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Financial Times: Japan rebukes Russia over Sakhalin-2

By David Pilling in Tokyo
Published: September 19 2006 11:02 | Last updated: September 19 2006 11:02

Japan on Tuesday rebuked Russia for suspending a huge natural gas project 45 per cent owned by Japanese trading companies, saying it “may hurt the overall relationship between the two countries”.

Moscow’s decision to withdraw an environmental permit on the Shell-led Sakhalin-2 project, on an island in Russia’s far east, comes as a severe blow to Japan, which is desperate to wean itself off Middle Eastern oil. Mitsui and Mitsubishi, two trading companies, own 25 per cent and 20 per cent of the project, respectively.

On Tuesday, shares in Mitsubishi, Japan’s biggest trading company, fell 2.5 per cent to Y2,130, while those in Mitsui, its second largest, lost 3.6 per cent to Y1, 474.

The Japanese government has sought to tap Russia’s huge oil and gas reserves, investing taxpayers’ money and encouraging private companies to follow suit. Several projects, including a plan to pipe Siberian oil to a port near Vladivostok where it could be shipped to Japan, have been frustrated by a combination of politics and economic reality.

Shinzo Abe, chief cabinet secretary, on Tuesday told a press conference: “I’m concerned that any major delay in the project, which is a symbol of the co-operation between Japan and Russia, may hurt the overall relationship.”

Taro Aso, foreign minister, described the Russian decision to withdraw the licence as “one-sided” and “unclear”. Japanese officials have been privately scathing about what they see as the arbitrariness of Russian law when it comes to energy contracts. They are also frustrated by what they regard as Moscow’s strategy of playing Japan off against China, a fierce rival for Russia’s energy resources.

Mr Abe, who is almost certain to succeed Junichiro Koizumi as prime minister, is known as a hardliner on foreign policy disputes, including that between Russia and Japan over disputed islands off Japan’s northern coast.

Japan has consistently pressed for the return of the islands, seized by Moscow in the final days of the second world war, causing a constant irritant in Russo-Japanese relations. Attempts by Tokyo to link financing of energy projects with resolution of the territorial dispute have failed.

An Exxon-led project known as Sakhalin-1, on the same far eastern island, was originally intended to pipe gas directly to Japan. But the refusal of Japanese electricity suppliers to sign long-term contracts scuppered the plan, into which the Japanese government had sunk billions of dollars over many years.

On Tuesday, Toshihiro Nikai, trade and industry minister, said of the latest setback: “The government is looking closely at developments on the Sakhalin-2 project from the security of energy supply point of view.”

Copyright The Financial Times Limited 2006

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