Ukraine peace terms to shape EU-Russia relations, Juncker tells St Petersburg forum

Ukraine peace terms to shape EU-Russia relations, Juncker tells St Petersburg forum
St Petersburg this year hosts its 20th economic forum.
By bne IntelliNews June 16, 2016

Relations between Russia and the West need to be mended, European Commission President Jean-Claude Juncker told the St Petersburg International Economic Forum (Spief), but this could only happen if the Minsk II agreement on Ukraine was implemented.  

"If the relations are troubled and marred by mistrust, they are not broken and we need to mend them", Juncker told the forum. Talking now to Russia intensely about differences was "common sense", Juncker said, in what could be seen as a defence of his decision to attend the  three-day event.

However, the Commission chief dispelled any notions that the two sides will be backslapping any time soon: "First of all we need to have a frank conversation that starts with the illegal annexation of Crimea and the conflict in Ukraine that have put our relations to a severe test," he said.

A rapprochement depended on the fulfilment of the Minsk II agreements, "no more, no less", said Junker, referring to the extensive package of steps expected from Russia and Ukraine to end the fighting that killed more than 9,000 people in East Ukraine. "On this, both the EU and G7 are united."

Russian President Vladimir Putin was expected to draw his own lines of negotiation over Ukraine and other issues in a speech the following day. He will also try to shift the focus onto common challenges facing all countries.

"The challenges facing the global community demand concerted action aimed at achieving sustainable and balanced growth," Putin said in a message to participants ahead of the formal opening of the event. He underscored Russia's role as a global player, arguing that "it is vital that we work together in our search for additional drivers of development".

In his opening ceremony speech, UN Secretary-General Ban Ki-moon also called for ties to be restored between the West and Russia. "We need to strengthen communication and build bridges, rather than build walls," he said.

The 20th edition of Spief hosted a large group of foreign executives and officials despite the ongoing Western sanctions regime and tensions with Russia. As well as Juncker and the UN head, Italian Prime Minister Matteo Renzi also came to St Petersburg, in the process upsetting the more hawkish members of the EU camp.

Despite reports that the EU is ready to roll over the sanctions on Russia for another six months to the end of 2016 at its summit on July 29, a number of Russia-friendly states such as Hungary, Greece and Italy are said to favour a change of policy on sanctions, which have hurt both sides.

The EU is Russia's main trading partner, accounting for 44.8% of its foreign trade in 2015. Russia is the Union's fourth largest trade partner after the US, China and Switzerland and also the biggest natural gas supplier to the EU and one of its biggest oil suppliers. However, Russia-EU trade last year plummeted from $417.7bn in 2013 to $235.7bn.

Economic Development Minister Alexei Ulyukayev told forum visitors that Russia was already preparing documentation to prolong its own embargo on Western food products and was not considering lifting sanctions.

Putin and Juncker did not discuss sanctions during their talks on June 16, Kremlin press secretary Dmitry Peskov said. "In a situation when we can say with confidence that the Russian economy started to adopt to functioning under sanctions, the issue is certainly not on our agenda any more," he added.

Down to business

Despite the tensions, Spief-2016 is still expected to produce a solid crop of deals and agreements. The influential head of Russia's largest oil company Rosneft Igor Sechin told Italian daily Il Sole 24 that cooperation with Eni will be expanded to "the participation of the Italian company in a major production project in Russia". 

Russia's largest natural gas producer and pipeline exports monopolist Gazprom in turn signed an agreement on construction of a Liquefied Natural Gas (LNG) terminal on the Baltic Sea with Royal Dutch Shell. The plant with an annual capacity of 10mn tonnes of LNG, possibly rising to 15 mn tonnes, is scheduled for commissioning in December 2021.

Putin and Junckers were also expected to discuss the Nord Stream 2 pipeline, which will bypass Ukraine to supply 55bn cubic metres of Russian gas per year to Germany via the Baltic Sea. The controversial project has Berlin's support, but is opposed by the Baltic states, Britain and East and Central European countries that will be circumvented.

Italy's Banca Intesa plans to participate in financing of Nord Stream-2, the board Chairman of its Russian subsidiary Antonio Fallico said. "We are ready to participate in funding construction of the second line. Different contacts take place but the Nord Stream has not yet selected the line of conduct. We are waiting for their statements," he added.

Meanwhile, the president of Russia's independent Lukoil, Vagit Alekperov, said at the forum that the company will sell its European assets. Lukoil plants in Italy, Romania, Bulgaria and the Netherlands are to be sold as a whole or separately, Alekperov said. "We have been mostly focusing on the exploration and development of oil and gas fields in recent years,"  he told the RBC website, describing the European plants as "not strategic" for the company.

Still, the more Westward-focus of the event contrasts with last year's forum, when Chinese business topped the agenda and 29 deals worth around $1 trillion were signed with Chinese companies. However, the Russian-Chinese deals of last year still did not cement a major pivot East, and many have yet to materialise. 

This year, Putin is expected to meet with over 40 heads of international corporations on the sidelines of the forum, presidential aide Yuri Ushakov said on June 14.

Spief-2016 deals

Other deals signed or being prepared at the forum include:

Russian oil major Rosneft will supply 96mn tonnes of oil to Petro-Vietnam Oil Corporation (PV Oil) until 2040, the company said after signing a contract on June 16. The cost of the deal, as well as whether it includes an advance payment, was not disclosed.

State Corporation Russian Technologies (Rostech) agreed to sell 25% shares of Russian Helicopters to the Russian Direct Investment Fund (RDIF) and a consortium of Middle Eastern investors. The deal could be worth several hundred million dollars.

RusHydro will discuss possible participation of Japanese Mitsui in the company's capital, TASS reported, citing the CEO of the Russian company Nikolai Shulgin. "This is a package of treasury shares equivalent to 4.8% of the capital. We have been discussing the participation in our capital with Mitsui and the Japan Bank for International Cooperation JBIC for a long time," Shulgin said.

Gazprom Neft confirmed the possibility of a consortium of Russian companies to work Iranian oil fields, its CEO Alexander Dyukov said in St Petersburg. The company sees no conflict of interests with Lukoil, which also intends to work on Iranian fields, Dyukov added.

Finnish food producer Fazer agreed to build a new plant in St. Petersburg. The investments in the ten-year project were estimated at RUB14.8bn ($225mn).

Norilsk Nickel and the chemical concern BASF agreed to continue technology cooperation.

MTS Mobile and Ericsson extended their "The Internet of things" project agreement for three years. The companies will continue to jointly develop technology that connects devices via the Internet.

Russian grid company Rosseti obtained a RUB1.5bn ($22.8mn) credit line from Industrial and Commercial Bank of China Limited (ICBC), Rosseti announced on June 17.