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$10b loan-oil deal lubricates trade

By Li Xiaokun and Zhang Haizhou (China Daily)
Updated: 2009-05-20 07:38

President Hu Jintao and his wife Liu Yongqing welcome Brazilian President Luiz Inacio Lula da Silva and his wife Marisa Leticia in front of the Great Hall of the People in Beijing yesterday.[China Daily]

China yesterday agreed to lend $10 billion to Brazil's state-owned oil giant in exchange for guaranteed oil supply from the South American country over the next decade.

Brazil's Petrobras and Sinopec, China's largest refiner, agreed that the former will supply 150,000 barrels of crude oil a day to China this year and 200,000 barrels per day for nine years from 2010.

The two oil companies also signed a memorandum of understanding on oil exploration, refining and petrochemicals. China will explore for oil in two areas in Brazil, Zhang Guobao, head of the National Energy Administration, told Bloomberg.

Related readings:  China, Brazil have huge trade potential: former ambassador  China tops US as leading Brazil trade partner  Brazil's agricultural exports to China up 52.5% in March  China, Brazil sign oil deal

Beijing last month finalized a similar agreement under which Russia will supply oil for 20 years in exchange for loans to state firms.

Petrobras and the China Development Bank inked the loan deal in a ceremony attended by President Hu Jintao and his visiting Brazilian counterpart Luiz Inacio Lula da Silva at the Great Hall of the People.

The deal was among 13 signed yesterday, with the others ranging from equipment, financing, science and space exploration to agricultural products.

Petrobras will repay the loan with revenue from oil sales to China, and not with oil itself as some media have speculated, CEO Jose S. Gabrielli De Azevedo told a press conference.

"This is the largest loan Brazil has ever obtained in China," he added.

The China Development Bank and the Brazilian Development Bank also agreed on a framework deal for an $800 million credit extension.

Petrobras had been negotiating for finance with oil consuming countries in exchange for future supplies, seeking alternatives to international borrowing and bond issues to finance its spending plans amid the global credit crunch.

The firm needs funds to help extract massive, newly-found oil reserves deep beneath the ocean floor off Brazil's southern coast.

During talks with Lula, Hu proposed that the countries work more closely in such key areas as infrastructure, energy, minerals, manufacturing and agriculture.

He also called for greater financial collaboration in bilateral economic and trade activities.

Lula told Hu that 35 years after establishing diplomatic relations, Brazil and China "have more to celebrate than countries that have had relations for more than 100 years".

From 2006 to 2008, China-Brazil trade surged by an average of 50 percent annually.

China replaced the United States as Brazil's top trade partner last month.

The Brazilian government said trade with China in April reached $3.2 billion, compared with $2.8 billion with the United States.

"I believe Brazil and China are consolidating their strategic partnership (established in 1993), which is reflected in bilateral trade. I also believe the current status is just 10 percent of the potential," Lula said when he met Premier Wen Jiabao earlier yesterday.

Sun Hongbo, an expert in Latin America studies at the Chinese Academy of Social Sciences (CASS), said enhancing oil cooperation is a "significant part" of the Brazilian president's visit, adding that the current financial crisis offered China the opportunity to seal the deal.

It is Lula's second state visit to China; he first visited after he assumed presidency in 2003.

The visit is to "develop the strategic partnership" between the two "mutually complementary emerging powers", Lula said in a speech at the CASS before unveiling the Center for Brazilian Studies there yesterday morning.

He said there is no way to overcome the current global financial without the involvement of developing countries.

He also called for reforming the UN Security Council to give the developing world more voice.

Zhou Zhiwei, secretary-general of the Centre for Brazilian Studies at the CASS, said Lula's visit also paves the way for the first summit of the BRIC countries (the others being Russia and India) to be held in Russia next month.