China Eximbank provides $236 million buyer’s credit loan for Djibloho Regulating Reservoir Project (Linked to Record ID#995, #62082, and #484)

Project narrative

In 2006, China Eximbank and the Government of Equatorial Guinea signed a $2 billion oil-backed buyer’s credit facility agreement for various infrastructure projects (captured via Record ID#484). All subsidiary loans approved under this facility agreement carry the following terms: a 5.5% interest rate, a 5 year maturity, a 2 year grace period, a 0.375% commitment fee, and a 0.5% risk guarantee (garantia del riesgo) cost. The subsidiary buyer's credit loans under the $2 billion facility were secured with (i.e. collateralized against) minimum cash balances in an escrow account opened by Government of Equatorial Guinea in China Eximbank. Under the original terms of an Account Settlement and Financing Agreement (Convenio de Liquidacion de cuentas y Financiamiento) that the parties signed on February 17, 2006, the minimum cash balance requirement was reportedly equivalent to 30 percent of the Government of Equatorial Guinea's outstanding stock of debt to China Eximbank. After the Account Settlement and Financing Agreement was amended on March 26, 2010, the borrower was expected -- at any given point in time -- to maintain a minimum cash balance in the escrow account (also known as 赤道几内亚共和国财务预算部) equivalent to the value of its next set of semi-annual principal, interest, and fee payment obligations to the lender. The borrower was also expected to deposit the cash proceeds from its oil export sales (crude oil sales revenue) to China into a payment reserve account (also known as 还款准备金 or 赤道几内亚共和国财务预算部还款准备金). More specifically, the borrower was expected to deposit the cash proceeds from six oil cargoes into the payment reserve account. Then, in 2015, China Eximbank and the Government of Equatorial Guinea signed a $236,068,106 subsidiary buyer’s credit loan agreement for the Djibloho Regulating Reservoir Project. The loan's first scheduled principal payment was on August 20, 2015. The proceeds of the loan were used by the borrower to finance a $236,068,106 commercial (EPC) contract between the Government of Equatorial Guinea and Sinohydro Bureau 6 Co Ltd, which was signed on October 15, 2011. According to the Autonomous Fund for Amortization of Public Debt (Caja Autónoma de Amortización de la Deuda Pública) within Equatorial Guinea’s Ministry of Finance and Budget, the China Eximbank buyer’s credit loan for the project had disbursed $117,815,206.60 as of December 31, 2019 and the borrower had made principal ($74,099,123.06) and interest ($26,677,862.39) payments worth $100,776,985.45 as of December 31, 2019. The same source identifies the loan's principal amount outstanding was $43,716,083.54 as of December 31, 2019. According to China Eximbank, the same loan had disbursed $123,815,084.20 as of January 21, 2020 and the borrower had made principal payments worth $89,576,006.70 as of January 21, 2020. The same source identifies the loan's principal amount outstanding as $34,329,077.50 as of January 21, 2020 and the value of the next scheduled principal payment (on July 21, 2020) as $15,476,885.76. The project involved the construction of a regulating reservoir on the Wele-Nzas (or Wele River), approximately 3 km upstream of the 120MW Djibloho Hydropower Station. It was undertaken to address the fact that inconsistent rainfall was adversely affecting the regular production and supply of power through the China Eximbank-financed 120MW Djibloho Hydropower Station (captured via Record ID#995). Sinohydro Bureau 6 Co Ltd was the contractor responsible for project implementation. Construction began in March 2013. Then, on November 30, 2018, Sinohydro Bureau 6 Co Ltd and the Government of Equatorial Guinea signed the project handover certificate. Upon the completion of the project, the storage capacity of the regulating reservoir was 1.272 billion cubic meters. A project completion ceremony was held on December 1, 2018. There are also indications that the China Eximbank loan for the Djibloho Regulating Reservoir Project has financially underperformed vis-a-vis the original expectations of the lender. On January 21, 2020, YANG Bin, a Division Chief in China Eximbank's Concessional Loan Department sent a letter to Equatorial Guinea's Ministry of Finance. The letter notified Equatorial Guinea's Ministry of Finance that its aggregate (principal) amount outstanding under the oil-backed buyer’s credit facility agreement was $226,505,172.49. It also informed Equatorial Guinea's Ministry of Finance of its estimated semi-annual principal, interest, and fee payment obligations as of July 21, 2020: $58,416,671.63 [$49,131,680.76 in principal payments, $6,298,102.17 in interest payments, $2,414,333.94 in commitment fee payments, and $572,554.76 risk guarantee (garantia del riesgo) costs]. Then, on March 5, 2020, RAN Longfei, the Deputy Regional Director for Africa in China Eximbank's Sovereign Business Department, sent a letter to Equatorial Guinea's Minister of Finance Cesar Augusto MBA ABOGO. The letter reads as follows: “[r]eference is made to our letter dated January 7, 2020. According to the Account Agreement for the Escrow Account and the Oil Sales Agreement, 6 cargoes of oil sales revenue shall be deposited to the Escrow Account each year. However, we only received 5 cargoes of oil sales revenue for the year 2019. Your Ministry has not fulfilled your obligations under the Account Agreement, which will have negative effect on your Ministry's credit and other ongoing projects. Besides, since the Escrow Account balance does not meet the minimum amount requirements, we could not proceed any payment for other parties. Your Ministry is kindly requested to deposit one cargo of oil sales revenue to the Escrow Account immediately to meet the requirements for the year 2019, and provide us a schedule of crude oil delivery plan for the year 2020. Your personal attention and cooperation will be highly appreciated.” As of January 2020, Equatorial Guinea's Ministry of Finance was expected to maintain a minimum cash balance of $58,416,671.63 in its escrow account with China Eximbank (an amount equivalent to the next semi-annual installment of principal, interest, and fees due to China Eximbank in July 2020). However, the actual cash balance of the escrow account was $39,223,380.18 as of February 13, 2020.