Lukoil will use the credit line to purchase equipment and materials from Mitsui for the restoration of the wells, according to Alexander Telichko, an aide to Mitsui's Moscow representative.
"This is strictly for materials and equipment," Telichko said in a telephone interview Thursday. "They can't use it to buy slippers, computers or Mercedes cars."
Though many Russian oil producers face problems with outdated, worn-out equipment which makes extraction from many oil wells unprofitable, Telichko said Lukoil was one the few companies that could attract foreign investment to overcome these problems.
"Lukoil is the biggest Russian oil exporter," Telichko said. "Our experts visited Lukoil's oil-producing enterprises and found that the company's potential was even greater than Lukoil had let on."
Telichko said another factor that helped Mitsui decide in favor of extending the credit was the framework agreement Lukoil signed with the U.S. oil giant Chevron earlier this month, according to which Chevron will buy 24 million tons of crude oil from Lukoil over the next eight years.
The proceeds from the daily sale of 70,000 barrels of Urals export quality blend to Chevron will be used to repay the Mitsui credit, according to Lukoil and Mitsui representatives.
"The contract has merits for all sides," said Karen Nelsen, head of Chevron's Moscow office. "For Chevron and Mitsui, it's a chance to expand our operations in Russia, and Lukoil needs it to secure money from Mitsui."
The Russian Fuel and Energy Ministry welcomed the project, promising that it would not issue any new regulations complicating its fulfillment. It also guaranteed that Lukoil will be given priority in transporting oil for Chevron down Russian pipelines, even after the scheduled lifting of oil export quotas at the end of this year.
"It's an important point," Telichko said. "When the export quotas are lifted, all the oil producers will rush to use the pipelines, and Lukoil has been given the right of way by the Fuel and Energy Ministry."
He said the interest on the credit was "low enough to be attractive to the Russian company," though he declined to say exactly what interest Mitsui was charging.
Lukoil agreed to put forward a 5 percent advance payment on the credit. A further 10 percent would be paid out after Mitsui supplies the equipment and materials. Lukoil would repay the rest of the credit in 10 installments over five years.
The credit will be available after the Japanese government agrees to furnish "export insurance," which, according to Japanese law, has to be provided for large company credits outside Japan.
Telichko said the Japanese government was expected to give the deal its approval within a month, since most of the preparations are already complete.
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