state’s royalties.
 
“The breaches at Sakhalin-2 fall under five articles of the criminal code,” Yuri Trutnev, the minister of natural resources, said after touring a pipeline Wednesday, according to Reuters.
 
“This falls under criminal law and we think it’s necessary to apply it. All the relevant documents should be sent to the prosecutor general within two weeks,” he said.
 
Russian officials had threatened criminal charges earlier this month.
 
Trutnev’s statement, however, suggested an escalation because he is a cabinet member and because he also promised a two-week timeline for criminal cases.
 
Trutnev said the Natural Resources Ministry would calculate the cost of environmental damage from Sakhalin-2 within four months.
 
He added that work on some pipeline sections should be halted immediately and that he would prepare documentation to cancel a water-use permit.
 
Also on Wednesday, President Vladimir Putin denied that environmental laws were being enforced selectively against foreign energy companies. Putin, speaking during an annual televised call-in show, said Russia was balancing the need for economic development against the inevitable environmental damage.
 
Trutnev, whose ministry inspected Sakhalin-2 in August and again in September, had said earlier this month that the second inspection provided grounds to revoke a key environmental permit.
 
He said the permit would “likely” be canceled this week.
 
However, on Wednesday he delayed a decision on that permit by one month to allow for further study.
 
Meanwhile, Shell on Wednesday provided the ministry with its response to the initial inspection in August; the company said 98 percent of the infractions cited had been rectified.
 
“I am pleased that Minister Trutnev has taken the time to visit Sakhalin to see first hand the work in progress,” Ian Craig, chief executive of Sakhalin Energy, said in a statement.
 
A company spokesman, Ivan Chernyakhovsky, said he could not respond to Trutnev’s threats of criminal prosecution.
 
“A lot was said today. We aren’t ready to comment on it all in detail,” Chernyakhovsky said. “We think we have complied with Russian legislation.”
 
Wednesday marked the third anniversary of the arrest of Mikhail Khodorkovsky, then chief executive of Russia’s largest private oil company, Yukos, on tax evasion and fraud charges.
 
Khodorkovsky is serving an eight year sentence in a Siberian penal colony not far from the Chinese border.
 
He is employed in the prison workshop, his attorneys said this week.
 
Yukos, once a concern very much in vogue with Western investors, is now in liquidation proceedings.
 
Published: October 25, 2006