EU to warn Putin energy row could harm investment

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Vladimir Putin, the Russian president, will be warned today that Moscow risks losing the Western investment and technical knowledge needed to develop its energy industry if it does not forge a new pact with the EU.

Mr Putin is hosting talks with the European Commission president, Jose Manuel Barroso, before next week's EU summit at which European heads of government will debate a new energy strategy.

Alarmed by the disruption to supplies in January during a dispute between Russia and Ukraine, European leaders have put the issue of security of supply at the top of their agenda.

In a strategy document last week, Mr Barroso called for a partnership with Russia that "would offer security and predictability for both sides, paving the way for necessary long-term investments in new capacity."

EU officials say that problems such as the row with Ukraine could deter European multinationals, particularly if the government in Moscow is seen to be taking arbitrary decisions. The Russian government also needs to ensure the "proper rule of law" to encourage investment, officials say.

Russia admits it will need to draw large sums of capital from outside. Speaking at the opening of the G8 talks in Moscow, Russia's Energy Minister Viktor Khristenko said that $17 trillion (£10 trillion) needed to be invested before 2030 to ensure security of supply.

Mr Barroso will point out that the relationship is symbiotic: Russia is the largest supplier of oil and gas to the EU, and Europe is Moscow's biggest customer.

The European Commission president is also expected to discuss whether the Russian energy giant Gazprom could be given the right to retail in the European market if its powers at home are reined in.

The state-owned Gazprom has a monopoly of all supplies coming through its pipeline network, including energy bought from suppliers such as Turkmenistan. European companies have long desired access to Russia's energy network to buy from non-Russian sources. Last week's EU strategy paper on energy said that it wanted "fair and reciprocal access to markets and infrastructure including, in particular, third party access to pipelines".

However, European diplomats accept that Mr Putin is unlikely to reduce Gazprom's power in the short term.