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Russia, China sign $3.5 billion deal

Russia and China signed agreements worth $3.5 billion on Tuesday, but the former rivals-turned-strategic partners were still working on an energy deal, a top Russian official said.

world Updated: Oct 14, 2009 12:23 IST

Russia and China signed agreements worth $3.5 billion on Tuesday, but the former rivals-turned-strategic partners were still working on an energy deal, a top Russian official said.

The deals were signed during a visit by Prime Minister Vladimir Putin to bolster energy, political and military ties. Russian Deputy Prime Minister Alexander Zhukov told reporters that Russian and Chinese businessmen and officials signed the agreements, including $500 million loans each from the China Development Bank to its Russian equivalent VEB, and from the Agricultural Bank of China to the state-controlled VTB bank.

Other deals included Chinese companies making investments in construction industry facilities in Russia, Zhukov said. "Naturally, the Chinese are interested in getting (ownership) stakes," he said without giving any details.

But Zhukov said no agreement had been reached yet on energy. "Talks are continuing," he said.

The energy agreement is expected to be a gas-for-loans deal similar to a $25 billion oil-for-loans deal that was completed earlier this year, according to Chinese media reports and analysts. Russia's cash-strapped energy companies need Chinese funding, while Beijing has welcomed the chance to further diversify sources for energy needed to fuel its fast-growing economy. The global economic crisis and changing market conditions have further spurred cooperation as lower demand from Europe has spurred Russia to diversify markets for its oil and gas.

Zhukov said the two sides signed an agreement on advance notification for planned ballistic missile launches by either country. He did not give details.

Putin, on his first visit to China since becoming prime minister last May, will hold talks with Chinese counterpart Premier Wen Jiabao, President Hu Jintao and other leaders.

The oil deal signed earlier this year calls for $25 billion in Chinese funding to support construction of a pipeline to supply oil from Russia's vast, untapped Siberian reserves to China, the world's second biggest oil and gas consumer.

In exchange, China was guaranteed a 20-year supply of crude oil, only part of the $100 billion in China-Russia energy-related deals agreed to this year.

A similar credit may be in the works for Russia's state-run natural gas monopoly, Gazprom, to get started on gas pipelines for its Kovykta project, reports said.

China is viewed as the main market for that project, one of the largest undeveloped gas fields in east Siberia with estimated reserves of 2 trillion cubic meters of gas and more than 83 million tons of gas condensate.

Earlier this year, Gazprom warned that slower demand due to the economic crisis might cause delays in the project. Past energy negotiations between China and Russia often have snagged on disagreements over prices, loan terms and other issues, including Beijing's desire for equity stakes in Russian resources. Like China's own state-run companies, Russia balks at ceding any control over what it views as strategically vital assets. But Moscow's need for financing and markets, and China's huge appetite for resources, appear to be propelling such projects ahead, despite such differences.

Chinese media reports said another agreement that might be signed is a contract to build a joint venture refinery in the northeastern city of Tianjin, near Beijing.

Putin will also attend a summit of the member states of the Shanghai Cooperation Organization, a regional security grouping that includes China, Russia, and four Central Asian nations. Rivals throughout much of the Cold War for allegiances in the communist world, Moscow and Beijing have forged closer political and military ties since the Soviet collapse, seeking in part to counter US influence.