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Sunday, April 30, 2006

Putin and Merkel's Market Relationship

04–28–2006 Kommersant – Russian President Vladimir Putin spent the day yesterday with the chancellor of Germany. He told German Chancellor Angela Merkel everything about Russian gas, about what Gazprom partners could expect to receive in Russia and about why the company has begun looking for mew markets. Kommersant special correspondent Andrey Kolesnikov thinks that Merkel left Tomsk enchanted by the Russian president. The first negotiations between the leaders took place late the day before yesterday. The next morning, the signing of an agreement on the mutual exchange of assets between Gazprom and German chemicals giant BASF was announced. Gazprom will thereby increase its share in the Russian-German Wingas to 50 percent minus one share, while BASF/Wintershall will receive 25 percent minus one share and 10 percent of the non-voting stock in Severneftegazprom. Thus BASF/Wintershall will own 35 percent minus one stock in the South Russian gas condensate field. In addition, Gazprom and BASF will set up a joint enterprise for trading in natural gas on the European market. Gazprom did not sign any agreement with the German E.ON. "The time has passed when we agreed to sign," Gazprom deputy head Alexander Medvedev said. "It's okay, we'll sign with them." When I observed that the time for the signing had not actually passed but, on the contrary seemed to just be getting ripe, Medvedev explained that they wanted very much to sign an agreement with E.ON, but that company was a more difficult negotiator "because they are our direct competitor and are expecting to receive more than we by definition can give." They have still not agreed on the list of assets to be exchanged between the companies. In addition, Gazprom and E.ON do not agree on their valuations. But, Medvedev thinks, "in three months or so an agreement might still be signed." German and Russian business circles began meetings yesterday in Tomsk. Putin and Merkel arrived together an hour after the meeting started. The Russian president said that trade turnover between the two countries, according to Russian statistics, is up to $33 billion, and according to German statistics €38 billion. He did not say how that huge discrepancy arose or, more importantly, where it went. "Russia is dependably guaranteeing the delivery of energy resources to Europe," he said. No one in the audience has cast doubt on Russian energy deliveries or their dependability. Obviously, Putin still gets nervous abut that whenever he sees European leaders. Putin talked about Russia's stable financial situation and mentioned that the country paid $15 billion to the Paris Club last year. "Germany's share, your share, respected ladies and gentlemen, was more than $6 billion," he said. "And this year we plan to pay the debt to the Paris Club in full." The he turned his attention to Gazprom. "This year, it became the second largest company in its sector after ExxonMobil, and the fourth largest company in the world," he beamed. Merkel had been listening to the Russian president directly, not wearing headphones for a translation. At the mention of Gazprom, she put her headphones on. "Here in Siberia," Putin continued, "20 million tons of oil are produced annually and 21 billion cubic meters of natural gas. And the proven reserves are realizable." Klaus Mangold, chairman of the Eastern Committee of the German Economy, as the president to comment on the law being prepared in Russia to limit foreign participation in strategic sectors of the Russian economy. "Our goal is not to the limit access of foreign investors, but to make the process of participation transparent and to bring it into the realm of civil law," Putin said. "But we are concerned about maintaining state influence in especially large deposits. We have one deposit, for instance, that is comparable to the total reserves of Canada. We intend to do everything necessary so that our partners understand what they can contend for and how they can protect their interests during that process." After consulting with more than ten ministers on each side, the two leaders gave a press conference. Merkel said that all German atomic power plants were to be closed by 2020. Putin recalled in that connection his conversation with Ukrainian President Viktor Yushchenko on the occasion of the latest anniversary of the Chernobyl disaster and criticized the West for promising to help Ukraine recover from the effects of the accident and failing to keep its word. He did not agree with Merkel that atomic power stations should be closed down, however. Modern developments make atomic energy safe," Putin said. "France and the United States have huge, simply huge, plans for building new atomic power plants. It is the cheapest, most ecological and, oddly enough, cleanest energy. A German journalist asked the Russian president how it is to be understood that he at first said that Russia is not being allowed to invest in the West, while an agreement between Gazprom and BASF on exchanging assets was signed in their presence. "Even during the Cold War, during the standoff between the two systems, the Soviet Union guaranteed energy to all its partners in Europe. Day by day, hour by hour!" he answered. "And now we hear about some sort of dependence on Russia. Understand us! Put yourself in our place. What are we supposed to do in these circumstances? We begin to look for other markets." From the emotional and even artistic points of view, blackmail was flawlessly implied in his words. Putin continued with the "latest example" of the Centrico company in Great Britain. "Gazprom didn't even intend to buy that company," he said. "There was just a leak to the press." He added after a short pause, "A leak that Gazprom was thinking about it." Fortunately, President Putin continued, Tony Blair made a statement that, if Gazprom wanted to do it, he, the prime minister of Great Britain, would see to it that there were conditions of fair competition for the purchase of Centrico. Too bad that Gazprom did not intend and does not intend to buy it. "If someone approaches us, it's called investment,' but if we approach someone, it's expansion,'" Putin said.

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