Oiling the wheels

Earlier this summer, the first shipment of coal from Heilongjiang province arrived by road at the Russian far east deep-water port of Vostochnyy. Over coming months the coal will be stockpiled in Vostochnyy and then sent on to Japan, South Korea and other Asia-Pacific countries. Some 500,000 tonnes of Chinese coal will be transhipped through Vostochnyy this year under a contract between the port authorities and Heilongjiang.

This arrangement is part of developing co-operation between Russia and China in the energy sector. The biggest project to date is construction of the Tianwan nuclear plant, but this is by no means the only initiative. Russian-made generators are now operating at the Shuizhong thermal power station and there are plans for major joint developments in oil and gas.

Currently, Russia ranks ninth among China's trade partners, with bilateral trade reaching US$5.73bn last year, up 4.4 percent over 1998. In the first quarter of this year, trade increased by a further 26.7 percent to reach US$1.42bn.

Energy will play an increasingly significant role in this developing relationship. Last month, Presidents Jiang Zemin and Vladamir Putin signed memorandums of understanding on feasibility studies for an oil pipeline, a joint gas development project with North Korea and a commitment by China to buy 300,000 tonnes of Russian oil. Experts believe joint energy initiatives will be the catalyst for wider Sino-Russian economic cooperation.

In March this year, the Russian and Chinese energy departments discussed the possibility of transporting oil and natural gas from Siberia to China. Russia hopes to provide China with 35bn cubic metres of natural gas annually up to 2010. In addition, the volume of oil transported to China is set to increase from the present level of 1m tonnes to 20m-30m tonnes.

Some weeks ago, Russia announced plans to take part in China's ambitious western development programme. Projects include building an enterprise in Xinjiang to produce electricity supply equipment, constructing coal mines and recovering oil in Qinghai and Xinjiang, and helping China transport natural gas from its western to its eastern regions.

Mr Li Jingwen, an economist at the Chinese Academy of Sciences and a foreign scholar at the Russian Academy of Sciences, is optimistic about bilateral cooperation. "Russian experience and technology can be directly used by us," he says. "If Russia's political situation is stabilised, its economy will grow and the co-operative potential will become a real force."

In 1999, the Russian economy grew by 3.2 percent after a decade-long slump. China is soon to join the World Trade Organisation and Russia should complete its WTO negotiations with the next few years. This should further develop cooperation.

Both sides see great potential. Regional authorities in Russia's far east are optimistic about the prospects of closer links, especially China's interest in an investment project to build a Sakhalin-Khabarovsk gas pipeline. Recently, a government delegation from Heilongjiang expressed interest in the project.

Limited Chinese investment
Chinese investment in Khabarovsk is small, but foreign trade turnover between the territory and China totalled US$168m last year. "Although firms with Chinese capital make up 43 percent of all registered structures with foreign investments in the territory, the volume of Chinese investment is currently less than 2 percent of the foreign capital in the territory's economy," says Mr. Sergey Lopatin, head of the territory's foreign economic relations department.

The Russian government is finalising a decision on the construction of an oil pipeline to China, according to Mr. Mikhail Khodorkovskiy, the head of the Yukos oil company. The decision to build the pipeline was made at the fourth regular meeting of the Russian and Chinese heads of government in February. However, there is still disagreement over the proposed route of the pipeline.

The US$1.7bn pipeline would initially have a through capacity of 20m tonnes a year, rising to 30m tonnes when it is brought fully on line in 2010. Yukos is a key 'participant in this project and is prepared to ship oil from its east Siberian fields along the pipeline in the initial phase. The oil company Rosneft commented in April that it plans to take part in the construction of the pipeline and pump about 3m tonnes of crude to China annually from its fields.

Discussions are continuing on financing, access and property rights for the pipeline, says Khodorkovskiy: "So far Rosneft has clearly expressed a desire to pump oil [to China] and Lukoil has promised to discuss this issue. We also hope that [pipeline monopoly] Transneft, besides acting as operator, will take part as an investor."

Meanwhile, the ports in Russia's Maritime Territory are continuing to transship containerised cargoes from China's northern provinces to various countries. The first deliveries to Vostochnyy marked the beginning of the transshipment along the east-west international transportation corridor after five years of preparation. Coal is just one of many types of cargo to use this route.

The road system in the Maritime Territory has been developed on the back of the rail network, which has for some time been bringing Chinese coal from Heilongjiang for onward shipment by sea. The first Chinese containers transported along the new land corridor are seen as the start of a much bigger project to attract cargoes from the western states of the US and the northern provinces of China. Up to lm containers are transported between these areas every year, until now delivered via Japan and South Korea. But transportation via Maritime Territory harbours is shorter and talks are now under way with a view to Vostochnyy handling 500,000 ship-born containers a year.

In 1999, Vostochnyy handled 300,000 tonnes of Chinese coal, brought in by rail, proving the efficacy of this system. Russia hopes that other energy co-operation projects will lead to wider trade and investment.