Cashed up: Rosneft and Transneft
Russia seals $25bn China cash for oil deal
China has agreed to lend Russian oil companies $25 billion in return for supplies from huge new East Siberian oilfields that will power its economy for the next two decades, a source close to the talks said today.
Russia's state oil champion Rosneft and pipeline monopoly Transneft signed a long-delayed deal to borrow the money from China Development Bank during talks in China, the source told Reuters.
"The credit was provided by the Development Bank," the source said on condition of anonymity.
Rosneft and Transneft declined immediate comment.
Beijing has abundant cash that Moscow needs to access in the credit crunch as its government is running major deficits and some of its companies are finding it difficult to repay loans and borrow project finance on commercial markets.
China which has been working hard to win oil supplies from Africa and elsewhere to run its industries, will secure flows from its neighbour.
"Rosneft and Transneft can't borrow easily, so China steps in ... with a lot of funds to lend because of China's huge wealth funds," said Leo Drollas, deputy director and chief economist at the Centre for Global Energy Studies.
"They have trillions of dollars of reserves and they're saying 'we'll lend you this amount to develop the oil fields and the pipeline infrastructure needed' and it will be paid for by deliveries of oil," Drollas added.
The agreement, originally planned for the end of 2008, did not come easily and talks stalled in November last year over disagreements about interest rates and state guarantees China sought from the Russian government.
The source said the Russian delegation in China this week to revive the negotiations included Deputy Prime Minister Igor Sechin, who oversees the energy sector and chairs Rosneft, Energy Minister Sergei Shmatko, Rosneft President Sergei Bogdanchikov and Transneft President Nikolai Tokarev.
Russia, the world's second-largest oil exporter after Saudi Arabia, is seeking to diversify its exports away from the West and is targeting China as the main market for oil that will be extracted from the new generation of fields in East Siberia.
Interfax news agency reported Rosneft and China National Petroleum Company (CNPC) had signed a final version of the 20-year deal to supply Russian crude.
Although China's energy hungry industry faces a severe slowdown in its export markets, it is keen to ensure energy does not constrain future growth and force up the prices it pays.
"Demand in the Chinese market by the time the crisis is over will be there ... The risk is that we'll have supply bottlenecks which will again push the prices up," Teymur Huseynov, head of the Eurasia department at risk consultancy Exclusive Analysis, said on the sidelines of International Petroleum week in London.
Transneft and CNPC agreed in October to build a pipeline spur to carry 300,000 barrels per day of oil between the countries' trunk pipelines from 2009.