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| Russia's President Vladimir Putin shakes hands with his China's counterpart Xi Jinping (RIA Novosti/Mikhail Klimentiev) |
November 10, 2014 - PARADIGM SHIFT - President Vladimir Putin and Chinese leader Xi Jinping have signed a memorandum of understanding on the so-called “western” gas supplies route to China. The agreement paves the way for a contract that would make China the biggest consumer of Russian gas.
Putin, Xi Jinping sign mega gas deal on second gas supply route
Russia’s so-called “western” or "Altay" route would supply 30 billion cubic meters (bcm) of gas a year to China.
The new supply line comes in addition to the “eastern” route, through the “Power of Siberia” pipeline, which will annually deliver 38 bcm of gas to China. Work on that pipeline route has already begun after a $400 billion deal was clinched in May.
“After we have launched supplies via the “western route,” the volume of gas deliveries to China can exceed the current volumes of export to Europe,” Gazprom CEO Aleksey Miller told reporters, commenting on the deal.
Speaking to journalists on the eve of his visit to Beijing, Putin was optimistic about prospects for the new gas deal with China.
“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”
The “western” route deal is one of the 17 agreements signed at the Sunday meeting between Putin and Xi.
They also included a framework agreement between Gazprom and China’s CNPC on gas deliveries and a memorandum of understanding between Gazprom and another Chinese energy giant, CNOOC.
Gazprom and CNPC have also signed a preliminary agreement for China National Oil and Gas Exploration and Development to take a 10 percent stake in Russia's Vancorneft.
Among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti.
Brendan P. O'Reilly, China-based writer and educator from Seattle, told RT that transport to China was extremely easy:
"One of the most attractive things about Russian gas for the Chinese is that it can be transported over land," he said. "Most of China’s energy resources are imported via sea through the Pacific, and this route is slightly threatened by the American military presence now in the Pacific. Of course there’re a lot of territorial disputes right now between China, Japan, and various other countries in the East China Sea and the South China Sea. So basically by strengthening energy ties with Russia, China can avoid the more dangerous maritime route."
"Russia stands to benefit from this development with China very much because right now the vast majority of Russian gas is being exported to Europe. So Russian having a second large buyer improves the situation of supply/demand for Russia by creating more demand in the east."
Russia ends dollar/euro currency peg, moves to free float
The Bank of Russia took another step towards a free float ruble by abolishing the dual currency soft peg, as well as automatic interventions. Before, the bank propped up the ruble when the exchange rate against the euro and dollar exceeded its boundaries."Instead, we will intervene in the currency market at whichever moment and amount needed to decrease the speculative demand,” the bank’s chairwoman, Elvira Nabiullina, said in an interview with Rossiya 24 Monday.
The move is edging towards a floating exchange rate, which the bank hopes to attain by 2015.
“Effective starting November 10, 2014, the Bank of Russia abolished the acting exchange rate policy mechanism by cancelling the allowed range of the dual-currency basket ruble values (operational band) and regular interventions within and outside the borders of this band,” the bank said in a statement Monday.
"As a result of the decision the ruble exchange rate will be determined by market factors, which should promote efficiency of the monetary policy of the Bank of Russia and ensure price stability," the central bank said.
Foreign exchange intervention is still at the bank’s disposal, and is ready to use in the case of “threats to financial stability,” according to the statement.
Propping up the ruble can cost the Central Bank of Russia billions of dollars per day, coming out of the country’s reserve fund. In October alone, the bank was forced to spend $30 billion to defend the weakening ruble. On November 5, the bank announced it had limited the reserves it is willing to spend to inflate the ruble to $350 million per day in order to slash speculation and volatility. The decision triggered a three-day plunge for the Russian currency.
On Monday, the ruble recovered slightly after Russian President Vladimir Putin assured speculative drops would cease in the near future. The Russian currency gained 1 ruble against the dollar and the euro on the announcement.
The Russian ruble has weakened considerably along with dipping oil prices, as well as the introduction of western sanctions, which bars many Russian companies from long-term borrowing on western capital markets.
New focuses in monetary policy
The Central Bank of Russia’s un-pegging of the ruble from the dollar and euro brings to an end two decades of exchange rate controls. The transition to a free exchange rate means monetary policy in Russia moves to interest rates and inflation targeting.Experts say, this CBR decision deprives speculators of baselines in the currency market and will stabilize the exchange rate of the ruble against the dollar and euro in the short-term, TASS reports.
Russia operated as soft peg currency band from 1995 until 2008 when it was replaced by a dual currency band of the euro and the dollar.
This mechanism allowed interventions in the foreign exchange market to be adjusted by the Central Bank conducting large-scale buying or selling of currency when the ruble fell beyond the trading band perimeter. It was a mild form of control over the ruble.
