Foreign Correspondence

[Amaunet]

Japan buys into Russia's Far East


James Brooke/NYT ~~article_owner~~
Wednesday, June 30, 2004


VOSTOCHNY, Russia Far below the edge of a cavernous dry dock, hundreds of workers in orange jumpsuits and hard hats labored in a forest of steel reinforcing bars, laying the gray concrete bases for two gas- and oil-producing platforms that will soon rise 20 stories.

"The Japanese participation is huge," David Greer, the Sakhalin Energy Investment project director said shortly before Russian officials formally inaugurated the dry dock this week, part of a $150 million project in this port.

Two Japanese companies, Mitsui Co., and Mitsubishi Corp., own a total of 45 percent of Sakhalin Energy. Ensuring the viability of a project that could cost $10 billion, four Japanese electricity and gas companies have signed long-term contracts to buy the Russian liquefied natural gas.

Japanese capital is once again crossing the Sea of Japan and investing in Russia's Far East.

For much of the past decade, Japan has watched from the sidelines as China and South Korea entered Russia's Far Eastern holdings, which were rich in resources but poor in capital.

But last year, largely as the result of energy investments in Sakhalin, Japan became the largest investor nation in the region. Japanese investment totaled $820 million, most of it in Sakhalin. The second-largest entrant was the United States, with $100 million. Japanese trade with Russia rose 42 percent last year, with Japanese exports nearly doubling.

"More than 10 years ago, there were many cases of Japan investments in the Russian Far East, but there were many troubles, so Japanese companies started to withdraw," Toshikazu Endo, Russia policy adviser for Keidanren, or the Japan Business Federation. After leading a business delegation to Khabarovsk, a major city in the region, in May, he said, "Russian people have started to take a second look at Japanese goods."

In the century since Japan defeated Russia in the Russo-Japanese War of 1904-1905, relations have been strained. The Pacific coastline of Russia bristles with fortifications built to repel a Japanese attack. But with the rise of China, Russia increasingly feels insecure about its Far East region, 36 percent of the national territory that contains only 5 percent of the population.

In a geopolitical shift with economic ramifications, Japanese are suddenly the favored Asians in Russia's Asian half. To promote tourism and investment, governors from the region are lobbying Moscow to allow Japanese to visit the Far East without visas. On July 17, Vladivostok Air is to inaugurate a weekly flight from Vostochny across the Sea of Japan to Tokyo, the first direct scheduled air link between Tokyo and the Russian Far East.

"We have more and more Japanese delegations coming here," Viktor Gorchakov, vice governor of the Primorye region for international economic development, said in Vladivostok. "The representatives of Sumitomo, Mitsui and Mitsubishi tell us they are looking for new opportunities for expansion."

Japan, which depends on the Middle East for about 85 percent of its oil consumption, is seeking to diversify.

"Sakhalin has abundant supplies of natural gas on our doorstep," said Toshitaka Hayakawa, president of Toho Gas, after Toho became the fourth Japanese company to sign a long-term contract for the purchase of Sakhalin gas.

"And the Sakhalin Energy LNG plant will be just a few days' sailing time from us."

In addition to huge oil and gas investments on Sakhalin - $5 billion from Japan already - the other product of this new economic marriage could be a 4,000-kilometer, or 2,500-mile, $10 billion pipeline from oil deposits west of Lake Baikal to Vostochny, a modern port that is the freight terminus for the Trans-Siberian Railway.

One year ago, the oil pipeline was to follow a shorter and cheaper route, to China. But the Japanese moved aggressively, offering to pay for most of the pipeline construction.

Today, regional leaders are Japan's best advocates in Moscow.

"The pipeline will be the Trans-Siberian railroad of the 21st century," Victor Ishayev, the governor of Khabarovsk, said on a recent visit to Japan, extolling the economic development the pipeline could bring.

After the inauguration ceremony for the dry dock in Vostochny, Sergei Darkin, governor of the Primorye region, said that his government was drawing up plans to build a petrochemical plant next to the pipeline.

President Vladimir Putin of Russia has yet to make an official announcement on the pipeline route, but a series of Russian government officials have endorsed the plan for the longer route to Vostochny. Transneft, the Russian state oil pipeline operator, has said that it hopes to complete a feasibility study by the end of this year.

"The Chinese are sort of resigned to the fact that the pipeline is not going to fly," Daojiong Zha, head of the Center for International Energy Security at Renmin University of Beijing, said while attending an energy conference in Japan.

In Moscow last week, Hatsuhisa Takashima, Japan's top Foreign Ministry spokesman, said, "Japan places high expectations on construction of this pipeline and exploration of east Siberian oil fields."

The New York Times

http://www.iht.com/articles/527306.html