China Eximbank provides $1.3 billion loan for PNG Liquefied Natural Gas (LNG) Project (Linked to Project ID#61186 and #61187)

On December 15, 2009, Papua New Guinea Liquefied Natural Gas Global Company LDC — a project company and a special purpose vehicle that is jointly owned by Esso Highlands as operator (33.2%), Oil Search (29%), the PNG Government through Independent Public Business Corporation (19.6%), Santos (13.5%), Nippon Oil Exploration (4.7%), PNG landowners through Mineral Resources Development Company (2.8%) and Petromin PNG Holdings (0.2%) — obtained $14 billion of funding through a series of agreements with a consortium of 17 commercial banks and export credit agencies (ECAs). Amid a difficult market environment, the financing was well oversubscribed, underpinned by a well-developed commercial structure designed to ensure an acceptable risk-sharing mechanism between the project and the financiers. The ECA negotiation process began in January 2009 and commercial banks were invited to submit financing proposals in July/August 2009. The debt package consisted of US$4.6 billion in commercial tranches, US$5.7 billion of direct lending from ECAs and a US$3.8 billion loan from the sponsor, ExxonMobil. The 17 banks that participated in the syndication of the commercial tranches were ANZ, Bank of Tokyo-Mitsubishi UFJ, BNP Paribas, Calyon, China Development Bank, Commonwealth Bank of Australia, Crédit Industriel et Commercial de Paris, DnB Bank ASA, Intesa Sanpaolo, Mizuho Corporate Bank, National Australia Bank, Natixis, Société Générale (SG), Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, UniCredit and Westpac Banking Corporation. SG and Sullivan & Cromwell were appointed financial adviser and international legal adviser in early 2008. The commercial tranches were divided into a US$1.95 billion uncovered term loan, US$800 million term loan guaranteed by Export-Import Bank of the US (US Eximbank), US$900 million guaranteed facility by the Italian ECA Servizi Assicurativi del Commercio Estero (SACE), and a US$950 million facility insured by Nippon Export and Investment Insurance (NEXI). China Development Bank contributed US$600 million (captured via Project ID#61186) to the US$1.95 billion uncovered term loan. The ECA facilities are split into a US$2.2 billion direct loan from the US Eximbank, US$1.8 billion term loan from Japan Bank for International Cooperation, US$1.3 billion loan from the Export-Import Bank of China (captured in this project, ID#39326) and US$350 million loan from the Export Finance and Insurance Corporation. All facilities have a tenor of 17 years, except for the US$1.95 billion uncovered tranche, which has a maturity of 15 years. The interest rate is unknown. On October 4, 2013, an additional syndicated loan facility of USD 1.5 billion was committed to fund the increased project construction cost. The debt consists of a USD$600 million term loan provided by a consortium of 10 banks, including $120 million USD from China Development Bank ((captured via Project#61187), and a USD $900 million sponsor loan from ExxonMobil. The loan has a maturity length of 13 years 6 months. The purpose of the PNG Liquefied Natural Gas (LNG) Project was to build gas production and processing facilities, onshore and offshore pipelines and liquefaction facilities in PNG with the capacity to produce 6.6 million tons of LNG per year. The main components of the project include (1) an LNG plant (that consists of two LNG process trains, two 160,000 cubic meter LNG storage tanks, a marine loading terminal for LNG tankers up to 215,000 cubic meters, camp facilities, including accommodation and amenities, administration office, medical center, emergency helipad and sport and recreation center); (2) the Hides Gas Conditioning Plant (HGCP); and (3) a 700 km pipeline that transports natural gas from the Hides Gas Conditioning Plant to the LNG plant. The LNG Plant is located 20 kilometers northwest of Port Moresby, at Caution Bay on the south coast of PNG’s Central Province. The LNG process involves removing impurities and cooling the gas down to a temperature cold enough to turn it into liquid form. Once achieved, the LNG is moved to specialized storage tanks. From there, the LNG goes through a pipeline connected to the jetty where it loads onto LNG carriers. These ships then export the LNG to the international market. The operation has the capacity to produce more than 8.3 million tonnes of LNG annually, an increase of 20 percent from the original design specification of 6.9 million tonnes per annum (MTA). Condensate, a low-density mixture of hydrocarbon liquids recovered through the gas liquefaction process, is also stored and loaded onto tankers for export at the LNG Plant. The Hides Gas Conditioning Plant (HGCP) is located just outside of the township of Hides in PNG’s Hela Province. The plant processes up to 1 billion standard cubic feet of gas gathered from eight wells each day. At the plant, gas, condensate and water are separated and treated before being sent via separate pipelines to other facilities in PNG for further handling.The gas is transported along a 700-kilometre-long pipeline to the LNG Plant near Port Moresby where it is converted into liquid form, ready for shipping. Around 30,000 barrels of condensate is also produced at the Plant daily. After separation, the condensate is directed along its own pipeline to the Kutubu Central Processing Facility and later the Kumul terminal for export. These production demands are met by more than 450 production staff who work around the clock every day of the year. Conditioned gas is transported from the Hides Gas Conditioning Plant (HGCP) in the Highlands to the LNG Plant just outside of Port Moresby via a state-of-the-art 700-kilometre-long pipeline. The pipeline includes an onshore and an offshore portion. The onshore section of pipe has a diameter between 32 and 34 inches and is buried one metre below ground. It travels a distance of 290 kilometers from the HGCP all the way down to the Omati River. The offshore section of pipe joins the onshore section at the Omati River and extends a further 407 kilometers to the LNG Plant. The offshore segment travels approximately 24 kilometers past Goaribari Island to the open sea, then across the Gulf of Papua to the Caution Bay landfall at the LNG Plant. ExxonMobil PNG Limited, a subsidiary of ExxonMobil, is the is the entity responsible for operating the PNG Liquefied Natural Gas (LNG) Project. In 2008, the initial PNG LNG Project partners signed a joint operating agreement. In that same year, an independent Economic Impact Study was commissioned and showed that the Project would have a significant impact on the GDP of Papua New Guinea, in addition to other benefits such as employment and business opportunities. Then, on Mary 22, 2008, the project venture participants and the the Government of Papua New Guinea formally signed the Gas Agreement, which established the fiscal regime and legal framework by which the PNG LNG Project is to be regulated throughout its lifetime and set the terms and mechanism for State equity participation in the Project. Following this, it was announced that the project would enter Front End Engineering and Design (FEED). Between December 2009 and March 2010, sales and marketing agreements for the gas were signed with four major customers. An Environmental Impact Statement, which draws upon 26 supporting studies and took two years to complete, was approved by the PNG Government in October 2009. This documented the many rigorous commitments and measures the project would take to manage environmental risks. On December 8, 2009 the project venture participants approved the project, paving the way for construction to begin. This was supported by the completion of financing arrangements with lenders in March 2010. Engineering, procurement and construction (EPC) contracts were approved in late 2009 and in early 2010 construction work began. On or around April 29, 2014, the PNG LNG Project started production of liquefied natural gas ahead of schedule. Then, on May 25, 2014, the first shipment of liquefied natural gas from the PNG LNG Project was delivered by the Spirit of Hela to the Tokyo Electric Power Co. Inc. (TEPCO) in Japan. Chinese state-owned oil company, Sinopec, also signed an agreement (on December 3, 2019), with ExxonMobil to purchase 2 million tons of LNG annually from the PNG LNG project.

