$10b loan-oil deal lubricates trade

By Li Xiaokun and Zhang Haizhou (China Daily)
Updated: 2009-05-20 07:22

China Tuesday agreed to lend $10 billion to Brazil's state-owned oil giant in exchange for guaranteed oil supply from the South American country over the next decade.

President Hu Jintao and his wife Liu Yongqing welcome Brazilian President Luiz Inacio Lula da Silva and his wife Marisa Leticia in front of the Great Hall of the People in Beijing yesterday. Wu Zhiyi. [Wu Zhiyi]

Brazil's Petrobras and Sinopec, China's largest refiner, agreed that the former will supply 150,000 barrels of crude oil a day to China this year and 200,000 barrels per day for nine years from 2010.

The two oil companies also signed a memorandum of understanding on oil exploration, refining and petrochemicals. China will explore for oil in two areas in Brazil, Zhang Guobao, head of the National Energy Administration, told Bloomberg.

Beijing last month finalized a similar agreement under which Russia will supply oil for 20 years in exchange for loans to state firms.

Petrobras and the China Development Bank inked the loan deal in a ceremony attended by President Hu Jintao and his visiting Brazilian counterpart Luiz Inacio Lula da Silva at the Great Hall of the People.

The deal was among 13 signed Tuesday, with the others ranging from equipment, financing, science and space exploration to agricultural products.

Petrobras will repay the loan with revenue from oil sales to China, and not with oil itself as some media have speculated, CEO Jose S. Gabrielli De Azevedo told a press conference.

"This is the largest loan Brazil has ever obtained in China," he added.

The China Development Bank and the Brazilian Development Bank also agreed on a framework deal for an $800 million credit extension.

Petrobras had been negotiating for finance with oil consuming countries in exchange for future supplies, seeking alternatives to international borrowing and bond issues to finance its spending plans amid the global credit crunch.

The firm needs funds to help extract massive, newly-found oil reserves deep beneath the ocean floor off Brazil's southern coast.

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