JAPAN-RUSSIA ECONOMIC ENGAGEMENT: PROGRESS ON

C O N F I D E N T I A L TOKYO 001285

SIPDIS

DEPT PASS DOE FOR OFFICE OF NUCLEAR ENERGY

E.O. 12958: DECL: 06/05/2019
TAGS: ETRD ENRG PREL PUNE TRGY JA RS
SUBJECT: JAPAN-RUSSIA ECONOMIC ENGAGEMENT: PROGRESS ON
NUCLEAR COOPERATION, SLOW MOVEMENT ON RUSSIAN FAR EAST

REF: A. TOKYO 1107

B. TOKYO 1009

C. TOKYO 894

D. TOKYO 667

E. TOKYO 663

F. TOKYO 269

G. 08 TOKYO 2733

Classified By: CHARGE D'AFFAIRES JIM ZUMWALT FOR REASONS 1.4 (B),(D)


1. (C) SUMMARY: Japanese officials expect economic
engagement with Russia to proceed slowly despite Russian
Prime Minister Vladimir Putin's widely-reported pitch for
broader investment in the Russian Far East. The bilateral
civil nuclear cooperation agreement will advance cooperation
in the nuclear industry. However, despite ongoing interest
in oil and gas projects, GOJ officials do not perceive
significant interest in other investment opportunities
promoted by Russia until overall economic conditions improve.
END SUMMARY.

Following Nuclear Agreement, MOFA Pleased
--------------


2. (SBU) Putin and Japanese Prime Minister Taro Aso signed
an expected bilateral civil nuclear cooperation agreement May
12 (ref A). The final signature made headlines in the
Japanese press, even though they had been reporting on the
deal since March 2009. Press reports and comments from MOFA
officials indicate the agreement is intended to allow Japan
to obtain uranium and uranium enrichment services from
Russia, while allowing Japanese companies to participate in
constructing nuclear power plants in Russia.


3. (SBU) While the GOJ has not publicly released the
agreement's text, MOFA Principal Deputy Director for
International Nuclear Energy Cooperation Zentao Naganuma
noted MOFA intends to brief USG officials on the details of
the agreement during a future visit to Washington. According
to Naganuma, MOFA will not release the text until the GOJ
submits the agreement to the Diet, as it is required to do
before ratification. He added MOFA has no plans to submit
the agreement during the current Diet session.

METI Moving Forward Even Absent Diet Ratification
-------------- --------------


4. (SBU) Elements within the GOJ and some parts of Japanese
industry have moved quickly on cooperative efforts even
though the agreement has not been ratified. Immediately
following the agreement's signing, the Ministry of Economy,
Trade and Industry (METI) and Russia's State Atomic Energy
Corporation (ROSATOM) released a joint statement on
cooperation in peaceful uses of nuclear energy. The
statement says the organizations will facilitate cooperation
in nuclear industries such as uranium mining and fuel cycle
and plant construction. It also notes the two sides will
encourage other countries adopting nuclear power to do so in
a manner than ensures non-proliferation.


5. (U) Likewise, several Japanese firms reported progress in
nuclear deals with Russia since the May 12 signing. Toshiba
announced it will begin negotiating with Russian state-run
firm Atomenergoprom towards jointly enriching uranium and,
according to press reports, Mitsui and Co. Ltd. is
negotiating with Rosatom to develop a uranium mine in
Siberia.


6. (SBU) Following the joint statement's release, Econoff and
DOE attache met with officials in METI's Nuclear Energy
Policy Planning Division on METI's expectations for
Russia-Japan cooperation. Principal Deputy Director Hirokazu
Kobyashi noted METI wrote the joint statement broadly so as
not to preclude any areas of cooperation. He highlighted
uranium mining, fuel cycle, and plant construction as three
areas of cooperation specifically mentioned in the document.
When queried about why these areas were singled out, he
pointed to interest on the part of industry, specifically
Toshiba. According to Kobayashi, there were not any "strong
inputs" to the statement from the Russian side.


7. (SBU) Kobayashi discounted Japanese press reports
suggesting Russian nuclear fuel supply to Japan will increase
from 15% to 25% as "a Russian expectation" and that any
increases would depend on the market and not on governmental
agreement. He also noted, despite press discussion of
possible cooperation on reprocessing, that he did not think
any companies had plans for joint business in that area.


