CDB provides 2-year grace period extension and 2-year maturity extension on $1.4 billion buyer’s credit loan for Slavkaliy Potash Mine and Processing Plant Construction Project (Linked to Project ID#52888)

On May 10, 2015, the Ministry of Finance of Belarus, China Development Bank, JSC Savings Bank Belarusbank (JSB Belarusbank) and Slavkali LLC (or ИООО "Славкалий”) — a special purpose vehicle and wholly-owned subsidiary of the UK-registered GMC Global Energy plc (GMC), which is itself owned by Russian businessman Mikhail Gutseriyev — signed a Memorandum of Understanding regarding the Slavkaliy Potash Mine and Processing Plant Construction Project. Then, on June 17, 2016, China Development Bank (CDB), JSC Savings Bank Belarusbank, and Slavkali LLC (or ИООО "Славкалий”) signed a $1.4 billion buyer’s credit loan agreement for the Slavkaliy Potash Mine and Processing Plant. The loan carried the following borrowing terms: a 14-year maturity, a 5-year grace period, and a 4.3% interest rate. The Government of Belarus issued a sovereign guarantee in support of the loan and Sinosure provided buyer’s credit insurance. The borrower also provided security in the form of a mortgage on the potash mine and processing plant. The purpose of the project is to build a potash mine and processing plant — using raw materials in the Nezhinskoye (Nezhinsky) section of the Starobinskoye (Starobin) potash salt deposit — in Lyuban District and Minsk Oblast. The run-of-pit potash salt reserves at the three segments of the Starobin potash deposit controlled by Slavkali LLC exceed 3 billion tons, including 829 million tons at the Nezhinsky deposit. The project also involves the installation of natural gas infrastructure in 21 localities within Lyuban District; the construction of a railway station and a 37 km railway line; and the reconstruction of water supply intake and the waste treatment facilities in Lyuban District. Upon completion, it is envisaged that the annual production capacity of the mining and processing plant will be somewhere between 1.1 to 2.0 million tons of potassium chloride. By solidifying Belarus’ position as one of the major and leading exporters of potash fertilizers in the world, this project has the potential to substantially increase tax revenue, employment, and the inflow of foreign currency to the country's budget. China State Energy Engineering Corp. Ltd. is the general contractor responsible for implementation. However, several other contractors are involved. Deilmann-Haniel GmbH — another German company — is responsible for shaft work at the (Nezhinsky) potash mine and processing plant. Another German company — Herrenknecht AG — is responsible for supplying shaft-sinking machines. A foundation stone laying ceremony took place on September 11, 2015. Then, in September 2017, construction of temporary on-site roads began. In October 2017, power supply works commenced. Two months later, the reconstruction of the Urechye railway station began. Water and electricity connections were established at the site of the potash mine and processing plant in January 2018. Construction of a cage shaft took place in March 2018. During the same month, the construction of a 110 kV overhead electricity transmission line from Kalinaya to Sorochi was completed. Then, the delivery of the first SBR shaft-boring complex to the site of the potash mine and processing plant took place in August 2018. A launch ceremony for the SBR shaft tunneling complex took place on December 20, 2018. The first layer of potash salt was extracted at a depth of 567 meters in April 2020. Then, in June 2020, China National Chemical Engineering Sixth Construction Co., Ltd., a subsidiary of China National Chemical Engineering Group Corporation Ltd (CNCEC), and CITIC Construction Co., Ltd., signed a contract to facilitate the participation of CITIC Construction Co., Ltd. in the Slavkaliy Potash Mine and Processing Plant Construction Project. The scope of the contract included construction of the main structure of the plant as well as auxiliary utilities and facility installation. On October 20, 2020, the main wooden structure of the ore warehouse was successfully capped by CITIC Construction Co., Ltd. The gas turbine for the self-provided power station of the potash fertilizer plant was successfully hoisted in place by CITIC Construction Co., Ltd. on March 22, 2021. Then, the European Union (EU) included Russian businessman Mikhail Gutseriyev, the largest single foreign investor in Belarus and a long-standing friend of Belarussian leader Alexander Lukashenko, in its sanctions announced in June 2021. Outraged by the forced landing of a passenger plane in Minsk on May 23, 2021, to arrest a dissident journalist, the EU blacklisted transport, defense and air traffic officials as part of coordinated action with the United States, Canada and Britain. Gutseriyev (the owner of GMC Global Energy plc) was among the individuals facing sanctions, according to the EU Official Journal. CDB reportedly responded to the sanctions by halting disbursements to GMC Global Energy plc. As of January 2021, most project activities had also come to a halt. As of January 2023, the project was still not complete. It was originally scheduled to commence commercial operations by the end of 2021. There are strong indications that the CDB loan that was issued to Slavkali LLC for the Slavkaliy Potash Mine and Processing Plant Construction Project has financially underperformed vis-a-vis the lender's original expectations. In November 2022, the Government of Belarus legally incorporated a new project company -- called OJSC Nedra Nezhin -- to assume responsibility for the Slavkaliy Potash Mine and Processing Plant Construction Project. This move was apparently designed to address the fact that Slavkali LLC (as a legal entity facing strict international sanctions) could not longer transact in U.S. dollars (USD) and thus no longer meet its USD-denominated loan repayment obligations to CDB. The grace period of the CDB loan was originally scheduled to expire in 2019. However, media reports suggest that the grace period was eventually extended by two years (until 2021) and the final maturity date was also extended by two years (from 2029 to 2031). The Government of Belarus has identified the sovereign guarantee that it issued in support of the CDB loan for the Slavkaliy Potash Mine and Processing Plant Construction Project as one of its largest sources of public debt exposure. The Government of Belarus showed other sign of financial distress around the time that the grace period and maturity extension was offered. In 2019, the International Monetary Fund (IMF) reported that international reserves had fallen 'well below adequacy metrics', covering a mere 2 months of imports. On December 16, 2019, China Development Bank stepped into the breach and issued an RMB 3.5 billion ($500 million) emergency loan to Ministry of Finance of Belarus. It explicitly authorized the borrower to use the proceeds of the loan to repay existing debts and shore up the country's foreign exchange reserves. Then, on July 14, 2022, the Government of Belarus defaulted on a USD-denominated Eurobond payment. As of April 2023, the Government of Belarus was attempting to meet its Eurobond payment obligations in local currency, in contravention of bond documentation that does not allow for settlement in alternative currencies. This approach was taken as Western sanctions against the Government of Belarus were tightened due to its support for Russia’s invasion of Ukraine.

Additional details

1. This project is also known as the Slavkali Potash Mine Project, the Slavkaliy Potash Mine and Processing Plant Project, and the Nezhinsky Mining and Processing Complex Construction Project. The Russian project title is Нежинский Горно-обогатительный комбинат or проект строительства Нежинского ГОКа. The Chinese project title is 白俄斯拉夫钾肥项目. 2. Slavkali LLC was created in 2011 and it is controlled by Mikhail Gutseriev, the largest shareholder of Russian oil producer, Russneft. Slavkali LLC, which is a tax resident of Belarus, is also known as Slavkaliy FLLC, Slavkali Ltd., and ИООО "Славкалий”. 3. The precise date on which the grace period extension and maturity extension was provided is not known. For the time being, AidData assumes that this took place when the loan reached its originally scheduled first loan repayment date (May 10, 2019). This issue warrants further investigation.

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