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. Last Updated: 07/27/2016

A War of Words on Energy at G8 Talks

APU.S. Treasury Secretary Snow, left, and Chancellor of the Exchequer Brown.
ST. PETERSBURG -- A meeting of the Group of Eight finance ministers over the weekend seemed only to deepen the Russian-European standoff over Gazprom's export monopoly, setting the stage for high-stakes conflict as Russia hosts the G8 summit here next month.

Russia appeared to harden its stance against ratification of the Energy Charter, a key European priority, even as it signed off on the ministers' communique, which included an endorsement of the treaty's principles.

"Russia shared and continues to share the principles of the Energy Charter, but some of the principles it contains do not suit us," Finance Minister Alexei Kudrin told reporters after the meeting concluded on Saturday.

The treaty governs energy investment and transit among 51 signatory nations, including Russia, which signed the treaty in 1994 but has yet to ratify it. The treaty would require Russia to allow other Energy Charter countries access to unused pipeline capacity, which Gazprom fiercely opposes. Such a step would effectively break up Gazprom's monopoly on gas exports to Europe.

The apparent contradiction in the Russian position was noted by French Finance Minister Thierry Breton.

Breton stressed that Russia had signed off on the final communique, which stated "the importance of the principles of the Energy Charter, of diversification of energy markets and supply sources."

"If these principles are recognized, they need to be applied," Breton said.

"Unfortunately, we were unable to reach agreement with our Russian partners" about ratification, he said.

Kudrin said the treaty failed to take into account the effect of EU enlargement on energy transit issues, or to address nuclear energy.

He then used the treaty to lash out at Ukraine, saying that Ukraine had violated the treaty by siphoning off Russian gas meant for Europe after Gazprom cut supplies to Ukraine in January.

"Ukraine, unlike Russia, has ratified the Energy Charter. However, as a transit country, it allowed the unsanctioned siphoning of gas," thereby violating the Energy Charter, Kudrin said.

"I'm amazed that this hasn't been noted in the West," he said.

The Energy Charter forbids third-party countries from interfering with energy transit during price disputes. Shortfalls of Russian gas to Western Europe during the January dispute raised questions about Russia's reliability as an energy supplier that have dogged it ever since.

Neither Kudrin nor Thierry would comment on legislation introduced last week by Valery Yazev, head of the State Duma's Energy, Transportation and Communications Committee, that would formalize Gazprom's monopoly on gas exports.

Kudrin insisted Saturday that Gazprom would eventually open its pipelines to independent gas producers, as he did after the first G8 finance ministers' meeting in February. Gazprom representatives have repeatedly denied any such initiative is under discussion.

The apparent incongruity of finance ministers focusing on energy issues -- the group even released a separate statement on combating energy poverty on Saturday -- underlined how contentious the topic, which Russia named as the chief priority of its year as the G8 president, has become. But with the summit only weeks away, Russia and the West are increasingly at odds as each seeks greater predictability and access to the other's markets.

It was unclear whether comments last week by British Chancellor of the Exchequer Gordon Brown, apparently warning that he might block a bid by Gazprom for British energy firm Centrica, had spoiled relations with Kudrin at the St. Petersburg meeting.

"I think that with Gazprom, there are questions about politics as well as economics," Brown told BBC radio on Feb. 5, hours before he made a speech to British business leaders warning against protectionism.

Several announcements this weekend highlighted the new level of financial independence Russia is enjoying, thanks to tens of billions of dollars in windfall profits from oil and gas exports.

German Finance Minister Peer Steinbruck said Saturday that Russia would be allowed to pay back early $1.3 billion of its $12 billion in Paris Club debt to Germany. On Friday, Kudrin and World Bank head Paul Wolfowitz announced Russia would write off $700 million in debt owed by poor African nations.

Here too there was an energy angle: Kudrin proposed that $250 million of the refunded debt go toward building new energy infrastructure in poor nations, and said Russia would donate $30 million to the Global Village Energy Partnership, an initiative to expand energy access in sub-Saharan Africa.

Russian companies will "unquestionably" bid to build energy infrastructure under such programs, Kudrin said.

Kudrin also touted a Russian education initiative to expand "financial literacy," saying a survey had found that 74 percent of Russians feared filling out tax declaration more than going to the dentist. He did not name the survey, or give a margin of error.

Amid the talk of new aid to the developing world, warnings came from Wolfowitz and outgoing U.S. Treasury Secretary John Snow.

In an apparent reference to Russia, Snow said it was good to see certain countries "switching roles" over the past decade from aid recipients to aid donors.

He echoed a warning from Wolfowitz, however, that new lending be done in a way that did not "recreate the cycle of heavy and unsustainable debt burden" for poor nations.

Snow also said that weekend talks with Kudrin on terms for Russia's accession to the World Trade Organization left him "still hopeful" that an agreement might be reached before the July 15-17 summit here.

Snow also said G8 nations should align themselves "against protectionist sentiments wherever they might arise."

The United States is holding up Russia's accession to the 149-member WTO over access to Russian markets by U.S. banks and insurance companies, as well as stated concerns about intellectual property rights in Russia.

The Kremlin has accused Washington of playing politics with the negotiations, and suggested that Russia may retaliate by blocking U.S. companies' access to Russian markets.

With this and other fights ongoing and the summit only weeks away, Kudrin did not paper over differences with the West.

Europe and Russia are clarifying their conflicts, Kudrin said. "If a disease is properly diagnosed, that's an important step toward finding a cure," he said.