Government of Ethiopia secures 4.75-year maturity extension and 5.84 year grace period extension on $1.53 billion CDB-backed supplier’s credit from ZTE (Linked to Record ID#59129)

Project narrative

At the FOCAC summit in 2006, Zhongxing Telecom Corporation (ZTE) and the Ethiopian Telecommunications Corporation (ETC), which was eventually renamed Ethio Telecom, agreed to a three-year sole supplier framework agreement worth $1.9 billion. The deal, which was finalized in March 2007, gave a single supplier (ZTE) the right to supply and install all telecommunications equipment in Ethiopia over a three-year period. According to the World Bank, there is “no evidence [...] that there was a commercial justification for the award of such a large contract to one supplier, that a competitive tender took place, or that there was an effective contractual mechanism for price protection and technical compliance.” Under the terms of the deal, ZTE provided a $1,530,725,464.08 supplier credit (i.e. vendor financing) on December 1, 2006 for ETC to purchase its equipment. This supplier’s credit was, in turn, supported by a export seller's credit from China Development Bank (CDB) to ZTE. The interest rate of the CDB export seller’s credit was reportedly set at LIBOR plus 150 basis points (or a 1.5% margin) and the maturity was set to 10 years. The borrowing terms of the ZTE supplier’s credit (loan) included a 16.75-year maturity, and interest rate of LIBOR plus 100 basis points (or a 1% margin), and a grace period of 3.25 years. However, the loan was later rescheduled through a 4.75-year maturity extension and a 5.84 year grace period extension. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to December 31, 2016 and June 1, 2028, respectively. Its first and last scheduled interest payment dates were reset to June 1, 2008 and June 1, 2028, respectively. ETC's national telecom network infrastructure expansion project involved three phases of construction. The first phase was the Ethiopian Millennium Project, which began in April 2007 and ended in September 2007; the second phase focused on the GSM and IP-based systems that cover the cities and roads; and the third phase started in October 2008 and covered the countryside and remote areas. By 2010, ZTE pledged to roll out a 10,000 km optical fiber transmission network; increase the number of fixed lines in operation to 4.4 million, thus raising teledensity to 6%; attain 1,000,000 Internet subscribers, thus raising Internet subscribers density from 0.02% to 0.23%; expand 3G services to rural areas, in particular to major towns out of Addis Ababa; install wireless and VSAT connections to 15,000 villages including installation of CDMA Wireless Local Loop; expand the CDMA network with a capacity of 2.5 million subscribers; install 50,000 public telephones all over the country; establish a Network Operation Centre; establish a state-of-the art call centre; and establish a modern customer care and billing system. As a result of the project's completion, the number of mobile subscribers grew sharply from less than 1.2 million in September 2007 to around 17.5 million in 2012. This was augmented by 2.4 million CDMA customers. The number of internet and data subscribers grew sevenfold, from 71,059 in 2009 to around 221,000 by the end of 2012. In 2013, it was reported that the third phase of construction would be jointly undertaken by ZTE and Huawei (as captured via Record ID#30884), but that project was later suspended. There is also some circumstantial evidence that this project may have been plagued by corruption. Press reports cite three cases of alleged corruption between July 2007 and August 2008: (1) In July 2007, the ETC allegedly dismissed 16 high-level employees for corruption as a result of an audit report that suggested irregularities in purchases from international suppliers. The contracts in question allegedly were worth US$54 million. (2) In January 2008, the country’s Federal Ethics and Anti-Corruption Commission (FEACC) brought charges against a former ETC CEO and 26 former ETC executives for allegedly “procuring low quality equipment from companies that were supposed to be rejected on the basis of procurement regulations.” The contracts in question allegedly were worth US$154 million. (3) In August 2008, the FEACC arrested a senior ETC manager after receiving an audio recording and transcript from an anonymous source in which the manager is allegedly recorded soliciting a bribe from an international supplier.