Royal Dutch Shell Group .com

Dow Jones Newswires: Sakhalin Shows Environment Grps' Influence Up In Russia: “With his staff leaving en masse to work for a Royal Dutch Shell PLC led oil and gas project, the head of Sakhalin's environmental regulator, Serguei Kotelnikov, hardly seems to pose a threat to the world's third-largest listed company by market value.”: Posted Saturday 3 December 2005


( An articled we missed - it was published by Dow Jones Newswires on 16 November 2005)


By Benoit Faucon



SAKHALIN ISLAND, Russia -(Dow Jones)- With his staff leaving en masse to work for a Royal Dutch Shell PLC (RDSB.LN)-led oil and gas project, the head of Sakhalin's environmental regulator, Serguei Kotelnikov, hardly seems to pose a threat to the world's third-largest listed company by market value.


But that would be without the alerts he regularly receives from local environment groups, who scour the Russian Far East Island's rivers when the regulator's understaffed office doesn't have the resources to go.


In Russia, oil and gas companies digging into the country's riches as they try to rebuild their dwindling reserves already face stringent tax laws, restrictions on foreign investment and a state that increasingly intervenes in the economy.


But energy companies must factor in the increasing assertiveness of environmental organizations when operating in Russia. The latter have stepped into the partial void left by local regulators, whose resources have been shrinking by President Vladimir Putin'spush for centralized government. Non-governmental organizations, or NGOs, are providing firepower to local authorities by playing a whistle-blowing role.


In Sakhalin's capital Yuzho-Sakhalinsk, Kotelnikov, who heads the local branch of the Federal Service of Surveillance for Natural Resources, said Shell's venture has poached half of its 21 staff in recent years and while they've all been replaced, the jobs went to less experienced people.


With environmental specialists paid a typical monthly wage of RUB57,000 ($1=RUB28.88), Sakhalin Energy Investment Co. Ltd., pays five times more.


A Sakhalin spokesman declined to comment on the number of employees it has hired from the local regulator's office but said, "We will pay reasonably competitive rates to attract Russian talent, from Sakhalin and other parts of Russia."


Kotelnikov admitted the office is struggling under the pressure of losing staff and resources.


When it comes to assessing possible damage to the local whale population, all Kotelnikov has to show is a report carrying the logos of Sakhalin Energy and a local venture of Exxon Mobil Corp. (XOM), which also operates a large project on the island. "Our office couldn't afford the study," he said.


But regulators aren't the only ones struggling. Located amidst Yuzhno-Sakhalink's decrepit housing projects, the local environmental prosecutor's office shows the same lack of means as its regulatory counterpart. Chief prosecutor Viktor Dedov said he only has three staff to police giants such as Exxon, Shell or BP PLC (BP) in a territory nearly the length of France.


Dedov said most of the initial information he works on is provided by NGOs, while Kotelnikov said he relies heavily on information passed to his staff by local environmental groups such as Green Patrol and Sakhalin Environment Watch.


It isn't that the laws are insufficient to police environmental damage, Kotelnikov said, but that there aren't sufficient resources to enforce them. "We can't have access to foreign funding," he said, in contrast to the NGO Sakhalin Environment Watch, which is largely financed by U.S. nonprofit foundations.


According to a regulatory document obtained by Dow Jones Newswires, Kotelnikov's office was alerted in May by Sakhalin Environment Watch that some of Sakhalin Energy's contractors were neglecting to protect river crossings from mudslides.


The watercourses are critical for salmon spawning, on which the island's economy largely depends. After sending inspectors to watercourses highlighted by the NGO, the regulator decided to fine Sakhalin Energy's contractors RUB10,000.


Though the amount is tiny compared to the $20 billion the project is eventually expected to cost, the warning was taken seriously.


The Sakhalin Energy spokesman acknowledged that" some river crossings were suboptimal earlier year" but added "a campaign to ensure compliance in conjunction with contractors has yield results through improved performance."  


Increased Influence  


Sakhalin is one of many places in Russia where environmental groups are launching campaigns criticizing oil and gas projects.


This summer, TNK-BP, BP PLC's (BP) Russian joint venture, was accused by environmentalists of being responsible for oil product spills in Ryazan, in the central part of European Russia. But a BP spokesman said a local authority investigation showed that the pollution came from the site of another company.


At the same time, TNK-BP allocated an additional $700 billion to environmental programs, on top of $1 billion already announced when BP formed the joint venture in 2003.


But the campaigns also target homegrown energy giants. Russian state-owned energy infrastructure operator OAO Transneft (TRNF.RS) is under pressure from environment groups such as U.K.-based World Wildlife Fund and Russia-based Baikal Wave to change the route of its $11.5 billion trans-Siberian oil pipeline, stretching over 4,000 kilometers from the region of Lake Baikal to Russia's Pacific coast.


The organizations claimed that the pipeline's current route would cross the habitat of the endangered Amur Leopard and end in Russia's sole maritime reserve, home to 3,000 marine species.


After activists sent letters to the company and the government, Transneft's President Semyon Vainshtok agreed in August to consult the World Wildlife Fund about the environmental risks and to change the pipeline route if need be, said Igor Chestin, executive director of WWF's Moscow office. However, Russia's Natural Resources Ministry said last week it backed the proposed route for the oil pipeline, a ministry spokesman said Friday. Transneft didn't answer requests for comment.


Though the Soviet era saw some of the world's worst environmental disasters, such as the Chernobyl nuclear accident in Ukraine, the vitality of environmental organizations is partly an inheritance of the communist regime, Chestin said. Unlike human rights groups, they were tolerated, though their lack of funding and the information blackout on disasters restricted their impact, he added.


After the collapse of the Soviet Union, "we saw a growing influence of NGOs by default", because the government was focusing on other priorities such as economic liberalization or law and order, said Christopher Weafer, the Moscow-based chief investment strategist at Russia's Alfa Bank (ALFA.YY).


But David Collier, a business development director at U.K. environmental consultancy Faulkland Associates Ltd., said the organizations also know how to give a global resonance to environmental issues.


"Local government officials can't fly to London" to meet lenders, said Collier, who has advised the European Bank for Reconstruction and Development on environmental assessments on projects in the former Soviet Union.


However, NGOs may prove increasingly unpopular with the Russian government as it places the control of energy projects as a key priority.


"As soon as we begin doing something, one of the lines of attack against us is always environmental problems," said Putin during a meeting with NGOs in July.


However, the state's increased intervention into oil and gas projects means the influence of environmental groups may diminish in the long term, said Alfa Bank's Weafer.


Company Web sites:




-By Benoit Faucon, Dow Jones Newswires; +44 207 842 9266;


(END) Dow Jones Newswires


November 16, 2005 06:20 ET (11:20 GMT)


Copyright (c) 2005 Dow Jones & Company, Inc.


Click here to return to HOME PAGE

Click here to return to Royal Dutch Shell Group .com