The Kremlin has called for managers in a Shell-led consortium developing the Sakhalin-2 oil and gas project in Russia`s far east to face criminal charges for "shamefully" damaging the environment. The threat of managers being handed prison sentences of up to seven years came as the Natural Resources Ministry announced it was extending its environmental audit of the multi-billion pound project by one month.

Both moves pile pressure on Shell, which holds a 55 per cent stake in Sakhalin-2, to scale back its involvement in the project in favour of the Russian energy giant Gazprom. When it comes on stream in 2008, Sakhalin-2 will be the world`s largest offshore oil and gas project. Shell is in talks with Gazprom to surrender a 25 per cent stake or more in the venture in exchange for a stake in Gazprom`s Zapolyarnoe field in northern Russia.

The Anglo-Dutch firm has said it hopes to strike a deal by the end of the year but has faced increasingly vociferous allegations of environmental wrecking that threaten to erode its negotiating position. Yuri Trutnev, the Natural Resources Minister, claimed yesterday that the consortium (Japan`s Mitsui and Mitsubishi corporations are junior partners) had broken environmental law on five counts.

"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." Mr Trutnev broke the bad news to Ian Craig, the chief executive officer of the consortium, Sakhalin Energy, in person. "Do you understand that subcontracting work is being carried out shamefully?" he asked him.

One of the criminal charges being levelled at the consortium, that of destroying forests, is punishable with a prison sentence of up to seven years. The consortium also looks likely to be hit with a damages claim that could run into hundreds of million of dollars; it has said it will pay up if the assessment is "objective". Concerns about environmental damage by the project have already halted some construction work though Shell claims it is still on track to begin operations in 2008.

Inspectors have argued that trees have been illegally felled, that breeding grounds for salmon have been destroyed, that rivers and coastal waters have been polluted, and that the consortium has generally ridden roughshod over the environment in its haste to turn a profit. They have angrily denied that their complaints are politically motivated. Many Western analysts,though, believe that finding environmental fault is a crude tool for focusing Shell`s mind on the asset swap with Gazprom.

The Kremlin makes no secret of the fact that it wants the state-controlled firm to take a stake in Sakhalin-2. It has been dissatisfied ever since the consortium warned that set-up costs had doubled to at least $20bn (£10.7bn), delaying the day when the Russian state begins to profit financially.

But environmental awareness does appear to be moving up the Kremlin`s agenda if rhetoric is anything to go by. In his annual televised question and answer sessionyesterday, President Vladimir Putin boasted that his recent decision to reroute an oil pipeline away from Siberia`s Lake Baikal had cost his government $1bn. He said it was impossible to put a price on the country`s natural heritage.
By Andrew Osborn
(The Independent, 26/10/2006)
http://news.independent.co.uk/business/news/article1930144.ece