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. Last Updated: 07/27/2016

Russia Seals Oil Deal and Bank Loans

Prime Minister Viktor Chernomyrdin has signed in Washington the multibillion-dollar Sakhalin-2 energy deal with international oil companies and sealed another $820 million in World Bank loans for Russia. The agreements came after talks Wednesday with U.S. Vice President Al Gore on cooperation to bolster Russia's economy. The bi-annual meeting of government ministers and secretaries, opening on the day Russia agreed to join NATO's Partnership for Peace, is another sign of the commitment to collaboration between the two former superpower foes. The big money-spinner was the deal covering Russia's rich energy sector, beset by development and infrastructure woes. The international MMMSM consortium, which consists of Marathon Oil Co., McDermott International Inc., Mitsui & Co. Ltd., Mitsubishi Corp. and Royal Dutch/Shell, agreed to develop oil and gas reserves off Russia's Sakhalin Island, tapping into a project -- known as Sakhalin-2 -- that is valued at $10 billion. Chernomyrdin also signed $820 million in loans with the World Bank and received promises of further support from both the Bank and the International Monetary Fund. The loans comprise $300 million for highway repair, $200 million for Russia's banking sector, $240 million for its farming industry and $80 million to further land reform. IMF Managing Director Michel Camdessus also held out the promise of further support, saying Russia "is making a steady effort for reform, for stabilization." Russian and Western officials in Moscow on Thursday applauded the signing of the loan deals. "Each project, in and of itself, is very important for the reform progress in Russia," said Charles Blitzer, chief economist at the World Bank's Moscow office. Yevgeny Buchelnikov, spokesman for acting Finance Minister Sergei Dubinin, said that the signing "was very positively received" by the government. Still to be decided by the World Bank is the approval of a $500 million oil sector loan that had been held up by Russia's application of its 23 percent value-added tax to imports of equipment. Blitzer said that the oil loan will be discussed by the bank's board and voted on before the end of the month. The Sakhalin-2 agreement spells out terms for how Russia and the consortium -- the Sakhalin Energy Investment Co. Ltd.-- will share in production, revenues and tax terms. The deal, which took two years to negotiate, still is subject to approval by Russia's parliament. Vic Beghini, president of Marathon Oil Co., the leader of the consortium, told reporters Russia would receive more than half of the production revenues, based on current estimates. The oil and natural gas field, located 16-19 kilometers off shore, is estimated to hold 750 million barrels of oil and 14 trillion cubic feet of natural gas. During the two days of talks, Chernomyrdin and Gore were also due to sign documents covering cooperation in space, environment, nuclear reactors, science and technology. One of the most significant is Russia's agreement to stop making weapons-grade plutonium at nuclear generating stations. U.S. officials suggested, however, that a stumbling block remains in how much to compensate Russia as it converts to different power sources. A senior U.S. official told reporters U.S. investment in Russia to date totaled $1 billion, but would rise to $40 billion to $50 billion by the end of the decade. At least half of that amount would likely be oil and gas projects