EXCLUSIVE-UPDATE 3-China may lend Russia $25 bln in oil deal

By Dmitry Zhdannikov

MOSCOW (Reuters) - 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) 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.