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. Last Updated: 07/27/2016

World Bank Set to Free Fuel Loans

The president of the U. S. Export-Import Bank is "cautiously optimistic" that the World Bank will vote Dec. 14 to resolve a complicated conflict over guarantees that will allow $2 billion of U. S. oil and gas loans to Russia to begin flowing.


Kenneth Brody said at an oil and gas conference in Moscow on Thursday that the Ex-Im Bank is prepared to begin approving loans and loan guarantees that will finance imports of American oil and gas equipment to Russia as soon as the World Bank board waives its so-called negative pledge.


Under the negative pledge clause, the World Bank does not allow borrowing countries to pledge state assets to other creditors ahead of it. This prevents state-owned oil production associations from pledging their oil to guarantee the Ex-Im Bank loans.


However, resolution of the dispute, which has also held up a $1. 8 billion Japanese credit to the Russian energy sector, is by no means certain, Brody said in an interview.


The World Bank voted in the spring to allow countries to apply for a waiver, but stipulated that countries must show progress towards economic reforms. Brody said that now World Bank directors will be asked to vote on the waiver without evidence of progress toward reform in Russia.


The World Bank staff has recommended approval of the waiver for Russia, an Ex-Im official said. They had been concerned that it would set a bad precedent, in which loans from the bank, already unsecured, would be further at risk from nonpayment.


The U. S. oil and gas loan program, which would allow Russia to buy U. S. equipment, would equally fill the needs of both the United States and Russia, participants at the conference said. The United States has a technologically advanced oil and gas supply industry but little domestic oil production. Russia has bountiful energy supplies but a need for technology and financing to boost production, which has been declining.


Bankers and oil executives at the conference, however, expressed concerns over being able to qualify for loans under the program. The loans require 15 percent financing from another source and involve strict requirements that the loan will result in new production that will more than cover debt repayments.


Another concern was that Russian companies may have difficulty producing the financial data required by the bank for approval.


Brody responded to criticism by saying that this was the first such agreement to be worked out and the proof of its viability will be in the loan applications the bank receives. He said he believed loan demand would be well over $2 billion.