Vremya MN
30 August 2000
[translation for personal use only]
Article by Marina Sokolovskaya: "After Us, the Deluge"

The oil companies are destroying Russian nature

The 1st International Practical Conference, SRP-2000 (agreement on
developing Russian oil and gas deposits with the participation of foreign
investors who receive their share of the extracted products) is to take
place at the beginning of September in Yuzhno-Sakhalinsk. Vladimir
Putin and Bill Richardson, U.S. Secretary of Energy, are expected to
attend.

Much has been said in the last few years about the fact that the SRP
[production-sharing agreement] mechanism is not developed in Russia, and
foreign companies therefore do not want to work in our country. The
country is losing billions of dollars as a result.

But the developments of new oil and gas deposits and the increase in the
volumes of oil transport by sea may turn out to have unforeseen
ecological consequences for Russia.

There are four principal projects today -- they are already extracting
oil on the Sakhalin shelf and transporting it through the Sea of Okhotsk
to Japan and the United States. Next on the list is the development of
deposits in the Barents and Karsk seas. Great hopes are linked with the
export of oil supplied by the Caspian Pipeline Consortium (KTK) through
the Black Sea, and by the Baltic Pipeline System, correspondingly through
the Baltic. The plans are to transport 30-60 million tonnes of oil a
year along Russia's Black, Okhotsk and North seas.

In the euphoria of big money expectations, however, an extremely
important circumstance is being overlooked. Not a single country is
insured against oil spills, even in planned operations. Neither the
level of personnel training nor the newest technology provide full
guarantees. It is even calculated that 0.02 to 0.03 percent of the oil
transported in the world yearly ends up in the sea during extraction and
transport. This is not counting major accidents. For example, 30,000
tonnes of oil were spilled on the shore of France last year as the result
of an accident to the tanker Erik. And 40,000 tonnes, in the
catastrophe of the American tanker, Exxon Valdiz, in Alaska in 1989.
The damage that time was $5 billion. In striving to secure themselves
to the maximum, many Western countries have passed laws in which all
procedures connected with the extraction and transport of oil are
prescribed in detail.

Russia has no such laws.

A Love for Bankruptcies

The extraction of oil in accordance with the Sakhalin-2 project began
last summer on the Northeastern shelf of Sakhalin. The Sakhalin Energy
Investment Company Limited (SEIK) was the operator of the project. We
cannot help but say a few words about the prehistory of the development
of this deposit.

In 1992, a government commission chaired by Vladimir Danilov-Danilyan
summed up the results of the announced competition of proposals of
foreign firms to develop the oil and gas resources of the Sakhalin shelf.
Leading world companies took part in the tender, including Shell and
Exxon. But the winner of the competition was a consortium consisting of
the MacDermott, Mitsui and Marathon Oil corporations (MMM). The
government commission gave as the reasoning for its choice the fact that
the consortium "has most completely fulfilled the requirements of the
Russian side, has experience in developing deposits under Arctic
conditions and possesses sufficient financial potentials to put the
project into effect." It is surprising that the company's financial
condition did not put the members of the commission on guard. At the
moment of completing this "successful transaction," MacDermott had losses
of $400 million, and Marathon -- of $70 million.

MacDermott has been going to ruin for several years. Marathon is
leaving the project right behind it. But joining in as a partner there
appears, not even a "daughter," but a "granddaughter" company --
Shell-SEIK, registered in the Bahamas by three British nationals. Its
charter capital is $100 million.

Economical Foreigners

One of the most important conditions of the Sakhalin-2 tender that was
won was, as entered in the decision of the commission, the "satisfaction
of the needs of Russia's Far Eastern region for gas and oil." Supplies
of gas on the domestic market were to have begun in 1995. But SEIK is
retracting its promises to build a reliable ecological security system,
and is beginning to extract oil. According to Vitaliy Gorokhov,
corresponding member of the RAYeN [Russian Academy of Natural Sciences]
and expert of the Ekoyuris Institute of Ecological-Legal problems, the
company was completing its building and equipping at the same time that
the fish were spawning. Some 523,000 cubic meters of earth were moved
when the Molikpak platform was installed. The materials of the state
ecological expert appraisal indicated that this could harm or disturb the
migratory route of salmon. SEIK, however, was little worried about the
fate of the salmon. All the ecologists' reprimands were ignored.

