Eco-Kremlin: Russia targets energy giants

Western firms developing Russia's rich oil and gas fields are facing sweeping allegations of environmental abuses. But critics say the charges are a thinly veiled Kremlin power play to renege on 1990s-era contracts now seen as unfavorable for Russia.

Four key projects, all controlled by foreign companies, are under pressure to hand over shares to a Russian state-owned partner or face potentially crippling financial penalties.

The Russian side, supported by environmental groups, insists that the ecological concerns are real. But experts say the government is leveraging those concerns to give a state-run company control over the projects.

"We know that the Ministry of Natural Resources received instructions to launch this campaign," says Mikhail Krutikhin, an expert with Russian Energy Weekly, a trade journal. "They are using the environmental weapon with the aim of either renegotiating these contracts to make them more profitable for Russia, or forcing the [Western companies] to accept [the state-owned natural gas giant] Gazprom as a partner, on Gazprom's terms."

Last month, Russia's Natural Resource Ministry suspended the environmental operating license for Sakhalin-2, a giant international consortium led by Royal Dutch Shell that has invested $20 billion so far in the venture. Expected to bring liquefied natural gas (LNG) from Sakhalin Island to Asia and the US by 2008, the project received environmental clearance in 2003, but Russian officials now say there are massive violations.

In a visit last week to the volcanic Pacific island, estimated to have 45 billion barrels of petroleum reserves, the Ministry's environmental watchdog Oleg Mitvol said Sakhalin Energy has wreaked $50 billion in ecological damage.

"The project must be stopped and all that's been done must be reworked," Mr. Mitvol told journalists. "For every destroyed tree or damaged river, we want to bring a criminal case."

Many independent environmentalists are supporting the Kremlin position. Ivan Blokhov, campaign director for Greenpeace-Russia, visited Sakhalin last week and says the Shell-run project there is "one of the worst I've seen operating in Russia – and I'm not making any distinction between Russian and foreign companies." He says the company has violated a pledge not to drill offshore during the three months each year that rare gray whales come to Sakhalin waters to feed. Pipelines have been illegally rerouted, swaths of trees cut down, and rivers that are crucial to spawning salmon ruined with bulldozers.

Mr. Blokhov and other Russian ecologists insist they're not siding with the Kremlin, but are only doing their job. "I do not suppose that Gazprom would be any better than Shell," Blokhov says. "What is positive is that they are now under huge public attention, and wouldn't be able to work as before."

Last week, Moscow launched a fresh environmental probe into the operations of Sakhalin-1, an international project led by Exxon Mobil Corp. that's already begun production on the island's north side and is expected to put out 250,000 barrels of oil daily by year's end.

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