Russian authorities' complaints jeopardize Sakhalin II project
27 October 2006
The Sakhalin II project has come under fierce scrutiny by the Russian authorities in recent days, and may be suspended in certain sections due to allegations of illegal deforestation, the dumping of toxic waste, and soil erosion.
However, Russia’s Natural Resources Minister Yury Trutnev states that the project will not be suspended completely until the operators are given an opportunity to submit plans for reform. The project is Russia’s first Production Sharing Agreement (PSA).
A criminal case could be launched against the operator, Shell Oil Company, for violating 5 articles of the criminal code. These violations can be punished by fines and prison terms up to 5 years. Rosprirodnadzor, the Russian federal agency overseeing natural resources has already ordered suspension of construction of onshore pipelines and a criminal investigation against a Sakhalin II contractor.
Russian officials are openly concerned about the financial future of Sakhalin II. They were angered by the near doubling of the project’s budget; which jumped from $10.3 billion to $19.9 billion and have also complained of slow work, excessive costs, and insufficient use of Russian workers. Analysts say that the Russian government’s recent attention to environmental concerns is a pretext to renegotiate the deal and give the state-owned Gazprom a large role in the project. Complete suspension of the project would lead to major losses, and is therefore unlikely, but the public attention and pressure could provide an opportunity for improvement of the environmental problems surrounding it.
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