Narrative
Full Description
Project narrative
In February 2009, China Development Bank and PJSC Rosneft Oil Company (‘Rosneft’) — a Russian state-owned oil company — signed a $15 billion loan facility agreement for the East Siberia-Pacific Ocean Oil Pipeline Project. The loan carries the following borrowing terms: a 20 year maturity, a 5 year grace period (during which only interest payments are due), and an annual interest rate of 6-month LIBOR plus a 3.25% margin. The proceeds of the loan were to be used by the borrower (a) to support the construction of a 64 km crude oil pipeline from Scovorodino to the Amur River on Russia-China border, and (b) for general corporate purposes. As collateral for the loan, Rosneft signed an oil supply contract with China National Petroleum Corporation (CNPC) and agreed to sell it 180,000 barrels of crude oil per day (or 9 million tons of crude oil each year) for 20 years. CNPC agreed to pay market prices for the oil and deposit payments for the oil into an account at CDB opened on behalf of Rosneft by OJSC Bank VTB (a Russian state-owned bank that acted as an agent for Rosneft). CDB had the right to directly debit cash funds from the account to secure repayment of principal, interest and other amounts payable under the loan agreement. In the event of a default, CDB had the right to debit the entire cash balance of the account. The CDB loan disbursed in two tranches: a $10 billion tranche on October 31, 2009 and a $5 billion tranche in 2010. CDB also provided a $10 billion loan to OAO AK Transneft — a Russian state-owned oil pipeline company — for the East Siberia-Pacific Ocean Oil Pipeline Project (captured via Record ID#43012). OAO AK Transneft was responsible for the implementation of the East Siberia-Pacific Ocean Oil Pipeline Project. Construction began in the Russian territory on April 27, 2008 and in Chinese territory on May 18, 2009. The 64 km section from Skovorodino to the Amur River on Russia-China border was built by Transneft and the 992 km section from Russia-China border to Daqing was built by the China National Petroleum Corporation. It was completed in September 2010. On January 1, 2011, Russia announced that it had begun scheduled oil shipments to China.
Staff comments
1. This project is also known as the Russia-China Oil Pipeline Project or ESPO Pipeline Project. The Russian project title is Нефтепровод "Восточная Сибирь - Тихий океан”. 2. Most of China’s oil-backed loan agreements involve a bank, an oil company, and a trading firm. An oil company in the borrower country must sell a certain number of barrels during a specific period, and payments for the oil are sent directly to the bank. Therefore, the borrower uses the proceeds of oil sales to meet its loan repayment obligations. 3. Under Rosneft’s oil supply contract with China National Petroleum Corporation (CNPC), the price of the crude oil was set each month based on the market quotes for Russia’s new ESPO blend crude at the Pacific port of Kozmino. 4. Rosneft’s identification number for the CDB loan is 0003809/1205Д. 5. In financial reports published by Rosneft (e.g. https://www.rosneft.ru/upload/site1/document_file/AZQElBlqNX.pdf), the loan’s final maturity date is identified as May 25, 2029 and its interest rate is identified as 6-month LIBOR plus a 3.25% margin. 6. Rosneft originally estimated that the interest rate of the CDB loan would average 5.69 percent per year and that its total (principal and interest) payments to CDB on the $15 billion loan would ultimately be $25.9 billion. 7. The collateral arrangement that underpins this loan agreement is described in detail at https://www.dropbox.com/s/4zi0bsvts9sdu20/prepare11en.pdf?dl=0. An Account Charge Agreement was signed by Rosneft Oil Company (Pledger), OJSC Bank VTB, acting as the Agent of Rosneft Oil Company (Pledger) and China Development Bank (as the Underwriter and Settlement Bank) (Pledge Holder), whereby Rosneft and OJSC VTB Bank make a pledge in favor of China Development Bank (as the Security Agent) of a portion of cash funds (at least 120% of the total amount of principal, interest, and other charges under the Loan Agreement payable in the respective month), remitted under the Crude Oil Delivery Contract between Rosneft and CNPC. See https://www.rosneft.com/upload/site2/document_shareholdersmeeting/19062009/prepare10en.pdf 8. AidData has estimated the loan's all-in interest rate -- at the time it was issued -- by adding 3.25% to average 6-month LIBOR in February 2009 (1.757%).