Active Mixed AidData Chinese Aid

CDB provides RMB 3.255 billion via Tranche B of $2.03 billion oil-backed loan facility for specific infrastructure projects/programs in April 2016 (Linked to Record ID#58839)

¥3.26M RMB

Funder	China Development Bank (CDB)
Recipient Organization	Ecuador Ministry of Economy and Finance
Country	Ecuador
Start Date	Apr 29, 2016
End Date	Jul 20, 2030
Duration	5,195 days
Number of Grantees	1
Roles	Recipient
Data Source	AidData Chinese Aid
Grant ID	`58842`

Grant Description

CDB provides RMB 3.255 billion via Tranche B of $2.03 billion oil-backed loan facility for specific infrastructure projects/programs in April 2016 On April 29, 2016, Ecuador's Ministry of Finance and China Development Bank (CDB) signed an oil-backed term loan facility agreement with two tranches. Tranche A is worth $1.5 billion and Tranche B is worth RMB 3,255,000,000 ($503,743,800).

The CDB loan is backed by the sale of crude oil and fuel oil from Petroecuador to PetroChina International and UNIPEC Asia Co. Ltd. Petroecuador signed an Oil Sales and Purchase Contract with PetroChina International on April 29, 2016. Petroecuador also signed an Oil Sales and Purchase Contract with UNIPEC Asia Co.

Ltd. on an unknown date.

Tranche A, which is captured via Record ID#58839, carries the following terms: a fixed interest rate of 7.25% per annum, a grace period of 2-years, a maturity of 8-years, and a management fee of 1.3%. The proceeds of Tranche A are freely and flexibly available to the borrower.

Tranche B, which is captured via Record ID#58842 and specifically tied to the execution of specific investment projects (by Chinese contractors), carries the following terms: a fixed interest rate of 6.8717% per annum, a default interest rate of 3%, a grace period of 2-years, a maturity of 8-years, and a management fee of 1.3% ($26 million).

The proceeds from the sale of oil were to be paid by PetroChina and UNIPEC Asia Co.

Ltd. into a Proceeds Account (known as the "EP Petroecuador Proceeds Account"), which was opened by Petroecuador with CDB.

Petroecuador was required to maintain a minimum cash balance in its Proceeds Account with CDB, equivalent to no less than a multiple of 1.3 times the next 3-month installment of principal and interest due under the facility agreement.

The proceeds from unspecified sales contracts were also to be paid into a separate Proceeds Account (known as the "BCE Proceeds Account", which was opened by Central Bank of Ecuador (BCE) with CDB.

BCE was required to maintain a minimum cash balance in its Proceeds Account with CDB, equivalent to $72.5 million during the 6-month period immediately following the execution of the loan agreement on April 29, 2016, $50 million from October 29, 2016 until the end of the loan's availability period (on April 29, 2018), $156 million during the first 3-years of the loan repayment period (April 29, 2018 to April 29, 2021), and $132 million during the last 3-years of the loan repayment period (April 29, 2021 to April 29, 2024).

The (principal) outstanding amount under Tranche A was $909,100,000 as of December 31, 2021 and $603,890,000 as of November 30, 2022.

The (principal) outstanding amount under Tranche B was $310,371,498.86 as of December 31, 2021 and $184,770,630 as of November 30, 2022. The April 2016 CDB loan agreement eventually became a subject of local scrutiny and controversy.

During the spring of 2016, CDB invoked a confidentiality clause in response to a video obtained and released by investigative journalists that revealed the terms of the Government of Ecuador’s multi-billion dollar oil-backed debts to CDB.

The release of the video shortly after the deal was signed prompted public debate about the advisability of the new borrowing.

In response, Wang Hongjun, the head of CDB’s Resident Mission in Ecuador issued a letter to William Vasconez, the Undersecretary of Public Financing in Ecuador’s Ministry of Finance, on May 23, 2016, complaining about the borrower’s apparent breach of its commitments under the Confidentiality Letter it signed on April 25, 2016.

Wang Hongjun called upon the borrower to launch an investigation into which specific public officials leaked the terms and conditions of the $2 billion loan agreement and take 'measures' to mitigate the damage to reputation caused by the video.

The CDB letter also implicitly threatened to withhold future financing if the borrower did not adequately address the incident. The loan has underperformed vis-a-vis the lender’s original expectations.

It was rescheduled twice — once in August 2020 (as captured via Record ID#91347 and Record ID#96374) and again in September 2022 (as captured via Record ID#96456 and Record ID#96457).

