By staff reporters Chen Zhu and Dong Lingxi

From Caijing Online

Negotiations reached a deadlock between China and Russia over US$ 25 billion in loans that would guarantee China an oil supply for 20 years. Disagreements over the interest rates were the cause.

Negotiations over the scheme were set to be finished on November 25. However, the talks have not gone smoothly. The talks were first suspended on November 12 due to disagreements about interest rates and state guarantees.

They resumed on November 23 only to stall again. After making one concession, the Chinese side of the deal demanded an interest rate between 5.5 and 6 percent, according to a Chinese source close to the negotiations who asked not to be named. Russia declined, bringing the transaction to a grinding halt.

According to the source, in order to expedite the progress of negotiations, China agreed to give up its previous request to adopt a floating interest rate pegged with the London Interbank Offered Rate (Libor). But the Russian side asked for a lower interest rate.

Caijing learned that the volume and transportation methods of oil supplied by Russia is also a sticking point

A primary agreement was reached in late October during Premier Wen Jianbao’s visit to Russia. Under that deal, China would provide US$ 15 billion and US$ 10 billion worth of loans to Russian state-owned oil companies Rosneft and Transneft respectively.

In return, Rosneft promised to supply oil to China National Petroleum Corporation (CNPC) for 20 years, while Transneft would use a pipeline infrastructure project as collateral.