CNPC disburses $33 billion loan — via oil prepayment facility — to Rosneft for unspecified purposes

On June 21, 2013, China National Petroleum Corporation (CNPC) and Rosneft — a Russian state-owned oil company — signed a $270 billion oil supply contract to increase oil deliveries to China under the condition of advance payment. The contract went into effect in late December 2013 after it was ratified by Russian law (Federal Law #352-FZ), passed by the Russian State Duma on December 10, 2013, approved by the country's Federal Council on December 18, 2013, and signed by the President of Russian Federation on December 20, 2013. Under the terms of the contract, Rosneft agreed to increase its supply of oil to China through the Russia-China Crude Pipeline (Eastern Route) by approximately 360 million tons — from 15 million tons per year in 2013 to 30 million tons per year by 2018. The term of the oil supply contract was 25 years, with the option of a 5-year extension. According to the terms of the contract, CNPC agreed to pay $60-70 billion in advance to Rosneft. Rosneft, in turn, agreed to repay CNPC at an interest rate of LIBOR plus 229 basis points. The $60-70 billion advance payment was scheduled to disburse in five tranches. Multiple sources confirm that the first three tranches — worth approximately $33 billion — disbursed between 2013 and 2015. However, since it is unclear if the fourth or fifth tranches ever disbursed, AidData records the transaction amount as $33 billion for the time being. It is also unclear how the borrower used the proceeds of the loan, but at the time that the CNPC-Rosneft oil prepayment contract was announced in 2013, JP Morgan analysts told Reuters that ‘if confirmed, this would be a transformational event for the company's balance sheet: Rosneft could even potentially be able to show a net cash position, though working capital would be negative. The prepayment could minimize financing risks for the leveraged state-controlled oil company.

Additional details

1. The Chinese project title is 罗斯向中国增供原油长期贸易合同. 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 (1) 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 (2) 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. Due to to various international sanctions imposed upon Russia, PXF facilities are one of the fews ways in which commodity producers (borrowers) can borrow in foreign currency. 3. The interest rate that applies to the CNPC-Rosneft oil prepayment contract (2.421%) was calculated by taking the average 6-month LIBOR rate during the month (June 2013) when the contract finalized (0.131%) and adding a 2.29% margin. 4. In financial reports published by Rosneft (e.g. https://www.rosneft.ru/upload/site1/document_file/rep8_EZHO_1kv2021.pdf), the lender is identified as China National United Oil Corporation, which is a subsidiary of CNPC.

Number of official sources

8

Number of total sources

25