MosNews.com (Russia): Russian Govt Accuses Shell of $2.5 bln Damage to State Interests: “The Royal Dutch/Shell group’s spokesman confirmed having received a notification of the report, but declined further comments.” (ShellNews.net) 9 Feb 05

The Audit Chamber of the Russian Federation has issued a report accusing a Royal Dutch/Shell-led consortium which operates Sakhalin-2 oil and gas deposit in Russia’s Far East of causing damage to state interests worth up to $2.5 billion. The information was reported on Wednesday, Feb. 9, by Russia’s business daily Vedomosti.

The Audit Chamber said that investors in the Sakhalin-2 project had overspent $2 billion by selecting expensive vendors of goods and services. This means that Russia will receive less crude oil and natural gas as its share of the profits, the report said. The Royal Dutch/Shell group’s spokesman confirmed having received a notification of the report, but declined further comments.

The Chamber argued in the report that investors, which also include Japan’s Mitsui and Mitsubishi, should compensate the Russian state for the damage, but auditors also accepted that the government was partially responsible for the losses, given that officials were involved in approving spending for Sakhalin-2. Therefore, the analysts, interviewed by the paper, said that the report was unlikely to have a negative impact on this Shell-led project.

“We do not expect the report to lead to any negative consequences for Sakhalin-2,” said UFG brokerage.

“We think the stability of contracts, as laid out in their ’grandfathering clauses’, to be essential for Russia”, said Troika Dialog brokerage. “The Sakhalin-1 and Sakhalin-2 projects account for 40 percent of the total direct foreign investment in Russia’s oil sector and their success is crucial for attracting new investment to the industry from abroad,” Troika added.

Shell has been producing oil from the project, located on Russia’s remote island of Sakhalin, since 1999 and plans to build the world’s largest liquefied natural gas plant to supply Japan, the United States and other countries from 2007.

Sakhalin-2, ExxonMobil’s neighboring Sakhalin-1 and Total’s Siberian Kharyaga fields are the only three production sharing deals to have survived changes in the country’s legislation several years ago.

http://www.mosnews.com/money/2005/02/09/auditshell.shtml