CNPC provides $1 billion loan to meet outstanding debt obligations and pay for general operating expenses

📋 Staff Comments

1. This loan is not captured in the Chinese Loans to Africa (CLA) Database that SAIS-CARI released in July 2020 and updated in March 2021 (which is now maintained by Boston University’s Global Development Policy Center).
2. The Government of South Sudan may have received additional funding through another oil prepayment agreement with CNPC between April 2018 and August 2019. However, this issue requires further investigation. An April 2021 report submitted by a Panel of Experts to the United Nations Security Council found that ‘[d]uring the period April 2018–August 2019, the Government [of South Sudan] received access to advanced financing through the four prepayment agreements, which resulted in the company making eight advanced payments to the Government that [totaled] $446,973,882.
3. At the same time, as stipulated in the prepayment agreements, the Government [of South Sudan] paid the company $95,138,582.61 in interest, fees and costs. As detailed in the prepayment agreements and in Ministry of Petroleum reconciliation documents reviewed by the Panel, the Government [of South Sudan] was responsible for three main costs. First, the Government [of South Sudan] paid upfront arrangement fees, which incorporate the administrative costs of the financing agreement, of 1.25–3.5 per cent on the full value of the financing agreement. In total, the Government [of South Sudan] paid $68,238,400.00 in arrangement fees under the four prepayment agreements over the course of 17 months in 2018 and 2019. Second, the Government [of South Sudan] paid interest of 7 per cent above the benchmark global interest rate, [totally] $13,079,925.55, on the outstanding balance of the financing. Third, because the Government [of South Sudan] received upfront payment for the oil, the company received the oil at a predetermined discount rate below the spot market price. The four prepayment plans reviewed by the Panel included a discount rate of $1.15–$1.35 per barrel of crude oil, which resulted in $8,504,139.85 of decreased revenue in the sale of 11 cargoes from May 2018 to July 2019. The Panel estimates that the various fees and interest payments under the four short-term prepayment agreements resulted in a decrease of 24 per cent of potential government revenue, or about $5.5 million per month, compared with the expected oil value through the spot tender contracts […]. The Panel has not identified any diversion of public funds related to the four prepayment agreements. However, officials in the Ministry of Finance and Planning and the Ministry of Petroleum told the Panel that the ministries had been unable to fully track the repayment of the loans in part because of the way in which the finances were calculated and reported’. More detailed information can be found at https://www.securitycouncilreport.org/atf/cf/%7B65BFCF9B-6D27-4E9C-8CD3-CF6E4FF96FF9%7D/S_2021_365.pdf.
4. A pre-export finance (PXF) facility is an arrangement in which a commodity (e.g. oil) 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.
5. This loan is not captured in the Chinese Loans to Africa (CLA) Database that SAIS-CARI released in July 2020 and updated in March 2021 (which is now maintained by Boston University’s Global Development Policy Center).
6. The CNPC oil prepayment facility was apparently collateralized against the sale of oil cargoes to ChinaOil (a subsidiary of CNPC) between 2014 and 2016 (see https://radiotamazuj.org/uploads/media/627b639c4472d/627cf16a350e7.pdf and https://www.dropbox.com/s/inurypxldaqf9tm/2015-16.pdf?dl=0).

📚 Sources & References

• Quarterly Macroeconomic Update
• South Sudan's Debt Rises as Oil Ebbs
• QUARTERLY MACROECONOMIC UPDATE Q.2 FY 2015/16
• Resource-Backed Loans: Pitfalls and Potential
• South Sudan suspends all pre-sales oil contracts
• MINISTRY OF FINANCE AND ECONOMIC PLANNING REVISED CHART OF ACCOUNTS
• CAPTURE ON THE NILE
• South Sudan 2014 IMF report
• REPUBLIC OF SOUTH SUDAN 2014 ARTICLE IV CONSULTATION—STAFF REPORT; STAFF STATEMENT; AND PRESS RELEASE
• 中国石油在中东非洲新签一批油气合作协议
• Letter dated 14 April 2021 from the Panel of Experts on South Sudan addressed to the President of the Security Council
• Final report of the Panel of Experts on South Sudan submitted pursuant to resolution 2428 (2018)
• South Sudan Quarterly Macro Update FY 15/16 Oct 2016
• Final report of the Panel of Experts on South Sudan submitted pursuant to resolution 2577 (2021), https://web.archive.org/web/20220308095820/https://media.africaportal.org/documents/305-south-sudan-oil_0.pdf 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.