The Central Bank cancelled the currency band in 2011, after the crisis of 2008. Then the ruble devalued by 40 percent and about a third of the country’s foreign exchange reserves was spent supporting it. But the main reason for changing the CBR's policy was its inability to curb inflation and reduce it to low single figures.
The CBR then moved to a managed floating exchange rate, gradually widening the currency band perimeters. The managed float assumed the Central Bank didn’t prevent movements in the ruble exchange rate caused by the influence of fundamental factors. Instead it smoothed out fluctuations by intervening in the currency band. The rules were changed gradually until foreign exchange interventions stopped today.
Ruble-yuan settlements will cut energy sales in US dollars – Putin
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| Reuters/Stringer |
Doing away with the US dollar and switching to ruble and yuan payments will significantly increase Russia and China’s say in energy and financial markets, Vladimir Putin has said, adding that the first deals are already underway.
In short the President said the US dollar has no future, and that the ruble and the yuan have better long-term prospects.
“Payments in rubles and yuan are very promising. Switching to such a large-scale work means that the impact of the dollar on the global energy sector will objectively decline. This is not bad either for the global economy, or the world of finance and the world energy markets,” Putin said at the APEC Business Summit in Beijing Monday.
“It will help expand our capabilities in mutual trade and influence both world financial and energy markets," the president said.
Using local currencies will speed up trade between the two countries who are aiming to reach $100 billion by 2015. Trade between Russia and China is already nearly $90 billion, and is scheduled to hit $200 billion in the next six years.
"The People’s Republic of China is one of our key partners in the region. We will make greater use of settlements in our national currencies in our trade with China. We are already carrying out our first deals in rubles and yuan," Putin said.
Payments in national currency are planned particularly in trading oil and that Russian experts are currently assessing the possibility.
The two countries agreed on a currency swap worth up to $25 billion on October 13.
Moscow and Beijing aim for a broader use of the yuan and the ruble in mutual settlements across industries, including defense, telecoms, energy, and mining, possibly by one of Russia’s major companies, according to Putin.
WATCH: Putin - Trade in rubles & yuan will weaken dollar’s influence.
Russia’s second biggest bank, VTB, has already begun to reorient business towards China and is working with Chinese regulators to remove restrictions to allow ruble transactions.
“Our contact with the leadership of China’s biggest banks shows they share this interest. This is consistent with the plan for China to bring the yuan to the next level and make it a hard currency,”
VTB head Andrey Kostin said at the summit, as quoted by RIA.
A switch to domestic currencies is a huge move for Russia and China as both countries are members of the BRICS Bank which was established earlier this year to try and challenge the global dominance of the US dollar and such global lenders as the IMF and the World Bank.
China and Malaysia also announced a new bank that uses the yuan as a reserve currency, which means the dollar stands to lose its regional stronghold.
‘New level of cooperation’
The currency swap is just a notch in the belt in developing Russia-China economic ties. The two have grown closer over Russia’s disillusionment with the West over the Ukraine crisis and sanctions.“Cooperation between Russia and the Asian-Pacific nations is of the utmost importance to us,” Putin said.
Symbolic of the deepening rapport was the signing of the second major gas deal in six months, which has the potential to make China Russia’s largest energy customer.
Putin named China as Russia’s biggest regional partner, and even offered the country stakes in Russian energy projects.
WATCH: Ruble Bounce - Currency strengthens as central bank loosens controls.
“We are also examining possibilities for our Chinese partners to acquire stakes in some of our biggest production assets,” Putin said.
On Sunday, Russia’s oil giant Rosneft and China National Oil and Gas Exploration and Development Corporation signed an agreement on the acquisition of a 10 percent stake in Vankorneft, a Rosneft subsidiary that develops oil in Russia’s Eastern Siberia. Rosneft has also offered China a share in its second-largest oil field, Vankor, which is estimated to have reserves of 520 million metric tons of oil and 95 billion cubic meters of natural gas.
Russia may opt to include China in the big oil and gas projects in the Far East, namely on Sakhalin Island, north of Japan. Among the international partners is Japan which has a 30 percent stake in the Sakhalin-1 project and a 22 percent in the Sakhalin-2.
WATCH: Jim Rogers - By the end of this decade US dollar will lose world dominance.
Russia's second biggest bank VTB may leave London Stock Exchange
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| VTB Bank president, chairman of the board and Supervisory Council head Andrei Kostin (RIA Novosti/Vladimir Astapkovich) |
VTB Bank may quit the London Stock Exchange (LSE), and is currently in talks to get more loans from Asia, CEO Andrei Kostin has said.
“We hope they [negotiations with London exchange – Ed.] will recover the situation. If not, we are considering quitting,” Kostin told journalists at the APEC summit in Beijing, adding there’s a possibility of delisting.
