CNPCI Finance (UK) Limited provides EUR 353.8 million loan for N'Djamena Refinery and Pipeline Project (Linked to Record ID#56285, #72355, #55744,#72356)

Project narrative

On September 20, 2007, China National Petroleum Corporation (CNPC) and the Chad’s Ministry of Petroleum and Energy signed a joint venture agreement in which they agreed to jointly construct the N'Djamena (Djarmaya) oil refinery. They subsequently established Société de Raffinage de N'Djaména (SRN) SA (恩贾梅纳炼厂有限公司 or 恩贾梅纳炼油公司), which is a special purpose vehicle that is jointly owned by CNPC International Ltd. (60% equity stake) and a Chadian state-owned enterprise called Société des Hydrocarbures du Tchad (SHT) (40% equity stake). CNPC International Ltd. and SHT agreed to issued EUR 60 million and EUR 40 million loans, respectively, to SRN SNA for the N'Djamena Refinery and Pipeline Project. Then, on September 24, 2008, CNPC International Ltd. and SRN SA signed a EUR 60 million loan agreement. The loan carried a 0% interest rate and the borrower (SRN SA) was expected to repay the loan within 6 years of the first year of oil production at the refinery. As of December 31, 2019 (more than 6 years of the first year of oil production at the refinery), the loan's (principal) amount outstanding was EUR 48,798,100. Then, on August 2, 2009, CNPC President, Jiang Jiemin, and Chad’s Oil and Mineral Resources Minister, Mahamat Hassan Nasser, signed a memorandum of understanding (MOU) to apply for a $330 million loan to support the implementation of the $1 billion project. Nearly two years later, on May 20, 2011, China Eximbank and SRN SA signed a $330 million preferential buyer's credit (PBC) agreement for the N'Djamena Refinery and Pipeline Project (as captured via Record ID#72356). The proceeds of the China Eximbank PBC were to be used by the borrower to finance a commercial contract (No. LH200801) between SRN SA and China Petroleum Engineering & Construction Corporation. The PBC, which was reportedly the first one ever issued by China Eximbank to an overseas joint venture, originally carried the following borrowing terms: a 15-year maturity, a 5-year grace period, and a 2% interest rate. CNPC provided a repayment guarantee for 60% of the face value of the China Eximbank PBC and SHT provided a repayment guarantee to cover the remaining 40% of the face value of the PBC. CNPC and SHT also pledged their respective shares in Société de Raffinage de N'Djaména (SRN) SA as sources of collateral. Sinosure refused to insure the PBC, which it deemed too risky. Additionally, CNPCI Finance (UK) Limited issued a loan worth EUR 352,800,000 to SRN SA on May 20, 2011 (as captured via Record ID#91918). The loan from CNPCI Finance (UK) Limited carried the following borrowing terms: a 15-year maturity, no grace period, and an interest rate of LIBOR plus a 3% margin. It served as an overdraft facility for SRN SA. As of December 31, 2019, the (principal) amount outstanding under the China Eximbank loan was $214,498,862.23 and the (principal) amount outstanding under the CNPCI Finance (UK) Limited loan was EUR 153,081,632.68. The N'Djamena Refinery and Pipeline Project had two components: the construction of an oil refinery in Djarmaya that is located to the north of N'Djamena and capable of producing 20,000 to 60,000 barrels a day; and the construction of a 311 km pipeline connecting the Rônier and Mimosa oilfields in Bongor Basin (in eastern-central) Chad to the refinery in Djarmaya (Note: Block H of the Rônier oil field is fully owned by CNPC). The contractor responsible for project implementation was China Petroleum Engineering & Construction Corporation, which is a subsidiary of PetroChina. Project implementation commenced on October 26, 2008 and reached completion on June 29, 2011. Then, on July 10, 2011, the refinery produced its first batch of diesel fuel. In January 2012, the Government of Chad suspended the oil refinery deal with CNPC and announced that it would expel the Chinese director of the refinery and renegotiate the deal. Disagreements over fuel prices had caused the relationship between the joint venture partners to deteriorate. The refinery restarted operations in February 2012. However, in August 2013, the Government of Chad suspended CNPC’s operations in Chad, accusing CNPC of violating environmental standards at the company’s Rônier oilfield by polluting the Bongor Basin through poor waste management practices. Work resumed shortly thereafter but was halted again in May 2014, after CNPC refused to pay a $1.2 billion fine. Preparing to take the dispute to international arbitration, the Government of Chad in October 2014 threatened to revoke and re-auction CNPC’s oil exploration licenses. The dispute was settled the same month when CNPC agreed to pay a $400 million fine and concede to the Government of Chad a 10% stake in existing oil operations in the country, as well as a 25% stake in future oil operations. In exchange, the arbitration case was dropped and CNPC was permitted to export oil through the Chad-Cameroon pipeline. There are indications that the China Eximbank loan for the N'Djamena Refinery and Pipeline Project financially underperformed vis-a-vis the original expectations of the lender. After a sharp decline in oil prices in 2014-2015, Chad experienced an economic recession and a debt crisis and Société de Raffinage de N’djamena (SRN) SA sought to renegotiate the borrowing terms of the China Eximbank loan for the N'Djamena Refinery and Pipeline Project. A rescheduling agreement was finalized in April 2017: China Eximbank agreed to the lengthen the maturity of the loan and reschedule arrears that had accumulated (as captured via Record ID#55744). It appears that China Eximbank did not require the accumulated arrears to be repaid before rescheduling the maturity of the loan.