CDB provides $1 billion oil-backed loan to finance various infrastructure projects in Ecuador's national investment plan (Linked to Project ID#69319, #69320, #58839, #58842, #36002, #58827)

At the end of 2009, talks began between the Government of Ecuador and the Chinese Government for a $1 billion oil-for-loan agreement. A term loan facility agreement was signed on August 31, 2010 by Ecuador's Ministry of Finance and China Development Bank (CDB). The loan carried the following borrowing terms: a fixed interest rate of 6%, a fixed default (penalty) interest rate of 3%, a 6-month grace period, and a 4-year maturity (final maturity date: August 31, 2014). The loan was repaid in its entirety at the end of the 4-year period. The loan had an 80% discretionary ($800 million Tranche A) component and a 20% oil-related component ($200 million Tranche B). The proceeds from Tranche A were at the free disposal of Ecuador's Ministry of Finance to finance infrastructure, mining, telecommunications, social development and/or energy projects. The proceeds from Tranche B were earmarked for the purchase of goods and services from selected Chinese contractors. The loan was backed by a separate Oil Sales and Purchase Contract between PetroEcuador and PetroChina. This agreement required PetroEcuador to sell, over the entire validity period of the Facility Agreement, at least 380,000 barrels of fuel oil per month and 15,000 barrels of crude oil per day to PetroChina. Petroecuador’s selling price to PetroChina International was calculated based on the price of West Texas Intermediate (WTI) crude oil. The proceeds from the sale of oil were to be paid by PetroChina into a Proceeds Account which was opened by PetroEcuador with CDB in China and which was governed by Chinese law. PetroEcuador was ‘not permitted to make any withdrawals from the Proceeds Account except to the extent permitted under the Account Management Agreement’. PetroEcuador and the Ecuadorian Ministry of Finance acknowledged that CDB had the ‘statutory rights under Chinese law and regulation […] to deduct or debit all or part of the balances in the Proceeds Account to discharge all or part of the Republic of Ecuador's [...] liabilities due and owing to CDB’ both under the 2010 oil-backed loan as well as under “any other agreement between CDB and the Republic of Ecuador". Petroecuador was also required to maintain a minimum cash balance in the Proceeds Account, equivalent to 130% of the principal and interest due to be paid in that interest period. Between August 31, 2010 to March 3, 2011, the borrower was required to maintain a minimum cash balance of somewhere between $50 million and $113 million. Between March 4, 2011 and August 31, 2014 (the loan’s final maturity date), the borrower was required to maintain a minimum cash balance of $113 million. Petroecuador appears to have complied with these minimum cash balance requirements.

