Dow Jones Newswires: Russia Concerned By Shell Sakhalin Cost-Local Official -3 Close: “The Russian government is seriously concerned by rising costs at the Sakhalin 2 energy project, managed by Royal Dutch Shell PLC…”: “The project is facing estimated costs of $20 billion, double the original $10 billion projection. The Russian government has a say in any budget revision as part of the production-sharing agreement it signed with the project's partners.”: Posted Thursday 1 December 2005
LONDON -(Dow Jones)- The Russian government is seriously concerned by rising costs at the Sakhalin 2 energy project, managed by Royal Dutch Shell PLC (RDSB.LN), a local official said Wednesday.
"The Russian Federation side is seriously concerned at the increasing cost of the Sakhalin 2 project and we intend to look into this matter carefully on the basis of the findings of the state expert commission," Galina Pavlova, director of the Sakhalin regional government's Department for Oil and Gas said at a conference in London.
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November 30, 2005 06:06 ET (11:06 GMT)
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Russia Concerned By Shell Sakhalin Cost-Local Official-2
Pavlova said the state expert commission is currently meeting and may bring in independent experts.
The project is facing estimated costs of $20 billion, double the original $10 billion projection. The Russian government has a say in any budget revision as part of the production-sharing agreement it signed with the project's partners.
Shell owns 55% of the Sakhalin Energy venture; Japanese companies Mitsui & Co. Ltd. (MITSY) and Mitsubishi Corp. (8058.TO) control 25% and 20% respectively, and Russian state-controlled OAO Gazprom (GSPBEX.RS) has agreed to buy a 25% stake from the three shareholders.
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November 30, 2005 06:13 ET (11:13 GMT)
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Russia Concerned By Shell Sakhalin Cost-Local Official -3
Pavlova said Sakhalin II's shareholders must "prove beyond doubt that the increases in costs are necessary" and meetings would take place in the next six months to solve the issue.
But the Sakhalin official also criticized the fact that the amount of royalties shared between the local and central governments has yet to be settled by the state, depriving the island of hundreds of millions of dollars.
She said it made Sakhalin a "cobbler without shoes", as the island is unable to finance the conversion of its power stations to gas-fired generation and gas-based chemical refining projects.
Pavlova said, however, "we are in talks" to develop such projects with Japanese companies such as Mitsui, Mitsubishi and Tokyo Electric with the support of the Japanese Bank for International Cooperation. Mitsui and Mitsubishi are Sakhalin II shareholders while JBIC is in considering financing the project.
She said the Sakhalin talks were part of broader discussions to optimize the use of Russia's share of Sakhalin gas production. She didn't specify if the contacts concerned only Sakhalin II's gas or from other projects as well.
During the same conference, Pavlova said that the expenditure program for Sakhalin II and Sakhalin I, operated by Exxon Mobil Corp. (XOM), amounted to $5.7 billion for 2005.
-By Benoit Faucon, Dow Jones Newswires; +44-207-842-9266; benoit.faucon@dowjones.com
(END) Dow Jones Newswires
November 30, 2005 08:21 ET (13:21 GMT)
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