Bloomberg News

Putin Seeks to Diversify China Trade as Gas Talks Continue

October 10, 2011

(Updates with Gazprom comment in fifth paragraph.)

Oct. 10 (Bloomberg) -- Prime Minister Vladimir Putin wants to use his first foreign trip since announcing a plan to return to the presidency next year to diversify trade with China as Russia struggles to conclude talks on gas deliveries to the world’s second-biggest economy.

The countries have no plan yet to sign a gas pricing deal during the two-day trip that begins tomorrow, Yury Ushakov, Putin’s deputy chief of staff, told reporters in Moscow today. Deputy Prime Minister Igor Sechin “will discuss all issues of energy cooperation in the gas and oil sphere,” Ushakov said. “Many nuances will be clarified.”

Russia wants to conclude the drawn-out negotiations on a gas accord with the world’s biggest energy consumer, which has been held up by wrangling over how much China will pay for the fuel. Sechin pledged to supply China, which wants to triple its gas consumption by 2020, with natural gas during President Dmitry Medvedev’s visit to Beijing a year ago.

OAO Gazprom, Russia’s state-controlled monopoly exporter of gas, is seeking to diversify away from Europe to supply fast- growing Asian markets. Pricing disagreements have held up an accord for several years and didn’t allow a contract to be signed in June during Chinese President Hu Jintao visit to Moscow. Gazprom is ready to start building a gas pipeline to China once a contract is signed.

‘According to Schedule’

“Talks are proceeding according to schedule,” Sergei Kupriyanov, a spokesman for Gazprom, said by phone from Moscow today, declining to elaborate. Gazprom’s Deputy Chief Executive Officer Alexander Medvedev said in an interview last month that negotiations may be concluded by year-end.

The world’s largest gas producer has insisted on price parity with Europe where customers on average paid $400 to $450 per thousand cubic meters in August. China offered to pay $235 per thousand cubic meters, Pang Changwei, a researcher at China Petroleum University, said in June.

With energy accounting for more than half of its exports to China, Russia wants to diversify economic ties trade with the Asian nation as trade turnover may exceed $70 billion by year- end from $59 billion in 2010, Ushakov said.

‘Bypassing Germany’

“China has become our first trade partner, bypassing Germany, and this is quite symbolic,” Ushakov said. “The task for the visit is not only to expand trade and economic contacts but also to diversify the structure of our relations as the structure itself does not satisfy us.”

Equipment and machinery accounted for 8 percent of Russia’s exports to China and 50 percent of China’s shipments to Russia last year, according to the Economy Ministry in Moscow. Russia and China will consider cooperation in the space industry, telecommunications, aircraft manufacturing and agriculture, and sign an agreement on modernizing the economy, Ushakov said today without providing details.

In China, Sechin will be joined by Agriculture Minister Elena Skrynnik and Communications Minister Igor Shchegolev. Also attending are Sergei Kiriyenko, head of Russia’s state-owned nuclear energy holding company Rosatom Corp. and Vladimir Dmitriev, chairman of VEB, Russia’s state development bank.

17 Agreements

A total of 17 agreements may be reached during Putin’s visit including deals between state development bank VEB and the Russian Direct Investment Fund with China Investment Corp. to create a joint investment fund. ZAO Sibur Holding, eastern Europe’s biggest petrochemical producer, will sign a cooperation accord with China Petrochemical Corp., the nation’s biggest refiner, he said.

Russian Technologies Corp. will sign an accord with China Poly Group Corp and China Electronics Technology Group Corp. Billionaire Oleg Deripaska’s EN+ Group will agree to a deal with China State Grid Corp., Ushakov said.

China State Grid and EN+ will seek to attract $10 billion to boost generation capacity in Russia’s Siberia and Far East, Interfax reported, citing an unidentified official in the Russian delegation that will accompany Putin.

--Editors: Paul Abelsky, Balazs Penz

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To contact the reporters on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net; Anna Shiryaevskaya in Moscow at ashiryaevska@bloomberg.net.

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net. To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net.


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