Government of Iraq secures oil-backed loan for 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project (Linked to Project ID#95982)

On May 11, 2018, China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq signed an export credit insurance cooperation framework agreement (contract ID# FA-IRAQ-001). Under the terms of the 20-year agreement, the Ministry of Finance of the Republic of Iraq is authorized to borrow up to $10 billion (or an equivalent amount in other currencies such as RMB) via subsidiary buyer’s credit facility agreements with PRC banks and/or commercial contracts with deferred payment clauses (i.e. supplier’s credits) with Chinese companies (exporters) for projects in the ‘oil, gas, energy, infrastructure, communications, education, healthcare or electricity sectors’ that are ‘located in the areas in Iraq deemed safe by the Embassy of China and the Government of Iraq.’ All borrowings under the framework agreement, which is captured via Project ID#95982, must carry maturity lengths that do not exceed 15 years and they must be backed by an approved credit insurance policy from Sinosure. The framework agreement also specifies that the Government of Iraq is responsible for making advance payments worth no less than 15% of the total cost of the underlying commercial contracts supported by the subsidiary buyer’s credits and supplier’s credits. To repay and secure these borrowings, the framework agreement specifies that a Crude Oil Sales Agreement between Iraq's state-owned oil marketing company (SOMO or شركة تسويق النفط) and an unspecified Chinese oil importer, wherein SOMO agrees to sell no fewer than 100,000 barrels of crude oil per day to the Chinese oil importer and the Chinese oil importer agrees to make payments to SOMO due under the Crude Oil Sales Agreement by depositing U.S. dollars (or another foreign currency) in a Sinosure-designated and lender-controlled bank (escrow) account (that is opened on behalf of the Ministry of Finance of the Republic of Iraq to facilitate debt repayment). Under the terms of the framework agreement, the Ministry of Finance of the Republic of Iraq is required to maintain a minimum cash balance of $100 million in a Debt Service Reserve Account (DSRA) and pledge the DSRA in favor of Sinosure. Apart from the DSRA, the framework agreement refers to two additional escrow accounts: an Oil Settlement Account and a Repayment Account. All oil sale proceeds first flow to the Oil Settlement Account. Then, after deductions are made by the United Nations Compensation Commission for compensation due to Kuwait, the remaining revenue flows to the Repayment Account (so long as there is still a $100 million minimum cash balance in the DSRA) and principal and interest payments to lenders are made from the Repayment Account. On September 23, 2019, account agreement and oil agreement annexes to the framework agreement were finalized. Then, on September 23, 2019, the framework agreement officially went into effect. Approximately 15 months later, in December 2020, a Financial Advisor to Iraq’s Prime Minister, Dr. Mudhar Muhammad Salih, told the Iraqi News Agency (INA), that Iraq’s House of Representatives would need to identify the specific projects to be funded under the framework agreement and allocate funds for these projects in the Federal Budget Law. He also signaled at the time that the Iraqi Government planned to borrow through the export credit insurance cooperation framework agreement with Sinosure to fund the construction of school buildings. Then, in June 2021, he announced that the 2021 Federal Budget Law included $2 billion for projects to be financed through the export credit insurance cooperation framework agreement with Sinosure, which had entered into force. 5 months later, in November 2021, he told a local newspaper that several Chinese companies had deposited $1.8 billion in an account and the funds would be used to support the construction of 1,000 schools as well as ‘infrastructure and renewable power projects’. This announcement implies that the Government of Iraq ultimately decided to borrowed via commercial contracts with deferred payment clauses (i.e. supplier’s credits) with Chinese companies rather than buyer’s credit facilities with PRC banks. On June 30, 2022, Dr. Mudhar Muhammad Salih said that ‘[t]he operations of depositing money and withdrawing from the [escrow] account are continuing for the benefit of the projects concluded within the [export credit insurance cooperation framework agreement with Sinosure].’ He also noted that ‘the [escrow] account is managed very carefully by the Central Bank of Iraq, and the financial operations are audited by the major international financial auditing companies.’ There are three known projects — supported by four separate commercial contracts — that are being financed under the export credit insurance cooperation framework agreement with Sinosure: the 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project, the Construction of 1000 Schools Project, and the Al-Nasiriyah International Airport Renovation and Expansion Project. In September 2013, China Machinery Engineering Corporation (CMEC) and Ministry of Electricity of Iraq signed a $1,189,132,251 commercial (EPC) contract for the 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project. This contract was amended on November 21, 2019 and its monetary value was increase by $140 million (to ~$1,329,132,251) after CMEC and the Government of Iraq signed a financing memorandum on September 22, 2019. The estimated monetary value of the supplier’s credit for the 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project is $1,129,762,413.35 (as captured via Project ID#95996). The purpose of the project is to construct an oil-fired thermal power plant that consists of two subcritical, oil-fired generating units of 630MW capacity each (‘Unit 1’ and ‘Unit 2’). Upon completion, each unit is expected consist of a boiler drum along with a boiler furnace equipped with oil and gas nozzles, and a single shaft steam turbine. The boiler assembly will feature four-corner tangential combustion chamber, along with single-hearth balanced ventilation supported by steel structure frame. The design boiler maximum continuous rating (BMCR) will be 2136t/h. Each double back pressure, impulse type steam turbine will feature three cylinders and four exhausts. The other major components of the plant will include three-stage high pressure heaters, four- stage low pressure heaters, eight-stage regenerative deaerators, apart from steam-driven feedwater pumps. The project also includes four 20,000m3 oil mixing tanks, air compressors, as well as the construction of 400kV and 132kV booster stations. The electricity generated by the power project will be evacuated through a 400kV power transmission line connecting the national grid of Iraq. The power plant is located approximately 16 km southeast of the Samara city in Salah Al-din Province on the north bank of the Tigris River (and approximately 186 km north of Baghdad). CMEC is the general EPC contractor responsible for project implementation. However, Northwest Research Institute of Energy China, SGS, the Fourth Construction of China Machinery Industry Co., Ltd., China Valves Technology, Inc. and Sichuan Railway Investment Group Co., Ltd. are also involved in implementation as subcontractors. Project implementation officially commenced on August 14, 2012. However, civil construction works did not begin until April 2013. The project was originally expected to reach completion within 45 months (January 2017). Construction works were suspended in June 2014 due to the fact that Islamic State of Iraq and the Levant (ISIS) launched a major attack in northern Iraq against the Iraqi government, which led to a major deterioration in the local security situation. Construction works resumed in mid-2018. As of August 2019, 1200 Chinese and Iraqi workers were assigned to the project. Then, on November 21, 2019, the Ministry of Electricity of Iraq (MOELC) and China Machinery Engineering Corporation (CMEC) signed an expanded and amended EPC contract, which allocated $140 million of additional funding for additional repair and inspection work and the construction of a new 132kV substation. On April 1, 2020, Zhang Tao, the Chinese Ambassador to Iraq, and a team from the Red Cross Society of China visited the power plant and provided on-site Covid-19 pandemic prevention and control guidance. Fifteen days later. On April 16, 2020, the boiler hydraulic test for Unit 1 took place, marking an important milestone of the project. Unit 1 began trial operations on June 2, 2021. However in late-June 2021, ISIS launched a set of targeted by Katyusha rockets at the Salah Al-Din Oil-fired Thermal Power Plant and severely damaged parts of Unit 1. The Unit 1 boiler was ignited on May 11 , 2022, and it was connected to the grid on May 12, 2022. Unit 1 then began a 720-hour reliability test on May 20, 2022. On June 19, 2022, Unit 1 passed the 720-hour reliability test. CMEC then handed over Unit 1 to the project owner in July 2022, which marked halfway point of the implementation of the project. On August 27, 2022, Unit 2 was connected to the national grid for the first time and officially put into operation.

