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Russian officials say government will never accept Sakhalin-2 cost increases

Russian officials say government will never accept Sakhalin-2 cost increases

Russian officials have suggested that the government will not accept a doubling of costs at a giant oil and gas venture, news agencies reported Wednesday, as the Kremlin appeared to turn up pressure on project leader Royal Dutch Shell PLC.
Arkady Dvorkovich, President Vladimir Putin's economic adviser, said the government took a dim view of Sakhalin-2's costs doubling to US$20 billion (euro15.75 billion) _ a development that will delay when Moscow starts seeing revenue from the project.
"It was clear that the Russian side would never accept this," Dvorkovich was quoted as saying by the Interfax news agency.
Russia's economics minister also said many of the costs at the liquefied natural gas project on the Pacific island were not necessary.
"In our opinion there are significant areas where an increase is unjustified," German Gref was quoted as saying by the RIA-Novosti news agency.
Shell's announcement of the cost overruns last year enraged the Kremlin, and prompted what many analysts say is a government campaign to tighten the screws on Sakhalin-2. The Kremlin is widely seen to be trying reconfigure the original deal to its favor, possibly by winning better terms for state gas monopoly OAO Gazprom, which is negotiating to join the project.
Dvorkovich denied that foreign oil companies were being singled out.
"There is no campaign," he was quoted as saying by news agencies. "This is a commercial case and all the state can do is make sure that the law is adhered to."
Signed in the 1990s, the Sakhalin-2 agreement put the project in the hands of Shell and its Japanese partners, provided generous tax breaks, and stipulated that Russia would only receive a share of the oil profits once costs have been covered.
The Natural Resources Ministry has announced its intention to pull a key environmental permit, a decision that has shocked investors and prompted criticism from Western governments.
British Ambassador Tony Brenton warned on Wednesday that the situation had hurt Russia's reputation as a "business partner and a supplier of energy resources," and he defended Shell's environmental record at the project, Interfax reported.


Updated : 2021-07-29 02:26 GMT+08:00