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

UFA, Russia, July 8 (Reuters) - Russia's top oil producerRosneft has made a significant step in its efforts toexpand its global reach by signing a preliminary deal with EssarGroup about acquiring up to 49 percent of the Vadinaroil refinery in India.

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

State-controlled Rosneft said on Wednesday that it has alsofinalised 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 securemarket outlet of crude oil, which will create an additionalpossibility of production planning and marketing," the companysaid in a statement.

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

Rosneft said the deal is still subject to corporateapproval.

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

Essar's founders own 90.5 percent of Essar Oil (BSE: ESSAROIL.BO - news) , of which65.6 percent is in the form of overseas depository shares.

Essar depends heavily on Iran to feed its 400,000 bpdVadinar refinery. Rosneft said on Wednesday that the partnersintended to increase the refinery's capacity to 45 milliontonnes (900,000 barrels per day) by 2020.

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

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

Rosneft's Chief Executive Officer, Igor Sechin, did not ruleout on Wednesday that the company may supply oil via swaps, butdeclined to elaborate. A source said last month that Rosneft maysupply Venezuelan oil to the Essar refinery or it may sellIranian oil to Essar, once international sanctions againstTehran are lifted. (Reporting by Denis Pinchuk and Katya Golubkova, writing byVladimir Soldatkin; Editing by Alexander Winning and SusanFenton)