Russia Sanctions Scupper US$2bn Rosneft Deal with Vitol

A planned US$2bn deal between Russian state oil group Rosneft and Vitol, the world’s largest independent oil trader, has been scrapped as Western nations step up economic sanctions against Russia, according to the
Financial Times

The business daily had reported back in March that Vitol was in talks to raise the money from international banks to make an advance payment to Rosneft in exchange for future oil supplies. However, the
now says that sources confirm that the deal has been shelved in response to the latest round of sanctions.

Bankers and traders say that tougher sanctions, introduced following the shooting down last month of Malaysia Airlines flight MH17, will discourage western banks from financing new such prepayment deals, even if existing deals are unaffected.

Prepayment deals have become Rosneft’s main source of financing in the past two years, says the
, and the sanctions will similarly affect the ability of Novtek, Russia’s second largest gas producer, to raise long-term capital

Last month, Rosneft’s chief financial officer (CFO), Svyatoslav Slavinsky, told the
that prepayment had become “a standard feature” of Rosneft’s long-term supply contracts. “It is a strategic feature, it’s an innovation,” he said.

Rosneft assumed a heavy debt load in March 2013 when it completed its US$55bbn purchase of TNK-BP. It had net debt of nearly 1.5 trillion roubles (RUB) at the end of June, of which RUB1.1 trillion must be repaid by the end of 2015.

Separately, in a new twist of already complicated gas relationships between Moscow and Kiev,
the energy information service reports that Naftogaz Ukraiyny and Gazprom are in a dispute over payments for transit of Russian gas via Ukraine to Europe, in a move that could further destabilise the situation over Russian gas deliveries.

Gazprom said it had paid US$10.54m to Ukraine to cover transit services for Russian gas for the whole of July because the period covered by earlier transit prepayments ended earlier in the month.

“Prepayments by Gazprom to Naftogaz Ukraiyny made in 2012 and 2013 covered services for Russian gas transit via Ukraine up to the middle of 2014, including some of July,”
quoted Gazprom’s official spokesman, Sergei Kupriyanov, as saying.

He added that Gazprom paid the US$10.54m to cover transit services for the rest of July despite an outstanding multi-billion dollar debt by Naftogaz to Gazprom for natural gas supplied to Ukraine and the lack of financial documents to prove transit services were being provided.



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