China Development Bank (CDB) agreed to lend $1 billion to Essar Energy in return for export of high-end Euro 5 grade gasoline and other petroleum products from the latter's Vadinar refinery to PetroChina
PetroChina is the listed arm of China National Petroleum (CNPC), the nation's largest oil company by production.
Media reports indicate that this is the first oil-for-loans agreement between an Indian corporate and CDB, also the largest policy bank.
The deal envisages that Essar Oil will export petroleum products worth 2-3 times the loan amount, a standard industry practice, popularly called coverage ratio.
Some reports indicate that this is a precursor for an equity investment by PetroChina in Essar's 20-mn t refinery in coastal Gujarat.
The deal is signed on the backdrop of the Chinese Premier Li Keqiang's visit to India. The premier urged the Indian industry to come to China and make their dreams come true in an effort to bridge the trade deficit — which currently is entirely in favour of China.
Earlier, CDB agreed to lend billions of dollars to the governments of Venezuela ($20 billion in 2010) and Equador in order to ensure supply of oil and gas for its energy-guzzling domestic economy. It is also for the first time that exports from India will get Chinese financing.