Royal Dutch Shell (Shell) has offered to cede control of the USD 22 billion Sakhalin-2 project, Russia’s biggest single foreign investment, to state gas monopoly Gazprom after months of government pressure. Such a deal would appear to mark a victory for the Kremlin, determined to wrest control over the “commanding heights” of the Russian economy, and a retreat by Shell. Agreement in principle was reached at talks during the week of 4 December for Shell to reduce its 55% holding to a blocking stake of at least one-quarter in the world’s largest LNG project. Both companies confirmed that Shell Chief Executive Jeroen van der Veer had met Gazprom head Alexei Miller in Moscow on 8 December, but declined to go into detail on their talks. Gazprom’s chief spokesman, Sergei Kupriyanov, said: “Gazprom has yet to decide on Shell’s proposals because the project’s problems, including ecological problems, remain in place.” With Shell willing to surrender Sakhalin-2 to a Kremlin determined to wrest more control over Russia’s energy riches, the local partners in Anglo-Russian venture TNK-BP may now come under the spotlight. Industry insiders say a deal for Gazprom or state-controlled Rosneft – both chaired by high state officials – to buy into TNK-BP is likely before the December 2007 general election. Under the proposal the project will continue to operate on the basis of a production-sharing agreement, an arrangement whereby project costs are first defrayed before revenues accrue to the Russian state.
