International Herald Tribune/The New York Times: Shell project is audited for back taxes in Moscow (ShellNews.net) 12 Feb 05

By Heather Timmons

LONDON: Cost overruns at the natural gas project led by Shell on Sakhalin Island in Russia's Far East are coming under closer scrutiny after an examination by Moscow's main independent budget auditor.

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Sakhalin Energy Investment Company, which is run by Shell, has received a letter from the Audit Chamber recommending changes to the project, a Sakhalin Energy spokesman, Ivan Chernyakhovsky, said Friday.

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He would not provide more details, but Vedomosti, a Russian business newspaper, reported this week that the accounting body was recommending that Shell and its partners pay about $2.5 billion in back taxes for overspending on the massive project.

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Royal Dutch/Shell Group owns 55 percent of the project, known as Sakhalin II. Its Japanese partners, Mitsui and Diamond Gas, a Mitsubishi company, have 25 percent and 20 percent, respectively. The partnership involves building Russia's largest liquefied natural gas plant.

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"We are absolutely confident that given the track record with the Russian state and the Sakhalin region administration in implementing this very large Sakhalin II project, that we can resolve the issue and recommendations that are raised in the letter," Chernyakhovsky said.

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The Audit Chamber and the Russian Embassy in London did not return messages left late Friday.

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Chernyakhovsky said he expected that Sakhalin Energy would divulge the contents of the letter and make a formal statement about it in the coming week.

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Analysts said they were puzzled by the Audit Chamber's reported findings.

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"The hard part to fathom about this is where they came up with $2.5 billion," said Ron Smith, an oil analyst with Renaissance Capital in Moscow.

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The report claims that Sakhalin Energy overcharged by $2 billion for its capital expenditures, Smith said.

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Shell and its partners are working on Sakhalin with the Russian government, under a production-sharing agreement. These agreements allow the partners to subtract the amount of capital they invest in infrastructure from the taxes that they pay to the government.

.

The Audit Chamber has been studying the Sakhalin accounts for several months. The Sakhalin II fields holds an estimated 150 million tons of crude oil and more than 18 trillion cubic feet of natural gas.

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See more of the world that matters - click here for home delivery of the International Herald Tribune.

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< < Back to Start of Article LONDON Cost overruns at the natural gas project led by Shell on Sakhalin Island in Russia's Far East are coming under closer scrutiny after an examination by Moscow's main independent budget auditor.

.

Sakhalin Energy Investment Company, which is run by Shell, has received a letter from the Audit Chamber recommending changes to the project, a Sakhalin Energy spokesman, Ivan Chernyakhovsky, said Friday.

.

He would not provide more details, but Vedomosti, a Russian business newspaper, reported this week that the accounting body was recommending that Shell and its partners pay about $2.5 billion in back taxes for overspending on the massive project.

.

Royal Dutch/Shell Group owns 55 percent of the project, known as Sakhalin II. Its Japanese partners, Mitsui and Diamond Gas, a Mitsubishi company, have 25 percent and 20 percent, respectively. The partnership involves building Russia's largest liquefied natural gas plant.

.

"We are absolutely confident that given the track record with the Russian state and the Sakhalin region administration in implementing this very large Sakhalin II project, that we can resolve the issue and recommendations that are raised in the letter," Chernyakhovsky said.

.

The Audit Chamber and the Russian Embassy in London did not return messages left late Friday.

.

Chernyakhovsky said he expected that Sakhalin Energy would divulge the contents of the letter and make a formal statement about it in the coming week.

.

Analysts said they were puzzled by the Audit Chamber's reported findings.

.

"The hard part to fathom about this is where they came up with $2.5 billion," said Ron Smith, an oil analyst with Renaissance Capital in Moscow.

.

The report claims that Sakhalin Energy overcharged by $2 billion for its capital expenditures, Smith said.

.

Shell and its partners are working on Sakhalin with the Russian government, under a production-sharing agreement. These agreements allow the partners to subtract the amount of capital they invest in infrastructure from the taxes that they pay to the government.

.

The Audit Chamber has been studying the Sakhalin accounts for several months. The Sakhalin II fields holds an estimated 150 million tons of crude oil and more than 18 trillion cubic feet of natural gas.

.

.

See more of the world that matters - click here for home delivery of the International Herald Tribune.

.

< < Back to Start of Article LONDON Cost overruns at the natural gas project led by Shell on Sakhalin Island in Russia's Far East are coming under closer scrutiny after an examination by Moscow's main independent budget auditor.

.

Sakhalin Energy Investment Company, which is run by Shell, has received a letter from the Audit Chamber recommending changes to the project, a Sakhalin Energy spokesman, Ivan Chernyakhovsky, said Friday.

.

He would not provide more details, but Vedomosti, a Russian business newspaper, reported this week that the accounting body was recommending that Shell and its partners pay about $2.5 billion in back taxes for overspending on the massive project.

.

Royal Dutch/Shell Group owns 55 percent of the project, known as Sakhalin II. Its Japanese partners, Mitsui and Diamond Gas, a Mitsubishi company, have 25 percent and 20 percent, respectively. The partnership involves building Russia's largest liquefied natural gas plant.

.

"We are absolutely confident that given the track record with the Russian state and the Sakhalin region administration in implementing this very large Sakhalin II project, that we can resolve the issue and recommendations that are raised in the letter," Chernyakhovsky said.

.

The Audit Chamber and the Russian Embassy in London did not return messages left late Friday.

.

Chernyakhovsky said he expected that Sakhalin Energy would divulge the contents of the letter and make a formal statement about it in the coming week.

.

Analysts said they were puzzled by the Audit Chamber's reported findings.

.

"The hard part to fathom about this is where they came up with $2.5 billion," said Ron Smith, an oil analyst with Renaissance Capital in Moscow.

.

The report claims that Sakhalin Energy overcharged by $2 billion for its capital expenditures, Smith said.

Shell and its partners are working on Sakhalin with the Russian government, under a production-sharing agreement. These agreements allow the partners to subtract the amount of capital they invest in infrastructure from the taxes that they pay to the government.

The Audit Chamber has been studying the Sakhalin accounts for several months. The Sakhalin II fields holds an estimated 150 million tons of crude oil and more than 18 trillion cubic feet of natural gas.

http://www.iht.com/articles/2005/02/11/business/shell.html