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Russia tells Shell to raise investment in Sakhalin project: report
AFP
MOSCOW
Petroleumworld.com 12 29 06The Russian government has accepted a doubling of the cost of the giant gas and oil project Sakhalin-2 but Shell and two Japanese companies will have to invest 3.6 billion dollars (2.72 billion euros) without compensation, the newspaper Vedomosti reported on Thursday.
The report quoted a government source as saying that the industry and energy ministry had signed a draft agreement with the British-Dutch group Shell and with Mitsubishi and Mitsui of Japan.
The terms had been approved by Russian President Vladimir Putin, the report said.
It said the agreement doubled the cost of the project "to 19.4 billion dollars".
But Russian energy giant Gazprom, which has just acquired 50 percent plus one share in the project following pressure on the investors over compliance with regulations, would not contribute anything.
The increase had been a matter of public knowledge for a long time but the Russian state refused to approve it.
Shell, Mitsubishi and Mitsui would now have to sign another document making a commitment to invest 3.6 billion dollars towards the increased cost of 19.4 billion dollars but for which they would receive no compensation under the production-sharing agreement with Russia which underpins the project.
That agreement, signed in the 1990s and highly unfavourable for Russia, said the investors would earn back the cost of the project before they began to make payments to Russia.
Last year, the shareholders in Sakhalin-2 said that the cost of the project had doubled. This angered the Russian state because it meant an extension of the delay before it received any payments.
However, a spokesman for Shell in Russia, Maxim Choub, told AFP: "The scale of the cost of the project has not yet been approved.
"A decision will be taken at the beginning of next year at a session of the supervisory board."
That meeting will involve representatives of the goverment and of the investors.
An analyst at MDM bank, Nadejda Kazakova, told AFP that a new agreement on investment of 3.6 billion dollars without any compensation "would enable the Russian state to obtain profits from the project much more quickly than expected".
AFP 28 1207 GMT 12 06
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