Narrative
Full Description
Project narrative
On December 9, 2015, China Development Bank (CDB) entered into a $15 billion loan agreement (captured via Record ID#66847) with the Government of Angola. The loan is an oil prepayment facility with repayments being serviced through receivables from a designated oil contract. The pricing structure of the loan allows the Government of Angola to benefit from an upside in an increase in the price of oil. The loan has a maturity of 12 years and its availability period expired on December 9, 2017. As a condition of the loan agreement, the lender required the borrower to maintain a minimum cash balance of approximately $1.5 billion in an escrow account known as the Debt Service Reserve Account (DSRA). The proceeds of the loan facility were used to be used to recapitalize Sonangol, help Sonangol prepay some of its outstanding debts to CDB, and finance a series of public investment projects. As of December 31, 2017, the loan had achieved a 100% disbursement rate. Repayments commenced in 2018. The loan’s amount outstanding was $14.9 billion in December 2018, $14.5 billion as of June 30, 2019, and $11.3 billion as of December 31, 2021. Chinese firms are reportedly responsible for carrying out most of the work tied to the subsidiary loans under the oil prepayment facility; however, the December 9, 2015 agreement specifies that at least 20% of the work would need to be subcontracted to Angolan firms and that local materials should be used whenever possible. The following is a list of projects financed through the $15 oil prepayment facility agreement. The transaction (financial commitment) amounts for these projects are unknown and therefore not recorded: Record ID#66852: rehabilitation of a provincial hospital in Cabinda Record ID#66868: restoration and expansion of political administrative building in Cabinda Record ID#66869: restoration and expansion of Cabinda University campus in Cabinda Record ID#73904: Soyo River and Land Terminal Construction Project Record ID#73546: Camucuio Water Supply System Construction Project Record ID#73547: Bibala Water Supply System Construction Project Record ID#73550: Cuemba Water Supply System Construction Project Record ID#73551: Tchicala-Tcholoanga Water Supply System Construction Project Record ID#73552: Bula Atumba Water Supply System Construction Project Record ID#73554: Phase 2 of the Malanje Water Supply System Construction Project Record ID#73555: Marimba Water Supply System Construction Project Record ID#73556: Massango Water Supply System Construction Project Record ID#73560: M’Banza Water Supply System Construction Project Record ID#73561: Quela Water Supply System Construction Project Record ID#73562: Muxima Water Supply System Construction Project Record ID#73563: Cangandala Water Supply System Construction Project Record ID#73564: Jamba Water Supply System Construction Project Record ID#73565: Cacula Water Supply System Construction Project Record ID#73566: Kiwaba Nzoje Water Supply System Construction Project Record ID#73567: Lucapa Water Supply System Construction Project Record ID#73572: 15 km Cuito Road Rehabilitation Project Record ID#73630: Cabo Ledo-Lobito Section (Lot 2) and Ponte do Rio Longa-Ponte do Rio Keve Section of EN100 Road Rehabilitation Project Record ID#73631: Cabo Ledo-Lobito Section (Lot 5) and Ponte do Rio Eval-Ponte do Rio Culango Section of EN100 Road Rehabilitation Project Record ID#73914: Caconda-Chicomba-Quipungo Section (Lot 1) and Rio Ngalo-Caconda Section of EN110/EN280 Road Rehabilitation Project The following projects were potentially funded through the $15 billion oil prepayment facility agreement: Record ID#68976: Supply of Equipment to Medical and Physical Rehabilitation Center in Huambo Record ID#68977: Supply of equipment to Municipal Hospital of Cunene Record ID#73905: 3000 Sambizanga Social Housing Units Project Record ID#73906: 12 km Sambizanga-Luanda Road Reconstruction Project Record ID#73460: Sumbe City Integrated Infrastructure Construction Project (Lots 1-3) Record ID#73684: 400 KM Laúca-Huambo Power Transmission Line Project Record ID#73559: Zango V Water Supply Project Record ID#53063 records the $10 billion recapitalization of Sonangol and prepayment of outstanding debts to the CDB. [Note: In 2016, CDB approved a $10 billion subsidiary loan through this facility to enable the Government of Angola to recapitalize Sonangol (Angola’s state-owned oil company) and help Sonangol prepay some of its outstanding debts to CDB. Sonangol had previously borrowed $7.5 billion from CDB between 2010 and 2014, and through an on-lending arrangement with the Government of Angola, Sonangol used $6.9 billion of the