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. Last Updated: 07/27/2016

Putin Promises Shell a Smooth Ride

President Vladimir Putin said Monday Russia should provide a favorable investment climate for Royal Dutch/Shell as the oil giant confronts hurdles in its oil project in western Siberia.

"We are determined to create and strengthen favorable conditions for your work here," Putin was quoted as saying during a meeting with Shell chairman Philip Watts.

Putin promised that the country's reforms will continue. "We will lower the VAT by two percentage points over the next year," Putin told the delegation.

"I understand that people do not invest in Russia because people do not trust the judicial system. We should enhance the judicial system."

Shell became one of the biggest foreign investors in Russia when it got the green light this year for a $10 billion project on the remote eastern island of Sakhalin, where it will build the world's largest liquefied natural gas plant by 2006.

Shell plans to ship gas from Russian fields to supply Europe, Watts told Putin at the meeting at Putin's Novo-Ogaryovo residence outside Moscow.

"Sakhalin 2 is the largest one-time investment Shell has ever made," he said. "Now, we are also looking west for the next generation of gas supplies to Europe."

Since 1997, it has been in talks with gas monopoly Gazprom to tap a separate gas field, Zapolyarnoye. "We are especially interested, and have been for many years, in Zapolyarnoye," Watts said as he left the meeting.

The far northern site holds an estimated 500 billion cubic meters of gas, enough to supply Germany for six years, and 1.7 billion barrels of oil.

Gazprom and Shell in 2000 delayed setting up a $1 billion joint venture after failing to agree on unnamed details of the project.

Watts said, "I had a very good meeting with Mr. Putin, and I simply said to him that any decision we had in investing in the Sakhalin-2 project ... is proof of Russia's possible evolution."

Putin also suggested to Watts that his company get involved in a proposed natural gas pipeline that would run under the Baltic Sea from Vyborg to Western Europe, according to Itar-Tass.

"I hope, in the fullness of time, Shell will be involved in upstream gas-field development and also in transportation infrastructure, driven by the market situation," Watts said.

But while Shell's Sakhalin plan is progressing smoothly, the company is finding it increasingly difficult to agree on the development of Siberia's Salym oil project, with reserves of up to 880 million barrels. Shell has been waiting for years for a production sharing agreement similar to one it has on Sakhalin establishing a stable tax regime. But after the government revised its PSA policies last year, Shell decided it would tap the field under existing tax conditions.

Putin also said Russian firms, including gas monopoly Gazprom and Shell could cooperate on the Chinese market.

(Reuters, Bloomberg, AP)