Russia tightens grip on energy

A decision by Russia to scrap environmental permits for the country's largest foreign investment project is further evidence of Kremlin policy to extend state control over the energy sector, analysts said. The move by Russia's natural resources ministry to cancel an environmental permit necessary for work at Sakhalin-2 effectively suspends the energy project, which is being developed by a Western consortium led by Shell off Russia's Pacific coast.

Analysts said Sakhalin-2 is particularly resented by Russian authorities as it falls under one of three production sharing agreements (PSAs) concluded between Western oil majors and the Russian government in the 1990s. "The pressure is very serious," said Valery Nesterov, an oil and gas analyst at the Troika Dialog investment house in Moscow. Nesterov said the government's tactics to influence the PSAs were "alarming" foreign investors and pointed to a "volatile" energy policy in Russia that cannot be sustained.

Russia's energy sector was almost fully privatised in a period of economic turmoil after the fall of the Soviet Union in 1990s and control over the country's resources effectively slipped away from government control. President Vladimir Putin has reversed this policy, presiding over the dismemberment of Yukos, which was once the country's largest oil producer, and promoting two huge state-controlled energy firms, Rosneft and Gazprom.

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