Russia gets US$6b loan for Yukos Deal

Updated: 2005-02-02 10:15

China lent Russia US$6 billion to help the Kremlin renationalize the key unit of oil major YUKOS, officials said on Tuesday, underpinning Beijing's efforts to tap into Russia's huge energy business.

Russia's Finance Minister Alexei Kudrin told a news conference that Chinese banks made the loan to state bank Vnesheconombank (VEB) to help state oil firm Rosneft finance its purchase of YUKOS's unit Yuganskneftegaz.

"VEB has borrowed US$6 billion from Chinese banks to credit Rosneft," said Kudrin after more than a month of mystery surrounding financial details of the US$9.3-billion deal.

China, the world's No 2 oil consumer, is scrambling to satisfy surging oil demand by picking up assets that are politically or commercially untenable for Western majors in places such as Iran or Russia -- the world's No 2 oil exporter.

Russia's No 2 oil official, Sergei Oganesyan, told a separate news conference Rosneft had obtained a US$6 billion loan from China's State oil firm CNPC guaranteed by future crude oil deliveries.

"The two companies (Rosneft and CNPC) have agreed on the pre-payment for long-term oil deliveries," said Oganesyan, who is a director on Rosneft's board.

"The contract has been signed. There is nothing unusual that the pre-payment is for 5 to 6 years," he said. It was not immediately clear whether Kudrin and Oganesyan were talking about the same loan. Rosneft and VEB declined to comment.

Yugansk was put up for auction in December to recoup some of YUKOS's US$27.5 billion back-tax bill.

The sale was the culmination of a Kremlin campaign to destroy the empire of the politically ambitious owner of YUKOS, Mikhail Khodorkovsky, and regain control over the strategic oil sector it lost in the chaotic privatization's of the mid-1990s.

Rosneft emerged as the new owner of Yugansk after days of confusion that followed the auction, but it was unclear how the medium-sized and indebted firm financed the transaction.

CNPC and Indian companies have been rumored to be seeking a minority stake in Yugansk, but Oganesyan and Kudrin did not say whether an equity deal had been discussed.

Merger confusion

Russia's top energy official, Viktor Khristenko, said in December CNPC could acquire up to 20 percent in Yugansk, but at the time Chinese officials denied any deal had been struck.

"Clearly, the Chinese are trying to get some leverage. In the end, property rights are not their principle concern," said Dmitry Lukashov, analyst at Aton brokerage.

"They understand property rights in Russia are not the most important rights and they're more interested in guaranteeing supplies."

Rosneft is due to merge with gas monopoly Gazprom later this year to form a State-controlled energy giant.

But that transaction stalled after YUKOS filed for US bankruptcy protection, exposing Gazprom to potential legal risks, and has since descended into confusion.

A YUKOS official said the company was committed to suing VEB and the Chinese banks. "We have always been saying that we are going to use all possible legal means against those who participated in the theft of our property," he said.

Oganesyan said he believed Rosneft and Gazprom could continue as separate entities, but added that was not an option being discussed by the government.

Khristenko has said Gazprom should merge with Rosneft without Yugansk, leaving Yugansk as a separate entity.

Oganesyan did not say whether Rosneft had agreed to supply CNPC with its own oil or with oil from Yugansk.

Banking sources have said Rosneft could not use Yugansk's oil as collateral before repaying a $1 billion credit that YUKOS borrowed from Western banks and secured with Yugansk exports.

Oganesyan said Rosneft might enter talks to restructure the old debt. "It will be ridiculous if we say that we are going to ignore obligations on those credits," he said.

Aton's Lukashov said the deal showed CNPC was keen to secure stable oil imports that were threatened by the demise of YUKOS -- once Russia's No.1 oil exporter and a key supplier to China.

"It's important to understand the details. If the price for oil is fixed under the deal, which is unlikely, it could be very profitable for the Chinese. And Rosneft is in desperate need of cash, so it's a good deal for them, too," he said.

Analysts also said China's friendly move toward Moscow could help Beijing get more oil assets in the future if the Kremlin goes ahead with the sale of YUKOS's two remaining smaller oil units and five refineries to cover the outstanding tax debt.

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