Rosneft and Transneft Take the Chance

29.10.2008 (11:33) | Kommersant

Rosneft has found a way to survive the financial crisis.

The company is in negotiations for a 20-year contract for oil deliveries to China. In exchange, it is counting on receiving a $12-15 billion credit. Transneft can expect another $8-10 billion from it. Rosneft received $6 billion for the purchase of Yuganskneftegaz through a similar agreement in 2005.

Chinese Prime Minister Wen Jiabao arrived in Moscow yesterday. Today he will meet with Russian Prime Minister Vladimir Putin. One of the main subjects in their negotiations will be an agreement on oil supplies to China, up to 15 million tons per year for 20 years, according to Reuters. Rosneft will be the supplier, and it may receive up to $12-15 billion in credit in return. Negotiations on a credit of $8-10 billion for Transneft will proceed simultaneously.

A Kommersant source close to Rosneft has confirmed this information. “No final agreement has been reached, but we are oriented around those parameters. We have all night still to come to an agreement,” he said yesterday evening. Another source in the company revealed that “The Chinese delegation spent the whole Monday with the management of Rosneft.” Transneft has been in negotiations with the Chinese for several days as well, a number of that company’s employees told Kommersant.

Deputy press secretary of the chief of the government executive staff Dmitry Peskov confirmed that “negotiations between Vladimir Putin and head of the Chinese government Wen Jiabao in both a narrow circle and in a broad group with members of the Russian and Chinese governments participating.” Peskov added that “There are plans to sign a number of bilateral documents, including ones on energy issues.”

The Chinese delegation’s visit began on Saturday, when Chinese Deputy Prime Minister Wang Qishan met with Russian Deputy Prime Ministers Igor Sechin (who is also chairman of the board of Rosneft) and Alexander Zhukov. Yesterday, Sechin reported that “experts on both sides are continuing to work on documents that will be signed in the course of the negotiations.” He said the work would be completed by Monday. The parties are discussing “a broad circle of questions of bilateral cooperation, including in the implementation of joint projects in the field of the atomic industry, on a natural gas program, in the field of electricity and in the oil sector,” Sechin said.

China has already bailed Rosneft out of a financial tight spot once. In 2005, the company was badly in need of money to pay for Yuganskneftegaz, which it bought from YUKOS. Chinese companies provided $6 billion, in exchange for which Rosneft agreed to supply 48.4 million tons of oil in the course of five years. But Rosneft was not satisfied with the price set in the agreement, the price of Brent minus $3. In 2007, the oil company warned that it would not renew the contract on the same terms. Last week, Russian Energy Minister Sergey Shmatko said that the parties were close to an agreement on new terms.

The government’s decision to build a line from the East Siberia – Pacific Ocean oil pipeline to China was due to Rosneft’s plans. The first line of the ESPO pipeline will be launched at the end of next year, with a capacity of 30 million tons per year. The pipeline is being laid from Taishet, Irkutsk Region, to Skovorodina, Amur Region, 70 km. from the Chinese border. There is a proposal for the pipeline to split there, with half the oil going to China and half of it to the Pacific coast. The project had been under a cloud of doubt. But on Saturday, Sechin stated that Transneft has prepared a design and will discuss conditions for its implementation with the Chinese state company CNPC. On Monday, Transneft announced that the agreement may be signed today.

Konstantin Cherepanov of KIT Finance noted that Rosneft is in bad need of money once again. According to its semiannual account, the company was due to repay $13.4 billion in debts (out of a total of $21.15 billion), but “the companies cash flows were severely depleted in connection with falling oil prices.” Transneft needs funds for the construction of the second line of the ESPO pipeline, which will cost an estimated $11 billion. Sergey Sanakoev, head of the Russian-Chinese Trade and Economic Partnership Center, noted that “the long-term nature of the contract is in the interests of the Chinese.” He considered it logical for the sides to “come to the idea of preapproved pre-export credit.”

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