"We are convinced that the company must correct the ecological damages. If that does not happen, we will unfortunately not be able to allow the project to continue."

The natural resources ministry on Monday said it had ordered a new round of environmental inspections at the 20-billion-dollar (15.8-billion-euro) Sakhalin project, which has already had its environmental permit revoked.

The Shell-led operation on the island of Sakhalin off the eastern Russian coast has come under pressure from Russian authorities for alleged environmental violations and cost overruns.

A number of ministries will conduct the inspections from September 25 to October 20, the natural resources ministry said in a statement.

The ministry last week withdrew a key environmental permit for Sakhalin-2, the world's largest private energy project, signalling that work should be halted.

This provoked protest from European and Japanese authorities and was widely interpreted by analysts to be linked to a decision by Shell to double the project's cost projection last year, which brought bitter complaint from Russian authorities.

Trutnev said, however, that the new inspections had only environmental motivations.

"We don't have the goal of influencing the project's economic terms," he said. "We are worried about information from international and Russian environmental organizations ... about environmental problems that have appeared in the course of Sakhalin-2's development."

While the energy companies concerned have expressed dismay at the action on Sakhalin by Russian authorities, international environmental groups including Greenpeace and the Worldwide Fund for Nature have applauded the moves.

Environmental groups have protested that the project damages the natural habitat of the endangered Western grey whale and harms fishing, a key industry for the people of Sakhalin.

Shell owns a 55-percent stake in Sakhalin-2, and Japanese firms Mitsui and Co and Mitsubishi Corp hold the remainder.

earlier related report
Russia Turns Screws On Foreign Oil Groups
Moscow (AFP) Sep 26 - Russia on Tuesday turned up the heat on foreign oil companies operating in the country, telling Shell it would have to clean up environmental damage on Sakhalin Island and warning Total and TNK-BP of impending inspections.

Russian Natural Resources Minister Yury Trutnev warned that the Shell-led Sakhalin-2 oil and gas development project off Russia's Pacific coast would be halted unless Shell corrected environmental damage done to the site.

"We will do everything possible not to stop the project," Trutnev told a press conference.

"We are convinced that the company must correct the ecological damages. If that does not happen, we will unfortunately not be able to allow the project to continue."

He also announced that French group Total and British-Russian joint venture TNK-BP would face inspections of their activities at two major energy fields in northern Russia.

The annoucements fit a pattern of Russian government pressure on foreign oil companies, particularly those which signed production sharing agreements (PSAs) with the Russian state in the 1990s.

As well as Total, Exxon of the United States has a PSA agreement for the Sakalin-1 project and Anglo-Dutch group Shell has a controlling stake in Sakalin-2, the world's biggest privately financed oil and gas project.

The PSAs were agreed in the 1990s at a time of low global oil prices and a period of weak Russian government. The agreements are now seen as outdated and unfavourable to the Kremlin, which has put a policy of bringing the strategic oil industry under state control at the centre of its agenda.

Analysts have suggested that environmental concern is being used by the government as a pretext for action against foreign oil companies. They contrast the concern about Sakalin and Total's activities against lax enforcement of environmental regulations elsewhere in Russia.

The natural resources ministry last week withdrew a key environmental permit for the Sakhalin-2 project -- operated by Shell and two Japanese partners -- signalling that work should be halted.

The move provoked protest from European and Japanese authorities but was applauded by international environmental groups including Greenpeace and the Worldwide Fund for Nature.

Environmental groups have argued that the project damages the natural habitat of the endangered Western grey whale and harms fishing, a key industry for the people of Sakhalin.

The Total project in northern Russia, the Kharyaga field, has been the object of bitter dispute for years, with the Russian government accusing Total of excessive delays in completing work.

Relations between Russian state-controlled gas giant Gazprom and BP-TNK have also been rocky, with Gazprom blocking TNK-BP from developing its Kovykta gas field for several years.

Russian business daily Vedomosti reported earlier this month that Gazprom was in talks to buy up to half of TNK-BP in a deal that could be worth 25 billion dollars (20 billion euros). Trutnev said Tuesday that the Total-led Kharyaga oil field and TNK-BP Kovykta gas field would both be inspected.

"There will be verification of the Kharyaga and Kovykta energy fields on the basis of respect (by the companies) of the terms of the license and environmental standards," he said.

Referring to environmental concern about Shell and its work on Sakhalin Island, he added: "Basically, there are violations and they are more than significant." A delegation of experts had left for Sakhalin on Monday to inspect the project.

Their mission would take a month and conclusions would be made public a month later.

"We want a response to a very simple question: is it possible to repair the damage inflicted without stopping the project?" said Trutnev, adding that his minstry "has no intention of harming a company that has invested in Russia".

Shell owns a 55-percent stake in Sakhalin-2, and Japanese firms Mitsui and Co and Mitsubishi Corp hold the remainder.

earlier related report
EBRD Delays Decision On Funding For Sakhalin-2 Energy Project
London (AFP) Sep 26 - The European Bank for Reconstruction and Development said on Tuesday that it would delay its decision on financing expansion of the Shell-led Sakhalin oil and gas project in Russia's far east. Current uncertainty over the project "does not allow the EBRD to progress" over the matter, a spokeswoman for the bank told AFP.

Russia on Tuesday threatened to halt the Sakhalin-2 oil and gas development project off Russia's Pacific coast unless the Anglo-Dutch group Shell corrected environmental damage done to the site.

The London-based EBRD had promised a decision over financing by September -- with the bank looking to invest up to 400 million euros (507 million dollars) in a project that is set to cost a total of 20 billion dollars. But earlier this month, Russia cancelled an essential permit for the Shell-led consortium to develop the huge Sakhalin-2 oil and gas fields, as a top official warned foreign energy companies may lose their licenses.

Russian activists claim the Sakhalin project threatens precious species such as the western grey whale, which has its summer feeding ground in the area, as well as salmon that use the island's waterways for spawning.

The Shell-led consortium, Sakhalin Energy, has asked the EBRD for financing for the second phase of Sakhalin II, after it borrowed funds for phase one in 1997.

Located on the island of Sakhalin, 40 kilometres (25 miles) from Japan's coast, the second phase would expand existing facilities and lay pipelines that would supply a liquefied natural gas plant under construction, as well as an oil export terminal in the south of the island.

Sakhalin II is key to the development plans of Anglo-Dutch giant Royal Dutch Shell. It is estimated that 1.0 billion barrels of oil can be recovered as well as 500 billion cubic meters of gas.

Shell has a 55-percent stake in the Sakhalin Energy Investment Company while Japanese firms Mitsui and Mitsubishi own 25 percent and 20 percent respectively.

But Shell has signed a memorandum of understanding with Russian gas giant Gazprom to swap 25 percent of shares for half of a Siberian field.

Founded in 1991 to assist the transition of former communist nations to market economies, the EBRD operates in 27 countries from central Europe to Central Asia, including Uzbekistan.

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