Moscow will increase gas supplies to Turkey across the existing pipeline and later could build a new link and possibly work with Turkey on creating a gas hub on the border with Greece, Putin said.
He argued that the EU`s opposition to the South Stream pipeline — which would have run under the Black Sea to Bulgaria and further on to southern Europe — meant Russia had no other choice but to scrap it.
The announcement is part of the Kremlin`s efforts to forge new alliances as Russia-West relations have plummeted to post-Cold War lows over the Ukrainian crisis. It reflects the narrowing room for maneuver for Russia, which previously had competed with Turkey for the role of a key energy conduit to the lucrative European markets.
Turkish President Recep Tayyip Erdogan hailed ties with Russia, but was tight-lipped on the prospect of creating the energy hub proposed by Putin, signaling that tough bargaining lies ahead.
Cold-shouldered by the European Union, Putin still wants to expand Russia`s gas exports to the EU markets bypassing Ukraine and is also keen to demonstrate that Moscow can find new partners despite Western efforts to isolate it. Erdogan, in turn, sees ties with Russia as an important tool to raise Turkey`s global leverage and boost its economy.
Reflecting a shared interest in expanding ties, both leaders sought to downplay the differences, such as their conflicting views on the Syrian crisis.
"Turkey and Russia don`t share the same views on many issues, in particular on Syria ... (but) Turkey will continue to purchase energy from Russia," said Professor Huseyin Bagci of Ankara`s Middle East Technical University.
Putin`s move to try to build an energy alliance with Turkey reflects Moscow`s precarious position regarding the South Stream. Russia`s state-controlled natural gas giant, Gazprom, already has invested nearly $5 billion in building the pipeline on Russian territory, about half of its projected cost.
Gazprom CEO Alexei Miller said that his company signed a memorandum on building a new Turkey-bound pipeline under the Black Sea, which would be capable of pumping about 63 billion cubic meters to Turkey, the same capacity as the South Stream.
If Erdogan accepts the Russian offer of forming an energy alliance, it would mark a sharp policy change for Turkey that so far has served as a major transit route for oil and gas resources from the Caspian and Central region to the west, bypassing Russia. The United States and the European Union have strongly backed energy exports via Turkey as a way of reducing the continent`s dependence on Russia`s energy resources.
Putin added a sweetener, saying that Russia will offer a 6 percent price discount for its gas supplies to Turkey starting next year and could offer an even better deal if the two countries reach an agreement on deeper energy cooperation.
Turkey already is a major importer of Russian gas, coming second only to Germany. In addition to gas, Russia will invest $20 billion in a contract to build Turkey`s first nuclear power plant.
Turkey, a NATO-member which is vying for European Union membership, also has been keen to increase food and other exports to Russia, which has banned most western food imports in retaliation for the U.S. and the EU economic sanctions.
Turkish construction firms are active in Russia while millions of Russian tourists travel to Turkey each year.
The two countries, who are major trading partners, reaffirmed their determination to increase their two-way trade volume from $33 billion to $100 billion by the 2020s.
Putin and Erdogan, often compared to each other for their authoritarian streak, tried to downplay their differences but divergences on Syria were nevertheless hard to conceal. Russia remains Syrian leader Bashar Assad`s closest ally, while Turkey supports Syria`s opposition forces and wants to see Assad deposed.
"We have to consider Assad as though he does not exist," Erdogan said. "It is not possible to reach a solution with Assad."
Putin argued that the Syrian ruler still enjoys strong support from part of the population. He added, on a conciliatory note, that the sides agreed that the situation in Syria "is not normal" and that they did not want "chaos to reign" there.
Turkey also has also been a strong advocate of the Tatar community in the Russia-annexed Crimean Peninsula and has publicly supported Ukraine`s territorial integrity. Barred by Russian authorities from Crimea, Tatar leaders who strongly opposed the annexation are feted in Turkey. On a visit just a month after the annexation, Tatar Soviet-era dissident Mustafa Dzhemilev was given Turkey`s highest award.
On Monday, Erdogan said he welcomed assurances by Putin that the rights of all Crimean residents, including the Crimean Tatars, would be upheld.
Putin was welcomed at Erdogan`s new mega-palace, which has drawn the ire of Turkish opposition parties, environmentalists and activists who say the 1,000-room complex is too costly and extravagant and went ahead despite a court ruling. Putin is the second foreign dignitary to receive an official welcome at the palace, after Pope Francis who visited on Friday.
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