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July 26, 2006

Russia: Arms, Oil Projects Top Chavez Agenda

by Claire Bigg

A Volgograd welcome for Chavez (epa)

MOSCOW, July 26, 2006 (RFE/RL) -- Venezuelan President Hugo Chavez
started his three-day Russian tour by visiting the southern city of
Volgograd, a hub of weapons manufacturing. He then traveled to Izhevsk,
where he visited the factory producing Kalashnikov assault rifles.
He is expected to fly to Moscow today ahead of talks with Russian President Vladimir Putin on July 27, the final day of his tour.
 
Shopping For Weapons -- And More
 
Chavez's route reflects his efforts to boost military trade with Russia. He is expected to sign a deal to buy 30 fighter jets and 30 helicopters from Russia, and is negotiating with Russia to build a factory to manufacture Kalashnikov rifles on Venezuelan soil.

But the schedule of the Venezuelan leader also illustrates another key ambition -- securing Russia's help in developing Venezuela's energy industry.

Chavez met with Russian businessmen during his Volgograd visit, including LUKoil President Vagit Alekperov and Dmitry Pumpyansky, a top executive of TMK, a Russian firm producing steel pipes for oil and gas transport.
 
LUKoil could not immediately provide details of the talks between Chavez and Alekperov, but the Venezuelan leader is sure to discuss energy projects again when he meets Putin in Moscow.
 
Learning From The Experts
 
Eric Kraus, a portfolio manager for the Moscow-based Nikitsky Fund, says Venezuela is eager to tap into Russia's energy expertise.
 
"The problem for Venezuela is that they have to extract a higher proportion of high-sulfur oil," Kraus says. "They definitely need foreign expertise in the extraction, the handling and the shipment of this oil, which is a very challenging substance."
 
"PDVSA, the Venezuelan petroleum company, has never quite recovered from the political strikes a few years ago," he adds. "They are certainly producing under capacity right now."
 
Russia can help Venezuela -- which has the largest proved reserves of crude oil in the Western hemisphere -- explore and develop oil and gas fields.
 
A New Project For Gazprom?
 
Caracas is also counting on Russian know-how and investment to build what would be the world's longest pipeline, running 8,000 kilometers across South America.

 
Venezuela's ambassador to Russia, Alexis Navarro Rojas, said last week that Venezuela would welcome the participation of Gazprom, Russia's gas monopoly, in the pipeline project. He called Russia "the best partner for Venezuela," adding that "no other country in the world has better pipes."
 
Venezuela currently accounts for 15 percent of U.S. crude oil supplies. But Chavez, a staunch U.S. opponent, is eager to steer oil supplies toward other countries, including oil-thirsty China.
 
Kraus says Venezuela would have much to gain from energy cooperation with Russia.
 
A Partnership In The Pipeline
 
"Russia produces very high-quality pipeline pipes and has a tremendous experience in laying pipelines. The Venezuelans probably can't do it themselves and they're certainly not going to get much help from the Americans," Kraus says.
 
The Russians, he added, may provide friendly financing terms, and help get Venezuelan oil extraction back up to former levels.

Finally, Kraus says, a partnership with Russia is a "political statement" for Chavez: "the Venezuelans want to decrease their dependence on the United States."

A pipeline deal with Russia is likely to anger Washington, which has already voiced strong concerns over the planned sale of Russian military aircraft to Venezuela.

"We certainly hope that the Russians will reconsider this sale," a U.S. State Department spokesman said, referring to the aircraft deal. "We don't think it's in the best interest of Russia or Venezuela."
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