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. Last Updated: 07/27/2016

Mitvol Trashes Sakhalin Ecology Plan

Itar-TassMitvol walking barefoot during an inspection of Sakhalin-2 in late September.
The government may sue the Shell-led Sakhalin-2 group in international courts to claim billions of dollars in damages or even scrap the $22 billion production sharing deal, an official said Friday.

Oleg Mitvol, deputy head of the Federal Service for the Inspection of Natural Resources Use, said his agency had received a plan from Sakhalin-2 on how the company intended to rectify ecological damage but considered it "not serious."

"We are talking to lawyers and determining our position to file for damages according to international law. The place would be Stockholm and it would be the law of New York," Mitvol said.

The Sakhalin-2 oil and gas project has come under increasing pressure from state officials since last year, when it doubled cost estimates for the world's No. 1 liquefied natural gas, or LNG, scheme.

Shell declined to comment on Mitvol's remarks and the fate of the production sharing agreement, which was signed in the mid-1990s, when the country was desperate to attract foreign money at a time of low oil prices.

The Kremlin is now seeking to limit foreign involvement in the strategic energy sector and has also threatened ventures involving BP and ExxonMobil with legal and administrative measures.

On Friday, TNK-BP said it had paid $1.44 billion in back taxes.

The doubling of costs has infuriated Gazprom, which was planning to take one-quarter of the project, and analysts say the pressure is designed to force Shell to cede a stake cheaply, or face further delays.

Sakhalin-2 is due to supply clients in Asia and the United States from mid-2008, and Shell has said that any significant delay would damage Russia's reputation and cost the country and the company up to $10 billion in lost profits.

The agency accuses Sakhalin-2 of polluting the bay near the LNG plant and cutting too many trees while building an 800-kilometer pipeline along the length of the Pacific island.

The Sakhalin Energy group, minority owned by Japan's Mitsui and Mitsubishi, said earlier that it had rectified most of the violations.

On Friday, the Sakhalin Energy group said it had that week filed an environmental action plan covering issues from river crossings to management of excavated soil. The group said it would revise the plan as soon as it got the official results of site inspections.

Mitvol said he did not like the new action plan.

"It is not serious. It is a joke collection. We had expected to see technical solutions and they are dealing with small local problems such as cones collection," Mitvol said.

Mitvol said the longer Sakhalin-2 delayed "serious action," the more it had to lose.

"We will insist on a detailed technical action plan from them. Otherwise around next summer we could file for production sharing agreement cancellation under the law of New York," he said.

Mitvol said his agency was planning to demand that Sakhalin-2 compensate for ecological damage and lost profits under any scenario.

"Sakhalin Energy was quite helpful when they said lost profits could amount to $10 billion," Mitvol said.

He said a number of Sakhalin-2 sub-contractors had already started paying for damages and had so far paid $300,000.

"It is just the beginning," he said.