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. Last Updated: 07/27/2016

Sakhalin-2 Deal May Be Close

Shell and Gazprom are due to meet with officials from the Industry and Energy Ministry on Monday in an effort to close a deal on the state-controlled gas giant's entry into Sakhalin-2.

"It is premature to say it is set, but everything is in the final stages," a source close to Gazprom said Thursday.

Three sources involved in the talks confirmed next week's high-level meeting, but declined to give details or their names due to the sensitivity of the matter.

Shell ceded majority control of Sakhalin-2, the world's largest liquefied natural gas project, to Gazprom in December after a highly public battle over purported environmental violations at the project.

Russian officials initially expected the deal to be concluded in March, but negotiations have dragged on through April as Gazprom and Shell wrangled over details of the split. Under the deal, Shell and its Japanese partners, Mitsui and Mitsubishi, each halved their stakes in the project, handing 50 percent plus one share to Gazprom for $7.5 billion. Shell will now have a stake of 27.5 percent.

Talks have stumbled over Gazprom's wish to avoid taking on any potential liabilities that could arise from the allegations of environmental damage.

The Audit Chamber has put the damage at $5 billion, while officials at the Natural Resources Ministry said that at the height of the environmental campaign last year that the damages ran as high as $30 billion.

Project operator Sakhalin Energy submitted a new environmental action plan to the ministry on March 20. A ministry spokesman said a decision on whether to approve the plan would be made by Tuesday.

"They're close to reaching a decision," ministry spokesman Rinat Gizatulin said. "I think everything will be fine."

President Vladimir Putin presided over the Dec. 21 meeting when the heads of Shell, Mitsui and Mitsubishi said they would give Gazprom control of the project. He said at the time that the environmental issues had been settled.

Shell spokesman Maxim Shub declined to comment Thursday on the details of the talks. "It's a huge project, there are a lot of questions to be reviewed and agreed," he said. "We expect the deal to be closed in 2007."

Industry and Energy Minister Viktor Khristenko said earlier this month that he expected the deal to be completed in April.

A banking source close to the deal said indications were that the deal was close. "Something is happening. We're seeing large cash flows -- there's a lot of activity," the banking source said.

Gazprom issued two eurobonds worth $2 billion in March and has taken a $2 billion loan from a consortium of Western banks led by ABN Amro to help finance the deal.

Sakhalin-2 is due to cost $22 billion and marks Gazprom's first experience in liquefied natural gas.

A senior member of the Federation Council said Thursday that the production sharing agreement that governs the project was unfair to Russia, RIA-Novosti reported.

"The terms of the PSA infringe on Russia's interest," said Natural Resources Committee Chairman Viktor Orlov, who heads a working group formed to study Sakhalin-2.