MOSCOW, Russia (AP):

A top environmental regulator suggested yesterday that Russia could seek up to US$15 billion for environmental damages and other losses it blames on a Shell-led consortium involved in a liquefied natural gas project in the Far East.

Oleg Mitvol, deputy head of the Natural Resources Ministry's environmental watchdog, Rosprirod-nadzor, reiterated that his agency is considering initiating legal action against Sakhalin Energy Ltd., the consortium led by Royal Dutch Shell PLC that operates the Sakhalin-2 project.

Illegal logging

The ministry has accused the consortium of illegal logging and of damaging rivers in the course of its pipelaying work on the Pacific island of Sakhalin. Observers suggest that the pressure is aimed at reconfiguring to the Kremlin's benefit the terms of the deal under which Shell acquired the rights to develop the huge fields, as well as securing favourable terms for gas monopoly OAO Gazprom to enter the project.

Mitvol acknowledged to reporters that the final decision to sue is more likely to be taken by the Russian Government, not his agency.

"Maybe the Russian Government will decide it doesn't need US$15 billion," Mitvol said, suggesting that might be the amount sought if a suit is filed.

He did not quantify his estimate of the actual environmental damages, saying only that Russia had already sustained damage that could never be compensated for.

Environmental checks

According to Russian news agencies, Mitvol also said the consortium itself has indicated Russia could lose US$10 billion because of the problems with the project.

Russian officials deny any hidden motivation for environmental checks of the project, which are due to conclude at the end of November. But they denounce as unfair the terms of 1990s deals - called production sharing agreements - that handed control of difficult energy projects to foreigners at a time of low oil prices.

Under the PSAs, foreign companies were allowed to recoup their costs before the state took a share of the profits.

Shell, which controls Sakhalin-2 with two Japanese companies, infuriated the Russian Government when it said last year that the cost of the project would double to nearly US$22 billion.