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    5 views16 pages

    Example of China Loan Agreement

    Uploaded by

    Trissia Wijaya

    Copyright:

    © All Rights Reserved
    Download as PDF or read online from Scribd
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    of 16
    Secret PARLIAMENTARY MEMORANDUM raunasteR: ‘Mr. Seth Terkper, Minster for Finance ame: USS3 BILLION TERM LOAN FACILITY AGREEMENT BETWEEN CHINA 2EVELOPMENT BANK. (CORPORATION (COB) AND GOVERNMENT OF GHAWA (GOG) ~ UPDATE ON CABINET DIRECTIVE TOCAP THE FACILITY AT USS1.SBILLION parent TAC sone EXECUTIVE SUMMARY secret Parliamentary Decision Requested Partiament is respectfully invited to consider and ratify Cabinet's dinetive to Government 0 cap the China Development Bank (CDB) loan facility at USS1_Sbilion, and engage with the Chinese Government on a higher political level, and approve the recommenistions contained al the end of this memorandum, BACKGROUND 1. Atan emergency meeting on Sunday, 30" March 2014, Cabinet considered an update brief on the CDB USS3Bilion loan facility unde the Master Facility Agreement signed between GoG and China Development Bank (CDB) on December 16" 2011 (the MFA), and recommended that Ministty of Finance (MoF) cap the loan at USS1.Sbilion and engage with the Chinese Government at higher level, 22, MoF consequently, on 16° May 2014, sought the opinion ofthe Hon. Attomey-General on the lesa implications of GoG capping the loan as recommended, by leter of same date, [3 On 3 June 2014, the Hon, Attomey-General provided the requested lege opinion to MOF; (copy attached). 4. A summary of the legal opinion and an update onthe current sus between GoG and CDB follows, for Parliaments’ consideration: Summary and Update ‘5, The Attomey-General concluded that GoG has right under the clause 2.2. of the MFA to request a cancellation or a reduction of the total commitment ¢f USS3Rillion up to zero, in accordance with the Facility Agreements; which are defined asthe MFA and a Subsidiary ‘Agreement (SA); i. GoG therefore has a ight under the MFA to eapiredure or cancel the feiliy; ii, Claes 7of both SAs give GoG the righ to cancel lor part of the loan forthe particular project in accordance with clause 7 ofthe MPA. 6, Clause 7.2 of the MFA permits voluntary cancellation, and reuires GoG to give CDB not less than ten (10) business days" prior notice of cancellation; i Cancellation may be of allo pat of the facility, but may not be of an amount less ‘than USS2Smillon, and higher amounts must bein multiples of USS2Smilion 17. Clause 7.2.2 provides that any cancellation will be applied pro ata between the two tranches ofthe loan, Trance A and Tranche B, and also po rata aross all AAs; The enttefoan facility was to be disbursed in wo teaches of USS Stllion each; ¥ To date only two SAs have been signed by CDB, being the Wester Corridor Gas Infiastricture Project (WCGIP) and the ICT Enhamed Surveillance Project for the Oil & Gas enclave (ICT). Both SAs are Tranche B facilities for a total a commitment of USS billion: WCGIP - USS8S0milion; ICT - US$1S0million; No Tranche A SA has been signed Legal implications of capping the loan 8. Per % Clause 7.3 of the MPA, upon voluntary cancellation GoG shall pay a cancellation fee of of the amount cancelled. In addition, clase 11.2.2 of the MFA tequires G0G to pay the ued commitment fee on any amount cancelled at the time the cancellation effective; Y Under the original terms of the MFA, GoG's commitnent fee liability was on the lundrawn and un-canceled portion of the total facility, Following several discussions with CDB about the inequitable effets of this requirement in the face of CDB's consistent failure to sign addtional SAs and disburse the loan, CDB agreed to apply the fee to only the undrawn and un-eanceled balance of amounts actually committed undersigned SAS, Y- GoG requested the new formula to be reactive to the first commitment fee payment, but CDB disagreed and made the new formula effective with the commitment fees due after August 2013. This reduced the February 2014 commitment fee payment from USS12,588,389,13 to USS2,366,166.91 Y CDB reserved the right to reinstate the commitment fee tems under the MFA. However, CDB has currently submitted a