PUTIN REJECTS EU DEMANDS ON ENERGY

Russian President Vladimir Putin resisted EU leaders' calls to ratify an international energy treaty that would liberalise trade and investment in its oil and gas sector, at a 20 October summit in Finland.

The EU currently relies on Russia for between a quarter and a third of its oil and natural gas imports, figures which are rising steadily. EU member states are concerned about Russia's reliability as an energy supplier, particularly after Moscow briefly cut off Ukraine's supply over a payment dispute earlier this year.

At the meeting in Lahti, EU leaders including German Chancellor Angela Merkel called on Russia to ratify the Energy Charter Treaty. The agreement, which Russia has signed but not ratified, sets out binding protections for trade and investment in the energy sector, as well as rules for energy transit. Russian ratification would open the sector for investment by EU companies, and allow them to export oil and gas produced there through Russian pipelines.

The treaty would also ensure that Russia did not discriminate against EU companies. Merkel urged Russia to provide the same legal contract security and market access that it enjoyed in the EU.

EU leaders expressed concern that the Russian government was taking firmer control of the sector, pointing to state-owned Gazprom's decision to develop the huge Shtokman gas field without foreign capital. They also drew attention to the Kremlin's recent threats to revoke Royal Dutch Shell's license to develop the Sakhalin gas field over alleged environmental breaches. Many Western governments believe the move was a politically motivated pretext to renegotiate the deal in favour of Russia.

Even before the summit, Russian officials had indicated that they were not prepared to let other companies use Gazprom's pipelines.

High energy prices have left Russian oil companies flush with money, as a result of which the country does not need foreign investment to develop the sector nearly as much as when charter was first negotiated between the EU and members of the former Soviet bloc in the early 1990s.

The Russian National Strategy Centre's Iosif Diskin said that Moscow's refusal to accede to the treaty was motivated by economic rather than geopolitical factors, since Russia stood to lose financially from ratification. He added that the Kremlin feared losing control over its natural resources, according to Russian daily Novye Izvestia.

Putin said that Russia is not against the principles included in the treaty, but "we believe that certain provisions of the charter should be defined better."

Although EU governments differed on how hard a line to take with Moscow, European Commission President Jose Manuel Barroso said that they agreed that Russia and the EU needed a partnership based on the principles of "transparency, the rule of law, reciprocity, non-discrimination, market opening and market access."

ICTSD reporting; "Putin Firm on EU Energy Charter", BBC NEWS, 21 October 2006; "Putin Rejects EU Demands that Russia Ratify Energy Charter", INTERNATIONAL HERALD TRIBUNE, 20 October 2006; "Russia, EU Clash over Energy Charter", NOVYE IZVESTIA, 23 October 2006; "Russia Extends Shell Energy Probe," ASSOCIATED PRESS, 25 October 2006; Putin pressed to honour oil contracts," FINANCIAL TIMES, 21-22 October 2006; "The Really Cold War," NEW YORK TIMES, 25 October 2006.