Russia's Rosneft signs preliminary deal to buy into Essar's Vadinar refinery

By Denis Pinchuk and Katya Golubkova

UFA, Russia (Reuters) - Russia's top oil producer Rosneft has made a significant step in its efforts to expand its global reach by signing a preliminary deal with Essar Group about acquiring up to 49 percent of the Vadinar oil refinery in India.

Rosneft, the world's top listed oil producer, has long sought to increase its exposure to the global markets but its efforts have been hampered by Western sanctions over Moscow's role in the Ukraine crisis.

State-controlled Rosneft said on Wednesday that it has also finalised a deal to supply 10 million tonnes of oil a year (200,000 barrels per day) to the refinery over 10 years.

"Thanks to this agreement Rosneft grants itself a secure market outlet of crude oil, which will create an additional possibility of production planning and marketing," the company said in a statement.

The deal to buy a stake in the refinery had been delayed due to difference over the price, sources told Reuters last month. It was unclear whether a price has now been agreed. Sources said last month that Rosneft would pay less than $2 billion for the stake and that Essar wanted a higher price.

Rosneft said the deal is still subject to corporate approval.

Mumbai-based Essar, whose business interests include steel, oil and gas, power and ports, has been forced to consider selling some of its assets to reduce its debt pile, after expanding in India and overseas in the last few years.

Essar's founders own 90.5 percent of Essar Oil, of which 65.6 percent is in the form of overseas depository shares.

Essar depends heavily on Iran to feed its 400,000 bpd Vadinar refinery. Rosneft said on Wednesday that the partners intended to increase the refinery's capacity to 45 million tonnes (900,000 barrels per day) by 2020.

The oil supply agreement was preliminary signed in December during Russian President Vladimir Putin's visit to India.

Processing of 200,000 bpd of Russian oil will hurt the profitability of Essar's Vadinar refinery because of the higher transport costs and yield.

Rosneft's Chief Executive Officer, Igor Sechin, did not rule out on Wednesday that the company may supply oil via swaps, but declined to elaborate. A source said last month that Rosneft may supply Venezuelan oil to the Essar refinery or it may sell Iranian oil to Essar, once international sanctions against Tehran are lifted.

(Reporting by Denis Pinchuk and Katya Golubkova, writing by Vladimir Soldatkin; Editing by Alexander Winning and Susan Fenton)