CDB provides RMB 3.255 billion via Tranche B of oil-backed loan facility for specific infrastructure projects/programs (Linked to Project ID#58839)

On April 29, 2016, Ecuador's Ministry of Finance and China Development Bank (CDB) signed an oil-backed term loan facility agreement with two tranches. Tranche A is worth $1.5 billion and Tranche B is worth RMB 3,255,000,000 ($503,743,800). The CDB loan is backed by the sale of crude oil and fuel oil from Petroecuador to PetroChina International and UNIPEC Asia Co. Ltd. Petroecuador signed an Oil Sales and Purchase Contract with PetroChina International on April 29, 2016. Petroecuador also signed an Oil Sales and Purchase Contract with UNIPEC Asia Co. Ltd. on an unknown date. Tranche A, which is captured via Project ID#58839, carries the following terms: a fixed interest rate of 7.25% per annum, a grace period of 2 years, a maturity of 8 years, and a management fee of 1.3%. Tranche B, which is captured via Project ID#58842 and specifically tied to the execution of specific investment projects (by Chinese contractors), carries the following terms: a fixed interest rate of 6.8717% per annum, a default interest rate of 3%, a grace period of 2 years, a maturity of 8 years, and a management fee of 1.3% ($26 million). The proceeds from the sale of oil were to be paid by PetroChina and UNIPEC Asia Co. Ltd. into a Proceeds Account, which was opened by Petroecuador with CDB. Petroecuador was required to maintain a minimum cash balance in its Proceeds Account with CDB, equivalent to no less than a multiple of 1.3 times the next installment of principal and interest due under the facility agreement. The proceeds from unspecified sales contracts were also to be paid into a separate Proceeds Account, which was opened by Central Bank of Ecuador (BCE) with CDB. BCE was required to maintain a minimum cash balance in its Proceeds Account with CDB, equivalent to $72.5 million during the 6-month period immediately following the execution of the loan agreement on April 29, 2016, $50 million from October 29, 2016 until the end of the loan's availability period (on April 29, 2018), $156 million during the first 3 years of the loan repayment period (April 29, 2018 to April 29, 2021), and $132 million during the last 3 years of the loan repayment period (April 29, 2021 to April 29, 2024). The (principal) outstanding amount under Tranche A was $909,100,000 as of December 31, 2021 and $603,890,000 as of November 30, 2022. The (principal) outstanding amount under Tranche B was $310,371,498.86 as of December 31, 2021 and $184,770,630 as of November 30, 2022. This CDB loan agreement eventually became a subject of local scrutiny and controversy. During the spring of 2016, CDB invoked a confidentiality clause in response to a video obtained and released by investigative journalists that revealed the terms of the Government of Ecuador’s multi-billion dollar oil-backed debts to CDB. The release of the video shortly after the deal was signed prompted public debate about the advisability of the new borrowing. In response, Wang Hongjun, the head of CDB’s Resident Mission in Ecuador issued a letter to William Vasconez, the Undersecretary of Public Financing in Ecuador’s Ministry of Finance, on May 23, 2016, complaining about the borrower’s apparent breach of its commitments under the Confidentiality Letter it signed on April 25, 2016. Wang Hongjun called upon the borrower to launch an investigation into which specific public officials leaked the terms and conditions of the $2 billion loan agreement and take 'measures' to mitigate the damage to reputation caused by the video. The CDB letter also implicitly threatened to withhold future financing if the borrower did not adequately address the incident. The loan has underperformed vis-a-vis the lender’s original expectations. It was rescheduled twice — once in August 2020 (as captured via Project ID#91347 and Project ID#96374) and again in September 2022 (as captured via Project ID#96456 and Project ID#96457). At the time of the August 2020 rescheduling, the lender and borrower agreed to defer principal and interest payments for 12 months –- providing $416.8 million of cash flow relief. At the time of the September 2022 rescheduling, the lender and the borrower agreed to reduce the interest rate that applies to Tranche A from 7.25% to 6.3%, reduce the interest rate that applies to Tranche B from 6.8717% to 5.9%, and extend the final maturity dates of Tranches A and B from April 29, 2024 to April 29, 2027. They also agreed that the minimum cash balance in the CDB Proceeds Account would be $156,000,000 from April 28, 2018 until July 28, 2020, $32,000,000 from July 28, 2020 until July 29, 2021, $190,000,00 from July 29, 2021 until September 9, 2022, $77,000,000 from September 9, 2022 until April 29, 2023, $74,000,000 from April 29, 2023 until April 29, 2024. $71,000,000 from April 29, 2024 until April 29, 2025, $67,000,000 from April 29, 2025 until April 29, 2026, and $63,000,000 from April 29, 2026 until April 29, 2027 (the loan’s revised final maturity date).

