LAHTI, Finland (Reuters) - Britain and Germany warned President Vladimir Putin before talks on Friday he must give European firms a fair chance to exploit Russia's huge energy resources or risk seeing foreign investors take flight.
Putin is the guest at a European Union dinner where the bloc's 25 leaders will push him for better energy ties but also raise the killing of journalist Anna Politkovskaya and the Kremlin's heavy-handed treatment of former Soviet Georgia.
The Europeans are dismayed by Kremlin moves questioning contracts signed in the 1990s by firms including Royal Dutch Shell and Total, and by a decision to shut foreign capital out of development of the Shtokman gas field.
"We need to see more progress in terms of being certain that our companies will be able to operate in Russia, just as Russia wants its companies to be able to operate in Europe," British Prime Minister Tony Blair's official spokesman said.
"Foreign investment is not going to go into Russia if there are question marks about whether that investment is going to be treated in a fair and equitable way," he cautioned before Putin was due to arrive in the southern Finnish town of Lahti.
German Chancellor Angela Merkel, whose country is the biggest customer for Russian gas, said the EU's strategic ties with Moscow were strong but demanded a fair trade-off on energy.
"We offer security in contracts and we expect the same from Russia, namely also legal security in contracts and access to the Russian market," she told reporters.
"YOU CAN'T EAT GAS"
EU countries differ on whether the bloc should treat Moscow more as a strategic partner and supplier of a quarter of its gas, or as a bully in its ex-Soviet backyard and using energy as a political weapon.
Former Soviet satellites in the Baltic states and central Europe want a tougher EU line. Diplomats said Polish Prime Minister Lech Kaczynski urged other EU leaders at the talks to maintain a united front at the dinner with Putin later on.
However they said French President Jacques Chirac took another tone, stressing the need for the EU and Russia to understand that their interests were broadly complementary.
European Parliament President Josep Borrell said the EU would lose face unless it raised its concerns with Putin, and insisted the huge European market for Russian energy was a bargaining chip in its favour.
"There is gas flow and there is cashflow," the Spanish Socialist said. "Russia needs cashflow, you can't eat gas."
EU countries are above all irked by Russia's refusal to ratify an energy charter which would open its pipelines to third parties and by its hostility towards foreign investors.
But with Putin buoyed by high energy prices and popularity at home, observers doubt whether the EU can lay down the law.
"The spirit of the charter protects consumer countries, meaning Europe," Russian Energy Minister Viktor Khristenko told French daily Les Echos in an interview, urging European states to do more at their end to secure transit of energy supplies.
The EU this week issued unusually stern criticism of Moscow over its blockade of Georgia and harassment of Georgians in Russia. U.S. Assistant Secretary of State for European Affairs Daniel Fried said Washington also found it "deeply troubling".
Russia appears unfazed by such rebukes, insisting Georgian President Mikhail Saakashvili is exacerbating tensions with inflammatory rhetoric and a military build-up around Russian-backed breakaway regions of Georgia.
(Additional reporting by Paul Taylor, Christian Lowe, Jeff Mason and Terhi Kinnunen in Lahti, Kerstin Gehmlich in Paris and David Brunnstrom in Brussels)
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