China Development Bank provides EUR 452.75 million loan for Myanmar-China Gas Pipeline Construction Project (Linked to Project ID#73285)

In December 2008, CNPC signed a 30-year purchase and sale agreement with South Korean conglomerate Daewoo International on importing natural gas from offshore blocks A-1 and A-3 in Myanmar (a project referred to as the Shwe Gas Project). A consortium of companies were involved in the Shwe Gas Project, led by Daewoo. Over 2009 and 2010, a series of agreements were signed on constructing, operating and managing the Myanmar-China Oil and Gas Pipelines, which clarified the rights and obligations of the two joint ventures responsible for these pipelines: Southeast Asia Gas Pipeline Co. Ltd. (SEAGP) and Southeast Asia Oil Pipeline Co. Ltd. (SEAOP). On March 26, 2009, representatives from the Chinese Government and the Government of Myanmar signed cooperative agreements to jointly develop oil and gas pipelines. In June 2009, CNPC and the Government of Myanmar signed a MOU agreeing that CNPC would be responsible for the design, construction and operation of a 771km oil pipeline. On November 30, 2010, China Development Bank and Myanmar Foreign Trade Bank (MFTB) signed an agreement on cooperation in loan disbursement. Then, on December 16, 2010, China Development Bank and Myanmar Oil and Gas Enterprise (MOGE) — a state-owned oil and gas company in Myanmar — signed an EUR 452.75 million loan facility agreement (ID# 5300942322010591241) for the Myanmar-China Gas Pipeline Construction Project. The loan was provided in two tranches for two subcomponents of the project — an EUR 334 million tranche for the Offshore Natural Gas Pipeline and an EUR 119 million tranche for the Onshore Natural Gas Pipeline — and it carried the following borrowing terms: a 20 year maturity, a 5 year grace period, and an interest rate of 4.5%. An overseas euro currency account was established at the Frankfurt Branch of the Bank of China as part of the loan agreement between MFTB and China Development Bank, and revenue generated by the gas pipeline project was to be paid into the account. The borrower was expected to maintain a minimum cash balance in the overseas euro currency account. The balance of the account was at least $77,186,466 in Fiscal Year 2016-17. The borrower had made principal repayments worth EUR 67.78 million and interest repayments worth EUR 114.37 million as of March 31, 2018. The loan’s (principal) amount outstanding was EUR 380 million (in loan principal and interest) as of March 31, 2007 and EUR 493.55 million (EUR 384.97 million in loan principal and EUR 108.58 million in loan interest) as of March 31, 2018. The purpose of the project was to construct a 793 km gas pipeline from Ramree Island on the western coast of Myanmar to Ruili in China’s Yunnan Province. Running in parallel with the Myanmar-China Crude Oil Pipeline, the crude pipeline is 1,016 mm in diameter with a distance of 793km in Myanmar. It was designed to deliver 5.2 billion m3 per year upon completion of the project’s first phase, and 12 billion m3 per year upon completion of the project’s second phase. Pursuant to the cooperation agreement, four gas off-take stations (Kyaukphyu, Yenangyaung, Taungtha and Mandalay) were established to unload less than 20% of the pipeline’s total delivery in Myanmar. These 4 gas distribution stations deliver 2 billion cubic meters of natural gas to the local communities on a yearly basis. In particular, the pipeline supplies natural gas to a power plant in Kyaukpyu, thus enabling a substantially longer time of power supply. The Myanmar-China Gas Pipeline was designed to alleviate China’s dependence on the Strait of Malacca for its energy imports, giving it a shorter and alternate supply route from South East Asia. Three CNPC subsidiaries -- China Petroleum Pipeline Engineering Co., Ltd. (CPP), CNPC Chuanqing Drilling Engineering Company Limited (CCDC), and Daqing Oilfield Engineering Co., Ltd -- were the EPC contractors responsible for project implementation. Construction started on June 3, 2010 and ended in June 2013. Then, on July 28, 2013, the Myanmar-China Gas Pipeline became operational and started to deliver natural gas to the Myanmar market through its off-take stations. South-East Asia Gas Pipeline Company Limited (SEAGP) -- a special purpose vehicle and joint venture of CNPC-SEAP (50.9% stake), MOGE (7.365% stake), POSCO DAEWOO Corporation (25.041% stake), ONGC CASPIAN E&P B.V. (8.347% stake), Gas Authority of India Ltd (GAIL) (4.1735% stake) and Korea Gas Corporation (KOGAS) (4.1735% stake) -- is responsible for the operation and management of the gas pipeline. There are some indications that the CDB loan for the Myanmar-China Gas Pipeline Construction Project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, CDB and the Government of Myanmar signed a debt suspension agreement as part of the G-20 Debt Service Suspension Initiative (DSSI). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under 5 loan agreements (as captured via Project ID#98030). Debt service payments under these loan agreements were again deferred in 2021 (as captured via Project ID#98031). Then, in February 2022, the European Union announced sanctions against MOGE, claiming that military control of the company was 'contributing to its capabilities to carry out activities undermining democracy and the rule of law in Myanmar/Burma.' The EU sanctions led Bank of China to advise the operators of the Shwe oil and gas field in northwestern Myanmar (SEAOP and SEAGP) that it would not handle payments in euros to MOGE out of concern that it might run afoul of EU sanctions.