proceeds of the $10 billion loan to prepay several outstanding debts to CDB, including a $2.5 billion loan in 2010 for the Phase 1 of Kilamba Kiaxi Housing Construction Project (see Record ID#47101), a $2 billion loan in 2011 to support Sonangol’s development efforts (see Record ID#47102), and a $1 billion loan in 2012 to support Sonangol’s development efforts (see Record ID#47103). However, according to the IMF, a $6.9 billion loan on-lent to Sonangol (as part of the subsidiary loan) had a net value of $3.8 billion because part of the loan was used to refinance existing debt, implying that only $3.1 billion was used for re-financing. $5 billion of the proceeds from the $15 billion oil prepayment facility agreement were reportedly to be used to finance public investment projects in Angola, including work on a dam in Kwanza Norte; several new roads and industrial hubs; the construction and rehabilitation of hospitals, medical centers, schools, universities, teaching training colleges; work on Cabinda's airport; domestic water and electricity connections; and irrigation projects. The credit line, often referred to as the China Credit Line (CCL), was reportedly meant to finance 155 public investment projects carried out by 37 Chinese companies. The nine sectors that were to be covered by the CCL’s operational plan include 34 energy and water projects ($2.174 billion), 33 construction (including road repair) projects ($1.644 billion), and 55 education projects ($373 million). The province of Luanda, with 18 projects, was expected to receive about one-fifth of the total financing. The province of Huambo province was expected to receive $776 million for 12 projects. The $5 billion earmarked for public investment projects is captured by AidData via 5 aggregate records and sub-project entries: Record ID#65748 captures $2.174 billion for water and energy sector projects, after netting out the transactions (financial commitments) for the following projects: - Record ID#65749: a $76 million loan for Cabinda Lot 1 water supply system - Record ID#65750: a $76 million loan for Cabinda Lot 2 water supply system - Record ID#65758: a $39.2 million loan for Cuito water supply system - Record ID#73515: a $70.9 million loan for electrification and house connection projects in Benguela Province - Record ID#73516: a $47.3 million loan for electrification and house connection projects in Huila Province - Record ID#73517: a $47.3 million loan for electrification and house connection projects in Cabinda Province - Record ID#73548: a $9 million loan for the Muxaluando Water Supply System - Record ID#73549: a $9 million loan for the Nharêa Water Supply System - Record ID#73553: a $8 million loan the Chitembo Water Supply System - Record ID#73557: a $19 million loan for the Ecunha Water Supply System - Record ID#73558, a $19 million loan for the Tchindjendje Water Supply System Record ID#65751 captures $1.644 billion for construction sector projects, after netting out the transactions (financial commitments) for the following projects: - Record ID#65753: a $48 million loan for repairing the Xinge/Lubalo road - Record ID#65754: a $46 million loan for repairing national roads in in Huila province - Record ID#65755: a $8 million loan to repair the Catchiungo/Chinhama road - Record ID#73904: a $60 million loan for the Soyo River and Land Terminal Construction Project - Record ID#73568: a $27 million loan for the Caculama (Mucari)-Talamongongo Road Rehabilitation Project - Record ID#73570: a $29 million loan for the 48 km Alto Dondo-Capanda and São Pedro da Quilemba-Alto Dondo Road Rehabilitation Project - Record ID#73571: a $25 million loan for 43 km Mussolo-Dumba Cabango Road Rehabilitation Project - Record ID#73573: a $18 million loan for 35 km Gabela-Quilenda Section of EN110 Road Rehabilitation Project - Record ID#73628: a $31 million loan for Cabo Ledo-Lobito Road (Lot 4) and Sumbe-Ponte do Rio Eval of EN110 Road Rehabilitation Project - Record ID#73629: a $53 million loan for Lucala-Malage-Saurimo Section (Lot 1) and Lucala-Cacuso Section of EN322 Road Rehabilitation Project - Record ID#73633: a $55 million loan for the 290 km Talamungongo-Mussolo-Cambundi-Catembo Road Rehabilitation Project - Record ID#73634: a $60 million loan for the 68.8 km Lucala-Malanje-Saurimo Section and Cacuso-Malange (Lot 2) Section of the EN230 Road Rehabilitation Project - Record ID#73635: a $60 million loan for 31.1 km Alto Dondo-Waco Kungo-Rio Keve Bridge Section and Waco Kungo-Rio Keve Bridge Section (Lot 5) of the EN120 Road Rehabilitation Project - Record ID#73636: a $27 million loan for the 37 km Cruzamento-Cassongue Road Rehabilitation Project - Record ID#73637: a $20 