This is the editorial in this week's issue of the Sakhalin Times

Despite denials from both sides, it is clear now that Shell made a good-enough offer to Gazprom so that the latter can enter the Sakhalin II project. The western media in collective rage is on a Russia-condemning spree claiming that the country coerced Shell to part with a large stake in the project. Editorials have streamed in from London and New York calling the Kremlin unethical. Such criticism though harsh, is not baseless but the Russian regulatory authorities didn’t have to work too hard to “coerce” Shell.

While it is debatable whether the cost increases in the second phase of the Sakhalin II project were justified, there is little doubt that the project operator didn’t keep a watchful enough eye on the activities of its sub-contractors. The initial statements from Sakhalin Energy denying environmental violations and the subsequent blame it placed on Starstroi gave the Russian Natural Resources Ministry’s environmental watchdog enough ammunition to make life very difficult for the operator. Although Oleg Mitvol promises to continue his attack on Sakhalin Energy, it is now unlikely that the government’s environmental watchdogs will apply as much pressure as it did when the Sakhalin II project lacked direct Russian participation.

In an ideal world, Gazprom’s entry into the project will keep costs from sky-rocketing, ensure the environment is protected and at the same time the excellent human resource policies and community development initiatives of Sakhalin Energy will continue. Given the uncertainties of business and political developments in Russia, no one really knows what kind of changes we are going to see in the implementation of the Sakhalin II project. It would be a real tragedy if the government’s environmental watchdog decides to ignore environmental violations and Gazprom has the freedom and control to run amok and decides to use the project as a tool for political gains.

Russia is no longer in the economic position it was in the mid-1990s. The present regime has made it abundantly clear that terms and conditions imposed on a weak Russia will never be accepted again in the future. However, the country is on its way to becoming a member of the World Trade Organisation and wants to be immersed in the global economy. If the government makes it difficult for foreign companies to do business in Russia then it can expect the same kind of treatment overseas for Russian companies.

Since the Russia-Shell drama seems to have come to a close, we can only hope now that the Sakhalin II project can be implemented without any major interruptions, ensuring that deliveries of LNG are met as per agreed-upon schedules. This alone, can be a saving grace for both Russia and Shell, which would both lose out if there are more delays in the project.