China Eximbank provides $123 million loan for Kessem Sugar Factory Project (Linked to Project ID#58592)

On June 1, 2011, China Eximbank and the Ethiopian Sugar Corporation (ESC) — an Ethiopian state-owned enterprise — signed a $123,000,000 (ETB 2,077,702,703) loan agreement for the Kessem Sugar Factory Project (captured via Project ID#30113). The borrowing terms of this loan were as follows: an interest rate of 6 month LIBOR plus a 2.35% margin, a 3 year grace period, and a 12 year maturity. The Ethiopian Government provided a sovereign guarantee for this loan. On June 1, 2011, China Development Bank (CDB) and the ESC also signed a $150,000,000 (ETB 2,533,783,784) loan agreement for the Kessem Sugar Factory Project (captured via Project ID#58592). The Ethiopian Government also provided a sovereign guarantee for this loan. The borrowing terms of the loan were as follows: an interest rate of 6 month LIBOR plus a 2.35% margin, a 3 year grace period, and a 12 year maturity. The borrower was initially expected to use the CDB and China Eximbank loan proceeds to finance a commercial contract between the ESC and the Ethiopian state-owned Metals & Engineering Corporation (MetEC), which was signed in March 2011. However, in 2012, the Government of Ethiopia dismissed MetEC and re-issued the commercial contract to China National Complete Plant Import-Export Corporation (COMPLANT). According to the Government of Ethiopia’s Aid Management Platform (AMP), the ETB 2,077,702,703 loan (captured via Project ID#30113) achieved a 43.8% disbursement rate, with China Eximbank making a single disbursement of ETB 911,906,704 on July 7, 2013. According to the Government of Ethiopia’s AMP, the ETB 2,533,783,784 loan (captured via Project ID#58592) achieved a 110% disbursement rate, with CDB making 6 loan disbursements (worth ETB 2,283,941,874) between 2012 and 2014: an ETB 387,188,627 disbursement on June 29, 2012, an ETB 261,859,928 disbursement on October 18, 2012, an ETB 215,748,901 disbursement on January 11, 2013, an ETB 417,546,480 disbursement on June 6, 2013, an ETB 484,171,322 disbursement on June 18, 2013, and an ETB 517,426,615 disbursement on April 30, 2014. The purpose of the project was to construct the Kessem sugar factory, which is located in Zone Three of the Awash Fentallie and Dulecha districts of Afar Regional State. The factory has a total of 20,000 hectares of land to be cultivated with cane & its plantation stretches to the areas known as Kessem and Bolhomon. The Kessem Dam, which has a capacity of holding 500 cubic meters water, is the source from which sugarcane cultivation was to be carried out. COMPLANT was the general EPC contractor responsible for project implementation. Construction began in May 2012 and ended on November 30, 2014. Irrigable land reached 2,946 hectares while the construction of 20.5 kilometers of main canal was completed. Then, in March 2015, the factory underwent a trial run. Factory operations began in 2016. However, according to the AMP, the project had only achieved a 99.05% completion rate as of April 2022. Currently, the sugar factory has 8,413 hectares of land covered with cane among which 6,000 hectares cultivated by a private company known as Amibara Agricultural Development (with which ESC has signed contractual agreement). Kessem Sugar Factory is capable of producing 260,000 tons of sugar and 30,000 cube meters of ethanol per year at maximum capacity. There are some indications that the China Eximbank and CDBs loan for the Kessem Sugar Factory Project may have financially underperformed vis-a-vis the original expectations of the lenders. According to the Government of Ethiopia’s Aid Management Platform, as of September 2019, ICBC suspended about $67 million worth of loan disbursements 'due to [the] cross-default situation of the country’ (see Project ID#58616). Then, in August 2021, China Eximbank withheld $339 million loan disbursements for 12 projects and halted project implementation due to Government of Ethiopia’s rapidly dwindling foreign exchange reserves and debt sustainability challenges. Demisu Lemma, the Director of Chinese Cooperation at the Ethiopian Ministry of Finance, noted at the time that the Ethiopian Government was in discussions with China Eximbank about a potential debt rescheduling (that would involved a 5-year maturity extension and a 1-year grace period extension). Then, after considerable delay, the G20 Common Framework (CF) creditor committee for Ethiopia convened in September 2021, with the French Government and the Chinese Government serving as co-chairs. The CF debt rescheduling talks were still ongoing in mid-2023.

Additional details

1. Kessem is occasionally also spelled Kesem in source materials. 2. The Chinese project title is 埃塞俄比亚肯色糖厂项目 or 肯色糖厂. 3. The system identification number for this project in the Government of Ethiopia’s Aid Management Platform (AMP) is 87143122101163. 4. The AMP identifies the loan commitment date as June 1, 2011. 5. AidData has estimated the all-in interest rate by adding 2.35% to the average 6-month LIBOR rate in June 2011 (0.398%). 6. MetEC is amalgam of former Ethiopian military companies. 7. 1 Ethiopian Birr (ETB) was equal to 0.058 USD in June 2011 which implies that the China Eximbank loan commitment value recorded in the AMP (ETB 2,077,702,703) was equivalent to $120,506,756.77. 1 Ethiopian Birr (ETB) was equal to 0.058 USD in June 2011 which implies that the CDB loan commitment value recorded in the AMP (ETB 2,533,783,784) was equivalent to $146,959,459.47. 8. The Chinese Loans to Africa (CLA) Database, which was first created by SAIS-CARI and is now managed by the Global Development Policy Center at Boston University, records a single loan (from CDB) for the Kessem Sugar Factory Project. It does not record the loan that was issued by China Eximbank. Nor is the China Eximbank loan included in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020.

Number of official sources

11

Number of total sources

16