Russia Sets Its Energy Agenda Ahead of G8 Summit

Russia is holding out against its European partners? demand that it agrees to energy trading rules proposed by the European Union. The energy issue will become the crunch question for the G8 summit, which Russia is set to host in St. Petersburg next month.

Russia?s ambition to boost uranium exports to fuel nuclear power plants in the European Union is also shaping up as a new issue for the St. Petersburg gathering in mid-July that will cast the spotlight on Russia?s role as an emerging energy superpower.

The negotiation on a broad energy cooperation blueprint pits EU hopes of seeing free energy markets against Russian determination to keep control of the aces in its pack: world-class natural resources and a huge pipeline network.

The EU wants to lock Russia into the Energy Charter treaty to ensure a level playing field for energy players in Russia, where state gas firm Gazprom uses its monopoly to hold sway over 25 percent of EU gas supplies.

The Charter promotes transparent energy trade and guarantees ?free transit? of energy across members? territory.
Russia has signed it. But its parliament, which usually acts on a nod from the Kremlin, has yet to ratify it and is not likely to do so before the summit.

The July 15-17 meeting brings together leaders of the United States, Russia, Britain, France, Germany, Italy, Canada and Japan. Diplomats expect Russia to pay lip service to Charter principles at the summit, without giving anything away.

?You would have no ambiguity any more on the priority of rules applying in energy trade (if Russia ratified),? said Andre Mernier, head of the Energy Charter Secretariat in Brussels. ?That would tremendously increase confidence in Russia.?
EU nations have rallied to demand Russian ratification since January, when Gazprom shocked Europe by briefly disrupting gas flows along a key pipeline to win a pricing row with Ukraine. Gazprom blames Ukraine for the crisis and says its actions, as a treaty member, are proof the treaty is no use.

President Vladimir Putin, likely also to face attack from some G8 states for his record on democracy, added to controversy on Tuesday, June 20. He suggested observing the Charter would depend on Russia?s relations with a country at any particular time. ?We are ready to do this (observe the Charter), but not for each and everyone, but only with those of our partners who meet us half way and with whom we can reach agreement on cooperation based on equal rights,? he said.

Russia?s main objection is the Charter would enable EU gas importers to negotiate prices directly with rising Central Asian suppliers like Turkmenistan and Uzbekistan. Their gas flows through Gazprom?s pipelines, allowing it to call the shots.

Gazprom is also worried the treaty may make it share access to a pipeline it is building under the Baltic Sea to Germany.

Western diplomats say the Russians fear that ratification could also strengthen shareholders of fallen oil giant Yukos who are suing Russia for more than $30 billion. ?It?s hard to see where their motivation to ratify the treaty may come from,? said one EU diplomat. Russia would take some convincing of the value of free markets in energy, he said.

Many of the disputed areas are governed by the Treaty?s Transit Protocol, which is still at the draft stage.

Diplomats say they?ve been here before: Russia spent years dallying over ratification of another pact, the Kyoto Protocol, before suddenly agreeing to it.

The situation is fraught with legal ambiguities. Even without ratification, Russia may already be subject to the treaty, since under its terms a mere signature makes it binding unless it cuts across national legislation.

Russia meanwhile is rushing through a law to ensure there is a ?single channel? of gas exports, enshrining Gazprom?s position in law and holding the treaty at bay.

Officials say Russia feels the treaty would do nothing to further Gazprom?s quest to get involved in marketing gas all over Europe, since it focuses on trade, not distribution. Gazprom has already run up against political opposition to a possible acquisition of British gas distributor Centrica.

Nor would it help Russia in another disputed area: uranium.

The EU limits Russian uranium imports ?- most of it going to fuel nuclear plants ?- to 20 percent of the market and has promised to lift the quota to 25 percent to meet demand from new EU states such as Slovakia.
But Russia is after an even bigger share of the pie and wants to get rid of the quota.

?The argument in the EU is that if we ourselves totally depend on Russia for the supply of (uranium fuel) rods, we might face a problem in the future,? one EU official said.

Putin last month said Russia would hold off ratification until it had got a satisfactory deal on uranium quotas.

Russia is also pushing for more access to the U.S. uranium market. The United States has anti-dumping measures in place to prevent a flood of Russian uranium swamping its market, but has exempted Cold War stocks of highly enriched uranium (HEU).

Russia wants HEU exports, which provide 10 percent of U.S. electricity, extended beyond the exemption?s expiry in 2013.