The vast Sakhalin projects in Russia's Far East were launched under production-sharing terms in the early 1990s when the country needed large-scale investment and foreign expertise to develop its offshore oil and gas deposits.
Sakhalin II comprises an oil field with associated gas, a natural gas field with associated condensate, a pipeline, a liquefied natural gas plant, and an LNG export terminal. Most of the LNG from the project will be exported to Japan, which is seeking to diversify its energy imports.
The project's two fields have estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas.
Viktor Orlov, chairman of the Federation Council committee for natural resources and head of the task team formed by the upper house of Russia's parliament to study the situation around the Sakhalin II project, said the project, which is a major deal to develop oil and gas deposits on the continental shelf of Sakhalin Island, was signed in June 1994.
'Following the results of our work, we came to the conclusion that the terms of the production-sharing agreement infringe upon Russia's interests," Orlov said.
In particular, under the terms of the agreement, Russia is liable to investors to the extent of all its assets, whereas investors are liable to the state only to the extent of the company's property, Orlov said.
The head of the task team also said investors propose to increase the volume of investment to $21.9 billion.
"This will extend the term of recoupment to 2015, reduce the share of the state's profitable output from 70% to 40% and put into doubt the economic efficiency of the project's implementation," Orlov said.
Apart from that, the agreement does not stipulate such important provisions as economic sanctions for failure to comply with the timeframe and the scope of work, for the low quality of designing, construction and operation of facilities, erroneous actions or omission on the part of investors and the state, the senator said.
The ambitious project, formerly led by Anglo-Dutch oil major Shell, was subjected to months of intense pressure last year from Russian authorities, who accused it of causing serious environmental damage to Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.
In December 2006, Russian energy giant Gazprom acquired 50% plus one share in the Sakhalin II project for $7.45 billion. Shell previously held a 55% stake, while Japan's Mitsui and Mitsubishi owned 25% and 20%, respectively.
