G8 gets Russia to back energy charter principles

ST PETERSBURG - The Group of Eight won a pledge from Russia overnight (NZ time) to open its energy sector to foreign investment, although Moscow refused to commit to ratifying the Energy Charter, an international rulebook.

"We support the principles of the Energy Charter and the efforts of participating countries to improve international energy cooperation," said a G8 statement on energy security.

The European Union has pressed Russia, which supplies a quarter of its gas, to ratify the Charter and break the export monopoly of state-controlled gas giant Gazprom

President Vladimir Putin has resisted that pressure and his officials have dismissed the Charter as outdated and ineffective. But EU officials see his backing of wide energy security principles as a step in the right direction.

"It was good that those principles were recognised, but it's not enough," EU Commission President Jose Manuel Barroso said.

It took a jab from US Vice President Dick Cheney, who in May accused Moscow of using energy as a tool of "intimidation and blackmail" for Russia to soften its position on the Charter.

"The formula that was adopted ... takes note of the efforts by energy charter participations to improve international energy cooperation. Period. So no ratification of the Energy Charter," Russian G8 negotiator Andrei Kondakov told Reuters.

"We have a very good concession by the Russian side."

The EU pushed the Charter, whose principles include backing for stable legal frameworks and market transparency, after Russia shocked the continent in January by cutting gas supplies to Europe in a pricing dispute with neighbouring Ukraine.

Russia has rowed back on its hostility to the Charter, but Putin has said it will only go further if Gazprom is assured of "security of demand" by acquiring European distribution assets.

Gazprom covets British gas distributor Centrica and has embarked on deep cooperation with German firms, including building a US$5 ($8.19) billion subsea export pipeline across the Baltic.

Ahead of the G8 summit, Germany's E.ON signed a deal with Gazprom to take a stake in the Yuzhno-Russkoye gas field, which will supply Germany via the Baltic pipeline.

Although Russia has not ratified it, the Charter is binding unless it cuts across national laws. To protect Gazprom, Russian lawmakers this month wrote its monopoly into law, a move that analysts said ran counter to moves to liberalise the sector.

Russian Energy Minister Viktor Khristenko said the new law was "not a departure from market principles." He said Moscow would ratify the Charter under two conditions.

The first was that Gazprom should be able to sign long-term transit contracts with countries en route to its big markets in Europe. Khristenko said at the moment EU regulation encourages short-term contracts, which bring additional risks for Gazprom.

The second was that the EU should decide whether Brussels or EU member states hold the authority to regulate energy transit.

Experts say Russia needs massive investment in its energy infrastructure to keep its promises to supply oil and gas to the rest of the world in the future. European companies are also keen to have more access to Russian pipelines.

To meet those goals, the G8 backed "transparent, equitable, stable and effective legal and regulatory frameworks, including the obligation to uphold contracts, to generate sufficient, sustainable international investments upstream and downstream."

The EU, which is becoming more reliant on gas imports, sees the G8 pact as a launchpad for more legally-binding agreements.

"Given the situation that we are in, we are very happy with the text as it is," an EU official said.

"The real question is whether the practice and the implementation will be according to the text as such."

- REUTERS