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Wednesday, October 18, 2006


LUKOIL is just about the only Russian company ever to have made a visibile impact on the American market; there are LUKOIL gas stations in some American cities. Perhaps it's not suprising then that the next target on the Kremlin's hit list for nationalization of energy resources is LUKOIL, following the obliteration of YUKOS and the sending of Mikhail Khodorkovsky to Siberia. First, with YUKOS, the Kremlin tested its ability to use trumped-up tax charges. Now, it is trying out the environmental club. First the Kremlin acted punitively, now preemptively. The New York Times reports:

In a sign of continuing turmoil in the Russian oil industry, the government threatened on Monday to revoke oil field licenses held by the country’s largest private energy concern, Lukoil.

The action affected 19 of 406 licenses owned by Lukoil, a company that is 20 percent owned by ConocoPhillips of the United States. Lukoil said in a statement that it expected to resolve the complaints soon, and analysts agreed that was likely.

Still, the enforcement action was significant because the same environmental regulator who is behind it suspended a permit last month for a $22 billion project operated by Royal Dutch Shell on Sakhalin Island. That regulator, Oleg L. Mitvol, deputy director of the environmental agency Rosprirodnadzor, has become a closely watched figure by Moscow energy analysts.

Mr. Mitvol vowed that he would eventually inspect all energy companies working in Russia. In the politically tinged atmosphere of Russian energy politics, that statement seemed intended to counter criticism from diplomats and oil analysts that Mr. Mitvol had selectively enforced the rules against Shell. Mr. Mitvol said he would even inspect Rosneft and Gazprom, the state-controlled energy companies. He said he had no specific date to inspect Gazprom, but would do so “before I leave this job.”

Mr. Mitvol said on Monday that he had given prosecutors evidence that Lukoil failed to explore or drill in the 19 fields according to the timelines laid out in the licenses.

“No action, no taxes, no jobs,” he said of Lukoil’s alleged failures at the sites in the Komi region, a district that straddles the Arctic Circle almost directly north of Moscow. “If a company doesn’t have the money, isn’t in the mood, or doesn’t have the desire to develop a field, they should return it to the state,” Mr. Mitvol said at a news conference. “We will pass all our evidence to the prosecutors.”

It was unclear why Mr. Mitvol was pressing this issue because his agency is not directly responsible for energy licensing issues.

If followed up, Mr. Mitvol’s latest charges could take a chip out of Lukoil by stripping it of licenses and further the process of nationalizing Russia’s energy industry that began with the Yukos affair in 2003.

Yukos is now in liquidation after the government demanded billions of dollars in back taxes. Its founder, Mikhail B. Khodorkovsky, who was a political opponent of President Vladimir V. Putin, is serving eight years in prison for fraud and tax evasion.

Lukoil pumped 1.4 million barrels of oil a day in 2005. The company, which has operations in Iran, Iraq, Saudi Arabia and Venezuela, earned $2.2 billion in the second quarter of 2006.
At home, Lukoil was seen as a company loyal to the Kremlin, or at least careful to keep a low political profile; its chief executive, Vagit Y. Alekperov, has reportedly kept a photograph of President Putin on his desk.

Still, Lukoil, as are most oil companies in Russia, is vulnerable on environmental issues. It was responsible for the largest oil spill in recent Russian history, when pipe ruptures caused by corrosion leaked about one million barrels of crude onto the tundra in the Komi region in 1994.

After a tour of Lukoil drilling sites in the region, Mr. Mitvol levied a number of accusations. Mr. Mitvol visited the village of Ust-Usa, where he said inhabitants told him of “black ice” in a local river, which he described as ice floes colored black from oil spills upstream. Mr. Mitvol said he also found a Lukoil drilling rig in a national forest and tundra still contaminated by the 1994 spill.

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