October 27, 2008 / 5:30 PM / 10 years ago

UPDATE 1-China may lend Russia $25 bln as part of oil deal

MOSCOW, Oct 27 (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-$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.

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 targetting 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 and Transneft declined to comment.

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.

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 new export-backed loan would come at a time when Russian companies find it difficult to refinance Western loans they have amassed to fuel growth at home and abroad in the past years. Rosneft owes over $20 billion to creditors.

Transneft also 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. It will become the main link for exports of crude from East Siberia, mainly from Rosneft’s fields, to China.

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