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. Last Updated: 07/27/2016

Trutnev Grills Sakhalin-2 Chief on Violations

APTrutnev, left, inspecting pipeline work at a site about 70 kilometers north of Yuzhno-Sakhalinsk on Wednesday.
YUZHNO-SAKHALINSK -- Natural Resources Minister Yury Trutnev on Wednesday publicly clashed with the head of Shell-led Sakhalin Energy and called for a criminal case against the company over at least five environmental violations.

After touring work sites around Sakhalin Island, Trutnev said he had prolonged an audit of the project by four months after seeing the extent of the environmental damage.

He gave Sergei Sai, head of the ministry's environmental agency, two weeks to hand over a criminal complaint to the Prosecutor General's Office.

"I don't know why a company working on the territory of the Russian Federation thought itself above the law," Trutnev told reporters after presenting his findings at a conference in Yuzhno-Sakhalinsk.

Ministry inspectors and environmental campaigners told Trutnev the company had broken codes relating to rivers and forests, improper handling of soil and unapproved rerouting of pipelines. "It's hard to say these are random mistakes," Trutnev said.

Trutnev said he would meet with Industry and Energy Minister Viktor Khristenko after returning to Moscow. Sakhalin-2, the country's largest foreign investment project, could come to a standstill if the government decides to withdraw its environmental license.

"I'm trying to do only what's absolutely necessary," Trutnev said. "I'm not ready to discuss a halt of the entire project."

President Vladimir Putin echoed Trutnev's tough stance in his televised question-and-answer session Wednesday. The government would strictly monitor all companies, domestic and foreign, over environmental violations, Putin said in response to a question about foreign-led projects on Sakhalin.

Putin said "every developed country" had to balance economic growth and environmental protection. "Environmental agencies together with ecological nongovernmental organizations will thoroughly monitor compliance with current legislation," he said.

The Natural Resources Ministry's investigation into Sakhalin-2 has been widely seen as a means of putting pressure on Shell as it continues negotiations to hand over a 25.1 percent blocking stake in the project to Gazprom. Talks stalled after Shell announced last year that it had doubled the project's cost estimate to $20 billion.

Shell holds a 55 percent stake in the project, and Japan's Mitsui and MitMitsubishi together hold the remaining 45 percent.

Vedomosti reported Wednesday that Shell was interested in joining Gazprom's Shtokman gas project in the Barents Sea, citing John Hofmeister, head of Shell's U.S. division. Shell's inclusion in Shtokman could depend on Gazprom's getting a stake in Sakhalin-2, the paper said, citing energy analysts.

Gazprom said Oct. 9 it would develop Shtokman with contractors rather than short-listed bidders Chevron, ConocoPhillips, Norsk Hydro, Statoil and Total.

Sakhalin Energy chief Ian Craig on Wednesday denied a report in Sunday's Observer newspaper that the cost estimate for Sakhalin-2 had soared even higher, to $28 billion.

"Nothing has changed," Craig told reporters after a closed-door meeting with Trutnev on the sidelines of the conference.

Under a production sharing agreement signed with Shell in 1993, the government must wait until the company recovers its costs before it sees any revenues. In theory, any fines for environmental damage leveled against the company could also eat into those revenues.

Craig and Trutnev exchanged sharp words at the conference, with the oil company chief taking a defensive stance in response to a public grilling by the minister.

"Our aim is to get it right, first time, every time, but in a project of this scale, it's not always possible," Craig said.

"Hearing these concerns for the first time, we need to clarify a number of matters," he added, referring to Trutnev's complaints.

Craig did not get very far with his response, however, before Trutnev continued his onslaught.

"What I want to know is whether your definition of ecological standards matches mine," Trutnev said. "What I saw out there weren't high ecological standards -- they had no relation whatsoever to ecological norms.

"Do you agree with our position that at the pipeline there are cases of gross violations of Russian environmental law?" he demanded.

Craig conceded there was "some violation by contractors" and said the company would "fully and transparently address" issues raised by the investigation.

In a statement issued after his meeting with Trutnev, Craig said work on the project would continue as planned and that its environmental effects were "essentially short-term and reversible."

Environmentalists said the problem went beyond contractors.

"It's not just a failure to manage contractors," said Doug Norlen of Pacific Environment, a San Francisco-based group. "Sakhalin Energy's attention to the environment lies somewhere between contemptuous and dismissive."

A helicopter press trip organized by the ministry along part of the pipeline route, which stretches 800 kilometers from oil and gas fields in the north of the island to a liquefied natural gas plant in the south, showed the effect of the project on the island's landscape.

The twin pipelines, one for oil and one for gas, run like a scar through Sakhalin's hills and shallow valleys, which are lush with trees whose leaves glowed a bright autumn yellow.

"They haven't fulfilled 98 percent of the work, as they've claimed, but rather there is 98 percent left to be done," Trutnev said, standing on top of a huge pile of mud at one of the worst-affected sites.

"Unfortunately this is all very far from Moscow, but once you're here you can see the full extent" of the damage, Trutnev said.

Dmitry Belanovich, who is heading the environmental agency's investigation of the site, said the company had made matters worse in its attempt to clean up and plant grass. "The company has tried to recultivate the land, but we see that even more of the territory is damaged."

Alexander Zakhanov, a subcontractor with the International Pipeline Offshore Contractors Association, said the work had just begun one week ago. "After we're done, it should be as it was before we started working here," he said.

Sai said he was shocked to see the damage on his first visit to the site. "If I'd seen this before, I would not have issued the environmental license," he said during a brief stop outside the Sakhalin-2 LNG plant.

Reporters were told that Trutnev would visit the plant, but he barely gave a glance in its direction, heading instead to gaze out at sea and collecting a large seashell. Shell's name and logo are taken from a seashell, the original commodity that 19th-century company founder Marcus Samuel traded in.

"I didn't want to believe" the extent of the damage, Trutnev said in a brief interview during a stop on the helicopter tour. "It's too bad Ian Craig isn't here today. If they were the hosts here, they would not be behaving this way."

Trutnev's acrimonious relationship with Sakhalin Energy continues the trail blazed by Oleg Mitvol, deputy head of the ministry's environmental agency, who has repeatedly accused the company of being uncooperative and called for the project to be shut down.

"What is happening is very bad for Sakhalin Island and for its people," Trutnev said after the conference.

Nadezhda Michenka, spokeswoman for the Yuzhno-Sakhalinsk regional administration, said the islanders would lose out if the project were halted.

"This project was so good for us," she said. "The island would not be the same without it."

Deputy Natural Resources Minister Valentin Stepankov has been relieved of his duties, the government said in a statement Wednesday. "He gave in his resignation quite a long time ago, and the government has only now approved his dismissal," an official at the ministry's press service said, Reuters reported.

Stepankov was one of the initiators of a plan, later adopted by Putin, to reroute the Far East oil pipeline farther away from Lake Baikal.