China Eximbank provides $920 million preferential buyer's credit for Songo Songo to Dar Es Salaam Gas Pipeline and Natural Gas Processing Plants at Mnazi Bay and Songo Songo Project (Linked to Project ID#59733)

On June 20, 2012, the Export-Import Bank of China ('China Eximbank') and the Government of Tanzania’s Ministry of Finance signed a financing agreement for the Songo Songo to Dar Es Salaam Gas Pipeline and Natural Gas Processing Plants at Mnazi Bay and Songo Songo Project. Two loans were issued to Tanzania’s Ministry of Finance: a $275 million buyer's credit loan (BCL) with an interest rate of 6-month LIBOR plus 430 basis points, a 1.83-year (22 month) grace period, and a 12.83-year (154 month) maturity and a $920 million preferential’s buyer’s credit (PBC) with a 20-year maturity, a 7-year (84 month) grace period, and a 2% interest rate. The PBC (captured via Project ID#59752) was scheduled for semi-annual repayment every January 21 and July 21. It had a grace period of 84 months from the first loan disbursement date (June 20, 2013) and it was scheduled to be repaid in full 156 months from the end of the grace period. The BCL (captured via Project ID#59733) was scheduled for semi-annual repayment every January 21 and July 21. It had a grace period of 22 months from the first loan disbursement date (July 24, 2013) and it was scheduled to be repaid in full 132 months from the end of the grace period. The PBC and BCL proceeds were on-lent from Tanzania’s Ministry of Finance to the Tanzania Petroleum Development Corporation (TPDC), which in turn used the proceeds to finance a September 2011 commercial (EPC) contract with China Petroleum Technology and Development Corporation (CPTDC), a subsidiary of China National Petroleum Company (CNPC). The PBC and BCL were both secured with (i.e. collateralized against) all rights under a natural gas sales agreement between the Tanzania Electric Supply Company Limited (TANESCO) and TPDC. The borrower (Tanzania’s Ministry of Finance) and end-user (TPDC) was required to deposit profits from the gas pipeline into three Stanbic Bank escrow accounts that were accessible to the lender. According to TPDC’s audited financial statements, the escrow accounts ‘were opened to secure repayment of principal and payment of interest and fees under the loan agreements’ and the minimum cash balances in these accounts functioned as sources of ‘collateral’. TPDC and Tanzania’s Ministry of Finance maintained a cash balance of TZS 42,011,517,702 in the escrow accounts as of June 30, 2014, TZS 120,509,276,347 as of June 30, 2015 (TZS 2,380,765,097 from TPDC and TZS 118,128,511,250 from Tanzania’s Ministry of Finance), $60,340,466 (TZS 131,473,427,000) as of June 30, 2016 ($1,473,574 from TPDC and $58,866,942 from Tanzania’s Ministry of Finance), $60,340,466 as of June 30, 2017, $60,320,710 (TZS 136,713,000,000) as of June 30, 2018, $60,320,710 (TZS 138,105,000,000) as of June 30, 2019 ($1,473,574 from TPDC and $58,866,942 from Tanzania’s Ministry of Finance), $60,320,710 (TZS 138,527,000,000) as of June 30, 2020 ($1,473,574 from TPDC and $58,866,942 from Tanzania’s Ministry of Finance), and $60,320,710 (TZS 138,673,000,000) as of June 30, 2021 ($1,473,574 from TPDC and $58,866,942 from Tanzania’s Ministry of Finance). China Eximbank conducted a small ‘cash sweep’ (worth $19,806) from one of the escrow accounts between July 1, 2017 and June 30, 2018. It withdrew these funds ‘as a penalty for [the Government of Tanzania’s] late repayment of due installment.’ The first PBC disbursement took place on June 20, 2013. The first BCL disbursement took place on July 24, 2013. Another loan disbursement (worth $126,495,423.10) took place in August 2014. The proceeds of the BCL and PBC were earmarked for the following sub-projects: (a) $151,735,000 for the Songo Songo Natural Gas Plant; (b) $197,877,000 for the Mnazi Bay Natural Gas Plant; and (c) $875,715,000 for the Natural Gas Pipeline. The PBC’s outstanding amount was TZS 353,208,000,000 as of July 1, 2013, TZS 929,156,000,000 as of June 30, 2014, TZS 1,689,444,000,000 as of June 30, 2015, TZS 2,075,037,000,000 as of June 30, 2016, TZS 2,180,592,000,000 as of June 30, 2017, TZS 2,261,433,000,000 as of June 30, 2018, TZS 2,330,382,000,000 as of June 30, 2019, TZS 2,382,841,000,000 as of June 30, 2020, and TZS 2,428,269,000,000 as of June 30, 2021. As of June 30, 2016, TPDC disclosed in an audited financial statement that it had defaulted on its repayment obligations under the PBC because it had not made an interest payments to the Government of Tanzania. As of June 30, 2021, TPDC disclosed in an audited financial statement that it had not made any principal or interest payments on the PBC to the Government of Tanzania (despite the fact that the PBC’s grace period expired on June 20, 2020). The BCL’s outstanding amount was TZS 0 as of July 1, 2013, TZS 165,451,000,000 as of June 30, 2014, TZS 488,968,000,000 as of June 30, 2015, TZS 648,979,000,000 as of June 30, 2016, TZS 717,819,000,000 as of June 30, 2017, TZS 768,040,000,000 as of June 30, 2018, TZS 811,358,000,000 as of June 30, 2019, TZS 845,584,000,000 as of June 30, 2020, and TZS 875,830,000,000 as of June 30, 2021. As of June 30, 2016, TPDC disclosed in an audited financial statement that it had defaulted on its repayment obligations under the BCL because it had not made an interest payments to the Government of Tanzania. As of June 30, 2021, TPDC disclosed in an audited financial statement that it had