Nov. 21 (Bloomberg) -- Russian President Vladimir Putin said a planned crude oil pipeline to the Pacific ``opens large possibilities'' for Japan to help develop fields in the Russian Far East and Siberia.

The link will strengthen energy security in Asia and provide fresh stimulus to Russia's economy, Putin told a Russian and Japanese economic forum today in Tokyo. In a meeting with Japanese Prime Minister Junichiro Koizumi, the leaders reached agreement on long-term cooperation on energy, according to a statement from Japan's Ministry of Foreign Affairs.

Putin wants Japan, the world's second-largest economy, to pump more money into the former Soviet state's economy, where it trails European nations and the U.S. Japan, Asia's second- largest consumer of oil, wants access to Russian oil to reduce its dependence on supplies from the Middle East.

``We're interested in more active inclusion of Japanese'' companies in developing natural resources, Putin said at the two-day forum. ``Russia is ready to boost participation in such priority areas as the fuel and energy complex.''

No Peace Treaty

A territorial dispute over four islands north of Japan has blocked the signing of a peace treaty between the two countries 60 years after the end of World War II and has hindered Japanese investment in Russia. Russia took possession of the islands, known by the Russians as part of the Kurils and in Japan as the Northern Territories, at the end of the war. In September, Putin said Russia won't give up the islands.

The absence of a peace treaty ``hampers, or in any case, it doesn't help'' economic ties, Putin said at a joint press conference with Koizumi. ``It's important to find a solution.''

Japan, once a major trading partner of the Soviet Union, has fallen behind Germany, the U.K. and the U.S. in developing business in Russia.

Japan's current investment in Russia doesn't match its possibilities, Putin said. The trade ``dynamic isn't bad,'' he said, and may exceed $10 billion this year.

Mainland Russia

Japan had invested $727 million in mainland Russia through 2004, accounting for less than 1 percent of the nation's total foreign investment, according to material distributed by the Kremlin ahead of Putin's visit. That excludes Japanese investments in oil and gas projects on Russia's Sakhalin islands.

The Russian leader has said he would seek stronger economic and security ties with Japan as a path to resolving the islands dispute. Japan has said joint development of oilfields in Russia could help resolve the islands dispute. Russia now sells most of its oil in Europe, and is negotiating the route for a pipeline to export Siberian oil.

OAO Transneft, Russia's state-controlled oil pipeline monopoly, plans to build the first leg of a pipeline to Skovorodino, Russia, near the Chinese border. From there, oil would be shipped by rail to China or the Pacific coast.

China, the world's second-biggest oil consumer, is lobbying Russia to extend the pipeline to Daqing in China. Japan wants Russia to extend the pipeline to Perevoznaya on the Pacific coast, taking its total length to 4,100 kilometers (2,563 miles).

Pipeline

Russia and Japan consider that the fast development in full of the pipeline along the route from Siberia to Skovorodino and Perevoznaya answers the strategic interests of both sides, according to a statement from the Russian government today.

After the completion of the first stage of construction, a significant amount of oil and/or oil products will be shipped from Perevoznaya, the Russian government said. Russia will seek in the shortest time possible to begin the realization of the second stage. The Japanese side welcomes this, according to the statement.

Oil exports to the Pacific would rise to as much as 15 million tons a year if the pipeline is extended to Perevoznaya, Hirofumi Katase, director of the petroleum and natural gas resource division in the trade ministry, told reporters in Tokyo today.

By early 2006, the two nations aim to share the same understanding on the terms for a potential agreement on the second phase of the project, Japan's foreign ministry said today in a separate statement.

Russian Tax Cuts

Russia will pursue tax cuts and an improved tax structure for oil and gas that will provide selective incentives for fields that are considered difficult to develop, Putin said today at the forum, attended by about 200 executives and officials.

Russia's economy is ``stable in the medium- and long-term, creating a favorable investment climate for domestic and foreign investors,'' Putin said.

Russia's tax structure has hindered Japanese investment, said Kunio Anzai, chairman of Tokyo Gas Co., Japan's biggest natural gas distributor.

``The tax regime instability could lead some Japanese companies to take a passive position on investment in Russia,'' Anzai said.

Japan hasn't suggested a specific project the two countries could work on toward solving the islands issue, Japan's Foreign Minister Taro Aso said in an interview today in Tokyo.

`One Step Forward'

``One step forward may be to take a new approach with the suggestion of a project, in which we can see tangible results in the improvement of the islanders' lives,'' Aso said. ``If such a project takes place, mutual trust could grow between the two countries as something said becomes a reality. But this isn't something that has been officially suggested'' to Russia, Aso said.

To contact the reporter on this story:
Todd Prince in Tokyo at  tprince2@bloomberg.net.