BRUSSELS - Russia is rolling out two major projects – a gas pipeline and a Crimea deep water port – with China, as EU countries and the US weigh options on economic sanctions.

Russia’s ambassador to the EU, Vladimir Chizhov, told EUobserver on Wednesday (16 April) that work on the “Power of Siberia” pipeline and the Chinese construction of a 25-metre-deep port in Crimea are proceeding as normal despite the Ukraine crisis.

Describing the pipeline as a “mega-project”, he said it will pump 60 billion cubic metres (bcm) of gas a year from the Kovykta and Tchayandinskoe gas fields to Russia’s far east, with a branch line to deliver up to 38 bcm a year to China.

He noted that Gazprom and China’s CNPC have a “legally binding” agreement from 2013 and that exploitation of the Tchayandinskoe field should start in 2019.

“One important issue is still pending – that of price. Gazprom and CNPC are negotiating on this subject, and their positions are gradually drawing closer together,” he said.

“The project is aimed primarily at delivery of gas to Russian regions and at developing industry in the Russian far east. The export of gas is considered in this context as a factor which improves (significantly, one should admit) the economics of the project, but not as a prerequisite for its realisation,” he added.

Chizhov said Moscow and Beijing are also going ahead with plans for Chinese firms to build a deep water port in Crimea as part of “a new transport corridor from Asia to Europe – ‘The Economic Belt of the Great Silk Route’.”

He indicated that Russia’s annexation of Crimea – deemed illegitimate by the UN – has done nothing to stop the port investment, worth $3 billion in the “first stage” alone.
The Russian diplomat said the main concern is environmental rather than political.

The current plans envisage the excavation of an “enormous trench” near the Crimean town of Frunze and the filling of it with sea water by demolishing a dam.

“A number of ecologists and environmental organisations protested against the project arguing that it would create unrepairable damage to the ecological systems and environment of the region, which is famous as a seaside resort … Environmental concerns must be addressed as a priority,” he noted.
He added the Ukraine crisis has also done nothing to slow Russia’s plan to launch a “Eurasian Union” with Armenia, Belarus, Kazakhstan and Kyrgyzstan next year.

“The Eurasian Economic Union is due to be launched on 1 January 2015 regardless of the situation in Ukraine or any other country not involved at this stage in the integration process … Negotiations on accession of Armenia are expected to be completed soon and those with Kyrgyzstan are also under way,” he said.

His statements came on the eve of high-level talks between the EU, Russia, Ukraine and the US in Geneva on Thursday.

The EU and US have warned they will blacklist more Russian officials and companies unless Russia de-escalates by pulling back its troops from the Ukrainian border and by denouncing separatists in eastern Ukraine.

The EU has also warned it will impose economic sanctions on Russian energy, minerals, banking, and high-tech firms if its army invades mainland Ukraine. But the Nato allies made clear they will not go to war with Russia no matter what it does to the former Soviet state.

“Talk doesn’t replace actions when it comes to what’s happening on the ground, and that we will continue to prepare, as we’ve said, additional sanctions and other steps, if we can’t get some de-escalation here,” US state department spokeswoman Marie Harf told press on Wednesday.
She added: “We’ve said that we’re not considering lethal assistance to Ukraine at this time … and the [US] President has said there is no military solution here.”

For their part, European Commission officials in Brussels on Wednesday distributed sealed envelopes to EU states’ ambassadors describing the potential impact of EU-Russia sanctions on their countries if the Union goes ahead.

Reuters reports that member states have until 22 April to reply before the commission finalises its sanctions proposal. It quoted one EU official as saying: “We can't have a situation where a set of sanctions ends up having a retaliatory impact on one member state or two or three member states. If there are going to be repercussions from this, they have to be shared out."

The UK and former Soviet and communist EU countries are the most hawkish. But Cyprus, France, Germany, Greece, Italy, Portugal and Spain have voiced wariness in recent meetings.

For his part, Cypriot foreign minister Ioannis Kasoulides told German daily Die Welt on Wednesday that EU countries should be free to opt out from the measures.
He said an EU-Russia economic war "would destroy Cyprus' economy”.

"There are very strong economic ties between Cyprus and Russia. If sanctions are really necessary, then every member state should decide for itself whether to take part," he noted.

EU companies – including Germany’s Basf, the UK’s BP, and Italy’s ENI – are reportedly lobbying capitals to hold back due to the potential impact on their interests in Russia.

The EU’s industry commissioner, Italian Antonio Tajani, has also broken ranks on EU institutions’ promises to take a tough line.

“We are not the US, we don’t have shale gas as they do, so any move to sanction them [Russia] would hurt our companies a lot,” he told the FT on Wednesday.

“At a time when Europe is getting back on its feet after the worst [economic] crisis in decades we need to be very careful and use our judgment before shutting down important investment and trade relations such as the ones we have with Russia.”