Publication: Eurasia Daily Monitor Volume: 2 Issue: 82

While Russia wavers on a Japan-bound Pacific oil pipeline route, Tokyo is making new overtures toward Moscow.

Last week, Russia and Japan pledged to work out concrete ways of cooperation in order to build the Pacific oil pipeline. According to the memorandum signed in Tokyo on April 22 by Russian Industry and Energy Minister Viktor Khristenko and Japanese Foreign Minister Nobutaka Machimura, both sides promised “to continue an active exchange of opinions” to hammer out concrete forms of cooperation to build the pipeline. The memorandum said the project was important for both countries, as it would boost economic development of Russia’s Far Eastern regions and help stabilize Asia-Pacific energy markets (Itar-Tass, April 22).

Khristenko, in a statement released on April 25, said that he and Machimura discussed issues connected with the pipeline project for five hours. Yet they seemingly failed to agree on anything more concrete than the need for a “continued exchange of opinions.”

Russian officials also hailed positive trends in bilateral economic ties. In 2004, bilateral trade reached $8.8 billion, up 48% compared with 2003. Russian exports to Japan amounted to $5.7 billion (a 35% increase), while imports totaled $3.1 billion (up 80%).

However, by the end of 2004, Japanese direct investment in Russia amounted to a mere $140 million — less than 1% of total FDI in Russia, according to data from the Russian Industry and Energy Ministry.

Meanwhile, with Moscow dropping some vague hints that its decision on the Pacific pipeline could be reviewed, Tokyo has recently made a number of positive gestures towards Russia.

After a period of hesitation, Japanese Prime Minister Junichiro Koizumi finally decided to visit Russia and attend the 60th celebration of VE-Day in Moscow, May 8-10. Paradoxically, Koizumi opted to travel to Russia although Tokyo is yet to sign a peace treaty with Moscow to formally end World War II.

Furthermore, Japanese sources have begun to float the possibility of a compromise over the disputed Kuril Islands, which Moscow seized in the final days of World War II. Tokyo is arguing that better relations with Moscow are essential at a time when Japan’s relations with China and South Korea have been deteriorating. There have been rumors of a new approach towards the territorial dispute: something less than a 50-50 split of the total area, more like 37-63, with the smaller part going to Japan.

Tokyo has also indicated it would back Russia’s bid to join the World Trade Organization. Moreover, Toyota announced on April 26 that it had decided to build its first plant in St. Petersburg, Russia, with the capacity to manufacture 50,000 vehicles a year. The plant is due to start making the Camry model in December 2007.

Russia officials have also tried to reassure Japan. On April 17, Transneft head Semyon Vainshtok told a press conference in Moscow that the pipeline monopoly was not planning to re-route the proposed Pacific pipeline. But he also claimed that Transneft would not use Japanese or Russian public funding to build the Pacific pipeline, citing the company’s future bond issues as a principal source of financing. Vainshtok’s statement on funding was seen as a trial balloon to test Tokyo’s readiness to finance the pipeline project.

Meanwhile, Transneft’s plans to build the oil terminal at Perevoznaya Bay are facing growing domestic criticism. Yuri Osipov, president of the Russian Academy of Sciences, reportedly appealed to Kremlin chief of staff Dmitry Medvedev to reconsider the decision to build the terminal at Perevoznaya due to negative environmental repercussions. Medvedev reportedly requested Prime Minister Mikhail Fradkov to consider building the pipeline toward Nakhodka instead of Perevoznaya Bay.

Environmental groups have also denounced the pipeline plans. The Amur Leopard and Tiger Alliance (ALTA) said in a statement on April 24 that Transneft can no longer ignore the growing opposition to the proposed pipeline. To attract Western investors, Transneft and its projects need to meet international standards, while the Pacific pipeline does not meet these criteria, according to ALTA. In a rare sign of public awareness, the Moscow Zoo celebrated the Day of the Far Eastern Leopard on Sunday, April 24, as part of an effort to call attention to the endangered species (RIA-Novosti, April 24).

Last December, Prime Minister Fradkov approved the Pacific oil pipeline blueprint. But this month, Medvedev seemed to backtrack, announcing that the Pacific oil pipeline plans are expected to be finalized by May 1.

Moscow has opted to back the Japan-bound East Siberia-Pacific oil pipeline. However, on the eve of his trip to Japan, Khristenko indicated that a branch line could still be built toward China. But Tokyo has not welcomed the hints about a possible offshoot to China.

Japan indicated that it would not contribute financially to the Russian pipeline if it had a branch to China. Reportedly Japanese Minister of Economy, Trade, and Industry Shoichi Nakagawa told Khristenko that the Japanese government plans to continue pressing Russia to build the pipeline to Perevoznaya first, rather than constructing other branches (Asia Pulse/Nikkei, April 26).

Subsequently, Russian officials rushed to dismiss claims of geopolitical rivalry over the pipeline. According to Khristenko’s April 25 statement, “There is no problem of choice between the ‘Japanese’ and ‘Chinese’ routes of the pipeline because a decision was already made on the Taishet-Perevoznaya route.”