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Problems mount for Sakhalin-1 project
By A Business Correspondent
Sakhalin-1 is facing not just nature's wrath such as treacherous weather but also umpteen manmade problems. The recent threat by the Sakhalin regional administration, apparently under the direction of the Russian government, could deprive the operators of Sakhalin-1 of tax exemptions. According to the local administration, most of the people participating in the project are foreigners whereas the production sharing agreement (PSA) stipulates that the Russian should execute at least 70 per cent of the contract.
Another problem confronting the mega project relates to ecology. Less than 100 existing gray whales in the Western Pacific Ocean spend most of their time offshore Sakhalin island. Environmentalists fear that increasing seismic survey, drilling and production rigs, and movement of vessels and helicopters may drive away the whales. For example, ExxonMobil carried out seismic testing for oil this summer while the gray whales were feeding near Sakhalin. The Russian Ministry of Natural Resources ordered a halt to the seismic testing, which was ignored by local officials and by ExxonMobil in a direct snub to Russian law. Such events may not be taken too kindly by the Russian authorities in future.
The progress of the project is slow: it is already running behind schedule by at least two-four months. According to one source, only 20 per cent of the project work has been completed till now against 30 per cent as per original schedule. Due to environment restrictions drilling of some wells is now being conducted from on-land points rather than offshore. This explains partially the reasons for the delay.
The cost of the project too has reportedly been revised. The project is now expected to cost 45 per cent more than the original estimate. Thus, ONGC Videsh, which has 20 per cent stake in the project, may have to shell out $2.53 billion instead of the original $1.74 billion. Though OVL is still confident of the viability of the project, some foreign analysts have expressed fear. According to them, the payback period may be longer, extending to not less than 15 years.
Problems mount for Sakhalin-1 project
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