Russia Deals To East And West

   (FROM THE WALL STREET JOURNAL 6/20/15) 
   By Paul Sonne in St. Petersburg, Russia, and James Marson in Moscow 

Russian President Vladimir Putin on Friday heralded Sino-Russian relations as having reached a level "unprecedented in history," a day after China signed up to help in the design of a Russian high-speed rail link that ranks among the largest current infrastructure projects in the country.

But even as Russia emphasized its pivot toward China at its annual showcase investor event in St. Petersburg, deals announced Friday between Russia's state oil giant and its longtime European partners underscored the country's deep links to businesses in the West even in the face of sanctions imposed by Western capitals.

Amid frosty relations with the West over the crisis in Ukraine, Mr. Putin emphasized the Kremlin's efforts to cultivate closer economic links to China. He said he hopes to increase Russia's trade with China to $200 billion from $85 billion in the coming years.

"China is our largest trade and economic partner," Mr. Putin said. "Our relations are developing very effectively."

One example of the new era of Sino-Russian cooperation is the high-speed rail link that Russia is building to connect Moscow and Kazan, a city about 480 miles due east of the capital. On Thursday, the design unit of state-controlled China Railway Group agreed to partner with two Russian companies to craft a plan for state-controlled Russian Railways to build a rail connection that would reduce the travel time between the two cities to 3 1/2 hours from about 12 1/2 hours.

The design stage is projected to cost about 20.8 billion rubles ($383 million) and take about two years, at which point Russian Railways will hold a separate tender for the construction, slated to be finished by 2020. The cost of construction is estimated at $19.5 billion. Russian Railways President Vladimir Yakunin said China would likely land the construction contract, though it isn't guaranteed.

"It is quite likely," Mr. Yakunin said. "Of course the one who is participating in the planning has an advantage. This is obvious."

Still, he said the final choice will take into account what kind of financing, loans and other guarantees are on offer from the bidders. Germany's Siemens AG has supplied Russia's two existing high-speed rail links.

High-speed rail is one area where the interests of Moscow and Beijing may coincide. Russia needs to develop infrastructure across a vast territory with many shabby Soviet transport links, and now faces reduced financing options and a wary investor community in the West. The turnout of Western businessmen at the St. Petersburg event this week was up from last year, when political tensions flared over the conflict in east Ukraine, but remained muted compared to prior years.

China, meanwhile, is trying to sell its high-speed-rail expertise abroad after building many lines domestically, but so far has found little success, with deals in Mexico and Thailand running into problems.

Chinese lenders have been cautious about supplying financing to Russia amid Western sanctions on the country in part because many of them don't want to jeopardize their business with the U.S. In a recent op-ed in Hong Kong publication FinanceAsia, the first deputy chairman of the state-controlled Russian bank VTB complained that China's "ambiguous position" toward the sanctions meant most Chinese banks wouldn't execute interbank transactions with their Russian counterparts.

On Friday, Mr. Putin encouraged China to loosen its restrictions on the movement of capital, saying such a liberalization could mark another big step in the development of the two countries' economic relations. Russia hopes that such a liberalization would open the way for new investment capital from China.

The bulk of business deals between China and Russia has been struck at the government level, such as the high-speed-rail deal and a $400 billion gas pipeline between the two countries agreed upon last year. Mr. Putin said the countries have to find ways to encourage links between smaller businesses and build a "natural living tissue of cooperation in many industries."

Even as Mr. Putin cheered the pivot toward China, state energy giant OAO Rosneft inked a pair of deals with European companies that highlighted longer-standing business links with the West -- and the limitation of Western sanctions on Russia. Rosneft and its chief executive are targets of those measures.

Rosneft agreed to sell a minority stake in a Siberian oil-and-gas field to U.K. energy giant BP PLC for $750 million and to buy a stake in a German refinery from France's Total SA for $300 million.

U.S. and European sanctions over Russian intervention in Ukraine prevent Rosneft from raising credit in the West or accessing Western technology for tapping shale and arctic reserves, but don't prevent asset sales. The U.S. has also imposed personal restrictions on Rosneft Chief Executive Igor Sechin, who is a confidante of Mr. Putin.

The deals announced on Friday cement a strategic alliance between Rosneft and BP, which owns a nearly 20% stake in the Russian company. BP is taking a 20% stake in Taas-Yuryakh Neftegazodobycha in Eastern Siberia, creating a new joint venture, the companies said. Russia has been reluctant to agree to foreign companies' taking stakes in oil and gas fields, but the deal allows Rosneft to raise much-needed capital.

Mr. Sechin also signed a deal Friday to buy a 16.67% stake in the PCK Raffinerie GmbH in Germany from Total. The French energy company said the sale was part of its plan to shed refining activities and focus on oil and gas extraction. Rosneft already held an indirect stake of 18.75% in the refinery.

Access Investor Kit for Total SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000120271

Access Investor Kit for Rosneft

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=RU000A0J2Q06

Access Investor Kit for Total SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US89151E1091