Additional details

1. The export credit insurance cooperation framework agreement (contract ID# FA-IRAQ-001) can be accessed in its entirety via https://www.dropbox.com/s/i0en9znldd5g59h/Sinosure%20and%20Iraq%20MOF%20Cooperation%20Framework%20Agreement%2011%20May%202018.pdf?dl=0. The agreement is known in Chinese as 油贸信贷框架协议 or 出口信用保险合作框架. 2. In Chinese, the Construction of 100 Schools Project is known as 1000所学校项目 or 中国在伊拉克援建1000 所学校项目 or 援建伊拉克学校项目. The part of the project that is managed by PowerChina is known as the 中国电建伊拉克679所示范学校项目 or 679所示范学校项目. The part of the project managed by Sinotec is known as 321所示范学校项目. The Al-Nasiriyah International Airport Renovation and Expansion Project is known as 伊拉克纳西里耶国际机场项目. The 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project is known as 建設的薩拉哈丁2×630兆 瓦電站工程項目 or 伊拉克薩拉哈丁電站項目 or 萨拉哈丁电站工程 or 伊拉克萨拉哈丁燃油气电站 or 萨拉哈丁燃油气电站项目 in Chinese and مشروع صلاح الدين البخارية ( الجالسية ) or محطة كهرباء صلاح الدين الحرارية or محطة صلاح الدين الحرارية في سامراء بطاقة ١٤٠٠ ميغاواط in Arabic. 3. Several sources suggests that China CITIC Bank is the escrow account bank. However, this issue requires further investigation. 4. The export credit insurance cooperation framework agreement between China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq is sometimes referred to as the China-Iraq oil-for-projects (or oil-for-infrastructure) agreement. Some sources also refer to the Al-Nasiriyah International Airport Renovation and Expansion Project as the first project to be initiated under the China-Iraq oil-for-projects agreement. 5. The Government of Iraq has referred to a number of other projects that it intends to eventually finance through the export credit insurance cooperation framework agreement with Sinosure. These include the rehabilitation and development of Kadhimiya and Adhamiya cities, the construction of the 1GW South Baghdad Combined Cycle Power Plant (CCGT) plant, the construction of warehouses in the Southern Nasiriyah city at a cost of $350 million, as well as sewage networks, housing complexes, water desalination, schools, bridges, and other power projects. 6. The precise monetary value of the supplier’s credit(s) for the Construction of 100 Schools Project is unknown. However, based on the terms and conditions in the export credit insurance cooperation framework agreement between China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq, AidData assumes for the time being that the supplier’s credit(s) is (are) equivalent to 85% of the value of the $1.3 billion commercial contract with PowerChina and $600 million commercial contract with Sinotec ($1.615 billion). 7. The precise monetary value of the supplier’s credit for the Al-Nasiriyah International Airport Construction Project is unknown. However, based on the terms and conditions in the export credit insurance cooperation framework agreement between China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq, AidData assumes for the time being that it is equivalent to 85% of the value of the $367 million commercial contract with CSCEC ($311.95 million). 8. The precise monetary value of the supplier’s credit for the 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project is unknown. However, based on the terms and conditions in the export credit insurance cooperation framework agreement between China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq, AidData assumes for the time being that it is equivalent to 85% of the value of the $1,329,132,251 commercial contract with CMEC ($1,129,762,413.35). 9. The September 22, 2019 financing memorandum is described by the following sources: https://www.mawazin.net/Details.aspx?jimare=66225 and http://www.ahicc.org/content.aspx?type_id=112&type_ids=93&id=8258 and https://www.dropbox.com/s/ji2fumg3lzms0x1/%E5%AE%89%E5%BE%BD%E7%9C%81%E5%9B%BD%E9%99%85%E7%BB%8F%E6%B5%8E%E5%90%88%E4%BD%9C%E5%95%86%E4%BC%9A.pdf?dl=0. 10. For evidence that the 1260MW Salah Al-Din Oil-fired Thermal Power Plant Construction Project was financed through the export credit insurance cooperation framework agreement between China Export & Credit Insurance Corporation (Sinosure) and the Ministry of Finance of the Republic of Iraq, see https://www.dropbox.com/s/g0z9s7eqsx01une/IEITI%20-%20Iraqi%20Extractive%20Industries%20Transparency%20Initiative.pdf?dl=0. 11. The precise date on which the loan agreement was signed is unknown. For the time being, AidData assumes a signing date (January 1, 2020) shortly after the signing of the November 21, 2019 EPC contract. This issue warrants further investigation.

Number of official sources

18

Number of total sources

47