Energy Partnership Focus for Chavez

APChavez gesturing with Medvedev on Tuesday at the Maiendorf Castle presidential residence outside Moscow, where Chavez called for an energy alliance.
Venezuelan President Hugo Chavez gave the go-ahead for expanded operations by Russian oil companies and called for an energy alliance with Moscow during an appearance with President Dmitry Medvedev on Tuesday, but he saved a personal invitation to visit Caracas for Prime Minister Vladimir Putin.

During the first leg of his European tour, the outspoken, anti-U.S. leader also held talks on purchasing Russian arms and said the world should jettison the U.S. dollar in favor of the Russian ruble.

"We can say that Russia and Venezuela have achieved a strategic alliance in the energy sphere," Chavez said after talks with Medvedev at Maiendorf Castle, his residence outside Moscow, in comments posted on the Kremlin's web site. "We've been slowly traveling this path for the past five or six years and today signed agreements that will allow us strengthen our cooperation in this direction."

Chavez's first meeting with Medvedev since he took office in May offered a very different focus than his talks with Putin in 2006. Then, the deals called for the sale of 24 fighter jets and 53 helicopters to Venezuela, and the two addressed a news conference in the Kremlin.

This time, the Kremlin's focus was on the signing of broad energy deals, including one with TNK-BP while playing down the ongoing arms talks. Only a limited number of reporters were admitted to cover the meeting at the Maiendorf Castle, fueling speculation that Chavez's anti-U.S. rhetoric was uncomfortable for a Kremlin trying to promote Russia as a more reliable partner for the West.

Russia's relationship with Colombia, whose Vice President Francisco Santos met with Medvedev on a visit to the country last month, makes dealing with Chavez more difficult, as Colombia has accused Venezuela of funding anti-government FARC guerrillas there.

"Relations between Russia and Venezuela have become more complicated," Chris Weafer, chief strategist at UralSib Capital, said in e-mailed comments from London. "Going forward, given Medvedev's ambition to create a diversified and open economy, balancing international political and economic relationships is going to be a lot more complicated than it used be."

Emil Dabagyan, a senior political analyst at the Russian Academy of Sciences' Latin America Institute, said there was a logic to Russia's arms deals with Chavez, calling them an "assymetrical answer" to U.S. plans to install an anti-missile shield in Europe.

Talks are under way to sell Venezuela air defense systems and military aircraft, along with other weapons. Mikhail Dmitriyev, director of the Federal Service for Military and Technical Cooperation, participated in Tuesday's talks, said his first deputy, Alexander Fomin.

"An active discussion of issues is under way," Fomin said by phone. Russia has sold Venezuela $3.5 billion worth of arms in recent years, and Russian press reports have said it is looking for sales of $2 billion more.

Fomin said the final price tag might be different and that he was hoping that "some sort of a framework agreement will be signed."

National news broadcasts showed Chavez and Medvedev beaming together, but Chavez seemed to save his warmest words on Tuesday for the man he calls his "friend Vladimir."

Meeting later in the day, the two addressed each other in the familiar "ty" manner, with Chavez congratulating Putin on leaving office "with his head high" and saying he wanted to know when Putin would visit him in Venezuela.

Chavez cultivated warm personal ties with Putin during five previous visits to Russia, including a meeting at the presidential residence last year ahead of Putin's meeting with U.S. President George W. Bush.

"I remember your invitation," Putin said Tuesday about the Venezuela trip. "We'll definitely do it."

Chavez also invited all of the participants to come to Venezuela during the meeting with Medvedev.

The focus for Medvedev and Chavez for the day was energy, overseeing the signing by Gazprom, LUKoil and TNK-BP of deals for joint oil exploration in Venezuela with state-owned Petroleos de Venezuela, or PDVSA.

German Khan, executive director at TNK-BP, signed an agreement with PDVSA president Rafael Ramirez to study a joint project in Venezuela's Orinoco oil belt, the 50-50 British-Russian venture said. The agreement follows up on a 2007 memorandum to assess and certify reserves at the Ayacucho-2 block.

Alistair Graham, BP's chief liaison to TNK-BP, said Tuesday that the deal "was fully supported by BP."

A source inside TNK-BP said by phone that the current shareholder dispute, which has seen the Russian investors complain that BP has prevented the firm from developing its activities abroad, had no bearing on the deal.

"It's part of the intergovernmental commercial show surrounding the visit," the source said. "I'm not saying it's a bad thing, but it's something that would have happened anyway."

LUKoil president Vagit Alekperov and Ramirez signed a two-year deal to move forward with joint exploration of the Junin-3 heavy oil deposit in the Orinoco belt, LUKoil said in a statement. The companies will split expenses on exploration, it said, without providing a figure for the expected cost.

In line with a three-year agreement signed in 2005, LUKoil has helped Venezuela quantify heavy crude oil deposits in its Orinoco River basin. LUKoil vice president Andrei Kuzyayev said the company was in talks to refine Venezuelan crude at the new refining venture it formed last month with Italy's second-largest refiner, ERG, Reuters reported Tuesday.

LUKoil spokesman Dmitry Dolgov said refining deals would only become possible when the company started pumping oil in Venezuela.

"And it's hard to say when it will happen," he said in e-mailed comments.

Gazprom, Russia's state-controlled natural gas producer, agreed to conduct joint studies in Venezuela's Orinoco oil belt. Gazprom Latin America and PDVSA will finish evaluating reserves at the Ayacucho-3 oil block by the end of the year, Gazprom said in a statement. Venezuela is also interested in Gazprom's participation in the Delta Caribe Oriental liquefied natural gas project, which includes the exploration of two fields and the construction of an LNG plant in Venezuela.

Medvedev told reporters Tuesday that the leaders also agreed to keep monitoring key bilateral projects and agreed that plans for an OPEC-style gas cartel should remain open for discussion.

Valery Nesterov, an oil analyst with Troika Dialog, said Medvedev's pledge to pay personal attention to Russia's projects in Venezuela was not surprising, as Russian projects in Venezuela were not that large and were progressing slowly despite the grand rhetoric from Chavez.

He was also skeptical about the talk of establishing a cartel of global natural gas producers, saying it was difficult, "if not impossible" in the current market.

Staff Writer Miriam Elder contributed to this report