VZCZCXYZ0000
RR RUEHWEB

DE RUEHKO #1285/01 1600129
ZNY CCCCC ZZH
R 090129Z JUN 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 3569
INFO RUEHMO/AMEMBASSY MOSCOW 2878
RHMCSUU/DEPT OF ENERGY WASHINGTON DC

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