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Tuesday, July 25, 2006

Russian Natural Resources Minister Lashes Out at BP and Shell

Yuriy Trutnev20.07.2006 MosNews - On Wednesday, July 19, Russia's Natural Resources Minister Yuri Trutnev said that BP's Russian joint venture TNK-BP could see a number of its licenses in Russia revoked, while simultaneously slamming Royal Dutch/Shell for cost overruns at its liquefied natural gas (LNG) project off the coast of Sakhalin Island in the Far East. Trutnev was quoted by the Interfax agency as saying that his ministry received complaints about low production rates at 24 of TNK-BP's facilities. "All grounds exist to submit this issue to the commission for revoking licenses,” he said, according to the Russian news agency. TNK-BP spokeswoman Marina Dracheva explained that the company had inherited a high number of idle wells, which it was working to reactivate, and insisted that it had a good "working relationship” with Trutnev's ministry. "From time to time they ask businesses questions, and we can answer all these questions,” she told Associated Press. Separately, Trutnev said his ministry would investigate cost overruns that have seen the spending forecast at Shell's flagship Sakhalin-2 oil and liquefied natural gas project double. "They propose increasing the volume of investment and consequently reducing the economic effect for the Russian Federation,” Trutnev was quoted as saying by RIA Novosti. The increased costs mean it would be longer before state coffers see revenues from the project, a violation of the agreement under which the license was originally granted. This is not the first time that Shell has been criticized by the Russian authorities for giant cost overruns. In July last year, Shell said the expected cost of developing its oil and gas fields at Sakhalin had doubled to around $20 billion. The oil company blamed currency swings and rising prices of commodities, such as steel, for driving up the cost of the project. Shell spokesman Maxim Shupp said that he could not comment on Trutnev's remarks, but noted that the cost overruns were already in the process of being reviewed by state bodies.
For some reason, the Russian power elite still equates state control with optimal performance. Where did they get that idea? For more, see the BSRnews Observations publication for 4 October 2006.  
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