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Tuesday, November 14, 2006

Russian watchdog says claims on Shell just a start

MOSCOW, Nov 14 (Reuters) - Russia's outspoken environmental watchdog said on Tuesday a possible $10 billion claim on Shell was just the start of a new era of strict environmental enforcement aimed at all firms, Russian or foreign.

Oleg Mitvol, deputy head of environmental agency RosPrirodNadzor, said even Russian gas monopoly Gazprom could face checks similar to those conducted at Shell's Sakhalin-2 project.

"If you know Gazprom is breaking environmental laws somewhere, just tell us about it and we will be on the site within a week. With pleasure," he told a briefing.

"I am very sorry that nobody has cared about environmental legislation in Russia for 15 years... Now we are going to become a civilised country, it is natural."

Mitvol, who has spearheaded a Kremlin campaign to crack down on foreign energy companies, said his agency would also check the Sakhalin-1 project, which is led by Exxon Mobil and 20 percent owned by state-run Rosneft .

It would also inspect the Samotlor field belonging to BP's Russian venture TNK-BP , as well as fields run by Russian oil major LUKOIL and Gazprom's oil arm Gazprom Neft , Mitvol said.

Russia has attracted international criticism over the mounting pressure on Sakhalin-2, widely seen as an attempt to force Shell and its partners Mitsui <8031.T> and Mitsubishi <8058.T> to concede to less favourable terms and to limit foreign involvement in Russia's strategic energy sector.

Mitvol told Reuters last week that he was prepared to take Shell's project to court to win damages and might even try to scrap the production sharing agreement under which it operates.


Mitvol's office is consulting U.S. lawyers about suing Shell in international courts once the alleged damage to the environment is quantified -- something Mitvol said would be known within six months.

He said the claim could amount to $10 billion -- equal to the $10 billion cost overrun at the project which Shell announced last year, infuriating the Kremlin and triggering lengthy negotiations which are still going on.

The huge overspend doubled the cost of the world's largest liquefied natural gas project and pushed back the date when the Kremlin would see its first profit from the project, since the production sharing agreement allows costs to be recouped first.

"If it is proved that there has been a cover-up -- that the company knew about serious problems but did nothing to solve them -- then our country will demand compensation for its lost profits," Mitvol said.

Shell has said that stopping the project might increase costs by a further $10 billion. Mitvol said the figure could form the base of any claim against the firm, without explaining.
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