Page 3 of 3 Moscow's successful
business diplomacy By Hisane Masaki
from the Sakhalin-1 project in Russia's Far East. The project, which is managed
by an international consortium led by US oil giant ExxonMobil Corp, began oil
shipments last October.
Other participants in the Sakhalin-1 project include Tokyo-based Sakhalin Oil
and Gas Development Co (SODECO), jointly owned by the Japanese government and
private sector, and Russia's
state-owned oil firm Rosneft. SODECO has a 30% interest in the project, while
the Russian firm has a 20% stake.
But there are many uncertainties over whether oil imports from Russia will keep
humming along. Until recently, there had been growing expectations in Japan of
Russia's Far East, a region not only rich in oil and gas reserves but much
closer to Japan geographically than the Middle East, which means lower
transportation costs. But Russia recently put a damper on such expectations.
Russia's recent wresting of a majority stake in the huge Sakhalin-2 gas
project, which had previously been led by Royal Dutch/Shell and involves two
Japanese firms, Mitsui & Co and Mitsubishi Corp, has raised concerns in
Japan about the future energy policy of Russia - and stable supplies from that
country. That's why, although Japanese oil wholesalers have recently begun to
purchase crude oil from the ExxonMobil-led Sakhalin-1 project, they are making
spot purchases of the oil and remain cautious about buying it under long-term
contracts.
Japanese officials urged Russia this week to provide assurances that it will
supply Japan with energy from the Sakhalin-2 project, taken over by Russia's
state-controlled natural-gas monopoly Gazprom. "Mr Fradkov told me that Russia
would continue to play a responsible role as a major energy supplier," Abe said
at a joint press conference with the Russian premier on Wednesday.
Meanwhile, ExxonMobil reached a preliminary agreement last October to sell
natural gas from the Sakhalin-1 oil and gas project to China - instead of to
Japan as originally planned. That deal faces hurdles, however, including the
economics of building a very long pipeline and getting the cooperation of
Gazprom.
During a meeting of Japanese and Russian government officials on trade and
investment held on Monday, Aso said Japan is interested in importing liquefied
natural gas as well as oil from the Sakhalin-1 project. Although Khristenko
replied that he well knows that, it is the project operator ExxonMobil that
holds the right to decide which parties receive natural-gas exports.
Meanwhile, a group of Japanese companies, including trading houses and energy
firms, reportedly plans to enter negotiations as early as March over a possible
technical tie-up with Gazprom in hopes of establishing a system that will
ensure stable energy supplies by strengthening cooperation with Russia. Japan's
Natural Resources and Energy Agency is said to be serving as mediator for the
Russian government and the Japanese group.
Nuclear cooperation
Abe and Fradkov agreed to start negotiations on a nuclear-cooperation agreement
in an apparent attempt to pave the way for Tokyo to outsource to Moscow
reprocessing for nuclear fuel. The two leaders did not set any specific dates
to start or conclude the negotiations, however.
Japanese Minister of Economy, Trade and Industry Akira Amari said that if Tokyo
and Moscow were to cooperate, Russia would have to allow inspections by the
International Atomic Energy Agency to ensure that the fissile material from
Japanese power plants was not used for weapons.
It is envisaged that uranium extracted from spent nuclear fuel reprocessed in
the United Kingdom and France will be enriched in Russia for use as nuclear
fuel at Japanese nuclear power plants. Rosatom, the Russian nuclear agency, has
announced that it is establishing an "international center" for uranium
enrichment at Angarsk to provide guaranteed uranium-fuel supplies for countries
that do not enrich uranium themselves. President Putin also signed a bill
recently to create Atomenergoprom, or Atomprom, through the merger of civilian
nuclear companies, to give Russia more prominence in the nuclear-power
industry.
Russia and Kazakhstan claim one-fourth of the world's total uranium reserves.
Last October, Mitsui & Co won negotiating rights that would allow the firm
to begin operations at the Yuzhnaya uranium mine in eastern Siberia. Meanwhile,
Toshiba Corp, which acquired US nuclear-plant builder Westinghouse from British
Nuclear Fuels Ltd last year, has entered negotiations on a possible tie-up with
Atomprom.
New investments
In a deal timed to coincide with Fradkov's Tokyo visit, some high-profile
business tie-ups were signed.
Isuzu Motors announced on Wednesday that it has agreed with Severstal-Avto to
consider in earnest a joint-venture small truck-assembly plant in Russia. The
joint production facility would have an annual capacity of 25,000 vehicles. The
companies have been cooperating since last summer on the assembly in Russia of
Isuzu trucks, with Isuzu outsourcing truck assembly to Ulyanovsky Avtomobilny
Zavod, a Severstal-Avto Group company. The final details of the venture are
expected to be clinched during the first half of this year.
NTT Communications and Russian telecommunications firm TransTeleCom signed a
deal on Tuesday on a project to link the two nations by jointly laying a
500-kilometer undersea fiber-optic cable between Hokkaido, northern Japan, and
Sakhalin, in Russia's Far East. TransTeleCom, a subsidiary of Russia's state
railroad company, owns communication lines along the tracks of the
Trans-Siberian Railway. By connecting these lines with the proposed
Hokkaido-Sakhalin cable, the companies aim to create the shortest link between
Japan and Europe. The fiber-optic cable is scheduled for completion at the end
of this year.
These are the latest in a recent spate of Japanese investments in Russia in a
range of sectors, including the auto one. Toyota Motor Corp and Nissan Motor Co
have decided to build assembly plants in St Petersburg. The new Toyota plant is
to start production next December, while the new Nissan plant is to go on line
in 2009. With sales in the US and other developed markets slowing, auto makers
are looking to Brazil, Russia, India and China, where growth is strong.
Buoyed by high oil prices, the Russian economy has grown strongly in recent
years. Russia's foreign-currency reserves reached US$289 billion as of December
1, the third-largest amount after those of China and Japan. Analysts say there
are consumer booms in Moscow and other major Russian cities, making the country
an attractive destination for Japanese investment and exports.
Two-way trade between Japan and Russia hit a record high of 1.6 trillion yen
(about $13.3 billion) in 2006, up 35% from 2005, as Japan's exports jumped a
whopping 66%, led by automobiles. Japan's direct investments in Russia are also
on the rise, although they still represent a minuscule proportion of the
overall foreign direct investments in that country.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on
international politics and economy. Masaki's e-mail address is yiu45535@nifty.com.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
