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Fradkov the Generous: Russian PM Showers Japan with Investment Projects

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Yesterday was the first day of Russian Prime Minister Mikhail Fradkov's official visit to Tokyo. Although the prime minister, in his own words, "was not trying to surprise the Japanese," the sheer volume of offers soliciting participation in Russian investment projects brought the table by Mr. Fradkov and his entourage of government officials left the Japanese with their mouths hanging open. The Russian proposals are due to be discussed today, but all that the Japanese appear to want from the visit is a guarantee of gas supplies from Sakhalin and a conversation about the disputed Kuril Islands.

Prime Minister Mikhail Fradkov arrived in Tokyo yesterday for an official but strictly business-oriented visit. Several days before his arrival, the Russian White House stated that the visit would be purely about economics: the discussion will include trade and economic issues involving Russia and Japan and cooperation in the border areas between the two countries. From an economic point of view, the visit comes a little late, since Japan's interest in investing in Russia peaked in 2004-2005. By 2006, when a flurry of Japanese proposals for cooperation on everything from gas and oil pipelines to timber went unanswered, Tokyo's interest waned. However, judging from remarks by Mr. Fradkov and his deputies about what they have brought along on this trip to Tokyo, Japan's investment-hungry mood of a few years ago had an audience in Russia, even if the Russians did not rush to reply.

After a meeting with Japanese officials in Tokyo on the eve of Mr. Fradkov's arrival, Russian Energy Minister Viktor Khristenko explained what Japan wants from the Russian prime minister's visit. The takeover orchestrated by the Russian gas giant Gazprom of the Sakhalin-2 project, which was previously focused on providing liquefied natural gas to the Japanese market, has upset Tokyo. In addition, the possibility that ExxonMobil, which operates the Sakhalin-1 project, will build a pipeline to China would deprive Japan, which lacks any energy resources of its own, of any hope of paying lower prices for energy. In essence, the Japanese side wants to receive a Russian guarantee that Japan will still be supplied with energy products even as Russia's energy facilities are increasingly nationalized.

Besides Prime Minister Frakov and Energy Minister Khristenko, the Russian delegation in Tokyo includes Rosatom head Sergei Kirienko, Communications Minister Leonid Reiman, Transportation Minister Igor Levitin, and several Siberian and Far-Eastern governors. Yesterday Mr. Fradkov received an audience with Japanese Emperor Akihito, at which the two discussed global warming. He also spoke with Yohei Kono, the speaker of the parliament's Chamber of Representatives. Today the Russian prime minister and members of the Russian-Japanese economic forum will meet with Japanese Prime Minister Shinzo Abe and leading Japanese businessmen to discuss economic issues.

The tastiest deal for the Japanese was prepared by the Russian energy minister. Japanese Economics Minister Akira Amari reported to Mr. Khristenko with some amazement that "Japanese companies" had already received an offer from Rosneft for participation in oil refining in the Far East and distribution of petroleum products in the Japanese market. Mr. Khristenko lauded the offer as "absolutely correct" and said it would be supported by the Russian government. He also made an offer worth $5-7 billion to Japanese companies involving participation in oil extraction to supply refineries in Primorsky Krai. In the wake of Russian President Vladimir Putin's official refusal in June 2006 to give Japan a government guarantee of oil supplies from the Eastern Siberia-Pacific Ocean pipeline, Rosneft's initiative looks extravagantly generous.

And that's not all. Mr. Kirienko, the head of Rosatom, has offered to create a joint venture with the Japanese to enrich enough uranium on Russian territory to make 6,500 tons of fuel for Japan's nuclear power plants, which are currently supplied by Great Britain and France. The leadership of Russia's Vneshekonombank is signing a deal with a consortium of Japanese banks headed by Sumitomo Mitsui Banking Corporation for $200 million in loans for the construction of a new terminal at Moscow's Sheremetevo Airport. Finally, an agreement will be signed today to create a joint venture between Severstal-Avto and Isuzu Motors to produce Japanese trucks at Russia's Ulyansk automobile factory.

The Russian offers also included an initiative from Transportation Minister Igor Levitin, who suggested that Japanese companies participate in building a tunnel between Sakhalin and the mainland at a cost of $90 billion. Russia may have already received an answer from the Japanese: according to Mr. Levitin, his Japanese colleagues countered with a proposal to construct a tunnel from Sakhalin to the northern Japanese island of Hokkaido.

The one sticking point in Mr. Fradkov's official visit has been the question of the Kuril Islands. Japan and Russia never signed a peace treaty after 1945, and Mr. Fradkov has been pestered by protestors in Tokyo and Japanese officials demanding that Russia return the islands, which Soviet troops occupied in late August 1945. Mr. Fradkov, clearly exasperated by the constant badgering, remarked that he does not want the issue of the Kuril Islands "to be an insurmountable barrier to investment cooperation." He does not, however, see any compromise in the near future on the fate of the islands.

Whether Russia will make good on its promises to consider real investment by Japan in the Far East will become clear today. Above all, Tokyo wants answers regarding the events on Sakhalin: guarantees of supplies of energy resources from Sakhalin-1 and Sakhalin-2 are more interesting to Japan right now than any tunnels, atoms, fish, telecommunications, and even the Kurils, and that is what Mikhail Fradkov and Shinzo Abe will be discussing today.

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