draft Sile Agreement to GoG for negotiation, which includes amongst other provisions, an amendment to clause 11.2 ofthe MPA to change the commitment fee formula tothe new agreed formula 9. With regard tothe Offtaker Agreement between GNPC and Unipee Asia forthe supply of 13,000 bares of oil a day (bepd) in support ofthe MFA, the Hen. Attomey-General sof the ‘opinion thatthe effet of any capping of the loan will be misimal, This is even more so Mar sidering tht per the Minutes of meeting between CDB ard GoG in Beijing, China in ch 2014 (the "Minutes’ (the March meetings), CDB now claims thatthe eurent supply of erude oil only supports a loan amount of USS840million. DB's position during the March meetings was that accorcng to ther financial model, assuming a crude oil price of USS85 per barrel, under the current structure for the ‘Transaction the supply of 13,000 bpd was only sufficient to suppor a total loan of ‘USS840 million; Go requested to review CDB's financial model, but this was not made available. GoG expressed surprised at CDB’s position, which is contrary to discussions and financial ‘modeling reviewed at initial negotiations with CDB. forthe facility. GoG countered that using, USS85.00 as the benchmark crude oil price was inconsistent with the reality thet from the inception of the Offtaker Agreement, GNPC has sold erude ol to Unipee at a Price over USS100.00; with the average price being about USS! 10.00; ~UPOAT ON CAINETDRECTVE TO CNP TE LOAN ATUL SBLION DOLLARS rent secaet + G0G also requested CDB to respect the agreement for 13,060 bbpd, as inthe event that GoG needs to make wp any anticipated debt servicing shortfall, the Five Party Agreement (FPA) provides GoG the opportunity to use other sources of revenue t0 do $0. GoG suggested liquefied petroleum gas (LPG) as an option for meeting the anticipated debt servicing shortfall when principal repayments begin in 2015. CDB was, however, skeptical about LPG and insisted that they would need to do ational research before considering that option; + CB agreed to sign two additional SAs to bring the total committed loan amount to USSI 3S0bilion, and cap the loan at that amount, provided GoG will wansferan amount qual to 49% of each Offtaker Payment ftom the 10th shipment of el to the Collection Account (CA) from 2014 to 2021 (both yest inclusive) and maintain same inthe CA and the Debt Service Reserve Account (DSRA) for the period. CDB’s postion is tha as far as they are concerned, the transaction is an oil-backed tansactien and GoG should live up t0 that 10. The pending two additional SAs (Coastal Fishing Landing Sites (Coastal Fishing) and AMA. Intelligent Traffic Management (AMA Trafic) are US$200milion each. Caine!’ option to cap the loan at USS1 Shillin allows GoG the opportunity to negotiate the signing ofa third SA for US$1OOmillion. During the March meetings, the US$1O00million SME Projects Incubation Facility SA for the development of small and medium enterprises (SME) in ‘Ghana, which has been outstanding with CBD for signing since April 2012, was considered {or signing, but flagged by CDB for later consideration, ‘The Side Agreement 11. CDB submitted the proposed Side Agreement to GoG in June, together withthe drafts of the ‘to pending SAS for negotiation and subsequent signing, ané has made the signing and parliamentary approval of Side Agreement a condition precedent to the signing and effectiveness ofthe two pending SAS; 12, The draft Side Agreement proposes to amend the MPA, FPA and Accounts Agreement (AA) and other Finance Documents o among other things ‘Amend the current formule for determining debt service transfer amounts tothe CA after each offake of erude by Unipec and replacing this with the obligation to transfer 49% of each erude oil payment to the CA; (© GoG disagreed, as this would be contrary to the Peirofewn Revere ‘Management Act, 2011 (Act 815) (PRMA) aad offered other sources of revenue, such as LPG to meet the 49% benchmark ¥ change the formula for calculating the commitment fee 1s agreed between the partes following meootngs in Accra in January 2014; © GoG agreed secrer Y convert the arrangement into an eil-backed transaction by ming it mandatory for GoG to instruct GNPC to increase oil supply to Unipes on the