Chinese presence in energy projects in Russian Far East set to increase

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/26

As before, during president Vladimir Putin’s official state visit to China on Saturday (June 25) dozens of agreements for various areas were signed and the leaders stressed the importance of bilateral economic cooperation and strategic partnership. Energy projects dominated the economic dialogue. Russian state oil company Rosneft penned a crude oil supply contract and framework agreements on including Chinese firms in energy projects in Russia’s Far East. Rosneft agreed to get China National Chemical Corporation (ChemChina) involved with 40 % stake in a planned project to build a multi-billion-dollar petrochemical complex in Russia’s Far East.

Despite the many economic agreements signed during state visits and their high collective value, many projects have either stumbled or never been realised. As a result of falling oil prices, Russian firms have found it increasingly difficult to finance necessary capital investments, which has helped Chinese firms insinuate themselves into Russian projects with partial equity ownership. For example, the Russians for some time now have been trying to sell a combined 20 % stake in Rosneft to Chinese and Indian oil companies.

Talks continue on a bullet train project spanning a 770-kilometre route between Moscow and Kazan. The Chinese want to play a central role in construction and financing of the project as China needs a successful bullet train project overseas to showcase its capabilities. Its bullet train projects in Mexico, the US and Indonesia are cancelled or on ice.

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