China Development Bank provides $1.2 billion loan for Oltin Yo’l GTL Processing Plant Project

Project narrative

In March 2017, meetings were held in Seoul with representatives of the Export-Import Bank of the Republic of Korea (KEXIM), and in Beijing with representatives of China Development Bank (CDB), regarding the financing of a $3.61 billion Oltin Yo’l gas-to-liquid (GTL) processing plant at the Shurtan petrochemical complex. Although the project did not reach full financial close until December 15, 2018, several parallel loan agreements with various creditors (including CDB, KEXIM, Credit Suisse, MUFG, SMBC, ING Bank, Mizuho, Woori Bank, Gazprombank, and Roseximbank) were signed with Uzbekistan GTL LLC (UzGTL) — a special purpose vehicle and wholly-owned subsidiary of JSC ‘Uzbekneftegaz’ (Uzbekistan’s national oil and gas company) that was established for the development, design, engineering, construction and operation of a first GTL plant at the Shurtan petrochemical complex in Guzar district, Qashgadaryo Region of Uzbekistan — over the course of calendar years 2017 and 2018. On April 24, 2019, the Xinjiang Branch of CDB signed a $1.2 billion loan agreement with UzGTL. The CDB loan carries the following borrowing terms: a 12.16-year maturity, a 2.5 year grace period, and an interest rate of 6-month LIBOR plus a 3.5% margin. The borrower is responsible for making principal repayments every six months starting in December 2021. The loan's final maturity date is June 2031. The proceeds of the loan were to be used by the borrower to partially finance a commercial (EPC) contract with a Korean-Singaporean consortium consisting of Hyundai Engineering Co. Ltd., Hyundai Engineering and Construction Co., Ltd, and Enter Engineering Pte. Ltd., which was signed in December 2013. The Government of Uzbekistan issued a sovereign guarantee in support of this loan and several other foreign loans for the Oltin Yo’l GTL Processing Plant Project on April 26, 2019. Then, on May 7, 2019, the first drawdown of the CDB loan took place. The CDB ultimately achieved a 100% disbursement rate. As of June 24, 2024, the principal amount outstanding under the CDB loan was $785.8 million. The remaining project costs were financed with a $600 million direct loan from KEXIM, a $225 million syndicated loan with Credit Suisse, MUFG and SMBC, a $220 million Exiar-insured syndicated loan from Gazprombank ($120 million) and Roseximbank ($100 million), a $135 million K-Sure-insured syndicated loan from Credit Suisse, ING Bank, Mizuho, MUFG, SMBC and Woori Bank, $740 million from the Fund for Reconstruction and Development of Uzbekistan, and approximately $570 million from Uzbekneftegaz (the project owner/sponsor). The purpose of the project is to design, construct, and operate a gas-to-liquids (‘GTL’) plant at the Shurtan petrochemical complex in Guzar district, Qashgadaryo (Kashkadarya) Region of Uzbekistan. Upon completion, the so-called Oltin Yo’l GTL plant will seek to produce synthetic liquid fuels based on purified methane from Shurtan Gas Chemical Complex. The plant is expected to eventually have the capacity to produce 743,500 tons of diesel fuel, 311,000 tons of aviation kerosene, 431,100 tons of naphtha and 20,900 tons of liquefied gas per year. Shurtan Gas Chemical Complex will supply the GTL plant with 3.6 billion cubic meters of methane per year. Hyundai Engineering Co. Ltd., Hyundai Engineering and Construction Co., Ltd, and Enter Engineering Pte. Ltd. were the general EPC contractors responsible for implementation. Uzbek President Shavkat Mirziyoyev issued a special resolution, approving the construction of the GTL plant in December 2016. The commencement of earthworks at the project site then took place on July 4, 2017. Installation of the lower part of the first Fischer-Tropsch reactor on foundation in the GTL plant’s operational area occurred on August 27, 2018. Then, in July 2019, the construction of an accommodation camp for the GTL plant specialists was completed. The project achieved full completion of assembly and installation of the main bodies of the Fischer-Tropsch reactors in September 2019. An active phase of construction and installation works was underway between January and July 2019, with the commencement of construction of the GTL plant’s railway infrastructure in March 2019. However, construction and installation works were suspended on July 11, 2019 due to introduction of quarantine restrictions related to the COVID-19 pandemic. At that point in time, the project site recorded the lowest number of working personnel (244 personnel). Then, on October 24, 2020, “National Electric Networks of Uzbekistan” JSC began supplying electricity to the GTL plant, which kickstarted the pre-commissioning and commissioning works of the plant's process equipment and units. By December 2020, the project site recorded the highest number of working personnel (more than 13,600 personnel). Then, in January 2021, the project achieved another milestone: the commencement of commissioning works at the first stage of the Raw Water Treatment Unit – Demineralized Water Production System. The GTL plant was officially commissioned and put into production on December 25, 2021. There are some indications that the Oltin Yo’l GTL Processing Plant Project may have financially underperformed vis-a-vis the original expectations of some of its lenders. In February 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Directive 3 Under Executive Order 14024, which prohibited U.S. persons from engaging in all transactions in, provision of financing for, and other dealings in new debt of greater than 14 days maturity and new equity issued by 13 Russian state-owned enterprises and entities, as well as their subsidiaries, on or after March 26, 2022. The entities included Transneft, Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways. The fact that one of UzGTL's lenders (Gazprombank) faced international sanctions in 2022 and 2023 likely complicated the borrower’s efforts to repay its USD-denominated $120 million loan from Gazprombank (which had fully disbursed as of 2021). Then, on March 5, 2022, the Russian Government issued Presidential Decree No. 95, which required that Russian borrowers make payments to foreign creditors from ‘unfriendly states’—including most countries that imposed sanctions on Russia for its invasion of Ukraine—in Russian rubles (irrespective of the currency of the loan), unless a permission to make direct payments in the contractual currency was granted by either the Central Bank of the Russian Federation (CBR) or Russia’s Ministry of Finance. This measure made it substantially more difficult for Russian borrowers to make timely payments on foreign- and local-currency debt to certain international creditors in their original currencies of denomination. Then, in June 2022, the Russian Government defaulted on some of its dollar-denominated and euro-denominated debt.