Russia will take a majority of the profits and the construction contracts in the multibillion dollar project to develop oil and gas fields on the Sakhalin shelf, Russian Fuel and Energy Minister Yury Shafranik revealed Wednesday.


Shafranik told a news conference that the Russian government has signed a protocol with a consortium of Western companies this week, which clarifies major terms of the project.


"We've solved all the problems," Shafranik said.


The Sakhalin-2 deal had been expected to be signed last year but was delayed by political turmoil and uncertainty over production-sharing. The consortium of Western companies includes Marathon Oil Co, McDermott International Inc, Mitsui & Co Ltd, Mitsubishi Corp and Royal Dutch/Shell Group.


Shafranik said the agreement was important for Russia politically because it demonstrated a change in Russia's economic policy toward cooperation with Western companies.


"This project, which would require a $10 billion investment, is one of the priorities for our government," he said.


Shafranik said Russia would receive over 50 percent of profits from the project, while Russian enterprises, mostly Far Eastern defense firms, would be awarded 70 percent of construction and other contracts for the project.


He did not say if the project had been granted an exemption from Russia's $5 per barrel oil export duties, which many foreign oil companies have complained render their projects unprofitable.


Under the agreement Russian would also receive $310 million even before actual work begins. He said $100 million would be alloted to the Sakhalin region while another $160 million would be given to Russian geologists. Russia would receive an additional $50 million bonus, Shafranik said.


The Sakhalin field contains potential reserves of about 50 million tons of oil, 30 million tons of gas condensate and 300 billion cubic meters of natural gas.


The potential oil reserves from the 25-year project are equal to more than one-half of all of Russia's 1993 exports.


Commenting on the recent decision of Russia's largest oil companies, Lukoil and Yukos, to freeze their prices for three months, Shafranik said that it was to help solve a nonpayment crisis.


"Maybe it was not an economically right decision but we wanted to show that we are ready to decrease prices if customers agree to pay," he said.


But Shafranik said that oil prices could be raised in a couple of months if consumers do not pay fuel debts. "If there are no changes with paying debts, the prices would be increased again in accordance with inflation rate," he said.


He estimated the debts of consumers to the energy sector at 16 trillion rubles. "Some do not have money to pay, but many just use it as free credits," Shafranik said.