8. (SBU) Econoff confirmed with Kobayashi that the new
Japan-Russia cooperation agreement and the METI-Rosatom joint
statement do not affect current GOJ export control
regulations. Kobayashi described the agreements as
permitting joint business to occur, but not altering the
existing export licensing requirements for Japanese
corporations.


Some Progress on Oil and Gas Exploration, Renewables
-------------- --------------


9. (SBU) Agreements in oil and gas sector cooperation were
less sweeping than the nuclear cooperation agreement. One
tangible outcome was agreement between the quasi-governmental
Japan Oil, Gas and Metals Exploration Corporation (JOGMEC)
and the Irkutsk Oil Company to form an oil exploration
joint-venture. The joint-venture will drill in two blocks
located along the route of the proposed Siberia-Pacific oil
pipeline. The two blocks are estimated to hold 100 million
barrels of oil. The agreement adds to the JOGMEC's existing
project in Irkutsk's Severo-Mogdinsky block that grew out of
a joint Japan-Russia initiative to strengthen cooperation in
the Russian Far East started in June 2007. On the downstream
side, Japan's Mitsui Corporation, Toyo Engineering, and
Russia's Rosneft agreed on a high-efficiency oil refinery and
petrochemical plant in Nakhodka on Russia's eastern seaboard.


10. (C) In widely-reported remarks to Japan's business
federation and in his meeting with Aso, Putin invited
Japanese firms to participate in several projects, including
a pipeline from Sakhalin to Vladivostok, liquefied natural
gas refineries, and Sakhalin III. Following the visit, MOFA
Russia Division Principal Deputy Director Kotaro Otsuki told
emboffs the ongoing economic slowdown has made financing such
projects difficult. He said public financing from the
GOJ-backed Japan Bank for International Cooperation (JBIC)
may catalyze private companies' interest in underwriting
future resource development projects, e.g., the Shtokman gas
field. However, he said the memoranda of understanding
between JBIC and Russia's Vnesheconombank as well as between
each country's trade finance institutions were largely
symbolic. Otsuki added the global economic downturn and
uncertainty over whether Japanese firms would be able to
bring resources produced from such projects back to Japan or
be required to sell them to the Russian market has also
slowed progress.


11. (SBU) Renewable energy is an emerging area of
Japan-Russia energy cooperation. During Putin's visit, METI
Minister Toshiro Nikai and Russian Energy Minister Sergei
Shmatko concluded an MOU on energy conservation and renewable
energy that highlighted four areas of collaboration between
Japanese and Russian firms. Notably, Mitsui, electricity
wholesaler J-power, and the Russian state-owned electric
company RusHydro agreed to develop a 40 megawatt wind power
project in Vladivostock. The project would reportedly be
Russia's first wind power operation.

Questionable Interest in Broader Investment
--------------


12. (C) Foreign Ministry and METI officials confirmed the
Russian delegation provided a list of around two hundred
investment opportunities across Russia for Japanese firms.
Otsuki said MOFA began circulating the list among Japanese
firms in late May, but he did not anticipate much interest.
The scale of the projects was underwhelming, Otsuki said, and
it is unclear whether Japanese firms would be able to
repatriate any profits. Otsuki added Japanese firms'
concerns about transferring sensitive technology and the
ability to protect intellectual property temper their
response to Russian invitations to invest in such areas as
nanotechnology and IT.


13. (C) METI Trade Bureau Russia desk officer Noriaki Kojima
said the projects on the list are generally small-scale
regional and local development projects; he does not
anticipate substantial interest from Japanese firms in the
current economic conditions. Kojima added ambiguity over
which projects ultimately have central government backing may
further hinder Japanese firms' interest. For the time being,
Kojima said, Japanese trade and investment will continue to
be in the traditional areas of consumer retail and
manufacturing for the European Russian market.

No Progress on Russian Auto Tariffs
--------------


14. (C) Aso raised the matter of Russia's tariff an auto
imports with Putin, but gained no traction. Shortly after
the visit, METI released an annual report on trade agreement
compliance by major trade partners. The report includes the
Russian tariff on an expanded list of "priority developments
toward protectionism" and criticizes Russia's move as
contrary to its aspirations for WTO membership.
ZUMWALT