Letters of credit (L/Cs) are playing a structural role in multi million dollar financing packages for projects aimed at helping Russia realise its hydrocarbon potential.

Oilfield rehabilitation

One of Russia's top four oil producers, Tyumen Oil, is close to sealing a US$250 million financing backed by the US Export-Import Bank (Eximbank) for a project to increase production at the giant Samotlor oilfield in Western Siberia.

Tyumen signed in July a crude oil supply agreement with Elf Trading SA, the Swiss-based trading arm of the Franco-Belgian TotalFinaElf group. Tyumen or its subsidiary Samotlorneftegas, have agreed a ten-year contract to sell 21 million barrels of crude oil to Elf Trading.

The oil exports provide collateral for loans guaranteed by Eximbank. Additional oil exports sold to Crown Petroleum, owned by Russia's Alfa group, will also be used as collateral.

Commerzbank to open L/Cs totalling US$274 million

The signing of the contract was the last condition required before Eximbank declares operative a credit that will provide finance to Houston-based oil field engineers, Halliburton Co, to commence work on the Samotlor project.

The New York branch of Commerzbank AG is the lender for the project. It will open two L/Cs totalling US$274 million and disbursements will be made to Halliburton.

Samotlor is one of two Tyumen projects supported by Eximbank, the other being the modernisation by ABB Lummus Global of Tyumen's Ryazan refinery 120 miles southeast of Moscow. This is backed by a US$232 million Eximbank guarantee.

Refinery revival

L/Cs are to play a part in reviving a much delayed refinery project also located close to the Russian capital.

In 1994, Japan's Mitsui and Germany's ThyssenKrupp won a 28 billion yen contract to construct a new state of the art refinery located 280 kilometres northeast of Moscow. The project has since been put on hold due to political instability and the 1998 financial crisis.

L/Cs will reactivate

According to Nihon Keizai Shimbun (Nikkei), the Japanese business daily, an unnamed institution affiliated to the Russian government has recently issued an L/C guaranteeing repayment of loans to finance the project.

Nikkei also reports that the Japan Bank for International Cooperation has indicated it would extend loans worth 85 per cent of the contract value.

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