Narrative
Full Description
Project narrative
On September 2, 2012, a Memorandum of Understanding (MOU) between the Government of the Federal Democratic Republic of Ethiopia and the Republic of Djibouti on Supply of Water to Djibouti was signed. Then, on September 11, 2013, China Eximbank and the Djiboutian Ministry of Finance signed a $322,050,000 (FDJ 57,163,000,000) preferential buyer’s credit (PBC) agreement for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project. The PBC carried the following terms: a 2% interest rate, a 20-year maturity, and a 7-year grace period. The proceeds of the loan (captured via Record ID#59425) were to be used by the borrower to partially finance a $339 million commercial contract between Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD) and CGC Overseas Construction Co. (CGCOC) Ltd., which was signed on April 11, 2013. The Government of Djibouti was responsible for the remainder of the commercial contract cost (approximately $17 million). According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) ultimately achieved a 108.2% disbursement rate (FDJ 61,826,000,000). Phase 1 of the Ethiopia-Djibouti Water Pipeline Project involved the construction of a 63-mile long water pipeline from the Ethiopian town of Hadagalla into the interior of Djibouti, where it was expected to supply safe drinking water to 700,000 residents of Ali-Sabieh region, Dikhil region, Arta region and Djibouti City. CGC Overseas Construction Co. (CGCOC) Ltd. was the contractor responsible for project implementation. Its work was overseen by Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD). The originally envisaged project implementation start and end dates (as specified in the April 11, 2013 commercial contract) were July 1, 2015 and March 30, 2018. A groundbreaking ceremony took place on March 22, 2015. However, Phase 1 implementation did not commence until March 30, 2015. As of February 2017, ONEAD reported that Phase 1 had achieved an 87% completion rate. CGC Overseas Construction Co. (CGCOC) Ltd encountered some difficulties during project implementation, including electricity power outages that made it impossible to transmit the water through the pipeline. CGC Overseas Construction Co. (CGCOC) Ltd was reportedly forced to spend more money than originally anticipated on diesel generators due to power shortages needed to pump the water. Phase 1 was officially completed and handed over to the local authorities on June 30, 2017. There are indications that the borrower had difficulty repaying the loan (PBC) for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project. According to the International Monetary Fund (IMF), the stock of the Government of Djibouti's external arrears -- including arrears to China, Belgium, Spain, Iran, Italy, Saudi Arabia, and UAE -- stood at $107 million in March 2020. Then, in May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress. Then, in March 2022, the World Bank published a report (entitled ‘Djibouti Economic Monitor Winter 2021’), which noted that ‘[o]n the debt side, liquidity tensions are likely to arise due to the payment of deferred debt service linked to the DSSI, the maturing of the two loans on the water pipeline project connecting Djibouti to Ethiopia loan in 2022, and the Addis Ababa-Djibouti railway project in 2025.’ Then, on November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payments to China Eximbank. Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022. The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022. Then, in 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022. The Government of Djibouti’s total arrears to China increased to DJF 28,867,000,00 by June 30, 2023. Then, in October 2023, China Eximbank and Djibouti's Ministry of Finance reached a preliminary debt service moratorium agreement. The agreement suspended debt service payments over a 4-year period (2024-2027) under the $322,050,000 loan (PBC) agreement for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project.