China, Russia sign $25-billion loan-for-oil deal

18 February 2009

After years of negotiations and bickering over state guarantees and interest rates, China and Russia finally inked the oil deal, where China will loan $25 billion to Russia's oil and gas companies in return for sustained crude oil supplies for 20 years in order to keep its economic juggernaut rolling.

Under the deal signed yesterday by Chinese vice premier Wang Qishan and Russian deputy prime minister Igor Dyomin, China Development Bank (CDB) will lend $15 billion to Russia's state-owned oil firms Rosneft and $10 billion to pipeline operator Transneft at a low interest rate of 6 per cent.

In exchange for the $15-billion loan, Rosneft will supply China with 15 million metric tons (300,000 barrels) of oil per day annually for 20 years while Transneft will build the extension of Russia's East Siberia Pacific Ocean pipeline to China linking the Siberian city of Skovorodino, 70km north of the Sino-Russian border, to China later this year, which will be commissioned in 2010 with the infrastructure as collateral.

The construction of the Chinese leg of the pipeline will be synchronised with the construction of the first line of the ESPO pipeline and China's loan to Transneft would primarily be invested in the construction of the Chinese spur.

ESPO is being built in two phases, with phase one involves construction of a 30 million tonnes per year oil line from Taishet to Skovorodino and then on to China while phase two will extended the pipeline from Skovorodino to the port of Kozmino on Russia's Pacific Coast.

Transneft and China National Petroleum had agreed in October 2008 to build the pipeline spur, which would transport 15 million tones of crude oil per year, but the talks failed to take off over disagreements on state guarantees and interest rates.