MOSCOW. (German Gref, Russian Economic Development and Trade Minister, for RIA Novosti)

Japan is a traditional strategic partner for Russia, a major development center in the Far East and in the global economy and industry.
This is why the Russian government wants to develop relations with Japan in every way and in different areas. In this connection, I would like to point out that mutual efforts have significantly improved the general atmosphere of bilateral relations in recent years, including in the trade, economic and investment spheres.
Importantly, in the last five years this cooperation has received a strong legal framework represented by such documents as the Program for Expanding Trade and Economic Cooperation between the Russian Federation and Japan, signed by Russian President Vladimir Putin during his visit to Japan six years ago, and the Russian-Japanese Action Plan, signed by Japanese Prime Minister Junichiro Koizumi in Moscow in January 2003.
In these documents, the two leaders said cooperation in the trade, economic, scientific and technical spheres was a strategic priority in developing bilateral relations.
Japan is now Russia's second largest trading partner among Asian countries, after China. Last year bilateral trade reached a record $9.6 billion, according to Russian customs statistics (Japan estimated it at $10.7 billion). The difference is due to different methods of calculation. In any case, this is something to be proud of: Russian-Japanese trade soared by almost 30% against 2004 and doubled in the last three years.
A remarkable feature in the two countries' trade is that the imbalance between Russian exports and Japanese imports is gradually being smoothed over. The cost of mineral resources, hydrocarbons, non-ferrous and precious metals and metal products, primary aluminum, timber, fish and seafood sold by Russian companies last year was up 10% against 2004.
So we believe that if the positive trends in the Japanese and Russian economies are sustained, bilateral trade will grow steadily in 2006-2007, although the pace of such growth may be slower than in the last few years.
Investment cooperation with Japan is of no less importance for Russia. Of course, it does not look as impressive as trade, although there are positive changes as well. Both countries understand that investment is an important component of their trade and economic relations. So Russia is taking all the necessary steps to improve its investment climate, which will provide an additional incentive for Russian-Japanese ties in the investment sphere. However, we believe that Japan's share in foreign investment in Russia is so tiny (0.5%) that it at variance with the present scale of bilateral economic ties. The same is true of Japan's direct investment, whose share in total foreign direct investment stands, unfortunately, at a mere 0.2%.
Yet for the sake of objectivity, we have to admit that there has been some progress in our investment relations lately. In value terms the total volume of investment made by Japan into the Russian economy in the first quarter of 2006 was $45.5 million, i.e. double the amount made for the same period last year.
In addition, the distribution of the Japanese investment shifted from timber, timber processing and mining operations to telecommunications, which is now the leading field for investment from Japan. As to the amount of aggregate investment in Russia, Japan is far below the top ten investors, with only $567 million as of late March, 2006. It accounts for a mere 0.5% of total accrued investment in Russia, which is obviously not commensurate with its huge financial and technological potential.
Two thirds of accrued investment went to oil production and refining. The rest went to the primary sector, as Japanese businessmen are still interested in such spheres as coal production, enrichment and agglomeration and fishing.
If we have a broader look at the issue, we will note that in reality Japan has invested much more money in Russia. A good example is provided by the Sakhalin 1 and 2 oil and gas projects, where Japan's stake is 30% and 45% respectively. These projects are already being implemented in practice. Since Sakhalin 1 was launched, over $5 billion of the projected $13 billion has been invested in it. Likewise, $6 billion had been invested in Sakhalin 2 by the beginning of 2006, with total investment projected at $12 billion.
Due to the specific feature of Japanese companies' participation in product-sharing agreements, when the money does not go directly but is transferred to international consortiums' accounts or to Japanese firms' European offices, it is not included in Russian investment statistics. However, taking into account Japan's investment in Sakhalin ($4-$4.5 billion), its accrued investment in Russia is similar to that of the United States, France and Britain.
Much has been done in Russian-Japanese trade, economic and investment cooperation, but the prospects are even more impressive. I will mention only a few areas that seem very promising. A number of Russian energy projects are being discussed with Japanese businessmen, primarily coal production in Yakutia, on Sakhalin and in Primorye. The development of the Elginskoye deposit of baking and steam coal in southern Yakutia and subsequent coal deliveries to Japan promises good returns on investment. This is one of the world's largest deposits, with explored reserves standing at 2 billion metric tons. Its commissioning will make it possible to produce up to 30 million metric tons of coal annually by 2010.
We have already signed an agreement of intention with the steel producers Sumitomo, Sojitsu and Nippon Steel on the purchase of 3.7 million metric tons of coal from the Elginskoye deposit. The Japanese Bank for Reconstruction and Development plans to finance the project.
The Russian coal and steel holding Evraz Group signed an agreement with Mitsui on joint development of the Denisovskaya coal deposit in Yakutia. Japan is expected to provide $80 million out of the planned $260 million of investment.
In the mining sphere, Mitsubishi intends to invest $50 million in the Kupol Gold mine development in Chukotka. The cost of the project is estimated at $425 million and production is expected to begin in 2008. An international consortium is planning to mine 16 metric tons of gold and 2.2 metric tons of silver annually. The deposit's total reserves are estimated at 171 metric tons of gold and over 2,000 metric tons of silver.
As regards car and car parts production, Toyota has launched a huge investment project to build a plant near St. Petersburg to assemble the Camry model. At the initial stage, till mid 2007, the plant will produce 20,000 cars annually, and later it intends to produce 50,000. Investment at the first stage will total $150 million. It has taken only a short time to develop a large investment project with another Japanese car-making giant, Nissan.
The town of Klin, Moscow Region, will accommodate an Asahi plant to produce sheet glass. It will be the company's second plant in Russia; the first one, producing glass for car windows, was launched in 1997 in Nizhni Novgorod. It will supply glass for future Russian-assembled Camry cars.
Denco Corp. is considering a plant to produce electric accessories for cars, and Komatsu may open an enterprise producing hydraulic excavators and other construction machines.
Another promising area of investment is certainly information technology and telecommunications. With information exchange between Europe and Asia growing rapidly, it is necessary to create new high-speed fiber-optic lines. They could be based on the digital communications network built by Russia’s Transtelecom. Japan is very interested in joining the project.
The Japanese business community is gradually overcoming stereotypes in assessing Russia's investment climate. At least they no longer try to shift all investment risks on to the Russian state. Now they take more time to assess the reliability of a Russian partner and the feasibility of investment projects. This is the right approach: systemic reform to improve the investment climate takes time, but competition on the attractive Russian market will be won by those who make the quickest decisions. –0–