Rosneft in talks to borrow up to $30 bn from CNPC to fund $55 bn TNK-BP deal: report

Russian energy giant Rosneft is in talks to borrow up to $30 billion from China's state firm China National Petroleum Corporation (CNPC) in exchange for long-term oil supplies, similar to a $6-billion deal by the two companies in 2004, Reuters yesterday reported, citing four industry sources familiar with the situation.

Rosneft, Russia's biggest oil producer, requires the money to fund its $55 billion acquisition of rival TNK-BP, a deal if completed, would be the biggest in Russian history and the largest ever in the oil industry.

It also requires funds to invest around $18 billion to modernise its refinery infrastructure over the next three years to augment gasoline production to meet growing domestic demand.

It is not the first time Rosneft has looked at CNPC for funds. In December 2004, CNPC provided Rosneft with a $6 billion loan in exchange for a long-term oil supply contract, which was used by the Russian state-owned company to acquire local rival Yukos main production unit Yuganskneftegaz.

Such deals have since become common for both countries since Russia has an abundance of oil, which China needs to sustain its growing economy.

In 2009, China Development Bank provided Rosneft and nationalised oil producer Transneft with a $25 billion loan on low interest rates in exchange for a 20-year oil supply contract under attractive price conditions and to build an oil pipeline to China. (See: China, Russia sign $25-billion loan-for-oil deal)

China depends on the Middle East and Africa for oil imports and in the recent past has increased efforts to procure more oil from its neighbour Russia, with whom it shares a 4,300 km border, as well as from Kazakhstan.