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Rosneft Buying $2 Billion Oil as Venezuela Seeks Funding

Petroleos de Venezuela SA will receive a $2 billion pre-payment for oil and fuel supplied to OAO Rosneft (ROSN) as South America’s biggest crude exporter seeks funds amid domestic shortages and the world’s fastest inflation.

Rosneft, Russia’s largest oil producer, will make the payment to Venezuela’s state oil producer PDVSA in exchange for more than 1.6 million tons of oil and 7.5 million tons of oil products during a five-year period, Rosneft said in a statement posted on its website May 24. On March 7, Venezuela signed a memorandum of understanding with Rosneft for $2 billion in financing for oil projects in Venezuela.

“This agreement represents a new phase of partnership between Rosneft and PDVSA,” Rosneft Chief Executive Officer Igor Sechin said in the statement. “Following the partnership in the upstream sphere, our companies start to cooperate in the sphere of trading.”

For Venezuela, the arrangement may help combat shortages of everything from car parts to pregnancy tests in a country with strict currency controls, 59 percent inflation and the world’s biggest oil reserves. Russia may be looking to strengthen ties with countries outside of the U.S.’s influence after President Vladimir Putin’s incursion into the Crimea region, Roger Tissot, a consultant with Tissot Associates, said.

“The deal could have materialized for two reasons: first, Russia desperately needs to gain friends and secondly Venezuela needs the money more than ever,” Tissot said by telephone from Vancouver.

Payments Due

Rosneft, the largest publicly traded oil company by output and reserves, has five joint ventures in Venezuela with PDVSA.

The Caracas-based company faces $4.3 billion in bond payments this year, while the government is scheduled to pay $3.3 billion, according to data compiled by Bloomberg.

Venezuela’s state energy company will sell as much as $5 billion of dollar bonds due in 2024 to state banks, with an interest rate of 6 percent, it said May 14. Banks probably will sell the notes to importers, who will raise dollars by selling them to overseas investors, according to Tamara Herrera, chief economist at financial research firm Sintesis Financiera.

Controls imposed under late-President Hugo Chavez have left importers unable to access foreign currency, with the resulting shortages spurring three months of protests against President Nicolas Maduro’s government that left 42 people dead.

Venezuela may have foreign-currency arrears to importers of as much as $13 billion, up from $9 billion at the end of 2013, Morgan Stanley said in a note on May 9.

The country allowed the bolivar to plunge 88 percent in March in a new market known as Sicad II. State banks are allowed to sell dollar-denominated bonds under the system to companies and individuals, who can then obtain hard currency by turning to the secondary bond market.

To contact the reporters on this story: Jose Orozco in Caracas at jorozco8@bloomberg.net; Pietro D. Pitts in Caracas at ppitts2@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net James Attwood, Robin Saponar

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