Additional details

1. This project is also known as the Shwe Natural Gas Project and the Offshore Natural Gas Development and Pipeline Project/ Onshore Natural Gas Pipeline Project. The Chinese project title is 中缅油气管道 or 中缅原油和天然气管道. The Burmese project title is ေရႊသဘာ၀ဓာတ္ေငြ႔. 2. According to the Myanmar's House of Representatives, China Development Bank issued an EUR 86.16 million loan to MOGE to finance its investment in the Shwe Natural Gas project. The loan had a maturity length of 20 years, a 5-year grace period, and an interest rate of 4.5%. The EUR 452.75 million loan facility likely included the EUR 86.16 million loan (in order to facilitate MOGE’s acquisition of a 7.365% ownership stake in South-East Asia Gas Pipeline Company Limited). 3. In the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020, a $2.4 billion CDB loan for the ‘Sino-Myanmar Pipeline’ is identified. However, this appears to be a $2.4 billion umbrella agreement (signed on November 30, 2009) that subsequently resulted in two separate loan agreements for the Myanmar-China Gas Pipeline Project (captured in Project ID#34468) and the Myanmar-China Oil Pipeline Project (Captured in Project ID#73285) in December 2010. 4. South-East Asia Gas Pipeline Company Limited (SEAGP) is responsible for the operation and management of the Myanmar-China Gas Pipeline Project. It is a joint venture between SEAP (50.9% stake), MOGE (7.365% stake), POSCO DAEWOO Corporation (25.041% stake), ONGC CASPIAN E&P B.V. (8.347% stake), Gas Authority of India Ltd (GAIL) (4.1735% stake) and Korea Gas Corporation (KOGAS) (4.1735% stake). 5. Some sources suggest that CDB issued the loan to Myanma Foreign Trade Bank, which in turn on-lent the proceeds to Myanmar Oil and Gas Enterprise (MOGE). This issue warrants further investigation. See https://eiti.org/sites/default/files/attachments/meiti_reconciliation_report_2017-2018_final_signed_31st_march_2020.pdf 6. According to an FY16-FY17 EITI report (https://www.mopf.gov.mm/sites/default/files/4th%20MEITI%20Report.pdf), 'Posco Daewoo makes Royalty and Production Split payments to a Euro currency account, which has been opened by MFTB and China Development Bank (CDB) per a loan agreement. As per MOGE's explanation the agreement states that all revenue from the Shwe and SEAGP pipeline projects must be transferred directly to the aforementioned foreign currency account. According to MOGE, payments made to the Euro currency account are not transferred immediately to MOGE's MMK account at MEB due to a clause in the loan agreement that required a certain minimum balance. MOGE only receives payment into their MMK MEB account when MFTB issues Payment Orders. Therefore the amounts that are paid to the Euro currency account and the amounts that are transferred to MOGE's MMK account do not reconcile. MOGE had initially disclosed the amounts that they received in the MEB account for FY 16 - 17.' 7. The amount outstanding data are drawn from EITI reports. See https://www.mopf.gov.mm/sites/default/files/4th%20MEITI%20Report.pdf and https://eiti.org/files/documents/meiti_reconciliation_report_2017-2018_final_signed_31st_march_2020.pdf

Number of official sources

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