At the time of the August 2020 rescheduling, the lender and borrower agreed to defer principal and interest payments for 12 months –- providing $416.8 million of cash flow relief.

At the time of the September 2022 rescheduling, the lender and the borrower agreed to reduce the interest rate that applies to Tranche A from 7.25% to 6.3%, reduce the interest rate that applies to Tranche B from 6.8717% to 5.9%, and extend the final maturity dates of Tranches A and B from April 29, 2024 to April 29, 2027.

They also agreed that the minimum cash balance in the BCE Proceeds Account would be $156,000,000 from April 28, 2018 until July 28, 2020, $32,000,000 from July 28, 2020 until July 29, 2021, $190,000,00 from July 29, 2021 until September 9, 2022, $77,000,000 from September 9, 2022 until April 29, 2023, $74,000,000 from April 29, 2023 until April 29, 2024. $71,000,000 from April 29, 2024 until April 29, 2025, $67,000,000 from April 29, 2025 until April 29, 2026, and $63,000,000 from April 29, 2026 until April 29, 2027 (the loan’s revised final maturity date).

📋 Staff Comments

The transaction was governed by a Facility Agreement between CDB and the Ecuadorian Ministry of Finance and by a Four Parties Agreement (between CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador) that links the Facility Agreement to an Oil Sales and Purchase Contract between PetroEcuador and PetroChina. The $2 billion Facility Agreement, which was signed by CDB and Ecuador's Ministry of Finance on April 29, 2016, can be accessed in its entirety via https://www.dropbox.com/s/7n4vmwghjknxz0o/linea-de-credito-fas-IV-CDB.pdf?dl=0. The Four Parties Agreement was signed by CDB, PetroChina, Ecuador's Ministry of Finance, and PetroEcuador on or around April 29, 2016. The Oil Sales and Purchase Contract that PetroEcuador and PetroChina, which was signed on January 22, 2016, can be accessed in its entirety via https://www.dropbox.com/s/3f4yct2v7t0bjx1/Contrato2016050.pdf?dl=0. AidData has not yet identified the Oil Sales and Purchase Contract between PetroEcuador and UNIPEC Asia Co. Ltd..
From 2010 to 2016, the Government of Ecuador entered into four separate loan agreements with China Development Bank totaling $7 billion which are related to a multi-party contractual structure that involves crude oil delivery contracts entered into with PetroChina and Unipec. Deliveries under these contracts are based upon international spot prices, such as WTI plus or minus a spread, plus a premium paid due to the term of the contracts. The spread is calculated using Argus, a crude oil price assessment publication (“Argus”) and the quality of crude oil as measured by the American Petroleum Institute. Under these agreements, Ecuador is required to invest the loaned amounts in specific infrastructure projects or programs in Ecuador. The $1 billion loan agreement with CDB in 2010 is captured via Record ID#35865. The $2 billion loan agreement with CDB in 2011 is captured via Record ID#69319 and ID#69320. The $2 billion loan agreement with CDB in 2012 is captured via Record ID#36002, and#58827. The $2 billion loan agreement with CDB in 2016 is captured via Record ID#58839 and ID#58842.
The total monetary value of the management fee is $26 million.
The May 23, 2016 letter that is referenced in the project description can be accessed in its entirety via https://www.dropbox.com/s/x71lgctpz0kme0j/OFICIO-No.-CDB-ECU-2016-001-2-1%20%281%29.pdf?dl=0.
A key point of context relates to the State Comptroller General’s Office (which is referenced in the May 23, 2016 letter from CDB): In March 2013, the State Comptroller General's Office in Ecuador approved an audit report (DA3-0015-2012), which found that 5 Petroecuador officials sold oil to PetroChina at below-market rates without economic or technical justification (for the purposes of the Oil Sales and Purchase Contract that underpinned CDB’s lending to Ecuador). DA3-0015-2012 also flagged the participation of a company (Taurus) as an intermediary in the shipments and transfers of crude oil acquired by Petrochina to other countries, leaving open the possibility that Petrochina may habe be reselling the crude oil at prices higher than those purchased to Petroecuador. It was later revealed -- through the Panama Papers -- that Enrique Cadena Marín and Jaime Baquerizo Escobar were receiving $1 commissions for every barrel of oil sold to Petroecuador. These individuals were subsequently convicted in the U.S. on money laundering charges. CDB did not like DA3-0015-2012 and it evidently leaned on Ecuador’s Vice President (Jorge Glas) to do something about it. Glas (who was sentenced to six years in prison for his involvement in a separate corruption scandal involved Odebrecht), sent an email in August 2013 to President Correa and his legal adviser (Alexis Mera) to inform them that the State Comptroller General's report would 'cleared up and vanished” (“el informe de Contraloría había sido ‘aclarado y desvanecido’”). On this point, see http://www.ecuadorenvivo.com/pdf/CARTA-CONTRALOR-1.pdf and https://www.dropbox.com/s/r8s4rjjm7bzlrf0/carta-contralor-1.pdf?dl=0. However, DA3-0015-2012 did not actually vanish until March 2016, one month before the Government Ecuador was supposed to sign another large, oil-backed loan agreement (Line of Credit IV) with CDB. Pablo Celi, who was the Sub-Comptroller General of Ecuador at the time, was informed that if DA3-0015-2012 remained in the public domain, it could undermine the Government of Ecuador’s ability to borrow from CDB in the future (or affect oil presales between PetroEcuador and PetroChina). AidData has recovered a copy of DA3-0015-2012 through the Wayback Machine. It can be accessed in its entirety via https://web.archive.org/web/20200923172102/https://www.eluniverso.com/sites/default/files/archivos/2016/06/da3-0015-2012.pdf.
The September 2022 loan rescheduling agreement can be accessed in its entirety via https://www.dropbox.com/s/e19ocyfdgw0re11/9%20September%202022%20Amendment%20to%2029%20April%202016%20Phase%20IV%20Multi-Party%20Agreement.pdf?dl=0/.
PetroEcuador, the Central Bank of Ecuador, and CDB signed a Phase IV Account Management Agreement on April 29, 2016, which specifies the minimum cash balance that must be maintained in the CDB Proceeds Account. The Phase IV Account Management Agreement, which is governed by PRC law, was amended on September 9, 2022. See https://www.dropbox.com/s/e19ocyfdgw0re11/9%20September%202022%20Amendment%20to%2029%20April%202016%20Phase%20IV%20Multi-Party%20Agreement.pdf?dl=08. The Ecuadorian Ministry of Finance loan identification number for Tranche A is 23183000. The Ecuadorian Ministry of Finance loan identification number for Tranche B is 23184000.

