Russia's Novatek May Face Difficulties with Financing Yamal LNG Project — media

October 30, 2015

Russian independent gas producer Novatek may face difficulties with financing the Yamal LNG project, Kommersant business daily reported on Thursday.

The Yamal-LNG project will cost $27 bln, by now the investments in the projects totals $10 bln.

Since the beginning of the year, Novatek has invested 17 bln rubles ($265 mln) and in the third quarter it provided a loan worth 245 mln euros /482 ml euros in 9 months with 4.46% interest.

It is difficult for Novatek to keep the same pace of financing because in the first half of 2016 the company will have to make payments on its short term debts worth 98 bln rubles ($1.5 bln). This includes the Eurobond issue worth $600 mln.

To solve this problem the company considers attracting project financing up to $20 billion. For this purpose Novatek has been negotiating with Chinese banks for more than a year. The company expected that it would receive the first tranche in 2014, but in September the head and co-owner of Novatek Leonid Mikhelson said that the company would receive about $ 12 billion from Chinese banks by the end of 2015.

Market sources say that the main cause for the delay in negotiations is a very high interest rate on bank loans in China.

Due to the delay of funding the government allocated 150 billion rubles ($2.3 bln) from the National Welfare Fund for the project. By now Novatek has received half of this amount. The company expects the second tranche of 75 billion rubles ($1.2 bln) in coming weeks, according to Kommersant.

The newspaper refers to sources saying that Novatek, which cannot attract financing in dollars due to the Western sanctions, hopes to get the money from European export agencies because that would be cheaper than attracting the loans from Chinese banks.

Yamal LNG is a large-scale project on creating a liquefied natural gas production facility with 16.5 mln tonnes per year capacity on the base of the resources in Russia’s Yamal peninsula. The project’s proven and probable gas reserves amount to 927 bln cubic meters. The project involves the creation of transport infrastructure, including a seaport and an airport near the Sabetta village (north-east of the Yamal Peninsula). Russia’s Novatek holds 60% in Yamal-LNG, while France’s Total and China’s CNPC hold 20% each in the project.

On Wednesday, Russia’s Energy Minister Alexander Novak held a meeting with Segolene Royal, France’s Ministry of Ecology, Sustainable Development and Energy. The ministers in particular discussed a possibility to speed up the financing of the Yamal-LNG project.

The Russian minister said that the project is "carried out in compliance with the schedule" and it is expected that "by the end of 2017 the first stage will be launched."

Copyright 2015. TASS