Additional details

1. AidData has coded this transaction as a collateralized loan because Papua New Guinea Liquefied Natural Gas Global Company LDC (the borrower) signed a security agreement. When lenders take collateral as security for their loans, a security agreement is typically signed and a collateral/security agent is appointed to enforce rights against the collateral in the event of the borrower’s default under the loan. 2. The Komo Airfield near HGCP, which is the longest airstrip in PNG, was built to address some of the obstacles that hindered construction including poor highway infrastructure, rugged terrain and unstable and inconsistent soils. These factors made it dangerous and at times impossible to transport people and over-sized equipment into the site. A total of 88 Antonov aircraft loads landed at Komo during construction. The airfield is now used to transport workers to and from Port Moresby. 3. Some sources suggest that that the the $600 million CDB loan and $1.3 billion China Eximbank loan were signed in December 2009 and other sources suggest that they were signed in March 2010. This issue requires further investigation. 4. None of the loans from China Eximbank or CDB that supported this project are included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020. 5. The borrower of these loans is partially owned by the Government of Papua New Guinea. 6. A description of the loan's collateralization arrangement is provided via https://www.annualreports.com/HostedData/AnnualReportArchive/O/ASX_OSH_2019.pdf: "Papua New Guinea Liquefied Natural Gas Global Company LDC, a limited duration company incorporated under the laws of the Commonwealth of the Bahamas (the “Borrower”) was organised to conduct certain activities of the PNG LNG Project outside of PNG, including the borrowing and on-lending to the Project participants of the Project Finance Debt Facility, and the purchase and re-sale of PNG LNG Project liquids and LNG. The Borrower is owned by each Project participant in a percentage equal to its interest in the PNG LNG Project (the Oil Search Limited Group interest at 31 December 2019 is 29.0% (December 2018: 29.0%)). Oil Search (LNG) Limited and Oil Search (Tumbudu) Limited are the Group’s participants in the PNG LNG Project (the “OSL Participants”). Interest and principal on the Project Finance Debt Facility is payable on specified semi-annual dates, which commenced in June 2015, with the principal being repayable over 11.5 years based on a customised repayment profile and with 6.5 years remaining on the facility as at 31 December 2019. The liquids and LNG sales proceeds from the PNG LNG Project are received into a sales escrow account from which agreed expenditure obligations and debt servicing are firstly made and, subject to meeting certain debt service cover ratio tests, surpluses are distributed to the Project participants. The Borrower granted to the security trustee for the Project Finance Debt Facility: (1) a first-ranking security interest in all of its assets, with a few limited exceptions; (2) a fixed and floating charge over existing and future funds in the offshore accounts; a deed of charge (and assignment) over the sales contracts, LNG charter party agreements, rights under insurance policies, LNG supply and sales commitment agreements, on-loan agreements and the sales, shipping and finance administration agreements, collectively known as “Borrower Material Agreements”; and (3) a mortgage of contractual rights over Borrower Material Agreements. The OSL Participants have granted the security trustee for the Project Finance Debt Facility a security interest in all their rights, titles, interests in and to all of their assets, excluding any non-PNG LNG Project assets. The Company, as the shareholder in the OSL Participants, has provided the security trustee for the Project Finance Debt Facility a share mortgage over its shares in the OSL Participants. The Project Finance Debt Facility is subject to various covenants and a negative pledge restricting further secured borrowings, subject to a number of permitted lien exceptions. Neither the covenants nor the negative pledge have been breached at any time during the reporting period. Financial Completion for the PNG LNG Project was achieved on 5 February 2015. From that date, the completion guarantee that was provided by the Company for its share of the Project Finance Debt Facility was released. The Company has not provided any other security."

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