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Medvedev reaches out to China

Moscow would have reason to worry that frictions have appeared in two areas of its ties with China, which are critical to sustaining the momentum and verve of the strategic partnership. First is the energy relationship. The implementation of the multi-billion contracts signed in 2006 for Russian energy supplies to China has run into difficulty. Russia’s Rosneft oil company is threatening to terminate the contract unless China agrees on a price increase.

This may also complicate the signing of a new agreement for the supply of 50 million tons of Russian oil to China in 2010-2015. In turn, this puts a question mark on the efficacy of the Chinese branch to the East-Siberia Pacific Ocean (ESPO) oil pipeline, which Russia is constructing. In an interview with Chinese journalists in Beijing prior to his departure for Moscow, Medvedev said Russia and China have reached a “basic agreement” on the ESPO and that the negotiations on oil price are “nearly complete”. Expressing willingness to set up new oil refineries in China, he said natural gas cooperation with China is also “under discussion”. But there was no concrete outcome during the visit.

The root of the problem in energy cooperation lies in Russia’s focus on expanding its European market, which is where the money lies. Unlike the Europeans, China constantly seeks discount prices. Also, Russia’s deposits are mostly in western Siberia, which is closer to Europe than China. The existing pipeline system is also orientated heavily toward supplying the European market. Russia’s priority lies in buying downstream assets in Europe. All in all, China is quite a long way from becoming an alternative market for Russian energy exports, which in turn acts as a disincentive on Russia committing investments on projects geared for China. Medvedev mentioned in China that the Shanghai Cooperation Organization (SCO) should develop “new directions of cooperation” in the field of energy. China and Russia are the lead nations in the SCO, which also includes Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Asia Times

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