Bank of China and ICBC participate in $360 million syndicated PxF facility for the Basrah Natural Gas Liquids Facility Construction Project

On June 24, 2021, Basrah Gas Company (BGC or شركة غاز البصرة) — a special purpose vehicle and joint venture of the Government of Iraq (51% ownership stake), Royal Dutch Shell (44% ownership stake), and Mitsubishi (5% ownership stake) — signed a $180 million syndicated pre-export financing (PxF) agreement with a group of eight international banks (Bank of China, Citi, Deutsche Bank, Industrial and Commercial Bank of China, Natixis, SMBC, Société Générale, Standard Chartered) for the Basrah Natural Gas Liquids Facility Construction Project. The loan carried the following borrowing terms: a 5-year maturity an an estimated interest rate of 5%. In parallel, the International Finance Corporation (IFC) issued a $137.76 million loan and a $42.24 million loan through its Managed Co-Lending Portfolio Program. The IFC also served as the lead arranger of the $180 million syndicated loan. The purpose of the project is to construct a new Basrah natural gas liquids facility in the Ar-Ratawi area in the west of Basra — with two natural gas liquids trains, each of 200m cubic feet per day capacity — and expand gas processing by introducing additional NGL separation gas treatment. More specifically, the project scope has three main components: (i) the process trains, (ii) works in the immediate vicinity of the process trains, including power and water supply, (iii) four pipelines and their tie ins including a 13.7 km feed gas pipeline from BGC’s North Rumaila NGL plant, an 80 km broadcut export to the BGC KAZ facility, a 10.2 km dry gas pipeline to connect to the Iraqi gas grid, and a 17 km water supply pipeline from the Rumaila Operating Organization’s Al Nukhail Water Pumping Station. BGC gathers, treats and processes associated gas that would otherwise be flared at oil fields of West Qurna 1, Zubair and Rumaila in southern Iraq. Prior to the implementation of the project, the capture and processing of associated gas from the upstream oil fields was limited by the capacity of BGC’s existing natural-gas-liquids plants and export infrastructure. Upon completion, the project is expected to increase BGC’s capacity to 1.4bcf per day by 2024. Société Générale claims that the project is one of ‘the largest gas flaring reduction projects in the world, helping to improve energy access, prevent associated greenhouse gas emissions and support a more resilient, sustainable energy sector in Iraq.’ The country has vast natural gas reserves, largely a by-product of oil extraction, yet has generally been unable to put those reserves to use. Iraq has committed to eliminate all routine natural gas flaring by 2030, but around 70% of all natural gas it produces is flared. Flaring gas is both a waste of resources and a contributor to climate change. The Basrah Natural Gas Liquids Facility Construction Project aims to reverse that trend through the development of a processing plant, allowing capture and treatment of natural gas that would otherwise be wasted. The resulting fuels can then be used to generate energy domestically, or exported in the form of liquified petroleum gas or condensate products. China Petroleum Engineering and Construction Corporation (CPECC) is the contractor responsible for project implementation. It signed a $170 million commercial contract with BGC on February 27, 2019. IFC’s environmental and social due diligence of this project consisted of the appraisal of technical, environmental, health, safety and social information submitted by BGC. A lenders’ Independent Engineer (“IE”) was commissioned by IFC assessing both the environmental and social aspects of the project along with the engineering and technical aspects of the operation. The consultant produced an independent due diligence report which has been reviewed by BGC, IFC and other lenders. IFC’s environmental and social (E&S) appraisal team undertook a field visit in March 2019 meeting with members of BGC’s senior management team, project teams, BGC’s corporate health, safety and environment (“HSE”) manager, environment manager and environmental advisors, human resources, social performance, operations managers and supporting teams at the respective plants and corporate and asset level security management. IFC also visited three existing BGC processing assets, namely the Umm Qasr storage and marine terminal, the North Rumaila NGL and NSC2 and the KAZ NGL plant. Complementing IFC’s appraisal visit, the IE undertook a field appraisal in August 2019 visiting the NR NGL and KAZ NGL plants, compressor station 2 and the Umm Qasr storage and marine terminals. Project implementation commenced on or around October 15, 2019. The project had achieved an 8.33% completion rate as of December 2019. As of September 2022, BGC reported that the first train was well under construction and teams were working to safely deliver the project and taking COVID-19 precautionary measures. The project was originally scheduled for completion by the end of 2020.

Additional details

1. ICBC and Bank of China’s contributions to the loan syndicate are unknown. For the time being, AidData assumes equal contributions ($22.5 million) across the 8 members of the syndicate. 2. The IFC’s Managed Co-Lending Portfolio Program is a platform that allows institutional investors to participate in IFC’s loan portfolio. 3. Norton Rose Fulbright was a legal adviser on the deal. 4. The deal is non-recourse to the project sponsor. 5. BGC has been operating since 2013 and can process 1 billion cubic feet of raw gas per day. 6. This project is also known as the Basrah Natural Gas Liquid Project (BNGL). The Chinese project title is 巴士拉天然气公司轻烃回收处理厂项目. 7. In Chinese, a deferred payment agreement is known as《延期付款协议》. 8. A pre-export finance (PXF) facility is an arrangement in which a commodity 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.

Number of official sources

6

Number of total sources

12