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Russia looks East as West disappoints By Arkady Ostrovsky Published: January 3 2005 02:00 | Last updated: January 3 2005 02:00 China has an expression to describe its ties with Russia: "Politics hot, businesscold". But over the past few months Russia has been trying to warm up its business relationships with China. Last week Russia said it would offer 20 per cent of Yuganskneftegas, the newly renationalised asset of Yukos oil company, to China National Petroleum Corporation. Russia's energy minister said this was part of a wider agreement between the two countries. Last month, Gazprom, Russia's state controlled gas monopoly, signed a memorandum with CNPC covering strategic co-operation in the oil sector - particularly over oil projects in Russia. It already has an agreement with CNPC over gas. Viktor Khristenko, Russia's energy minister, says there could be further exchanges of assets between Russia and China in other countries. Russian political observers insists that Gazprom's co-operation with CNPC is part of the Kremlin's push eastwards. They argue that while relationships with Europe and the US dominated the president Vladimir Putin's first term in office, China is emerging as a new strategic partner. Vyacheslav Nikonov, a political analyst close to the Kremlin, says Moscow's keenness to improve links with China must be viewed in the context of Russia's worsening relationship with the West. "The offer to sell 20 per cent of Yuganskneftegas to China is a clear signal of Russia's disappointment with the US and Europe," he says. The signal is all the more clear since US oil companies once had a strong interest in purchasing the assets of Yukos. Russia's relationship with the US has turned particularly sour after the democratic uprising in Ukraine, which Moscow sees as a Washington plot against Russia, and a ruling by a US court blocking the sale of Yukos's assets, which Mr Putin interpreted as a US desire to impose its will on Russian domestic affairs. "The West made it clear that Russia is not one of the club, and that it will have its hands slapped every time it tries to defend its interest in the post-Soviet space. This is the best time to build up relationship with China," Mr Nikonov argues. But while Russia seems to be keen, China tends to be more cautious. There is little doubt that China is interested in Russia's oil and gas as it is looking to diversify its sources of energy. "China has been on a shopping spree, buying stakes in commodity companies around the world," says Jonathan Anderson, chief economist for Asia at UBS investment bank. But when it comes to Russia, the results have often been disappointing. "China has made overtures to Russia in the past, but it feels Russia has never delivered on its promises," Mr Anderson says. Hu Jintao, China's president, was offended last year when he travelled to Russia to seal a deal to buy oil from Yukos and have it delivered via a direct pipeline to Daqing, in the north-east, only to be trumped shortly after by Japan. Last week the Russian government gave its approval to build the pipeline to the Pacific, enabling access to Japan, and thus dropped the idea of creating a direct route to China. "China feels Russia has reneged on its earlier promise to build a pipeline to Daqing," says Vasily Mikheev, an expert on China. China has also been burnt trying to buy stakes in Russian companies. Two years ago CNPC tried to participate in an auction for a stake in Slavneft, the Russian oil company, ready to pay cash. But at the last minute, it unexpectedly pulled out after apparently being warned off by Russian interests. "Russia has two kinds of enterprises - state-owned and those run by the oligarchs - and neither is used to doing business in a regulated and transparent market," said He Jun, analyst at Anbound Consultancy in Beijing. Now Russian is offering CNPC a 20 per cent stake in the newly nationalised Yuganskneftegas, but the offer is not straightforward. Yuganskneftegas is subject to a US court injunction that prohibited its sale in an auction. The ruling dissuaded foreign banks from lending money to Gazprom to buy Yuganskneftegas. Yukos, the previous owner, said it would sue anyone that ended up with its assets. This may explain a somewhat lukewarm reaction from CNPC to Russia's generous offer. "This is their [Russian] one-sided comment. We honestly can't give you a definite reply. About what they said, we can't really understand," Li Runsheng, CNPC's spokesperson said on Friday. "China is a very law-abiding country and it will take any prospect of legal problems with US courts very seriously," Mr Mikheev says. "Russia's paying more attention to Asia, but it does not take into account the globalisation of China's own corporate interests. China is building its own relationship with the US and it will not allow Russia to play on its problems." -------------------------- Want to discuss this topic? Head on over to our discussion list, [EMAIL PROTECTED] -------------------------- Brooks Isoldi, editor [EMAIL PROTECTED] http://www.intellnet.org Post message: osint@yahoogroups.com Subscribe: [EMAIL PROTECTED] Unsubscribe: [EMAIL PROTECTED] *** FAIR USE NOTICE. This message contains copyrighted material whose use has not been specifically authorized by the copyright owner. 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