not made any principal or interest payments on the BCL to the Government of Tanzania (despite the fact that the BCL’s grace period expired on May 24, 2015). The gas pipeline project was designed and constructed to deliver natural gas to Dar es Salaam for use in power generation, industrial applications, household cooking and in propulsion of transport vehicles. It involved the construction of a 542 kilometer marine and terrestrial pipeline between Songo Songo and Dar Es Salaam as well as two processing plants: one in Songo Songo and another in Mnazi Bay. The 542-kilometer gas pipeline has four parts: (i) 290-kilometer terrestrial pipeline of 36-inches diameter from Madimba in Mtwara to Somanga Fungu; (ii) 25-kilometer marine pipeline of 24-inches from Songo Songo Island to Somanga Fungu; (iii) 197-kilometer terrestrial pipeline of 36-inches diameter from Somanga Fungu to Kinyerezi in Dar es Salaam; and (iv) 30-kilometer terrestrial pipeline of 16-inches diameter from Kinyerezi to Tegeta in Dar es Salaam. It passes through 1 marine park, 4 regions, 8 districts, 41 wards and 113 villages. The capacity of the main (36 inch) pipeline is rated at 784 million standard cubic feet per day, according to the Natural Gas Utilization Master Plan 2016-2045, but can handle up to 1002 million standard cubic feet per day with compression. It is the longest gas pipeline that has ever been constructed in Tanzania. CPTDC was the EPC contractor responsible for project implementation. Construction was officially launched on November 8, 2012 and the Tanzanian President inaugurated the constructed pipeline on October 10, 2015. The pipeline was originally scheduled for a completion date in 2014. Loan repayment was originally expected to depend on gas sales upon completion of the pipeline construction and after the project's commercial operation date (COD). However, a review of the on-lending agreements, Gas Sales Agreements (GSA), and pipeline construction contract revealed that the pipeline was constructed before pre-identification and pre-signing of gas sales agreements between Tanzania Petroleum Development Corporation (TPDC) and its expected major gas customers. This anomaly had an effect on loan repayment as actual gas sales came in far below the initial projection of 138.8 million standard cubic feet per day. In fact, according to a report published by the Government of Tanzania's Controller and Auditor General (CAG), TANESCO was the only gas consumer as of March 2017 -- with a consumption average of 46.61 million standard cubic feet per day instead of the agreed amount of at least 80 million standard cubic feet per day as per the GSA between TPDC and TANESCO. There are also indications that the China Eximbank loans that were issued for the Songo Songo to Dar Es Salaam Gas Pipeline and Natural Gas Processing Plants at Mnazi Bay and Songo Songo Project have financially underperformed vis-a-vis its original objectives and the original expectations of the lender. Tanzania's National Audit Office (NAO) warned of 'Financial Distress Facing TPDC Due to Non-Settlement of TANESCO Long Outstanding Bills TZS 248 Billion' in its Annual General Report on the Audit of Public Authorities and other Bodies for the financial year 2016/2017. More specifically, the NAO noted that 'TPDC and TANESCO entered into a Gas Sales Agreement (GSA) in September 2015 whereby the TANESCO buys natural gas from TPDC for power generation at Kinyerezi, Ubungo II and Symbion Power Plants. I have noted that between September 2015 and December 2017 monthly invoices totaling to TZS 567,514,961,312.95. (USD 254,448,796.08), were issued by TPDC to TANESCO with respects to the natural gas supplied to TANESCO for power generation. My audit noted that by December 2017, TANESCO had managed to settle TZS 318,904,743,618.61 (USD 142,982,887.87) equivalent to 56% of the total amount of invoices leaving TZS 248,610,217,694.34 (USD 111,465,908.21) unsettled. TPDC may not be able to service the loan obtained to facilitate construction of Mtwara-Dar Gas Pipeline from EXIM Bank of China and their respective interests, if TANESCO does not settle this liability. Failure to repay the loan shall subject the Corporation to a compounded interest of 0.8% charged on the unpaid loan balance which will increase financial cost to TPDC and the Government. Further, failure to pay the loan shall amount to transfer of TPDC rights under the Gas Sales Agreement (GSA) to EXIM Bank of China as per Clause 2 of the Security Assignment Contractual Rights which forms of the Agreement signed between TPDC and EXIM Bank of China. The Government through Ministry of Finance and Planning and Ministry of Energy should consider assisting TANESCO in their efforts to settle such long outstanding dues which in turn will help TPDC meet gas purchase and other operational costs.' TPDC’s audited financial statements also indicate that, as the ultimate borrower/end user, it had fallen into arrears by 2017/2018. TPDC’s audited financial statements for the year ending on June 30, 2018 note that China Eximbank withdrew $19,806 from one of the escrow accounts between July 1, 2017 and June 30, 2018 as a penalty for the borrower’s ‘late repayment of [a] due installment’. Then, in June 2019, TPDC announced that it was still having difficulty servicing its debts to the Government of Tanzania and it began to lobby for ‘debt relief’ — that is, for the Government of Tanzania to shoulder the responsibility of loan repayment instead of TPDC.

