Russia scorns 'emotional' British investment fears

HEILIGENDAMM, Germany, June 7 (Reuters) Russia today dismissed as unfounded an ''emotional'' warning by British Prime Minister Tony Blair that the Kremlin's frosty relations with Europe could scare off foreign investors.

''I doubt that business will react emotionally to what I believe are the emotional words of a person who is, in effect, the ex-prime minister,'' Russia's Deputy Finance Minister Sergei Storchak said on the sidelines of the Group of Eight summit.

Blair has joined other world leaders in the German Baltic Sea resort of Heiligendamm for his last G8 summit. He is to step down at the end of this month.

''Such a statement goes against the grain of the joint work that has been done over the past six months by the G8 sherpas (on harmonising investment conditions) ... and it was rather unexpected,'' Storchak told reporters.

Britain has particular concerns about Russia because leading British energy firm BP's Russian unit, TNK-BP, faces a threat to its licence to operate the vast Siberian Kovykta natural gas field.

Russian officials say TNK-BP has failed to meet contractual obligations to develop the field but many analysts say that masks a fresh move by the Russian state to wrest control over a strategic energy asset from private investors.

Storchak said the pace of foreign investment in Russia, and economic reforms implemented by the Russian government, showed the investment climate was getting better, not worse.

He said a number of large foreign investment deals would be signed at an economic forum in Russia's second city of St petersburg later this week.

''I think in fact the St Petersburg forum will completely refute such pointed statements about the investment climate in Russia,'' said Storchak.

Blair's official spokesman, speaking to reporters travelling to the summit this week, gave a thinly-veiled warning that Russia's worsening relations with the European Union would have economic repercussions.

''Europe is increasingly saying it can only have a good commercial, economic and political relationship with Russia if Russia reflects the same values (as Europe) in its actions,'' the spokesman said.

''If not, Russia will not attract the direct investment it needs and wants. Companies will only invest in a country where they believe their investments are secure.'' Russia and the EU are at odds over trade - with a Russian ban on Polish meat imports stalling the start of negotiations over a long-term strategic partnership treaty - and over European allegations the Kremlin is eroding democracy.

Ties with Britain have been particularly tense since the death from poisoning in London last year of Russian emigre and Kremlin critic Alexander Litvinenko.

His friends say he believed the Kremlin was behind his poisoning. British prosecutors want to try a Russian man for the murder but Moscow has refused to extradite him, putting the two countries on a diplomatic collision course.

REUTERS GL RAI1913