same terms, upon ‘atfication from CDB that eurent supply willbe insulficient fo support any pending SAs to be signed: © GoG disagreed mandate GNPC to give Unipee priority over other ol ales agreements in the event ‘of supply shortfall; (© GoG has disagreed to this require GoG to acknowledge thatthe principal credit support forthe facility are the ‘proceeds from the sale of erude oil under the Oftaker Agreement; © GoG disagreed ¥ remove GoG’s right to request CDB to transfer excess Sunds from the DSRA to GoG ‘even where there is no current or impending default in debt servicing; and forbid any such transfer prior to year 2022 (when GoG's peak repayment period ends); and only with prior writen consent of CDB after year 2022; © GoG disagreed make it mandatory fo submit any other SAS that may be signed after the pending two, to Parliament if they contain any changes fiom the form approved by Parliament in March 2012; (© GoG disagreed ifthe changes are not substantial * itshould be noted tht this is contrary to secon 11(2) ofthe Loans Act 1970 wiich provides that changes within the terms and conditions of a loan already approved by Parliament need not be resubmitted 10 the House; change the 15 yee and 10 year final repayment dates of he Tranche A and Tranche B facilities respectively and redefine these to be no later than 6 months before the ‘maturity of the OfMaker Agreement which is curently December 12, 2027, © GoG disagreed and opted to maintain the eurent tenor ofthe tranches without extension 13. G0G requested that asa showing of good will, CDB sign the two SAs prior to submission of ‘the Side Agreement to Parliament. CDB has however disagreed o this, CONCLUSION 14.11 evident ffom the foregoing that GoG may cap the CDB lean at USS1.Sbillon without breaching either the Facility Agreements. The implications are: Y Before Side Agreement and if CDB reverts to the old formula for calculating commitment fees: GoG's liability will be USS3Omillion, being 19% cancelation fee of USS1Smillion on USS1.Sbillon canceled, plus 1% per annum acerued commitment fee ‘on the amount canceled of USS1.Sbillion, (ORIFA- UPDATE ON CABINET DRECTVETOCAPTHELOANA Us SIN DOLAKS aesote secret + Since interest repayment on the facility is evey 6 months, the accrued commitment fee will be whatever portion has accrued on the eancelled amount ‘within the 6 months interest repayment period when tie foan is cancelled After Side Agreement and the two pending SAs only are signed and CDB has ‘agreed to cap the loan at USSISbilion: GoG's liability will be USSISmillion cancellation fee, plus the accrued commitment fee on the undisbursed balances of WCGIP and ICT, Coastal Fishing and AMA Trai, ‘Assuming CDB maintains the curent USS1.3S0billion cap it imposed dusing the ‘March meetings, GoG's lability will be: USS16-Snillon cancellation fe, plus the accrued commitment fos; 15.A table is attached with the various capping/cancelation options and scenarios for Parliament's consideration RECOMMENDATIONS 16, Based on the foregoing itis recommended for Patiament to consider and approve the following: i. GoG negotiation and signing of the Side Agreemet for onward submission to Parliament, if this ean be done without breaching the PRMA; li, G0G signing ofthe two pending SAs; iii, GoG negotiation with CDB to increase its cap set in March 2014, of [USSL.3SDbillion to USS. Sillion without requiring additonal crude oil supply above the current 13,000bbpd, and sign in addition, the SME Incubation Facility ‘roject for USS10Umilion to bring the total signed projects up to thee projects Fes Sion a Satoh. fear aca eecneae THE CLERK OF PARLIAMENT PARLIAMENT HOUSE ACCRA C00 MEA UATE OW CABINET DIRECTV TO CAP THE LON TUS SHLION DOA raeesote ana CRAGIN teense ro ssoctnen a PEC an rs ee ane ‘ssoane. 2080 36500 02000 saisono00 tn exse.ot Reply she ‘Skershould be guste neeien Sys srromnay cones vem Myre ‘3 sunt, 2004 ‘THE HON. MINISTER MINISTRY OF FINANCE, } ‘MINISTRIES | ACCRA | Dear Sir, REQUEST FOR LEGAL OPINION . CHINA DEVELOPMENT BANK (CDE) LOAN PACILITY FOr US¢S BILLION UNDER THE MASTER. FACITY AGREEMENT (MFA) SIGNED DECEMBER 16, 2011 We reler to your loller dated May 16, 2014 wth relerence number [Mo /OLA/

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