Russia’s state-energy producers debt to China ‘significant’, reports say

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MOSCOW – Waging war in Ukraine and Syria Russian President Vladimir Putin could have attempted to conceal what may be seen as his major failure, recently published reports indicated. The four biggest Russian-state owned oil and gas producers Rosneft, Gazprom, Novatek and Trasneft owe $ 45 billion to China’s financial institutions, according to the quarterly financial reports published by firms.

President Putin, who personally appoints each CEO for the Russian biggest energy producers is also seen as the highest authority in the branch of Russian industry that since 1990’s has been Kremlin’s source of wealth and pride.

However the quarterly reports recently published by the Russian flagship energy producers revealed that the debt level of oil companies is significant.

Rosneft owes $ 15 billion to China Development Bank. The company also has $ 30 billion of other financial obligations to the Chinese lenders. Novatek’s obligations to Silk Road Fund, China Development Bank and China Exim Bank reached roughly $ 675 million. Transneft has $ 88 million financial obligations to China Development Bank. Gazprom debt level ballooned to $ 3 billion that company owes to the London branch of Bank of China Ltd and China Construction Bank.

The companies were involved in buying and selling of collateralized debt obligations on secondary markets, the reports suggested.

Compared to the amount of the Russian Federation financial obligations for International Monetary Fund in 1990s this debt level is roughly two times higher. Current market value of the debt equals three years of the combined net profit of four companies.

The Russian opposition leader Vladimir Milov,  called them “a big surprise”, who first revealed financial obligations of the nation’s oil and gas producers.

“How did it happen that despite of Russia’s trillion-dollar profits in the last ten to fifteen years as result of high oil price, the Russian oil producers are in debt to China that is major importer of gas and oil?” – Mr. Milov asked rhetorically.

Russian Federation that is the second biggest world oil producer, has been significantly weakened when the oil prices began to plummet in 2014. The key problem for the Russian oil industry, in addition to the low oil prices, is the lack of fresh capital and access to technology created by the sanctions regime imposed by Western states after its invasion of Ukraine and the occupation of Crimea.

Until recently the Western analysts believed Russia has been actively strengthening its economic ties with Asia (China in particular), with important gas deals agreed with the China National Petroleum Corporation (CNPC) on the Power of Siberia and Altai pipelines, Vankor oilfield in Eastern Siberia, as well as the Yamal LNG project.

However the quarterly financial reports of the four biggest state-owned oil and gas producers revealed that the companies face significant financial challenger. Some analysts even are concerned that companies’ debt level is becoming unsustainable since the oil price is expected to be stagnant over the next four quarters at a minimum.




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