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The Times: Japan’s PM ‘set to get tough with Russia’: Russia’s decision to cancel Sakhalin-2…

October 02, 2006
From Leo Lewis in Tokyo
 
SHINZO ABE, the staunch nationalist who came to power as Japan’s Prime Minister promising a more internationally assertive country, will use the crisis over the Sakhalin-2 oil project in Russia’s far east to show that a newly aggressive Tokyo is ready to get tough with Moscow, government insiders say.

Russia’s decision to cancel Sakhalin-2, supposedly on environmental grounds, comes as Japan’s new Prime Minister struggles to stamp his authority on a political world redefined by Junichiro Koizumi, his radical predecessor. 
 
Mr Abe has been criticised as inexperienced and narrow-minded in the field of foreign relations, and the Sakhalin issue is an early test that he cannot afford to fail.

Takao Kitabata, the Japanese Vice-Minister for Economy and Trade, said yesterday that “even if the project is delayed, power companies can turn to other energy sources and gas firms can procure LNG [liquefied natural gas] from other areas. Energy supply to Japan will not be affected”.

Nevertheless, Japan’s power companies — such as Tepco and Chubu Electric — and other energy sector observers are already preparing for the possibility that the project will be delayed and that Japan will be forced to absorb big cost increases as they secure energy supplies on the spot markets.

Whereas previously Japan and its corporations might have been expected to give ground, perhaps conceding slices of the overall project to Gazprom, Russia’s state-owned gas company, they judge now that Russia has far more to lose from the situation and are prepared for greater brinkmanship.

Relations between Moscow and Tokyo took a heavy beating from the Koizumi administration and Russia has plenty to negotiate with. Political analysts have said that the inexperience of some members of Mr Abe’s Cabinet could provide plenty of leverage.

Although analysts believe that Japan’s aggressive strategy will work and eventually will make Russia back down, the showdown is likely to leave both sides badly damaged. Energy-hungry Japan risks jeopardising links with an increasingly important source of oil and gas. Russia risks losing its reputation as a reliable exporter of energy — a reputation that represents the mainstay of confidence in its bond market.

Investors in Mitsui and Mitsubishi, the Japanese groups involved with Royal Dutch Shell in the Sakhalin-2 project, base their prediction of an eventual victory on historical Japanese attitudes to Russia.

Many details of the production-sharing agreement, under which gas was to start to be shipped to Japan in 2008, remain confidential to the companies, but the overall document is described by insiders as “watertight and forged in the days when Japan hated the Russians. It was drawn up to protect Japan on costs and protect it from what it saw as the nature of the Russian mind.”
 
http://www.timesonline.co.uk/article/0,,5-2384318.html

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