Putin Woos U.S., German Executives

APPresident Vladimir Putin meeting with senior U.S. business executives at the 18th-century Konstantin Palace near St. Petersburg on Saturday. From left are Putin's foreign policy adviser Sergei Prikhodko, Conoco Phillips CEO James Mulva, News Corp. chairma
In an unprecedented charm offensive, President Vladimir Putin met over the weekend with groups of top business leaders from the United States and Germany in an effort to reassure them of Russia's commitment to free market economics.

At both meetings -- the first time in his presidency Putin has given an audience to such high-profile groups of foreign business leaders -- Putin called for increased foreign investment into Russia, promised to safeguard investors' rights and held out the possibility of more energy exports to Europe and the United States.

On Saturday, Putin met with a group of leading American executives, including Citigroup's Sanford Weill, News Corp.'s Rupert Murdoch, ConocoPhilips's James Mulva and IBM's Samuel Palmisano. On Sunday, Putin met with senior German executives from leading companies, including Siemens, E.ON, ThyssenKrupp, Metro Group, EADS and BASF.

Both meetings were held at the lavishly reconstructed 18th-century Konstanin Palace near St. Petersburg, which underwent a facelift for the city's 300th anniversary celebrations in 2003.

"We will continue to work to improve Russia's investment climate," Putin told the American executives during the part of Saturday's meeting that was open to reporters. "I hope that in a few years' time, Russia will turn from a net exporter of capital into a net importer."

On Sunday, Putin told the Germans that the government was encouraging foreign investment by "the further de-bureaucratization of the economy, improvement of anti-monopoly policies, strengthening of ownership rights and more well-defined regulation of taxation bodies' activities."

Putin also said the state would set clear rules for foreign investors in strategic sectors. His comments appeared to signal that Siemens' bid to buy into engineering company Siloviye Mashiny, or Power Machines, could yet go ahead, as long as the German giant took a minority stake.

In April, the Federal Anti-Monopoly Service rejected Siemens' bid to buy 70 percent of Power Machines on national security grounds, despite the deal's reportedly having secured Putin's blessing last year.

Economic Development and Trade Minister German Gref, who was at the St. Petersburg meetings and has lobbied for the Siemens-Power Machines deal, said Sunday that there was "no obstacle to this deal being completed, as long as it is without the acquisition of a controlling stake."

The Americans
Craig Barret, Intel
Alan Belda, Alcoa
John Faraci, International Paper
Antonio Gotto, Cornell Medical College
Michael Klein, Citigroup
Robert Kraft, Kraft Group
James Mulva, ConocoPhillips
Rupert Murdoch, News Corp.
Samuel Palmisano, IBM
Jerry Speyer, Tishman-Speyer Properties
Sanford Weill, Citigroup
The Germans
Wolf Bernotat, E.ON
Burckhard Bergmann, E.ON Ruhrgas
Thomas Ender, EADS
Jurgen Hambrecht, BASF
Hans-Joachim Korber, Metro Group
Rudy Lamprecht, Siemens
Klaus Mangold, East Committee of the German Economy
Harry Roels, RWE
Eckehard Schultz, ThyssenKrupp
Matthias Warnig, Dresdner Bank Russia
Heinrich Weiss, SMS
Siegfried Wolf, Magna International

While the recent acquisition by Rosneft of Yukos's former main production unit, Yuganskneftegaz, and the jailing of Yukos boss Mikhail Khodorkovsky have raised fears that the Kremlin is aiming to re-establish strict state control over the oil sector, the Yukos affair was not discussed Saturday, Citigroup chairman Sanford Weill told reporters.

"If we understood more about the rules of the road, if we understood more about how the court system might work, and how the taxation might work, we could encourage a lot more investment," said Weill, who proposed the meeting, The Associated Press reported.

Putin told the American executives that U.S.-Russian trade was "quite insignificant," and said he hoped it would "double in the next few years."

In 2004, Russia's trade with the United States stood at about $15 billion, leaving it outside the top 20 U.S. trade partners.

"With no additional investment, the United States could import 50 million tons of Russian oil per year," Putin said. "We are absolutely certain this would be a very serious factor that would improve the stability of the world, as well as the American, economy."

Last year, 7 million tons of Russian oil were exported to the United States.

Analysts, however, described Putin's comments as more symbolic of a wish to rebuild bridges than of a worked-out policy.

"It represents an attempt to rebuild energy cooperation that was much talked about a couple of years ago but has been in the background lately," said Stephen Dashevsky, head of research at Aton Capital. "There is no physical capacity to increase exports by this much yet."

Chris Weafer, chief strategist at Alfa Bank, said Putin's announcement was likely an invitation for U.S. oil majors to join large pipeline projects in the country.

"Russia is very keen to be admitted to the World Trade Organization this year, and it is becoming increasingly clear that it is trading off energy cooperation for WTO accession," he said.

On Sunday, Putin also pursued the energy theme, saying that the capacity of the North European gas pipeline, a joint project between Russia's Gazprom and Germany's BASF, could be as much as 55 billion cubic meters of gas per year.

"There are plans to boost its capacity to 55 bcm, to build two branches," Putin said. "By 2010 one of these branches should be ready to export 27 bcm to Europe."

Germany is already Russia's largest trading partner, with bilateral trade standing at 31.2 billion euros ($38 billion) in 2004, a leap of 18.3 percent on the year before.

Alexander Zemlianichenko / AP

Mangold, left, introducing Putin to German executives Sunday, including Weiss, third from right, and Lamprecht, right.

"Relations between Germany and Russia have never been at a higher level," Klaus Mangold, chairman of the East Committee of the German Economy, told Putin. "No matter what happens in Europe or the world, German economic circles are interested in supporting stable relations with Russia."

Besides Putin, the Russian government was represented at both meetings by Gref, Kremlin chief of staff Dmitry Medvedev, presidential aide Sergei Prikhodko and Energy Minister Viktor Khristenko.

While Putin has met with foreign business leaders on several occasions during his five years in office, the weekend's meetings were unprecedented in their format and for the inclusion of some of the world's most influential business leaders.

In his previous high-profile meeting of this kind, held just days after Khodorkovsky's arrest in November 2003, Putin met with the executives of more than a dozen leading Russian and Western investment banks in an effort to reassure them that the Yukos affair was an isolated case and not a campaign against corporate Russia.

Alfa Bank's Weafer said that meetings such as this weekend's were like a "double-edged sword."

"On the one hand, it shows strong personal commitment to repair the damage done by Yukos, tax terrorism and ineffective reforms. But on the other hand, if you end up making promises to senior business leaders, you must follow through with action, or you'll end up looking worse than before," he said.