📚 Sources & References

ALEXIS MERA
ENRIQUE CADENA Y LA DEUDA CHINA
Ambassador Wang Yulin of Ecuador attended the signing ceremony of the loan agreement between the National Development Bank and the Ecuadorian Ministry of Finance
LOS PAPELES SECRETOS DE CHINA, 2016050 Agreements executed on January 22, 2016, 2019 Bond Prospectus Government of Ecuador, 9 September 2022 Amendment
Base-de-Datos-Boletin-de-Deuda-Noviembre-2022
Boletín de Ejecución Presupuestaria Enero – Junio 2016
Building Development for a New Era: China’s Infrastructure Projects in Latin America and the Caribbean
China-Latin America Finance Database
Contrato de Compraventa de Petroleo Crudo
Core Petroleum paid Enrique Cadena $ 10.2 million, reported as suspects
Cuaderno-Estadístico-Agosto-2022
Cuaderno-Estadístico-Boletín, da3-0015-2012
Ecuador comprometió ventas de crudo con China hasta el 2024
Ecuador returns to finance with China after eleven months
Ecuador suscribe crédito por USD 2.000 millones con CDB de China
Ecuador to receive $2 bln from China Development Bank for investment
Ecuador was harmed by almost $5 billion by an agreement that Rafael Correa signed with China
Ecuador: First Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Modification of Quantitative Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Ecuador
Ecuador: How Gunvor initiated a decade of corruption
Estadísticas Deuda Pública
How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments
Juan Andrés Baquerizo admitted his fault in the United States on case Petroecuador
Juan Andrés Baquerizo, sentenciado en EE.UU. por los sobornos en Petroecuador
LINEAS DE CREEDITO CHINA
MINUTA DE ENTENDIMIENTO
OFICIO-No.-CDB-ECU-2016-001-2-1
PRIMER CONTRATO MODIFICATORIO AL CONTRATO DE COMPRAVENTA DE PETROLEO CRUDO CELEBRADO EL 29 DE ABRIL DE 2016
RESOLUCIÓN No. 3852017A (APRUÉBESE LA CODIFICACIÓN DE RESOLUCIONES MONETARIAS
FINANCIERAS
DE VALORES Y SEGUROS)
TERMINOS-Y-CONDICIONES
Un monto de US$1.500 millones se desembolsará en las próximas semanas
Unclean Hands: Corruption Plagues Ecuador’s Oil Deals with China
US$1,500,000,000 and RMB 3,255,000,000 Facility Agreement Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.