The largest-ever syndicated project
loan to be exclusively financed by Colombian banks has funded
the first phase of the Bicentario Pipeline, an
estimated $4.2 billion project to transport oil from the Llanos
Orientales region to the port of Covenas.
The $1.2 billion ($2.1 trillion
pesos) loan accounts for 70% of phase-one of the project, with
the remaining 30% coming as direct contributions from eight
partnering crude shippers lead by Ecopetrol.
Lenders were likely encouraged by
Ecopetrols 55% stake in Oleoducto
Bicentenario de Colombia, the company created to complete
and operate the pipeline and majority-owned by the Colombian
government. While there is no guarantee the project will be
finished, government support is said to reduce some of the
Whether they finish the
construction or not, the shippers will start paying the banks
independently next year, Jaime Robledo Vásquez,
partner with Gómez-Pinzón Quleta Abogados,
The loan matures in 12 years and
includes a one-year grace period at an interest rate of DTF (Depósitos Termino Fijo) 4.54%. Payments
are to be made in accordance with a ship-or-pay contract,
meaning the lenders are entitled to tariffs paid by shippers
regardless of whether any oil is transported.
These are very strong
shippers, Robledo Vásquez said. I dont
believe they will allow the project to not finish. The project
had already started construction when the banks came into the
picture thats why they decided to assume the
While Colombian banks were able to
provide the necessary funds for the expected completion of
Phase-1, Phase-2 and Phase-3 will likely require some
Robledo Vásquez said the
syndicated loan had to be unsecured so as to allow for further
international financing in phases two and three of the project
in light of World Bank negative pledge issues.
We had to convince the banks
to forgo first priority collateral, he said.
International investors might be
wary of required environmental permits, already obtained for
Phase-1 but pending for the rest of the project. Lawyers said
it might be a while before the remaining permits are granted.
Highly-publicised security issues involving Colombian guerillas
targeting project workers is also a concern.
Construction is to be financed
through a trust that holds and deploys both the loan and income
from current and future oil production. It was important to
structure the accounts in a trust to avoid taxation
Natalia Quiñones, partner
with Quiñones Cruz Abogados, said the trust prevents
municipalities from potentially freezing the accounts in an
attempt to receive additional, undue, tax revenue.
Assets in a civil law trust
cannot be seized by creditors, Quiñones said.
The trust has the right of levying the money on behalf of
Our structure had to have a
permanent account where you would transfer operational income
in order to fund the interest guarantee fund and then the
principal fund, Quiñones said. This was a
requirement of senior lenders.
Income and interest payments were
retained in a single legal entity for another reason, to
preserve the value of a tax deduction. They are kept in
accounts within the trust, but Bicentenario retains legal title
through the income to claim a deduction on interest
Another tax issue facing the project
was Colombias 0.4% transaction tax. Quiñones said
the trust was structured in a way to limit the number of
transactions to a minimum, a difficult task considering all of
the different banks and shippers involved.
Ship-or-pay contracts are the
security for lenders. Shippers are to pay a tariff to
Bicentenario to finance construction of the pipeline as well as
service the companys debt obligations. If the project is
not completed, shippers still have to pay the tariffs.
Lenders retain the majority of
the risk, as 70% of phase-1 is financed through the syndicated
loan. This is mitigated by the federal governments
majority share in the majority partner, Ecopetrol. Remaining
risk lies with the partners and investors who purchased equity
Gómez-Pinzón Zuleta Abogados and Allen
& Overy represented Oleoducto Bicentenario de Colombia, and
Quiñones Cruz Abogados advised the company on tax
issues. Lenders were represented by in-house