MOSCOW - Russia and China will sign a much-delayed, long-term oil supply deal on Tuesday and Beijing is in talks to lend Russian companies $20 billion to $25 billion in export-backed loans, industry sources said on Monday.
The deal will give Beijing access to 300 million tonnes of Russian oil over the next 20 years, accounting for 4 percent of its annual demand, while allowing Russian firms to sort out immediate financing needs during an acute liquidity squeeze and an oil price slump.
The deal will be on the agenda when Chinese Premier Wen Jiabao meets Russian officials on Tuesday, at a time when Moscow's relations with the West are at a low ebb.
The Kremlin is seeking to diversify its export routes away from the West and is targeting China as the main market for its East Siberian oil.
"It is a huge deal. The biggest ever between Russian and Chinese oil firms," said one source with the knowledge of the situation.
Sources said that if the loan was agreed, Russia's state-run oil major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) would get three-fifths of the funds, while state pipeline monopoly Transneft would obtain the other two-fifths. Rosneft declined to comment.
Transneft's spokesman Igor Demin said his firm and CNPC would sign on Tuesday a deal clearing construction of a pipeline spur between Chinese and Russian trunk pipelines. He declined further comments. The spur's cost is estimated at $800 million.
Russia's government has pledged $50 billion from its $500 billion reserves, the world's third largest, to help Russian firms repay and refinance some $120 billion in foreign loans, due by the end of 2009.
China has the world's largest reserves of $1.9 trillion.
"It is a win-win situation and a very nice alignment of interests of Russia and China," said Ron Smith, chief analyst at Alfa Bank.
"The Chinese have a very large strategic interest in this pipeline but without cheap financing it was looking questionable," he added.
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Transneft needs cash to finish construction of Russia's first pipeline to Asia, which will have a spur to China and a link to the Pacific.
The 600,000-barrels-per-day pipeline is estimated to cost over $14 billion and it needs to be finished by the end of next year.
Moscow has repeatedly warned that if it fails to find a compromise with China it would send its entire East Siberian output to the Pacific coast to supply customers such as Japan.
But analysts have predicted Russia would end up by clinching a deal with China as it is getting increasingly concerned by the growing energy ties between Beijing and Moscow's former Soviet Union neighbors, such as Kazakhstan.
Smith said the loan was also very important for Rosneft as it would come at a time when Russian companies find it difficult to refinance Western credits they have amassed to fuel growth at home and abroad in the past years.
Russia's largest oil producer owes over $20 billion to creditors and needs billions of dollars to fund its ambitious capital expenditures programme to put on stream fields in the Arctic in East Siberia and maintain output levels in its core production region of West Siberia.
"The Russian government can now save its resources to help other companies and other sectors," said Smith.
Rosneft borrowed $6 billion from China in 2004 to help fund its purchase of assets belonging to bankrupt oil firm YUKOS.
Under that deal, Rosneft pledged its entire railway exports of around 10 million tonnes of oil to China, but has warned that it would not extend the deal beyond 2010 because it considered it poorly priced.
The deal will give Beijing access to 300 million tonnes of Russian oil over the next 20 years, accounting for 4 percent of its annual demand, while allowing Russian firms to sort out immediate financing needs during an acute liquidity squeeze and an oil price slump.
The deal will be on the agenda when Chinese Premier Wen Jiabao meets Russian officials on Tuesday, at a time when Moscow's relations with the West are at a low ebb.
The Kremlin is seeking to diversify its export routes away from the West and is targeting China as the main market for its East Siberian oil.
"It is a huge deal. The biggest ever between Russian and Chinese oil firms," said one source with the knowledge of the situation.
Sources said that if the loan was agreed, Russia's state-run oil major Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) would get three-fifths of the funds, while state pipeline monopoly Transneft would obtain the other two-fifths. Rosneft declined to comment.
Transneft's spokesman Igor Demin said his firm and CNPC would sign on Tuesday a deal clearing construction of a pipeline spur between Chinese and Russian trunk pipelines. He declined further comments. The spur's cost is estimated at $800 million.
Russia's government has pledged $50 billion from its $500 billion reserves, the world's third largest, to help Russian firms repay and refinance some $120 billion in foreign loans, due by the end of 2009.
China has the world's largest reserves of $1.9 trillion.
"It is a win-win situation and a very nice alignment of interests of Russia and China," said Ron Smith, chief analyst at Alfa Bank.
"The Chinese have a very large strategic interest in this pipeline but without cheap financing it was looking questionable," he added.
CASH FOR TOP BORROWERS
Transneft needs cash to finish construction of Russia's first pipeline to Asia, which will have a spur to China and a link to the Pacific.
The 600,000-barrels-per-day pipeline is estimated to cost over $14 billion and it needs to be finished by the end of next year.
Moscow has repeatedly warned that if it fails to find a compromise with China it would send its entire East Siberian output to the Pacific coast to supply customers such as Japan.
But analysts have predicted Russia would end up by clinching a deal with China as it is getting increasingly concerned by the growing energy ties between Beijing and Moscow's former Soviet Union neighbors, such as Kazakhstan.
Smith said the loan was also very important for Rosneft as it would come at a time when Russian companies find it difficult to refinance Western credits they have amassed to fuel growth at home and abroad in the past years.
Russia's largest oil producer owes over $20 billion to creditors and needs billions of dollars to fund its ambitious capital expenditures programme to put on stream fields in the Arctic in East Siberia and maintain output levels in its core production region of West Siberia.
"The Russian government can now save its resources to help other companies and other sectors," said Smith.
Rosneft borrowed $6 billion from China in 2004 to help fund its purchase of assets belonging to bankrupt oil firm YUKOS.
Under that deal, Rosneft pledged its entire railway exports of around 10 million tonnes of oil to China, but has warned that it would not extend the deal beyond 2010 because it considered it poorly priced.
