Putin and Abe make limited progress on disputed islands in Japan

Putin and Abe make limited progress on disputed islands in Japan
Observers described Vladimir Putin's visit to Japan as a "humiliation" for Prime Minister Shinzo Abe.
By bne IntelliNews December 16, 2016

President Vladimir Putin on December 16 ended a two-day visit to Japan that produced a raft of energy deals but left Japanese Prime Minister Shinzo Abe largely empty handed in terms of progress on the Kuril islands dispute, the main stumbling point in relations between Moscow and Tokyo since World War II.

The leaders could only agree to negotiate a deal on joint economic activity on the four islands. While this enables steps to cement some mutual interests, it dashes Japanese hopes of a return of its former territory any time soon. The issue of the islands also continues to prevent the countries from signing a peace treaty formally ending WWII.

“The result comes close to humiliation for the Japanese prime minister after he invited Mr Putin to his home town, only for the Russian president to repeatedly turn up late for negotiations and give no ground when he did,” the Financial Times noted as Putin’s visit ended.

Earlier reports had speculated that the visit could even deliver a historic peace treaty deal, but in the end not even the deal on joint economic activity was finalised.

Abe said that the latter would be an important step towards a peace treaty, while Putin reminded that an issue that has been discussed for over 70 years is unlikely to be resolved overnight.

Aside from the geopolitical agenda, Putin’s visit sealed or moved forward a number of large energy deals, most notably in the financing of Russian Liquefied Natural Gas projects, of which Japan is one of the main current and potential buyers.

Mizuho Bank and Sumitomo Mitsui Banking Corp were reportedly negotiating to grant ‎€800mn to Russia's largest gas producer Gazprom. Putin had also been expected to sign a cooperation deal with JBIC for the LNG (liquefied natural gas) project Arctic-2 Russia’s second-largest gas producer Novatek.

Japan is expected to be one of the biggest buyers of Russian LNG in the Asian-Pacific market. Gazprom CEO Alexei Miller also told the Rossiya 24 TV channel in November that Sakhalin-2 is among projects where cooperation with Japanese investors is possible.

Currently the only LNG facility in Russia is operated by Gazprom on the Far Eastern island of Sakhalin. The expansion of the plant, along with Novatek's Yamal LNG project due for launch in 2017 and the planned Arctic-2 project, will all enhance Russia’s LNG presence on the Asia-Pacific market.

The deals of Gazprom and Novatek were confirmed by the heads of the companies Alexei Miller and Leonid Mikhelson on December 16, without disclosing the details yet. In another major deal could Marubeni, Inpex and the Japan Oil, Gas and Metals National Corporation agreed with Russian oil major Rosneft to explore offshore hydrocarbons on Sakhalin.

Meanwhile, a Russian-Japanese investment fund is planned to be established by the Russian Fund for Direct Investment (RFPI) and the JBIC, Prime reported on December 15, citing the fund’s head Kirill Dmitriev. Reportedly, up to $1bn could be set up for joint projects and attract up to $10bn in the Russian economy, according to Dmitriev’s estimates.

Citing unnamed sources, Vedomosti daily reported on December 16 that Japanese Mitsui & Co could buy 10% in Russian pharmaceutical producer R-Pharma for $130-$174mn, potentially expanding the deal to 20% by attracting a pool of investors, which could include RFPI and JBIC.

Negotiations on the deal were confirmed by the founder and sole shareholder of R-Pharma, Alexei Repik. The company is Russia’s largest supplier of pharmaceuticals to the state, with a share of 10.6% (RUB35.6bn supplied in 2015), followed by Pharmstandard and Pharmimeks (5.9% and 5.6% shares, respectively).

Another project considered by Mitsui is partnership with major Russian agricultural holding Rusagro, with the memorandum of understanding signed by two companies.