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Deal Signed for 8.5 billion Dollar China Gas Pipeline Project

[WTN-L World Tibet Network News. Published by The Canada Tibet Committee. Issue ID: 02/07/04; July 4, 2002.]

HONG KONG, July 4 (AFP) - Chinese energy giant PetroChina Co, has signed a framework agreement with an international consortium led by Dutch/Shell Group to build an 8.5 billion dollar east-west gas pipeline, it announced Thursday.

Company vice president Wang Fucheng told a press conference that Petrochina would hold a 50 percent stake in the 4,000-kilometer (2,500-mile) pipeline.

Shell, along with consortium partners ExxonMobil of the United States and Russia's OAO Gazprom, will each have a 15 percent interest.

The agreement, signed at the Great Hall of the People in central Beijing on Thursday morning, holds the remaining five percent for Chinese oil firm Sinopec.

The pipeline will cost 5.2 billion dollars to build, with the remaining 3.3 billion spent on developing the gas fields.

Two junior partners were also named, the Hong Kong-listed China Light Power and Hong Kong China Gas Co., although no details were given as to the nature of their involvement.

The ambitious project, one of the largest of its kind ever in China, will bring natural gas from the Tarim Basin in the country's northwestern Xinjiang region to bustling and energy-hungry Shanghai in the east, passing through 10 provinces.

Construction of the pipeline has been delayed for several months because of the prolonged negotiations between PetroChina, one of China's main state-controlled oil and petrochemicals groups, and the consortium.

Wang told reporters that his company was guaranteeing gas supplies for decades to come.

The pipeline will be fed with gas from the Kuche-Tabei area in the Tarim Basim, which has proven recoverable gas reserves of 304 billion cubic meters, sufficient to supply the pipeline for 20 years, he said.

"The company will have to source further gas supply to ensure sufficient reserves over the longer term. PetroChina has guaranteed supply of gas to the pipeline for 45 years."

He said about 35 percent of the total project investment would be equity financed by the consortium partners, with the rest financed using debt.

PetroChina's investment in the whole project will amount to 2.7 billion dollars and the company had still to decide how this would be financed, Wang said, adding it did not rule out the possibility of an issue on China's yuan-denominated A-share market.

The joint venture should be generating earnings equivalent to 4.0 to 5.0 percent of group profit by 2008, Wang said.

PetroChina was in talks with some Russian parties on the possible import of gas from Russia, he added, saying that this gas could meet demand in China's northeast.

"The target markets for the gas pipeline include Shanghai, Anhui, Jiangsu, Zhejiang and Henan provinces," Wang said.

The pipeline will have a maximum capacity of 12 billion cubic meters per annum, with the ability to expand capacity to 18 billion.

Although the agreement goes into great detail, further negotiations are needed before a formal joint-venture deal can be signed, PetroChina has said, an event which could be some way off.

Philip Crotty, managing director of Deutsche Bank, the financial adviser to PetroChina on the gas pipeline project, said the formal joint-venture agreement had to be sealed before the parties can go to the debt markets to seek funding.

"We are still some months away before approaching the market for syndication," he said.

ExxonMobil also said more details needed to be thrashed out.

"We're committed to working with them on a final contract, but we are aware there are still some discussions that need to be held," said spokeswoman Sarah Du.

The pipeline project has attracted criticism from human rights groups, who say the non-ethnic Chinese inhabitants of Muslim-majority Xinjiang are unlikely to see any benefits.

The London-based Free Tibet Campaign Wednesday said the pipeline -- also to run through Qinghai province, formerly part of Tibet -- was "unlikely to be in the interests" of local people. Date: Thu, 4 Jul 2002 17:07:08 +0200 (METDST)

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