The next ecological problem was the dumping of drilling liquids,
interstitial waters and drill cuttings (sludge) into the sea. In
accordance with world technology, these burials are carried out at
special refuse sites. But this would have required substantial
expenditures from the developers or the deposits. SEIK and ENL decided
to economize. Knowing that Russian water legislation prohibits dumping
waters of this sort into the sea, they lobbied for their interests as
much as they could. And they got their way. In the summer of last
year, Sergey Stepashin, who was at that time chairman of the government,
signed an order which permitted wastes to be dumped into all the seas of
the Far East. In so doing, he failed to take into consideration the
fact that it is in the Sea of Okhotsk that 65 percent of the Russian sea
products are caught. It was then that public ecology organizations
complained to the Supreme Court, which recognized the order as illegal.

The total extraction of oil for the Sakhalin-1 and Sakhalin-2 projects
should be 30 million tonnes. The plans are for the oil to go along
pipelines to the south of the peninsula, to the Prigorodnoye settlement.
Moreover, they intend to lay the company's oil pipeline through spawning
rivers, earthquake-prone sections and forests. According to Vitaliy
Gorokhov, projects of this sort are in operation in the world, for
example, in Alaska. But there the companies are supplied with
legislation within a strict framework and are forced to protect nature to
the maximum. The pipelines are therefore removed from the ground and
installed on special supports in earthquake-prone places, places where
fish spawn and even where deer roam. Naturally, this sort of pipeline
installation is extremely expensive.

Sakhalinrybvoda has repeatedly stated that the route would cross 463
streams and 65 very important salmon rivers, which provide up to 73
percent of the humpback salmon. And in 1993, the State Ecological
Expert Appraisal evaluated the Sakhalin-2 project and gave the decision
that "developing oil and gas deposits on the Sakhalin shelf, with a
surface pipeline laid to the south of the island, was fraught with
irreversible consequences for the fish industry, which is a priority
sector in the oblast's economy.... Not enough attention was paid to the
methods and periods of the pipelines' passing through numerous rivers and
to a guarantee that the spawning grounds and the purity of the water
would be preserved." This had no effect on the foreigners, however.
The plans to build the pipeline may soon begin to be realized.

A Cabal Agreement

It is, essentially, extremely difficult to stop the damage being done by
Western entrepreneurs. First of all, because there is powerful support
within the country for the activity of the oil companies. The State
Ecological Expert Appraisal gave a negative decision on the Sakhalin-1
project. According to Russian legislation, the work was to be
discontinued. But it goes on as if nothing had happened. Moreover,
the Russian government concurred with a cabal agreement in accordance
with which all the debatable questions (including ecological) are removed
from Russian jurisprudence. The agreements will be interpreted in
accordance with English law (the Sakhalin-1 project) and in accordance
with the legislation of the state of New York (Sakhalin-2). In the
opinion of Vitaliy Gorokhov, with the appearance of the arbitration
investigation, the Russian side is virtually doomed to lose the case.
Last year, for example, the action of the Sakhalin Oblast State Ecology
brought against the defendant -- the company, Esson Oil and Gas Limited
-- concerning compensation for the damage done to the natural
environment, was dismissed because the company demanded that the case be
transferred to the arbitration court of the Stockholm Chamber of
Commerce. At that time, the mass death of fish, within a range of from
907.2 to 1,111.6 tonnes, was recorded by the SAKHNIRO Institute. But
neither the environmental protection prosecutor's office nor the oblast
committee to protect the environment could take the matter to court.
The companies, in response to all the claims, handed over taunting
dispatches, the sense of which boiled down to the fact that the
entrepreneurs would not be responsible for stupid fish, which eat God
knows what.

Vera Mishchenko, president of the Ekoyuris Institute of Ecological-Legal
Problems, told us that it is difficult to find the truth when the
consistent squandering of natural resources goes on in the country.
Licenses for an activity, particularly in the sphere of oil extraction,
are issued to anyone you like. Two years ago, ecologists, accusing
state officials of what was going on in Sakhalin, sent materials to the
General Prosecutor. There however, in the best Soviet tradition, they
sent the papers on to the Sakhalin prosecutor's office, which justly
replied that it was not competent to monitor the activity of state
officials at the federal level.