Additional details

1. This project is also known as the Mtwara–Dar es Salaam Natural Gas Pipeline Project or MDNGP Project. The Chinese project title is 姆特瓦拉至达累斯萨拉姆的天然气管道项目. 2. Several sources describe this BCL as commercial or non-concessional in nature, but AidData's methodology classifies loans as concessional if they have a 25% or greater grant element. Since this BCL has a 27% grant element, AidData has categorized it as concessional. 3. AidData has estimated the BCL’s all-in interest rate (5.036%) by 4.3% to average 6-month LIBOR rate in June 2012 (0.736%). 4. In the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020, a single $1.2 billion China Eximbank loan is recorded for this project. In the database of Chinese loan commitments that SAIS-CARI released in July 2020, it records a $919 million concessional loan (with a 33-year maturity and a 2% interest rate) and a $245 million commercial loan (with unknown borrowing terms) from China Eximbank for this project. AidData relies on the face values and borrowing terms of the loans that are recorded in the audited financial statements of Tanzania Petroleum Development Corporation (TPDC): a $275 million buyer’s credit loan from China Eximbank (with an interest rate of LIBOR plus a 4.3% margin, a 1.83-year grace period, and 12.83-year maturity) and a $920 million preferential buyer’s credit from China Eximbank (with a 2% interest rate, 7-year grace period, and 20-year maturity). 5. TANESCO is a Tanzanian parastatal organization established in 1964. It is wholly owned by the Government of Tanzania through its Ministry of Energy and Minerals. 6. The three escrow accounts are governed by an Escrow Accounts Management Agreement between China Eximbank, Tanzania’s Ministry of Finance, PPDC, and Stanbic Bank. TPDC’s audited financial statements notes that the funds deposited in the escrow accounts are classified under non-current assets since they are not available for meeting immediate short-term financial obligations of TBPDC during the period of the China Eximbank loans. 7. The project’s total cost turned out to be $1.3 billion with TPDC and the Government of Tanzania accruing some significant unforeseen costs. 8. The March 2017 CAG report can be accessed in its entirety via https://www.scribd.com/document/452078725/PUBLIC-AUTHORITIES-AND-OTHER-BODIES-ANNUAL-GENERAL-REPORT-FOR-2015-2016. 9. In September 2014, Wentworth Resources and TPDC signed a gas sales agreement (GSA), covering the long-term sale of natural gas from the Mnazi Bay and Msimbati fields. Wentworth Resources was responsible for supplying TPDC with up to 130 mmcfd of gas for 17 years. The gas was to be supplied via the TPDC-owned and -operated Mtwara to Dar es Salaam pipeline and Madimba central processing facility. The purchase point was the pipeline connecting existing Mnazi Bay gas production facility to TPDC-owned Madimba Gas Processing Plant.

Number of official sources

34

Number of total sources

53