million loan for the Alto Dondo-Waco Kungo-Rio Keve Bridge (Lot 2) Section and Munenga-Pontão do Rio Quimone Section of the EN120 Road Rehabilitation Project - Record ID#73638: a $34 million loan for the Ledo-Lobito (Lot 1) Section and Cabo Ledo-Rio Longa Bridge Section of the EN100 Road Rehabilitation Project - Record ID#73656: a $56 million loan for the Alto Dondo-Waco Kungo-Rio Keve Bridge (Lot 4) Section and São Mamede-Waco Kungo Section of the EN120 Road Rehabilitation Project - Record ID#73657: a $26 million loan for Cuíto Airport Construction and Equipment Project - Record ID#73658: a $38 million loan for Breakwater at Cabinda Port Project - Record ID#66866: a $56 million loan for the Cabinda Maritime Passenger Terminal Rehabilitation Project - Record ID#67417: a $23.1 million for Second Stage of the First Phase of the Cabinda Integrated Infrastructure Project - Record ID#66855: a $75 million loan for the rehabilitation of roads in Cabinda - Record ID#66871: a $60 million loan for the Cabinda Airport Expansion and Modernization Project Record ID#73431 captures $373 million for education sector projects. Record ID#73432 captures $1 billion to Luanda province, after netting out the transactions (financial commitments) for the following project: - Record ID#73433: a $531.8 million loan for approximately 285,000 household connections Record ID#73434 captures $776 million to Huambo province, after netting out the transactions (financial commitments) for the following project: - Record ID#73435: a $47.3 million loan for approximately 10,500 household connections There are clear indications that the December 2015 CDB loan financially underperformed vis-a-vis the original expectations of the lender. In December 2020, CDB and the Government of Angola entered into an agreement to reprofile multiple loan agreements that they had previously signed, including the $15 billion loan agreement from December 2015 (as captured via Record ID#95415). The December 2020 agreement included (i) a three-year deferral of principal payments; and (ii) repayment of deferred principal falling due in 2020H2–2023H1 over seven years after the grace period, with some additional modest relief of principal in 2024–25. The Government of Angola also agreed to use the outstanding cash balance in an escrow account — known as the Debt Service Reserve Account (DSRA) — to make interest payments to the CDB between 2020 to 2022, which it expected would bring the DSRA balance to nearly zero by mid-2022. However, under the terms of the debt reprofiling agreement, the parties agreed that the borrower would need to replenish the DSRA to approximately $1.5 billion (the minimum cash balance previously agreed upon by the lender and borrower) by 2023.
Staff comments
1. The interest rate and grace period that apply to the December 9, 2015 loan are unknown. For the time being, AidData relies on the weighted average interest rate (4.334%) and weighted average grace period (3.8333) that the World Bank's Debtor Reporting System (DRS) identifies as applying to China's official sector lending to Angola in 2015. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 and https://www.dropbox.com/s/ab8qt4n6jijcbhd/IDS_Average%20interest%20on%20new%20external%20debt%20commitments.xlsx?dl=0 2. Oil prepayment contracts are also known as pre-export finance (PXF) facilities. A PXF facility is an arrangement in which a commodity (e.g. oil) producer gets up-front cash from a customer in return for a promise to repay the customer with that commodity (possibly at a discount) in the future. PXF funds may be advanced by a lender or syndicate of lenders to a commodity producer to assist the company in meeting either its working capital needs (for example, to cover the purchase of raw materials and costs associated with processing, storage and transport) or its capital investment needs (for example, investment in plant and machinery and other elements of infrastructure). PXF facilities are usually secured by (i) an assignment of rights by the producer under an ‘offtake contract’ (i.e., a sale and purchase contract between the producer and a buyer of that producer of goods or commodities), and (ii) a collection account charge over a bank account into which proceeds due to the producer from the buyer of the goods or commodities under the offtake contract are credited. There are two key documents in prepayment finance transactions: a contract providing for the advance payment by the offtaker to the producer for the purchase of goods/commodities (the 'Prepayment Contract'), and a loan agreement between a lender and the offtaker (the 'Offtaker Loan Agreement') under which the advance payment is financed.