Russia Tightens Screws on Domestic Oil Fields

The Russian government says it plans to investigate more of its oil and gas projects for possible environmental violations. But oil industry experts say officials are targeting foreign oil companies, as part of their campaign to increase the Kremlin's control over the country's vast mineral wealth.

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Major oil companies say there's nothing funny about the way they're being targeted in Russia. The Russian government is putting pressure on the oil companies by investigating the environmental impact of their projects.

NPR's Gregory Feifer reports from Moscow.

GREGORY FEIFER: It began earlier this month when the Natural Resources Ministry cancelled its own approval for Royal Dutch Shell's massive natural gas complex off the Pacific island of Sakhalin.

The decision put into limbo the biggest foreign investment deal in Russia, a decade-long $20 billion project. The ministry has ordered a full probe into the Sakhalin II venture, which Natural Resources Minister Yury Trutnev says poses a treat to woodlands and salmon breeding grounds.

Mr. YURY TRUTNEV (Natural Resources Minister, Russia): (Through translator) If the project's pipelines rupture, they'll create a huge ecological catastrophe. We're duty-bound to do everything we can to prevent that.

FEIFER: Another Natural Resources Ministry official says the project may have already caused environmental damage. He says the cleanup could cost up to $50 billion. But speaking on Russian radio, Igor Ignatyev, vice president of Shell's joint venture said the environmental concerns are overblown.

Mr. IGOR IGNATYEV (Vice President, Sakhalin Energy): (Speaking foreign language)

FEIFER: When such announcements are made, he said, without testing or enough factual basis, that's not very good. Ignatyev said delays to Sakhalin II could cost up to $10 billion.

Environmental groups have long warned that the project violates Russian ecological regulations. But industry observers say the withdrawal of licenses has nothing to do with the environment.

Economist Yevgeny Yasin says skyrocketing energy prices have emboldened the Kremlin to seek a controlling stake in the project for the state's natural gas monopoly.

Mr. YEVGENY YASIN (Economist): (Through translator) It began with the state takeover of the private Russian Yukos and Sibneft oil companies. Targeting foreign companies now is part of the same step-by-step process of extending control over the country's natural resources.

FEIFER: Shell's Sakhalin II is one of three lucrative production-sharing agreements - PSAs - the government signed with foreign companies in the early 1990s, when oil prices were relatively low and the government was desperate for foreign investment.

The deals stipulate that foreign companies pay no taxes or royalties until they recoup their costs. Experts say the Kremlin was angered by Shell's recent announcement that Sakhalin II will cost double the original estimate.

Boris Tretyak(ph) represents the Sakhalin region in Russia's upper house of Parliament. He says a deal is a deal and that the government's actions are bad for foreign investment and the country's image.

Mr. BORIS TRETYAK (Member, Russian Parliament): (Through translator) Shell finished the first stage of its Sakhalin project with great difficulty. It did something no one else was able to do. Under those circumstances, it would be far more beneficial to have public discussions and open negotiations instead of threats.

FEIFER: Within days of targeting Shell, the government questioned another Sakhalin complex, this one a $12 billion project led by Exxon Mobil. A French Total project has also come under fire, as has a BP joint venture to develop a massive gas field in Siberia.

The European Union, the Japanese government and others have raised serious concerns over Russia's latest moves. But Moscow says it's not pushing out foreign investors. It says its giving Shell a month to fix the Sakhalin venture's environmental violations.

Gregory Feifer, NPR News, Moscow.

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