Narrative
Full Description
Project narrative
On June 27, 2011, the Government of Ecuador signed an oil-backed loan facility agreement with China Development Bank worth approximately $2,052,630,403. The loan consisted of a discretionary component of $1.4 billion (Tranche A) and an RMB 4 billion (approximately $652,360,403.03) oil-related component (Tranche B). Tranche A, which is captured via Record ID#69319, carries the following terms: a 7.159% interest rate, a 3% default (penalty) interest rate, a 2 year grace period, and an 8 year maturity (final maturity date: June 27, 2019). Tranche B, which is captured via Record ID#69320, carries the following terms: a 6.253% interest rate, a 3% default (penalty) interest rate, a 3 year grace period, and an 8 year maturity. The loan agreement was backed by a separate Oil Sales and Purchase Contract between PetroEcuador and PetroChina. The agreement requires PetroEcuador to sell, over the entire validity period of the Facility Agreement, at least 72,000 barrels of crude oil per day and/or fuel oil to PetroChina. Petroecuador’s selling price to PetroChina was calculated based on the price of West Texas Intermediate (WTI) crude oil. The proceeds from the sale of oil were to be paid by PetroChina into a Proceeds Account, which was opened by PetroEcuador with CDB in China. Petroecuador was also required to maintain a minimum cash balance in the Proceeds Account, equivalent to 130% of the principal and interest due to be paid in that interest period. The discretionary component (Tranche A) of the facility agreement funded projects including the Delsitanisagua Hydroelectric Power Plant (Record ID#58591), Quijos Hydroelectric Plant (Record ID#39060), Mazar Dudas Dam (Record ID#58593), the Villonaco Wind Farm (Record ID#39063), the Esmeraldas II Thermal Power Plant (Record ID#60794), and the ECU-911 Project (Record ID#39281). Tranche B was intended for funding investment projects in infrastructure, energy, and other agreed sectors. As of June 27, 2018, the amount outstanding under Tranche A was $238.07 million and the amount outstanding under Tranche B was RMB 228.771 million ($33.3 million). Both Tranches A and B were repaid in full ahead of schedule on September 27, 2018. The Government of Ecuador made principal and interest payments worth $262 million on September 27, 2018. It also paid a $4.6 million prepayment fee for Tranche A. No prepayment fee was required for Tranche B. The Government of Ecuador’s decision to repay the loan ahead of schedule reduced pressure on the public treasury by $91.63 million in December 2018, $90.05 million in March 2019, and $90.05 million in June 2019. In total, these savings (debt relief) amounted to $270.75 million. By prepaying its outstanding debts to CDB under the June 27, 2011 facility agreement, the Government of Ecuador also avoided $9.34 million in interest payments. The Government of Ecuador’s decision to repay the loan ahead of schedule also allowed for the de-linking of the crude oil commercial contract with the June 27, 2011 facility agreement.
Staff comments
1. The transaction was governed by a Facility Agreement between CDB and the Ecuadorian Ministry of Finance and by a Four Party Agreement (between CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador) that links the Facility Agreement to the 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 June 27, 2011, can be accessed in its entirety via https://www.dropbox.com/s/afwp3urs0tm8v45/1.2-Facility-Agreement-dated-27-June-2011-CDB-II.pdf?dl=0. The Four Party Agreement, which was signed by CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador on June 27, 2011, can be accessed in its entirety via https://www.dropbox.com/s/6wdgt4p44xzx3fc/1.1-Four-Party-Agreement-dated-27-June-2011-CDB-II.pdf?dl=0. The Oil Sales and Purchase Contract that PetroEcuador and PetroChina signed on June 24, 2011 can be accessed in its entirety via https://www.dropbox.com/s/ad22ye6ld5bbx4y/ContratosModificatorios2011203.pdf?dl=0. 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 Record ID#35865. The $2 billion loan agreement with CDB in 2011 is captured via Record ID#69319 and ID#69320. The $2 billion loan agreement with CDB in 2012 is captured via Record ID#36002, and#58827. The $2 billion loan agreement with CDB in 2016 is captured via Record ID#58839 and ID#58842. 3. Some sources list the Minas-San Francisco Dam (Record ID#35982) as part of the discretionary component, however, the funder has been identified as China Eximbank. 4. This CDB loan was signed shortly after a renewed $1 billion prepayment facility agreement was signed by PetroChina and PetroEcuador (as captured via Record ID#36358). 5. The Ecuadorian Ministry of Finance loan identification number for Tranche A is 23163000. The Ecuadorian Ministry of Finance loan identification number for Tranche B is 23164000.