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Russia-China energy alliance gaining momentum

October 23, 2013, 11:41 UTC+3
The biggest agreements were signed between Rosneft and two Chinese state-owned companies
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Russian Prime Minister Dmitry Medvedev’s visit to China that began on Tuesday has become a presentation of a large-scale energy alliance between Russia and China. The Chinese side is ready to extend to Russia tens of billions of dollars more against the guarantees of the supplies of oil, natural gas and electricity - Kommersant business daily reports.

The newspaper’s sources in the government said that one of the main tasks of Rusia's Prime Minister in the negotiations with the Chinese partners will be trade diversification. Since 2009, China is the largest trade partner of Russia. However, the trade turnover structure with China is more and more giving Russia a purely raw-exports role. Thus, in 2012 the trade turnover increased to $88.16 billion, Russia’s exports totalled $44.15 billion. However, the share of machinery and equipment in it amounted to only 0.7%, and mineral products (hydrocarbons - nearly 69%) accounted for the rest.

The outcome of the negotiations on Tuesday showed that Beijing is still willing to act within the framework of a simple concept: Russia’s hydrocarbons in exchange for Chinese loans. The sides inked 21 documents, of which four most important ones were on energy.

The biggest agreements were signed between Rosneft and two Chinese state-owned companies: China National Petroleum Corporation (CNPC) and Sinopec (China Petroleum & Chemical Corporation). The second agreement, worth $85 billion, provides for a downpayment of 20-30% (plus an advanced payment of more than $60 billion under June contract with CNPC worth $270 billion). Rosneft is trying to diversify its partnership relations in the Chinese oil industry. If CNPC previously had been the only partner, then it is developing contacts with the other two major state-run oil and gas companies of China: Sinopec and CNOOC (China National Offshore Oil Corporation).

Vnesheconombank (VEB) has concluded a large package of agreements. Following the talks, VEB head Vladimir Dmitriyev took to Moscow three loan agreements worth $1.9 billion, the largest of which is with China Development Bank ($800 million). China Development Bank provided to VEB the second loan worth $400 million for the construction of the third power unit of the Ekibastuz GRES-2 power station in Kazakhstan. VEB also received a credit line of $700 million from the Export-Import Bank of China.

Kommersant writes that the contracts show that Beijing intends to pursue an active policy of credit expansion in Russia’s fuel and energy complex and electric power industry. Although China’s economy growth rate is slowing down, and the November Plenum of the Communist Party of China is to declare the course for GDP growth by means of domestic consumption instead of large-scale infrastructure projects, the task of building energy alliance with Russia remains important. It is no less important for Russia: against the background of shale revolution and falling incomes on the European market, the Chinese contracts will help it fill the national budget.

It is known from past experience that the Chinese are not at all charitable: the loans are expensive. Based on the total volume of Russian oil supplies to China at the level of 760 million tonnes until 2038, Beijing can theoretically save $8.5-56.8 billion on these contracts.

“The best thing for Beijing is to accelerate the development of cooperation with Russia. The natural resources of Siberia and the Far East can cover Chinese industry’s demand. In turn, Russia can achieve a real breakthrough in the development of its East with the Chinese capital, experience of accelerated development of backward regions and workforce potential,” Nezavisimaya Gazeta writes.

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