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Russia: China Summit Ends Without Ratification Of Energy Treaties

This week's summit meeting between Russian and Chinese leaders in Beijing failed to conclude two huge energy deals that were expected to double bilateral trade. China is said to be seeking even greater investment in Russia's oil and gas sectors, but both sides are struggling with problems caused by decades of distrust.

Boston, 4 December 2002 (RFE/RL) -- Russia's summit meeting with China passed this week without visible progress on two major energy deals that could bind the countries together for decades to come.

Defying forecasts, Russian President Vladimir Putin did not conclude a long-awaited oil contract with Chinese leaders during his two-day trip to Beijing, which ended Tuesday. The summit also left a huge Russian gas and pipeline project hanging, despite reports that China may take a stake in a Siberian field.

Instead, a long joint declaration signed by Putin and President Jiang Zemin touched vaguely on efforts to advance the two deals. The statement said the leaders "deem it necessary to ensure the timely implementation of available agreements concerning the Russo-Chinese oil and gas pipelines," and to coordinate projects for "lasting and stable deliveries of oil and gas."

During a speech at Beijing University, Putin referred to the billions of dollars of business only in passing, lumping energy together with trade in technology and transport. According to Russia's official news agency RIA-Novosti, Putin praised the potential links, saying, "In essence, they modify the whole configuration of the economic infrastructure of Eurasia."

But the failure to complete oil and gas deals in time for the summit leaves Eurasia in the same standoff that has lasted for decades, with potentially the world's largest energy consumer and its largest producer sharing a long border with no pipelines in between. The absence of energy agreements left the summit with a short list of low-level achievements, including five accords covering extradition, tourism, taxes, and banking.

Reports were divided on expectations that the summit would seal the biggest potential pieces of business between the two countries. Few predicted that China would make a final commitment on Russia's Kovykta gas project, which would tap a mammoth field in Irkutsk Oblast at a cost of at least $12 billion. The cost of a 3,800-kilometer pipeline to China's northeast aging industrial region has been estimated at more than $7 billion alone, the financial news agency Bloomberg News reported last month.

The two sides are said to be far apart on the gas-export plan, with China offering to pay Russia only as much as it sells gas for at home.

But prospects were supposed to be brighter for a $1.7 billion pipeline to carry Russian oil on a 2,400-kilometer route from Angarsk to China's main oil-and-pipeline center at Daqing. The project, which has been the subject of many accords since 1999, was pushed forward with agreements during Jiang's trip to Moscow in July 2001 and again during Prime Minister Zhu Rongji's visit in September 2001.

Deliveries of 20 million tons of Russian oil per year were expected to nearly double trade between the two countries by 2005, easing China's reliance on Middle Eastern supplies. Pipeline construction was scheduled to start next summer but may now be in doubt. Reports have again been mixed on whether Russia's Yukos and the China National Petroleum Corporation (CNPC) have settled on prices and terms of the 25-year deal.

In November, Reuters quoted a Yukos source as suggesting that a contract could be signed this month. The official said, "Technical details aren't a problem; it's a matter of winning administrative approval now." This indicates that the problem existed between the governments. The official added: "We've finished the feasibility report. Both governments are scrutinizing it, and it's awaiting approval."

On Monday, "The Wall Street Journal" reported that Russia and China were expected to sign the pipeline agreement at the summit this week. But others were cautious. "The New York Times" quoted an official from the Transneft pipeline monopoly as saying no information was prepared for Putin's visit. Russian officials gave conflicting accounts of how soon the government would complete its review.

At least three reasons are possible for the delay, and all may be involved.

First is the old issue of trust. Russia and China resisted permanent energy links through the Cold War decades, preferring small rail shipments of oil to interdependence. Analysts find the logic of joining east Siberian resources to China's markets irresistible because of the high cost of selling them anywhere else.

But China has sought the resources as a last option only after investing in projects around the world, raising Russian suspicions. Even faced with the threat of a break in Middle Eastern oil supplies, China has been slow.

A second possible reason is that China wants more than Russia has offered to drop the decades of distrust. This week, the RUSIA consortium for the Kovykta gas project said CNPC subsidiary PetroChina may buy a stake in the company to move the deal ahead, Bloomberg reported.

Yesterday, Russia's business daily "Vedomosti" also said the CNPC will enter the bidding for a 75 percent share in Russia's state-owned Slavneft oil company, the largest privatization sale in its history. The two plans suggest that China needs deep integration with Russia to overcome its energy-dependence concerns.

A third possible reason is the friction over the World Trade Organization. China's new membership has given it the power to keep Russia out.

In an analysis before the summit, RIA-Novosti disclosed one source of tension between the two countries during WTO negotiations. Beijing has demanded "the free flow of the Chinese workforce into Russia," the news agency said. It added that "the conditions put forward by China...were an unpleasant surprise for Moscow." Putin may have hinted at the dispute in telling Jiang that relations are "practically free of annoying issues."

The demand plays into Russia's worst fear of Chinese migration into sparsely populated Siberia, a touchy topic when cross-border investment in resources is on the line. Big pipelines would create jobs that Chinese workers could fill. Each cause for distrust may be separate, but the two sides may have to cope with all three before they agree on oil and gas deals.