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Agence France Presse: EU seeks more balanced energy relations with Russia by Aude Genet

19 October 2006

Russia’s recently hard-nosed approach to foreign energy investors has shaken its European partners, who are eager for a more balanced energy cooperation with Moscow, officials and experts said.

EU-Russian energy relations, which are part of a broader partnership framework up for renegotiation, will feature high on the agenda of a lunch meeting of EU leaders Friday in the southern Finnish city of Lahti.

Their discussions will be all the more important because the leaders will later the same day hold a dinner meeting with Russian President Vladimir Putin, whose tough approach to foreign investors recently has raised eyebrows in European capitals.

In particular, the Europeans are concerned about Russia’s recent decision to develop the huge Shtokman gas field without foreign partners and threats to halt a project off Russia’s Pacific coast run by Anglo-Dutch energy giant Shell on environmental grounds.

Those incidents came after Russian giant Gazprom switched off the gas taps to Ukraine in January amid a price war, hitting some supplies to Europe and awakening the EU to the power of energy as a foreign policy tool.

Last week the German and French governments found it necessary to stress in a joint statement after a ministerial meeting that EU-Russia energy cooperation was founded on the principles of “non-discrimination, predictability and security of long-term supplies”.

The EU, which is dependent on energy supplies from Russia, currently gets a quarter of its gas and oil supplies from its vast eastern neighbor, although it frequently points out that energy dependence runs both ways because Moscow needs foreign investment.

Despite Europe’s reliance on Russian sources for its oil and gas, Europeans insist that energy relations with Moscow are founded on “transparency and reciprocity”, as one EU source said on Tuesday.

Finnish Prime Minister Matti Vanhanen said Wednesday: “Russia also needs our markets, they need us as much as we need them.” He added: “It actually benefits both of us.”

Analyst Lucia Montanaro-Jankovski at the European Policy Centre said that “the Russians clearly need investment”, especially to tap resources found in places that are increasingly difficult to exploit.

However, “there is a trend to allow (foreign) investment while keeping control” of projects, she said.

One EU expert speaking on condition of not being named said that Moscow’s decision to exclude foreign firms from the Shtokman gas field did not “go against any principle of international law”.

But, due to the field’s extreme depth, developing it would require “technical capacities and its not sure that Gazprom has them”.

Generally, “the problem with Russia is that it does not have a stable legal and political framework for investment”, the expert said.

“They have to understand that doing that, they brake investments and create a climate of uncertainty which holds up major projects,” the specialist said.

Moscow’s recent moves in the energy sector are likely to make discussions at the summit difficult, but they could also steel Europe’s nerve to work out an energy partnership with Russia.

“When one’s under pressure, one works better,” said one European diplomat. “There will therefore be virtuous pressure to go forward.”

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