Russia decides to set up new Sakhalin-2 operator

Jiji Press

18:04 JST, August 4, 2022

TOKYO (Jiji Press) — The Russian government has decided to set up a new company to operate the Sakhalin-2 oil and natural gas development project, according to Russia’s state-run ITAR-Tass news agency and other media outlets.

Trading houses Mitsui & Co. and Mitsubishi Corp., both involved in the project in the Russian Far East, need to decide within a month of the new company’s establishment whether they will agree to investments decided according to their stakes in the current operating company.

The Russian government issued a decree on the establishment of the new company Tuesday, according to the media reports Wednesday.

The new company, to be set up in Yuzhno-Sakhalinsk on the island of Sakhalin, will be headed by the top representative of Sakhalin Energy Investment Co., the current operator.

Russia’s state-run Gazprom will hold around a 50% stake in the new company as it does in the current operator.

The two Japanese traders will be able to retain their interests in the project if they accept the new company’s investment conditions and have their applications approved by the Russian government.

If Moscow rejects their applications, the new company’s shares will be sold to Russian companies.

Mitsui currently holds a 12.5% stake in Sakhalin Energy, while Mitsubishi owns 10%.

A Mitsui official said that the company is analyzing details of the decree. “We will continue to discuss the matter with the [Japanese] government and our partner companies to take appropriate action,” the official added.

On June 30, Russian President Vladimir Putin signed an executive order that the operations of the project and all Sakhalin Energy assets be transferred to a new company to be established by the Russian government.

The move, which paves the way for Russia to seize the project, sent shock waves through Japan.

British oil giant Shell PLC, which had a 27.5% stake in the project, decided to pull the plug following moves by Europe and the United States to strengthen sanctions against Russia over its invasion of Ukraine.