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Japan eyes utility stake to strengthen Russian ties

  • August 31, 2016
  • , Nikkei Asian Review , 3:16 a.m.
  • English Press

TOKYO — Japanese investment in Russian state-run power company RusHydro and support for development of Russia’s Far East are among the measures in an economic cooperation framework to be presented by Japan at a bilateral summit Friday.


The outline includes specific steps to advance the eight-point plan offered by Japanese Prime Minister Shinzo Abe at May’s summit. Abe hopes that offering proposals of particular interest to Russian President Vladimir Putin will help jump-start stalled negotiations over the disputed Kuril Islands. RusHydro’s chairman, Deputy Prime Minister Yury Trutnev, is close to Putin, and the Russian leader has sought to promote development in the Far East.


Japanese trading house Mitsui & Co. will join with the Japan Bank for International Cooperation to buy treasury stock in RusHydro equivalent to 5% of outstanding shares for 21.7 billion rubles ($332 million). The deal would be an unusual step for Russia, which very rarely permits foreign investment in so-called strategic companies related to national security, according to a Russian government insider. This would also mark RusHydro’s first sale of treasury stock to a foreign company.


The companies involved will likely sign a memorandum of understanding at the two-day Eastern Economic Forum kicking off Friday in the Russian city of Vladivostok. The deal would make it easier for Japanese businesses to expand into the Russian power industry, where equipment has largely come from European, U.S. or Russian players.


Tokyo will also offer assistance to 12 special economic zones in the Far East. JBIC and Russian government-linked financial institutions will form a group to serve as a bridge linking Japanese companies with economic zone administrators unaccustomed to wooing them. A future measure under consideration would establish a special-purpose company, effectively jointly run by the Japanese and Russian governments, to draw up projects related to the zones.


JBIC will consider providing financing for a liquefied natural gas plant on the Yamal Peninsula in the Arctic, another project spearheaded by Putin. The aim is to pave the way for Japanese companies to participate in building a second LNG production facility planned by Russia’s Novatek in the country’s north.


Japan’s plan does not touch on funding for oil and natural gas development, expected to be a highly expensive proposition. This seems to be a nod by Abe to those leery of offering too much economic cooperation at a time when negotiations over the Kurils are going nowhere.

Some also worry that the plan could irk the U.S., where tensions with Russia have mounted over the situation in Ukraine. The specific measures discussed do not run afoul of American or European sanctions.

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