LUKoil faces lawsuit over Baltic Sea drilling

ST. PETERSBURG

LUKoil has been sued for improperly conducting public hearings on a project to extract oil in the Baltic Sea.

The Moscow Times reported this week that the Kaliningrad-based environmental group Ekozashchita (Ecodefense), contends that LUKoil's subsidiary Kaliningradmorneft's project to drill 22 kilometers off the coast of Kaliningrad threatens the national park Kurshskaya Spit, which has been declared a World Heritage site by United Nations cultural agency UNESCO.

"The level of potential danger inherent in this project far outweighs any kind of social or economic effect it could have," said Ekozashcita Chairman Vladimir Slivyak.

Kaliningradmorneft violated established rules in setting up the hearings, the environmental group says. Although 30 days is the time allowed for public discussion of such projects, the company scheduled the forums so that 12 days of hearings coincided with Russia's May Day holidays.

The lawsuit, which began in Kaliningrad last week, asks the court to annul the hearings and force the company to organize new ones.

Company officials denied the allegations, saying all procedures related to the project were carried out in accordance with the law.

"Kaliningrad's leading specialists and scientists took part in the discussions, and no one - except for this organization - had any problems with the ecological aspects," Oleg Kolesnikov, assistant to Kaliningradmorneft's general director, told the newspaper Vedomosti.

The plot of ocean floor at the center of the controversy encompasses the Kravtsovskoye oil field. Since 1992, the oil company has drilled exploratory wells from offshore platforms in the field, which is now estimated to hold 24 million tons of crude oil reserves.

LUKoil hopes to begin commercial production by the end of 2003. Yearly production is estimated to reach 650,000 tons a year.

While the regional budget will benefit from taxes paid at the wellhead, it will suffer in the event of an oil spill caused by accident, terrorist act or natural catastrophe, says Ekozashchita.

Kaliningrad is trying to refashion itself into a tourist destination and the beaches along the region's Baltic coast are its best draw.

LUKoil, however, is attracted by Kaliningrad's special economic status that allows the oil firm to export from the region without paying tariffs. In addition, the field will offer a convenient supply to the nearby Gdansk refinery in Poland, for which LUKoil placed a bid last month.