Kostin said the bank is complaining about demands made by the LSE, which he considers tougher than those put forward by US sanctions.
“The issue must be somehow clarified or finished with soon,” Kostin said.
He added the bank is now talking with Asian bourses about drawing down syndicated and subordinated loans. He mentioned both the Tokyo and Shanghai exchanges.
He said the exchange of Shanghai may be of particular interest due to the conditions created by the London and New York exchanges. The issue of costs that may occur in switching from one exchange to another hasn’t yet been negotiated, Kostin said.
On July 31 the EU introduced sanctions against the Russian financial sector. Five major Russian state-owned banks – Sberbank, VTB, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank (Russian Agricultural Bank) – have been banned from receiving any long-term (over 30-day) loans from EU markets.
Chinese banks to invest over $10bn in Siberian LNG project
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| RIA Novosti / Vitaliy Ankov |
Russia's largest independent natural gas producer Novatek is in talks with Chinese banks to get over $10 billion for its Yamal liquid natural gas (LNG) project, according to the company’s key owner Gennady Timchenko.
"Given the situation with the sanctions, we will work tightly with Chinese banks. Negotiations are in full swing, it is necessary to agree on conditions," RIA quotes Timchenko saying on Friday. He added the total investment of Chinese banks is expected to be over $10 billion, but everything can change.
Timchenko said the issue will be discussed in detail during the forthcoming visit of Russian President Vladimir Putin to China.
Novatek is negotiating with various Chinese and Indian companies over the sale of a 9 percent stake in the Yamal LNG project, says Timchenko.
The Yamal project includes the construction of a plant capable of producing 16.5 million tons of LNG per year. The deposit located in the Northeast Siberian Yamal peninsula has potential gas reserves of more than 900 billion cubic meters.
The total cost of the project is $26.9 billion. The first stage of the plant is expected to be opened by 2017. It is planned to be developed in three stages. Yamal LNG is a joint project of Novatek with a 60 percent share, Chinese petroleum corporation CNPC with 20 percent, and France’s Total with 20 percent.
China announces $40 bn Silk Road fund
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| The Silk Road connected China and Europe from around 100 B.C. The
4,000-mile road linked ancient Chinese, Indian, Babylonian, Arabic, Greek and Roman civilizations [Xinhua] |
Chinese President Xi Jinping on Saturday announced China will contribute $40 billion to set up a Silk Road Fund to strengthen connectivity in the Asia-Pacific region.
Xi said the goal of the Fund is to “break the bottleneck in Asian connectivity by building a financing platform.”
The new Silk Road Fund will be used to provide investment and finance for infrastructure, industrial projects along the “Belt and Road”, Xi said, referring to China’s Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives.
He added that the fund will be “open” to investors from both within and outside Asia.
The Asian Development Bank has estimated that in the next decade Asian countries will need $8 trillion in infrastructure investments to maintain the current economic growth rate.
“The Silk Road boasts a 3-billion population and a market that is unparalleled both in scale and potential,” Xi said in September last year.
The Silk Road connected China and Europe from around 100 B.C.
The 4,000-mile road linked ancient Chinese, Indian, Babylonian, Arabic, Greek and Roman civilizations.
A new map unveiled by Xinhua shows the Chinese plans for the Silk Road run through Central China to the northern Xinjiang from where it travels through Central Asia entering Kazakhstan and onto Iraq, Iran, Syria and then Istanbul in Turkey from where it runs across Europe cutting across Germany, Netherlands and Italy.
The maritime Silk Road begins in China’s Fujian and ends at Venice, Italy.
In a landmark achievement, 21 Asian nations including China and India last month signed on a new infrastructure investment bank which would rival the World Bank.
One of the first projects of the new Bank is expected to be financing infrastructure projects along the “Silk Road Economic Belt” and the “Maritime Silk Road” re-establishment.
Meanwhile on Saturday in Beijing, the Chinese President stressed that efforts should be made to realize Asia’s connectivity by making Asian countries a priority.
“Asian countries are just like a cluster of bright lanterns. Only when we link them together, can we light up the night sky in our continent,” he said.
China will provide neighboring countries 20,000 training opportunities for connectivity professionals in the coming five years.
Experts say these new announcements will boost China’s global influence and enhance its soft power.
Apart from the AIIB, the BRICS new $100 billion Development Bank is also being headquartered in China.
“China has considerable experience in infrastructure planning and construction, and financing projects outside the country. As Finance Minister Lou Jiwei has said, China Development Bank’s commercial infrastructure loan is now far bigger than that of the World Bank and ADB combined. And surprisingly, this process started only 20 years ago,” write Asit Biswas and Cecilia Tortajada, China scholars at the Lee Kuan Yew School of Public Policy, Singapore.
- RT | The BRICS Post.
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