CNPC Finance (HK) Limited provides $203 million oil prepayment facility for 200 km Petroleum Road Construction Project (Linked to Record ID#2137, #58433, #58435)

Project narrative

On June 2, 2008, the Government of Niger and China National Oil and Gas Exploration and Development Corporation (CNODC) — a subsidiary of China National Petroleum Corporation (CNPC) — signed a product sharing contract (PSC) for the Agadem Oilfield (‘Agadem Block’), which is situated in Termit Basin in the southeast of Niger, 1,200 km at the south end of the Sahara Desert to the east of Niamey (with a plot area of 27,516km2). CNODC won the PSC because the ExxonMobil-Petronas consortium had withdrawn from Niger in 2006 after 4 years of exploration. CNODC was also reportedly the only oil company that agreed to pay $300 million signing bonus (of which $180 million would need to be repaid at an interest rate of 3-month LIBOR plus a 3.5% margin) to the Government of Niger. Under the terms of the PSC, CNODC and the Government of Niger were given 85% and 15% participating interests, respectively, in the Agadem Oilfield. CNODC agreed to invest approximately $5 billion in Phase 1 of Agadem Oilfield Development and Oil Pipeline Construction Project. The PSC also allowed for the Government of Niger (as a 15 percent shareholder) to receive government revenue from Phase 1 of the Agadem Oilfield Development and Oil Pipeline Construction Project — via upstream and pipeline royalties, a share of ‘profit oil’ (which must be used to meet income tax obligations), and an additional share of ‘cost oil’ and ‘profit oil’. CNODC agreed to finance the Government of Niger’s 15% share of the total capital cost of the oil field exploration and exploitation and pipeline construction, and the Government of Niger agreed to forego its share of ‘cost oil’ to repay the financing of its 15% share of the total capital cost. This ‘carried interest’ arrangement was subject to an interest rate of 3-month LIBOR plus a 3.5% margin. On July 1, 2008, CNODC and CNPC Niger Petroleum S.A. — also known as China National Petroleum Corporation (CNPC) Niger Petroleum S.A., 中国石油尼日尔项目公司, CNPCNP and CNPC-NP — signed a transfer agreement, which assigned all of the rights and responsibilities under the June 2, 2008 PSC to CNPC Niger Petroleum S.A. Then, on November 28, 2011, the Government of Niger and CNPC Niger Petroleum S.A. signed a memorandum of understanding (MOU) on the so-called Niger Petroleum Road Project. Under the terms of the agreement, CNPC Finance (HK) Limited issued an oil prepayment facility — also known as a pre-export finance (PXF) facility — worth approximately $203 million to CNPC Niger Petroleum S.A. to support the implementation of the Niger Petroleum Road Project. The facility is a loan that provides cash advances in exchange for future oil sales. It carries an interest rate of 3-month LIBOR plus a 3.5% margin. However, its other borrowing terms (maturity, grace period, etc.) are unknown. The borrower is expected to repay the loan with the proceeds from oil sales derived from the June 2, 2008 production sharing contract (PSC). The proceeds of the loan were to be used by the borrower to finance a commercial (EPC) contract between CNPC Niger Petroleum S.A. and China Petroleum Engineering Co., Ltd (CPE), which was signed on signed on June 21, 2013. The purpose of the project is to support the development of a 185 km road (also known as the ‘Unity Road’ and ‘Oil Road’) connecting Diffa to N'Guigimi and the country’s border with Chad. The project has two main components: the rehabilitation of a 130 km road segment from Diffa to N'Guigmi (known as RN 1) and the construction of a 55 km road segment from N'Guigmi to the country’s border with Chad. China Petroleum Engineering Co., Ltd (CPE) is the general EPC contractor responsible for project implementation. CNPC DAGANG Niger Engineering SARLU (DGE) and Barka SA serve as subcontractors to CPE. A formal project commencement ceremony took place on July 3, 2012. At the ceremony, Niger’s President requested an expansion of the project scope to include the construction of 15 kilometers of urban roads and ancillary facilities in the two cities and towns of Diffa, N'Guigmi, and Mainé-Soroa. The request was approved, which resulted in additional project design work between July 2012 and November 2012. However, construction activities were suspended in February 2015 due to insecurity created by the jihadist group Boko Haram. Prior to the suspension of road works, CPE and its Chinese subcontractor — CNPC DAGANG Niger Engineering SARLU (DGE) — had completed the 60 km Diffa-Kablewa section of the Petroleum Road. On April 6, 2018, the Government of Niger, CNPC Niger Petroleum S.A., and OPIC Niger signed another MOU to agree upon the terms and conditions that would govern the completion of project (via subcontracting to local service providers). CNPC Niger Petroleum S.A. agreed to finance the ‘residual costs’ of the Niger Petroleum Road Project (worth $93,560,000) through the PXF facility, and the he Government of Niger agreed to assume responsibility for the completion of the project (and any additional costs beyond the ‘residual costs’) on the last scheduled repayment date (January 1, 2020) under the PXF facility. When construction finally resumed in October 2020, CPE made two Nigerien firms (EGBTP and MWazir) responsible for road construction. EGBTP was given responsibility for the Kindjandi-Kablewa-N'Guigmi section of the road and MWazir was given responsibility for a section of the road that connects N'Guigmi, Boula Birin and the Chad border. As of 2022, the project had still not achieved completion. According to the Government of Niger's Aid Management Platform, the project’s originally expected implementation start date was May 1, 2013 and its originally expected completion date was December 31, 2015.