MOSCOW, November 21 (RIA Novosti, Peter Lavelle) - President Vladimir Putin said in Tokyo that the Far East pipeline to Nakhodka would open up new opportunities for Japan to develop oil and natural gas fields in East Siberia. Putin said Russia planned to cut taxes in general and introduce an improved oil and natural gas tax regime that provided incentives to develop new fields. He also pointed out that Russia's economy would remain stable in the medium and long term, which created a favorable investment climate.
Putin said Japanese investment in Russia was not meeting its potential - it was $727 million in 2004 excluding investment in offshore Sakhalin oil and natural gas projects - though he noted the bilateral trade may top $10 billion this year.
The major political obstacle to fully fledged investment cooperation is the Kuril Islands. Japan's Chief Cabinet Secretary Shinzo Abe said that the two sides would need to demonstrate "political will" to sign a peace treaty formally ending hostilities from the Second World War. Given Russia has no intention of handing over all four of the islands, this will be a major task. The suggestion of Japan agreeing to the return of two of the islands - as has been on the table for 50 years - in return for favorable investment terms for Russian oil and natural gas projects has been floated in recent months.
