(FROM THE WALL STREET JOURNAL 6/20/15)
By Paul Sonne in St. Petersburg, Russia, and James Marson in Moscow
Russian President Vladimir Putin on Friday heralded Sino-Russian
relations as having reached a level "unprecedented in history," a
day after China signed up to help in the design of a Russian
high-speed rail link that ranks among the largest current
infrastructure projects in the country.
But even as Russia emphasized its pivot toward China at its
annual showcase investor event in St. Petersburg, deals announced
Friday between Russia's state oil giant and its longtime European
partners underscored the country's deep links to businesses in the
West even in the face of sanctions imposed by Western capitals.
Amid frosty relations with the West over the crisis in Ukraine,
Mr. Putin emphasized the Kremlin's efforts to cultivate closer
economic links to China. He said he hopes to increase Russia's
trade with China to $200 billion from $85 billion in the coming
years.
"China is our largest trade and economic partner," Mr. Putin
said. "Our relations are developing very effectively."
One example of the new era of Sino-Russian cooperation is the
high-speed rail link that Russia is building to connect Moscow and
Kazan, a city about 480 miles due east of the capital. On Thursday,
the design unit of state-controlled China Railway Group agreed to
partner with two Russian companies to craft a plan for
state-controlled Russian Railways to build a rail connection that
would reduce the travel time between the two cities to 3 1/2 hours
from about 12 1/2 hours.
The design stage is projected to cost about 20.8 billion rubles
($383 million) and take about two years, at which point Russian
Railways will hold a separate tender for the construction, slated
to be finished by 2020. The cost of construction is estimated at
$19.5 billion. Russian Railways President Vladimir Yakunin said
China would likely land the construction contract, though it isn't
guaranteed.
"It is quite likely," Mr. Yakunin said. "Of course the one who
is participating in the planning has an advantage. This is
obvious."
Still, he said the final choice will take into account what kind
of financing, loans and other guarantees are on offer from the
bidders. Germany's Siemens AG has supplied Russia's two existing
high-speed rail links.
High-speed rail is one area where the interests of Moscow and
Beijing may coincide. Russia needs to develop infrastructure across
a vast territory with many shabby Soviet transport links, and now
faces reduced financing options and a wary investor community in
the West. The turnout of Western businessmen at the St. Petersburg
event this week was up from last year, when political tensions
flared over the conflict in east Ukraine, but remained muted
compared to prior years.
China, meanwhile, is trying to sell its high-speed-rail
expertise abroad after building many lines domestically, but so far
has found little success, with deals in Mexico and Thailand running
into problems.
Chinese lenders have been cautious about supplying financing to
Russia amid Western sanctions on the country in part because many
of them don't want to jeopardize their business with the U.S. In a
recent op-ed in Hong Kong publication FinanceAsia, the first deputy
chairman of the state-controlled Russian bank VTB complained that
China's "ambiguous position" toward the sanctions meant most
Chinese banks wouldn't execute interbank transactions with their
Russian counterparts.
On Friday, Mr. Putin encouraged China to loosen its restrictions
on the movement of capital, saying such a liberalization could mark
another big step in the development of the two countries' economic
relations. Russia hopes that such a liberalization would open the
way for new investment capital from China.
The bulk of business deals between China and Russia has been
struck at the government level, such as the high-speed-rail deal
and a $400 billion gas pipeline between the two countries agreed
upon last year. Mr. Putin said the countries have to find ways to
encourage links between smaller businesses and build a "natural
living tissue of cooperation in many industries."
Even as Mr. Putin cheered the pivot toward China, state energy
giant OAO Rosneft inked a pair of deals with European companies
that highlighted longer-standing business links with the West --
and the limitation of Western sanctions on Russia. Rosneft and its
chief executive are targets of those measures.
Rosneft agreed to sell a minority stake in a Siberian
oil-and-gas field to U.K. energy giant BP PLC for $750 million and
to buy a stake in a German refinery from France's Total SA for $300
million.
U.S. and European sanctions over Russian intervention in Ukraine
prevent Rosneft from raising credit in the West or accessing
Western technology for tapping shale and arctic reserves, but don't
prevent asset sales. The U.S. has also imposed personal
restrictions on Rosneft Chief Executive Igor Sechin, who is a
confidante of Mr. Putin.
The deals announced on Friday cement a strategic alliance
between Rosneft and BP, which owns a nearly 20% stake in the
Russian company. BP is taking a 20% stake in Taas-Yuryakh
Neftegazodobycha in Eastern Siberia, creating a new joint venture,
the companies said. Russia has been reluctant to agree to foreign
companies' taking stakes in oil and gas fields, but the deal allows
Rosneft to raise much-needed capital.
Mr. Sechin also signed a deal Friday to buy a 16.67% stake in
the PCK Raffinerie GmbH in Germany from Total. The French energy
company said the sale was part of its plan to shed refining
activities and focus on oil and gas extraction. Rosneft already
held an indirect stake of 18.75% in the refinery.
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