Additional details

1. The transaction was governed by a Facility Agreement between CDB and the Ecuadorian Ministry of Finance and by a Four Party Agreement (between CDB, PetroChina, the Ecuador's Ministry of Finance, and PetroEcuador) that links the Facility Agreement to the Oil Sales and Purchase Contract between PetroEcuador and PetroChina. Figure 9 in the 'How China Lends' report (https://docs.aiddata.org/ad4/pdfs/How_China_Lends__A_Rare_Look_into_100_Debt_Contracts_with_Foreign_Governments.pdf) illustrates the contractual structure of the Four-Party Agreement. The $1 billion Facility Agreement, which was signed by CDB and Ecuador's Ministry of Finance on August 31, 2010, can be accessed in its entirety via https://www.dropbox.com/s/x8g19t71mup6jbj/1.2-Facility-Agreement-CDB-I.pdf?dl=0. The Four Party Agreement, which was signed by CDB, PetroChina, the Ecuador's Ministry of Finance, and PetroEcuador on August 31, 2010, can be accessed in its entirety via https://www.dropbox.com/s/p3k0kpu4bi9dmqh/1.1-Four-Party-Agreement-CDB-I_2010.pdf?dl=0. The Oil Sales and Purchase Contract (ID#2010253), which was signed PetroEcuador and PetroChina on August 31, 2010, can be accessed in its entirety via https://www.dropbox.com/s/124ldloys4mq4a9/Contrato-No-2010253.pdf?dl=0. Amended versions of the Oil Sales and Purchase Contract, dated December 20, 2012, June 27, 2014, January 28, 2016, and August 22, 2018 can be accessed in their entirety via https://www.dropbox.com/s/wuso0clv2nh8jul/27%20June%202014%20Amended%20Oil%20Prepayment%20Agreement%20Number%202010253.pdf?dl=0 and https://www.dropbox.com/s/tksa159hasomf0e/22%20August%202018%20Amended%20Oil%20Prepayment%20Agreement%20Number%202012291.pdf?dl=0. The account management agreement can be accessed in its entirety via https://www.dropbox.com/s/7nx6xnsl85diljc/2010-ec-china-account-management-agreement.pdf?dl=0. 2. From 2010 to 2016, the Government of Ecuador entered into four separate loan agreements with China Development Bank totaling $7 billion which are related to a multi-party contractual structure that involves crude oil delivery contracts entered into with PetroChina and Unipec. Deliveries under these contracts are based upon international spot prices, such as WTI plus or minus a spread, plus a premium paid due to the term of the contracts. The spread is calculated using Argus, a crude oil price assessment publication (“Argus”) and the quality of crude oil as measured by the American Petroleum Institute. Under these agreements, Ecuador is required to invest the loaned amounts in specific infrastructure projects or programs in Ecuador. The $1 billion loan agreement with CDB in 2010 is captured via Project ID#35865. The $2 billion loan agreement with CDB in 2011 is captured via Project ID#69319 and ID#69320. The $2 billion loan agreement with CDB in 2012 is captured via Project ID#36002 and #58827. The $2 billion loan agreement with CDB in 2016 is captured via Project ID#58839 and Project ID#58842. 3. The account management agreement that was signed by Petroecuador (on behalf of the Republic of Ecuador) and China Development Bank on August 31, 2010 specifies that ‘[t]he Account Holder [Petroecuador (on behalf of the Republic of Ecuador)] shall ensure that: during the Tranche A Availability Period: (i) by no later than the date falling twenty (20) Business Days prior to the date of first Utilisation of the Tranche A Facility and thereafter for each Relevant Period or part thereof in any Interest Period in the Tranche A Availability Period, the amount standing to the credit of the Proceeds Account is no less than the Initial Required Amount [US$50,000,000]; and (ii) by no later than the date falling twenty (20) Business Days prior to the date of first Utilisation of the Tranche B Facility and thereafter for each Relevant Period or part thereof in any Interest Period in the Tranche A Availability Period, the amount standing to the credit of the Proceeds Account is no less than the Long Term Required Amount [US$113,000,000].’ It also specifies that ‘after the Tranche A Availability Period, the amount standing to the credit of the Proceeds Account in each Relevant Period in an Interest Period, is not less than the Long Term Required Amount.’ The account management agreement also specifies that “[t]he Account Holder [Petroecuador (on behalf of the Republic of Ecuador)] shall procure that all amounts to be paid by PetroChina Intl. under the Sales and Purchase Contract are paid directly into the Proceeds Account. 3.2 Any deposit made into the Proceeds Account must be in Dollars. 3.3 If CDB receives any deposit for the Proceeds Account in a currency other than Dollars before 3:00 pm (Beijing time) on any day, it shall effect the conversion of those moneys into Dollars on that day, at the spot rate of exchange quoted by CDB for the conversion of that currency into Dollars on that day. If CDB receives any deposit for the Proceeds Account in a currency other than Dollars after 3:00 pm (Beijing time) on any day, it shall effect the conversion of those moneys into Dollars on the following day at the spot rate of exchange quoted by CDB for the conversion of that currency into Dollars on the following day (provided if banks in Beijing are not open for business on the following day, CDB shall effect the conversion on the next immediate day banks in Beijing are open for business).’ Additionally, the account management agreement specifies that ‘[t]he Account Holder [Petroecuador (on behalf of the Republic of Ecuador)] acknowledges CDB's statutory rights under Chinese law and regulation to deduct from amounts standing to the credit of the Proceeds Account any amounts owed to CDB under this Agreement or any other agreement between CDB and the Republic of Ecuador, with the express understanding by the Parties that this acknowledgment: does not constitute the creation of any security interest, lien, priority right, contractual right of set-off and/or contractual privilege; constitutes an admission by the Account Holder of the right of CDB to deduct or debit all or part of the balances in the Proceeds Account to pay and/or discharge all or part of the Republic of Ecuador’s (acting for itself or through a person, entity acting as representative and/or entity, acting for and or behalf of the Republic of Ecuador) liabilities due and owing to CDB under this Agreement or any other agreement between CDB and the Republic of Ecuador (acting for itself or through a person, entity acting as representative and/or entity, acting for and on behalf of the Republic of Ecuador) in exercise of its rights under Chinese law and regulation; and 14.1.1 acknowledges CDB's statutory rights under Chinese law and regulation to exercise its rights of deduction without giving notice to the Account Holder.’ Another section of the account management agreement specifies that ‘[s]ubject to Clause 18.2 (Termination of the account service), the Account Holder [Petroecuador (on behalf of the Republic of Ecuador)] shall not be permitted to make any withdrawal from the Proceeds Account on any date: if a Default or Mandatory Prepayment Event is continuing; or if, or if as a result of the withdrawal, the amount standing to the credit of the Proceeds Account on the proposed withdrawal date is, or would be, less than the Long Term Required Amount’. The Tranche A and Tranche B availability periods were identical, running from August 31, 2010 to March 3, 2011. Therefore, between August 31, 2010 to March 3, 2011, the borrower was required to maintain a minimum cash balance of somewhere between $50 million and $113 million in the Proceeds Account. Then, from March 4, 2011 to August 31, 2014 (the loan’s final maturity date), the borrower was required to maintain a minimum cash balance of $113 million in the Proceeds Account. 4. The Ecuadorian Ministry of Finance loan identification number is 23160000.

Number of official sources

14

Number of total sources

38