Additional details

1. The transaction was governed by a Facility Agreement between CDB and the Ecuadorian Ministry of Finance and by a Four Parties Agreement (between CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador) that links the Facility Agreement to an Oil Sales and Purchase Contract between PetroEcuador and PetroChina. The $2 billion Facility Agreement, which was signed by CDB and Ecuador's Ministry of Finance on April 29, 2016, can be accessed in its entirety via https://www.dropbox.com/s/7n4vmwghjknxz0o/linea-de-credito-fas-IV-CDB.pdf?dl=0. The Four Parties Agreement was signed by CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador on or around April 29, 2016. The Oil Sales and Purchase Contract that PetroEcuador and PetroChina, which was signed on January 22, 2016, can be accessed in its entirety via https://www.dropbox.com/s/3f4yct2v7t0bjx1/Contrato2016050.pdf?dl=0. AidData has not yet identified the Oil Sales and Purchase Contract between PetroEcuador and UNIPEC Asia Co. Ltd.. 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 total monetary value of the management fee is $26 million. 4. The May 23, 2016 letter that is referenced in the project description can be accessed in its entirety via https://www.dropbox.com/s/x71lgctpz0kme0j/OFICIO-No.-CDB-ECU-2016-001-2-1%20%281%29.pdf?dl=0. 5. A key point of context relates to the State Comptroller General’s Office (which is referenced in the May 23, 2016 letter from CDB): In March 2013, the State Comptroller General's Office in Ecuador approved an audit report (DA3-0015-2012), which found that 5 Petroecuador officials sold oil to PetroChina at below-market rates without economic or technical justification (for the purposes of the Oil Sales and Purchase Contract that underpinned CDB’s lending to Ecuador). DA3-0015-2012 also flagged the participation of a company (Taurus) as an intermediary in the shipments and transfers of crude oil acquired by Petrochina to other countries, leaving open the possibility that Petrochina may habe be reselling the crude oil at prices higher than those purchased to Petroecuador. It was later revealed -- through the Panama Papers -- that Enrique Cadena Marín and Jaime Baquerizo Escobar were receiving $1 commissions for every barrel of oil sold to Petroecuador. These individuals were subsequently convicted in the U.S. on money laundering charges. CDB did not like DA3-0015-2012 and it evidently leaned on Ecuador’s Vice President (Jorge Glas) to do something about it. Glas (who was sentenced to six years in prison for his involvement in a separate corruption scandal involved Odebrecht), sent an email in August 2013 to President Correa and his legal adviser (Alexis Mera) to inform them that the State Comptroller General's report would "cleared up and vanished” (“el informe de Contraloría había sido ‘aclarado y desvanecido’”). On this point, see http://www.ecuadorenvivo.com/pdf/CARTA-CONTRALOR-1.pdf and https://www.dropbox.com/s/r8s4rjjm7bzlrf0/carta-contralor-1.pdf?dl=0. However, DA3-0015-2012 did not actually vanish until March 2016, one month before the Government Ecuador was supposed to sign another large, oil-backed loan agreement (Line of Credit IV) with CDB. Pablo Celi, who was the Sub-Comptroller General of Ecuador at the time, was informed that if DA3-0015-2012 remained in the public domain, it could undermine the Government of Ecuador’s ability to borrow from CDB in the future (or affect oil presales between PetroEcuador and PetroChina). AidData has recovered a copy of DA3-0015-2012 through the Wayback Machine. It can be accessed in its entirety via https://web.archive.org/web/20200923172102/https://www.eluniverso.com/sites/default/files/archivos/2016/06/da3-0015-2012.pdf. 6. The September 2022 loan rescheduling agreement can be accessed in its entirety via https://www.dropbox.com/s/e19ocyfdgw0re11/9%20September%202022%20Amendment%20to%2029%20April%202016%20Phase%20IV%20Multi-Party%20Agreement.pdf?dl=0/. 7. PetroEcuador, the Central Bank of Ecuador, and CDB signed a Phase IV Account Management Agreement on April 29, 2016, which specifies the minimum cash balance that must be maintained in the CDB Proceeds Account. The Phase IV Account Management Agreement, which is governed by PRC law, was amended on September 9, 2022. See https://www.dropbox.com/s/e19ocyfdgw0re11/9%20September%202022%20Amendment%20to%2029%20April%202016%20Phase%20IV%20Multi-Party%20Agreement.pdf?dl=0 8. The Ecuadorian Ministry of Finance loan identification number for Tranche A is 23183000. The Ecuadorian Ministry of Finance loan identification number for Tranche B is 23184000.

Number of official sources

18

Number of total sources

31