CDB provides RMB 7.3584 billion loan for Myanmar-China Oil Pipeline Construction Project (Linked to Project ID#34468)

In December 2008, CNPC signed a 30-year purchase and sale agreement with South Korean conglomerate Daewoo International on importing natural gas from offshore blocks A-1 and A-3 in Myanmar (a project referred to as the Shwe Gas Project). A consortium of companies was involved in the Shwe Gas Project, led by Daewoo. Over 2009 and 2010, a series of agreements were signed on constructing, operating and managing the Myanmar-China Oil and Gas Pipelines, which clarified the rights and obligations of the two joint ventures responsible for these pipelines: Southeast Asia Gas Pipeline Co. Ltd. (SEAGP) and Southeast Asia Oil Pipeline Co. Ltd. (SEAOP). On March 26, 2009, the Chinese Government and the Government of Myanmar signed cooperative agreements to jointly develop oil and gas pipelines. Then, in June 2009, CNPC and the Government of Myanmar signed an MOU, in which the Government of Myanmar agreed to make CNPC responsible for the design, construction and operation of a 771 km Myanmar-China Crude Oil Pipeline. On December 16, 2010, China Development Bank and Myanmar Oil and Gas Enterprise (MOGE) — a state-owned oil and gas company in Myanmar — signed an RMB 7.3584 billion loan agreement (ID#5300942322010591242) for the Myanmar-China Oil Pipeline Construction Project. This loan carried the following borrowing terms: a 20 year maturity, a 5 year grace period, and a 4.5% interest rate. An overseas euro currency account was established at Bank of China as part of the loan agreement with China Development Bank, and revenue generated by the oil pipeline project was to be paid into the account. The borrower was expected to maintain a minimum cash balance in the overseas euro currency account. The borrower had made principal repayments worth RMB 913,580,000 and interest repayments worth RMB 1,516,220,000 as of March 31, 2018. The loan’s amount outstanding was RMB 5,116,000,000 as of March 31, 2017 and RMB 7,908,300,000 (RMB 6,444,820,000 million in loan principal and RMB 1,463,480,000 in loan interest) as of March 31, 2018. The purpose of the project was to construct a 771-kilometer long Myanmar-China Crude Oil Pipeline from Madè Island on the west coast of Myanmar to Ruili in the southwestern Chinese province of Yunnan. The pipeline runs through Rakhine State, Magwe Region, Mandalay Region, and Shan State. It is 813mm in diameter and it was deisgned to deliver 12Mt/a upon completion of the project’s first phase, and 22Mt/a upon completion of the project’s second phase, with a total annual delivery of 2 million tons to Myanmar. The project also involved the construction of a 300,000-ton crude oil terminal with an annual capacity of 22 million tons. The Myanmar-China Oil Pipeline was designed to alleviate China’s dependence on the Strait of Malacca for its energy imports, giving it a shorter and alternate supply route from South East Asia. Three CNPC subsidiaries -- China Petroleum Pipeline Engineering Co., Ltd. (CPP), CNPC Chuanqing Drilling Engineering Company Limited (CCDC), and Daqing Oilfield Engineering Co., Ltd -- were the EPC contractors responsible for project implementation. Construction of the pipeline began on June 3, 2010 was completed in 2014. However, the pipeline was not put into operation until April 10, 2017. The delay in the operational use of the crude oil pipeline was apparently driven by a disagreement over a 5 percent crude oil tax that the Government of Myanmar had requested that the Chinese Government pay in addition to the agreed transit fee and pipeline tariff. The pipeline ultimately after the Government of Myanmar agreed to lower its transit fees, according to PetroChina President Wang Dongjin. However, even the start of operations was characterized by tension, as the Chinese Government dispatched a tanker to the pipeline before negotiations were completed. Southeast Asia Oil Pipeline Co. Ltd. (SEAOP) -- a special purpose vehicle and joint venture of CNPC-SEAP (50.9% ownership stake) and MOGE (49,1% ownership stake) -- is responsible for the operation and management of the oil pipeline. There are some indications that the CDB loan for the Myanmar-China Oil Pipeline Construction Project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, CDB and the Government of Myanmar signed a debt suspension agreement as part of the G-20 Debt Service Suspension Initiative (DSSI). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under 5 loan agreements (as captured via Project ID#98030). Debt service payments under these loan agreements were again deferred in 2021 (as captured via Project ID#98031). Then, in February 2022, the European Union announced sanctions against MOGE, claiming that military control of the company was 'contributing to its capabilities to carry out activities undermining democracy and the rule of law in Myanmar/Burma.' The EU sanctions led Bank of China to advise the operators of the Shwe oil and gas field in northwestern Myanmar (SEAOP and SEAGP) that it would not handle payments in euros to MOGE out of concern that it might run afoul of EU sanctions.

Additional details

1. The Burmese project title is ျမန္မာ-တ႐ုတ္ ေရနံစိမ္းပုိက္လုိင္း. 2. In the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020, a $2.4 billion CDB loan for the ‘Sino-Myanmar Pipeline’ is identified. However, this appears to be a $2.4 billion umbrella agreement (signed on November 30, 2009) that subsequently resulted in two separate loan agreements for the Myanmar-China Gas Pipeline Project (captured via Project ID#34468) and the Myanmar-China Oil Pipeline Project (captured via Project ID#73285) in December 2010. 3. The Myanmar-China Oil Pipeline Construction Project also involved the construction of a port on Ma Day/Maday Island, although it is unclear if the port was also financed by China Development Bank. In 2009, when Burma's junta chief Snr-Gen Than Shwe and China's Vice President Xi Jinping signed an agreement to build a deep-sea port on Maday Island, to be used by China to import crude oil from Africa and the Middle East and natural gas from Arakan State. Ships dock at the port and crude oil is transported via the aforementioned pipeline to China. The Port of Maday Island consists of a 300Kt crude oil terminal, a workship dock, a 650,000 cubic meter water tank, a 38km-long channel, and a 1.2 million cubic meter oil tank farm. A 300Kt oil tanker moored at the port and began to unload crude from the Middle East on January 30, 2015, marking the beginning of operations. 4. South-East Asia Crude Oil Pipeline Company Limited (SEAOP) is responsible for the operation and management of the Myanmar-China Crude Oil Pipeline. It is a joint venture between South-East Asia Pipeline Company Limited (SEAP) (50.9% stake) and Myanmar Oil and Gas Enterprise (MOGE) (49.1% stake). Their joint venture, South-East Asia Crude Oil Pipeline Company Limited (SEAOP) is responsible for its operation and management. 5. Some sources suggest that CDB issued the loan to Myanma Foreign Trade Bank, which in turn on-lent the proceeds to Myanmar Oil and Gas Enterprise (MOGE). This issue warrants further investigation. See https://eiti.org/sites/default/files/attachments/meiti_reconciliation_report_2017-2018_final_signed_31st_march_2020.pdf 6. The amount outstanding data are drawn from EITI reports. See https://www.mopf.gov.mm/sites/default/files/4th%20MEITI%20Report.pdf and https://eiti.org/files/documents/meiti_reconciliation_report_2017-2018_final_signed_31st_march_2020.pdf

Number of official sources

7

Number of total sources

11