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Sakhalin II operator vows to fix environmental damage in year

Sakhalin Energy, operator of the Sakhalin II oil and gas project off Russia's Pacific Coast, said Friday it would rectify violations, identified by Russia's environmental watchdog, within a year.

Sakhalin Energy CEO Ian Craig said at a meeting with Russian Natural Resources Minister Yury Trutnev that the program, including the reinforcement of landslide-prone river banks and reforestation, would be completed in a year.

Trutnev said the government was prepared to wait, expressing hope that the violations would indeed be eliminated within the time.

In August, Russia's environmental regulator said it had discovered new violations committed by Gazprom-controlled Sakhalin Energy.

Rosprirodnadzor's branch in Sakhalin said its experts had found that a subsidiary of Sakhalin Energy, which was building a stretch of a pipeline crossing several rivers, had failed to carry out riverbank reinforcement and landslide containment work.

Regulators sent a report setting out their findings to local and regional environmental prosecutors, and ordered the company to rectify the exposed violations.

The ambitious Sakhalin II 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 inflicting major environmental damage on Sakhalin Island, including deforestation, toxic waste dumping and soil erosion.

The dispute was largely resolved after Russian natural gas monopoly Gazprom [RTS: GAZP] acquired a controlling stake in the project last December, and authorities coordinated in March 2007 a plan to fix the damage.

However, the environmental watchdog continues to closely monitor the implementation of the project, and several new allegations have arisen this year.

Minority partners in the project, Royal Dutch Shell, Mitsui and Mitsubishi, currently control 27.5%, 12.5% and 10% of Sakhalin Energy respectively.

Sakhalin II has estimated reserves of 150 million metric tons (1.1 billion barrels) of oil and 500 billion cubic meters of natural gas. The project also comprises an LNG plant, with a capacity of 9.6 million metric tons a year, which is due to be launched in 2008, and an LNG export terminal. Most of the LNG from the project will be exported to Japan.

International consultants ruled in early October that the Sakhalin II project is in line with national and international environmental laws.

AEA Technology, an independent consultant to potential lenders in the Sakhalin II project, produced a final report on the commitments of project operator Sakhalin Energy.

Russia's environmental watchdog said earlier Friday that it would conduct checks of about 1,000 oil, gas and mining companies in the first quarter of 2008.

Oleg Mitvol, deputy head of the agency, said all companies suspected of environmental violations would be inspected.

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