Russia's Policy to Replace Sakhalin-2 Operator... "Countermeasure Against Japan Sanctioning Russia"

Russian President Vladimir Putin [Image source=Yonhap News]

[Asia Economy Reporter Buaeri] Russia has prepared measures that could disadvantage foreign companies participating in the Far East energy development project 'Sakhalin-2.'

Japanese media interpreted this as a countermeasure against Japan, which has strengthened pressure on Russia over the Ukraine invasion, considering that Japanese companies are leading participants in this project.

According to Interfax news agency and Russian Far East regional media on the 1st, the Russian government plans to create a new Russian corporation that will acquire all rights and assets of 'Sakhalin Energy,' which currently operates the Sakhalin-2 project.

Russian President Vladimir Putin signed the 'Bill on Special Economic Measures in the Fuel and Energy Sector Concerning Unfriendly Actions by Certain Foreign and International Entities,' which includes these provisions.

According to the bill, half of the shares of the new corporation will be held by Gazprom Sakhalin Holding LLC and others participating in joint operations.

The remaining shares will be proportionally allocated to existing participants in Sakhalin Energy's operations, such as the British oil company Shell (27.5%), Japan's Mitsui & Co. (12.5%), and Mitsubishi Corporation (10%).

The new corporation will also succeed all employees affiliated with Sakhalin Energy.

However, foreign investors such as Shell must request the acquisition of shares in the new Russian corporation within one month. The Russian government plans to approve or deny these requests.

If foreign investors' requests are rejected, the Russian government will sell the shares to Russian companies and deposit the amount into a special account under the foreign investors' names.

Additionally, while foreign investors participate in the Sakhalin-2 project based on the Production Sharing Agreement (PSA), activities in financial, environmental, and other fields will be reviewed, and damages will be assessed.

After deducting the assessed damages from the proceeds of the share sale deposited in the special account, the remaining amount will be returned to the foreign investors.

This measure was actively discussed following Western sanctions after the Ukraine crisis.

Japan maintains its position of not intending to withdraw from the Sakhalin-2 project.

The Japanese government has imposed various economic sanctions on Russia but has stated its intention to continue the Sakhalin-2 energy development project involving Japanese companies.

About 60% of the LNG produced from Sakhalin-2 is exported to Japan.

According to Japan's Ministry of Economy, Trade and Industry, LNG imported from Sakhalin-2 accounts for 3% of Japan's electricity supply.

The Japanese government appears unsettled by Russia's sudden announcement.

Japanese Prime Minister Fumio Kishida said on the day, "LNG imports will not be immediately halted," and added, "We need to communicate with the operators and consider our response."