The agreement was signed on Tuesday by Mr Livingstone and Venezuelan foreign minister Nicolas Maduro at City Hall. The agreement follows a September meeting between Mr Livingstone and Mr Chavez in London, the mayor said.

The Venezuelan national oil company, PDVSA, will provide the oil at a discount worth $32 million a year, while the city will use the savings to offer half-price bus fares to 250,000 poor Londoners. Mr Livingstone, a one-time socialist known locally as 'Red Ken', has praised the Chavez government for aiming to better the lives of the poor. "This is an incredibly generous offer by the president of Venezuela," he said.

"This builds on work his government is doing across the world to tackle poverty." London officials will open an office in Caracas to provide advice on urban planning issues such as traffic management. Mr Chavez has said he may seize Venezuelan companies to support social programs and transform the nation into a socialist state.

Richard Barnes, a Conservative member of the London legislative assembly, criticised the deal. "Why does London one of the richest capitals in the world needs to exploit a developing nation?" Barnes said in an e-mailed press release. "This money would be better directed at the poor of Venezuela."

The Ecomomic Times