* Heavy investment needed after China supply deal
* Putin suggests money could come from gold, forex reserves
* Calls for reduced reliance on foreign energy equipment
(Adds quotes, background, details)
By Vladimir Soldatkin
ASTRAKHAN, Russia, June 4 President Vladimir
Putin said on Wednesday that Russia should consider
recapitalising state gas company Gazprom after a $400
billion deal with China which will require multi-billion-dollar
investments in pipelines and new fields.
"The government and finance ministry should consider the
possibility of recapitalising Gazprom in the amount needed to
build up new infrastructure," Putin said at a meeting on energy
strategy in the southern city of Astrakhan.
Boosting Gazprom's capital would put additional pressure on
the Russian economy, already slowing due to a lack of reforms
and following Western sanctions on Russia over its annexation of
Crimea, which have weighed on the rouble and triggered capital
Russian authorities have estimated that the 30-year China
deal could add 0.3-0.4 percentage points to economic growth
annually from 2015. The economy is likely to grow by around 0.5
percent this year, the central bank said.
The $400 billion deal, signed during a visit by Putin last
month, secured a major source of supply for China, the world's
top energy user, and opened up a new market for Moscow, which
risks losing European customers over the Ukraine crisis.
Russia plans to invest $55 billion in exploration and
pipeline construction to China's border, and China's CNPC said
it would build the Chinese section of the pipeline. A Gazprom
executive said China would provide a $25 billion pre-payment.
Putin did not say how exactly Gazprom could be recapitalised
but hinted it could be done from Russia's gold and foreign
"In the modern world, endless increases in gold and foreign
exchange reserves hold some risks as well," Putin said, adding
that the Chinese contract was certain to recoup the investments
in the long run.
Russia's gold and foreign exchange reserves, the world's
fourth largest, stood at $468.4 billion as of last week, down
almost $41 billion since the start of the year because of market
volatility caused by the Ukraine crisis.
For now, Europe is Gazprom's key export market. The
continent gets a third of its gas needs from Moscow, and about
half of this is pumped via Ukraine.
Moscow and Kiev are in the middle of their third gas row in
a decade, which also threatens to disrupt supplies to Europe.
CALL TO CUT RELIANCE
Following the annexation of Crimea from Ukraine in March,
the United States and European Union imposed sanctions on
Moscow, spurring talk of a need to diversify the Russian
economy, including its financial and energy sectors, away from
Putin told the meeting Russia should reduce reliance on
foreign equipment in the energy sector and step up efforts to
exploit oil and gas in Siberia and Russia's Far East, which
"Import substitution is not a panacea for all the problems
but we understand that it may allow us to guarantee the
implementation of many projects," Putin said, adding that Russia
would not halt imports altogether.
Russian energy companies have so far said that Western
sanctions have not affected their cooperation with global energy
majors such as ExxonMobil and Royal Dutch Shell
Oil production in Russia, the world's top crude producer,
has fallen for five months running, highlighting the need to
explore for unconventional resources and remote fields, where
foreign know-how is most needed.
Gazprom Neft, Russia's No.4 oil producer, has already said
it may look to domestic or Asian suppliers for drilling rigs if
Some companies admit there could be risks in borrowing
abroad because of sanctions.
Igor Sechin, CEO of Russia's state oil producer Rosneft
, publicly acknowledged this for the first time on
Wednesday when he told Putin the company faced potential risks
both in borrowing abroad and implementing its foreign projects.
Sechin, although not Rosneft, is on the U.S. sanctions list
as a close ally of Putin.
(Reporting by Vladimir Soldatkin; Writing by Katya Golubkova;
Editing by Mark Trevelyan)