At the beginning of September, Putin visited China and Mongolia, the Siberian Power 2 pipeline project, which has been delayed for several years, was finally settled, and China and Mongolia officially signed the project memorandum in China.
The Russian President Putin
After the project was finalized, Putin also revealed some of the process of the negotiations. For the previous price dispute, Putin stressed that China would get products at a reasonable market price, and Russia guaranteed low prices below the euro area. At the same time, the agreement can ensure that China and Russia are both beneficial, and there is no case of so-called one country donating to another.
The Mongolian side of the transit country has also promised to cooperate with China and Russia in the construction of the project, and will take advantage of this opportunity to accelerate its development.
So it appears, The two major problems facing the project have all been solved, and the next step is now underway.
Recently, however, something went wrong again on the Russian side.
The Deputy Minister of Finance of Russia suddenly announced that although the pipeline has been fixed, But it is certain that in the next three years, the Russian government will not be able to provide tax deductions for the construction of the pipeline.On the reduction of tariffs on gas exports, it also said the two sides have not yet discussed.
As for why tax relief cannot be provided, the Russian side explained that it is because the budget is not enough.
For Russia, their strategic intention to promote the project is very strong, because Russian-European energy cooperation is blocked, leaving Russia to lose the traditional energy market, so exploring the Asian market and strengthening natural gas exports to China is its important strategic direction. but the so-called money to spend on the knife, in the context of the current conflict continues, they have to think about fiscal issues, on the one hand to deal with the ongoing conflict, the Russian side to deal with the military spending is not less, it is necessary to prioritize the security money; on the other hand, also to deal with the impact of Western sanctions on the economy, while safeguarding the people's pensions, medical education, and infrastructure construction, these are "just necessary expenses".
The Russian Pipeline
However, this step of concession does not cause little trouble to the pipeline construction.
First, the increased financial pressure.The Power of Siberia 2 pipeline is not a small project. It requires laying thousands of kilometers of pipes, buying equipment, hiring workers, and renting machinery, all of which cost a lot of money. Previously, Gazprom was looking forward to the government's tax relief. For example, if you make money and pay less taxes, you can save a fortune. Now that the government says it cannot be reduced, Gazprom has to pay more for itself. What's even more difficult is that Gazprom has had a hard time in the past three years, losing money almost every year. If the money can't be turned around next, and the construction team can't get the money when it's time to settle the payment, the construction site may have to slow down or even stop temporarily, and the progress of the project will definitely be delayed.
Second, it’s also harder to get others to invest.Gazprom cannot carry such a big project and has to find other investors, but what investors value most is whether they can make money and how much they can make. Tax relief was originally a big temptation. Without the relief, the profit will be reduced by a large piece. Investors will naturally feel that it is not cost-effective. If they retreat, the project will be short of money and it will be more difficult to advance.
If due to financial problems caused delay in the construction of pipelines, Russia will not be able to deliver natural gas to China on time, and naturally will not get the money to sell gas. Originally wanted to use this money to ease the economic pressure, now can only wait; and if due to lack of investment, the pipelines when building had to choose a more expensive solution, Even if it is finally built, the money earned will be eaten up by higher costs.
From a strategic point of view, the Siberian Force 2 is also an important project in Russia's energy strategy, and the smooth implementation of the project is crucial for Russia's reduction of dependence on the European energy market and the expansion of the Asian market. It will also weaken Russia’s competitiveness in the Asian energy market.
Prime Minister of Mongolia
For China, the impact of this measure on Russia is actually relatively complex.
In the short term, it is basically not affected. because China's natural gas canals have long been not dependent on a single seller, in addition to Russia, in recent years, China has been continuously buying gas from Central Asia, Kazakhstan, Turkmenistan through pipelines, will also buy liquefied natural gas from Qatar, Australia, and even domestic natural gas production. so even if the Siberian Power 2 is slowly built, our gas tanks in the home will be sufficient, will not affect people cooking, winter heating, and will not delay the production of factories.
And in the long run, if the project cost problem is always not effectively solved, the pipeline construction progress is significantly slower than expected, which may have a certain impact on China's future long-term planning to optimize the energy import structure and increase the pipeline proportion.
At present, the core objectives of the China-Russia-Montenegro tripartite on this project are consistent: Russia wants to sell gas, Mongolia wants to make transit fees, China wants to stabilize gas sources。 Therefore, the project will not be stopped no matter what. When problems arise, everyone will not beat around the corners and directly talk about how to solve the problems. Only by working together to build this pipeline can we create a win-win outcome for the three parties.