Russia Offers Venezuela's Chavez Weapons, Nuclear Cooperation

By Sebastian Alison and Henry Meyer

Sept. 25 (Bloomberg) -- Russia offered visiting President Hugo Chavez of Venezuela $1 billion in credit to buy weapons and nuclear cooperation amid worsening relations between both nations and the U.S.

``We are ready to implement all our accords in the military sphere,'' Russian Prime Minister Vladimir Putin said as he met Chavez at his residence outside Moscow late today. He told him that Russia was also ready to consider cooperation with Venezuela in atomic power in addition to high-technology and energy.

Chavez, in Russia for the second time in two months, announced before the talks that OAO Gazprom, OAO Lukoil and TNK- BP, three of Russia's biggest energy companies, may join with Petroleos de Venezuela SA to work on projects around the world.

His visit comes as Russian warships sail to the Caribbean Sea for joint exercises with the Venezuelan navy, and shortly after two Russian Tupolev-160 strategic bombers returned to Russia from a brief training visit to the South American nation. Russian relations with the U.S. have soured over Russia's war with U.S. ally Georgia last month. Venezuela is leading a drive to push back historic U.S. influence in Latin America.

Chavez will travel from Moscow to Orenburg, near the Kazakh border in southern Russia, to hold talks with President Dmitry Medvedev tomorrow.

Russia has been stepping up efforts to court anti-U.S. allies in Latin America since the conflict with neighboring Georgia, sending high-level delegations to Cuba, Nicaragua and oil-rich Venezuela.

Role to Play

Chavez said that Russia has a role to play in defending ``freedom in Latin America.'' Putin replied that the region is ``of course very important in a multipolar world and we are moving more and more toward this vector.''

Ahead of the Venezuelan leader's arrival, the Kremlin announced that Russia had agreed to issue a $1 billion credit line to Venezuela for ``the realization of military-technical cooperation programs,'' using a term that Russian authorities employ to describe defense sales.

Venezuela spent $4.4 billion on 12 contracts for Russian weapons from 2005-2007, the Kremlin said. These include deals to buy 100,000 Kalashnikov rifles, 50 military helicopters and 24 Su-30 jet fighters, according to a U.S. Defense Intelligence Agency report.

Russia is now in talks to sell air defense systems, armored personnel carriers and new-generation Su-35 fighter jets due to start production in 2010, the Kommersant newspaper reported on Sept. 18, citing state industrial holding company Russian Technologies chief Sergei Chemezov.

Getting Credit

Venezuela's insistence on getting credit toward buying these weapons, as well as Russian diesel submarines that it is seeking, had been holding up the negotiations, Kommersant said.

Venezuela's defense budget has more than tripled since 2000 to 7.12 billion bolivars ($3.3 billion) in 2008, according to the National Budget Office.

Chavez's biggest purchases came in 2006. In that year alone, he signed deals for $3.1 billion in weapons. Russia agreed to establish a factory in Venezuela for the production of both AK- 103 assault rifles and 7.62mm ammunition for more than $500 million, according to a report by the U.S. Congressional Research Service.

Chavez said the idea for establishing a consortium for energy cooperation had come from Russian Deputy Prime Minister Igor Sechin, who led the delegations to Latin America earlier this month.

Across the Globe

``This will be the biggest consortium in the world,'' Chavez said in a live telephone call to Venezuelan state television, adding that it would operate in countries across the globe.

In July during the Venezuelan leader's last visit to Russia, Gazprom, Lukoil and TNK-BP signed agreements with state-owned Petroleos de Venezuela SA on joint exploration of oil fields in Venezuela.

Chavez has called Russia the guarantor of a ``multipolar world.'' Earlier this month he expelled the U.S. ambassador to Caracas as Venezuelan-U.S. relations worsened.

He's also given verbal support for the independence of Abkhazia and South Ossetia, two breakaway regions of Georgia that have been recognized by Russia and Nicaragua alone after the five-day Russian-Georgian war. Chavez has stopped short of full recognition.

To contact the reporters on this story: Sebastian Alison in Moscow at Salison1@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net