China Eximbank provides $293.25 million preferential buyer's credit for 153MW Adama Wind Farm II Project (Linked to Record ID#1380)

Project narrative

On March 27, 2013, China Eximbank and the Government of Ethiopia’s Ministry of Finance and Economic Development signed a $293,250,000 (ETB 5,420,517,560) preferential buyer credit (PBC) agreement for the 153MW Adama Wind Farm II Project. Then, on June 11, 2013, the Ethiopian House of Representatives ratified the PBC agreement under proclamation no. 795/2013. The Government of Ethiopia's Ministry of Finance and Economic Development subsequently signed an on-lending agreement with Ethiopian Electric Power Corporation (EEPCO). The borrowing terms of the PBC (loan) were as follows: a 20.333 year maturity, an 7.83 year grace period, and a 2% interest rate. The loan's first and last scheduled principal payment dates were January 21, 2021 and July 21, 2023, respectively. Its first and last scheduled interest payment dates were January 21, 2014 and July 21, 2023, respectively. The ultimate borrower (EEPCO) was expected to use the proceeds of the loan to finance approximately 85% of the total cost of a $340 million commercial (EPC) contract between EEPCO and Hydrochina-CGCOC JV, which was signed on October 11, 2012. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $293,250,000 (ETB 5,420,517,560) loan (PBC) achieved a 123% disbursement rate, with China Eximbank making 10 loan disbursements (worth ETB 6,659,539,738) between 2013 and 2016: an ETB 1,306,818,182 disbursement on October 8, 2013, an ETB 517,241,379 disbursement on January 8, 2014, an ETB 1,712,598,425 disbursement on July 8, 2014, an ETB 343,434,343 disbursement on January 8, 2015, an ETB 142,992,012 disbursement on April 8, 2015, an ETB 184,297,042 disbursement on July 8, 2015, an ETB 445,179,744 disbursement on October 7, 2015, an ETB 741,377,956 disbursement on July 7, 2016, an ETB 524,222,698 disbursement on January 7, 2016, and an ETB 741,377,956 disbursement on October 7, 2016. The purpose of the project was to install a 153MW wind farm with 102 turbines near the city of Adama in a range of rocky hills in the Ethiopian highlands 100 kilometers southeast of the capital Addis Ababa. The project also involved the construction of 10 km worth of electricity transmission lines to connect the wind farm to the 230kv grid via the Koka substation. Hydrochina-CGCOC JV — a joint venture between Hydrochina Corporation, and CGC Overseas Construction Co. Ltd. (CGCOC) — was the general EPC contractor responsible for project implementation. Upon completion, it was expected that the Adama II Wind Farm would be able to generate about 476 million kWh electricity every year, thereby meeting over 20% of the electricity needs of the capital city of Ethiopia. It was also expected that by substituting oil power plants of the same scale, the Adama I Wind Farm and Adama II Wind Farm could together save 160,000 tons of fuel oil and reduce almost 600,000 tons of carbon dioxide emissions. Hydrochina Corporation was responsible for the project’s feasibility study. CGCOC was responsible for the project’s mechanical work. Sany Heavy Industry Co., Ltd. — another Chinese company — was responsible for the provision of the wind turbines. Construction started in June 2013. During the construction phase, in order to avoid dust and sand, water was sprayed on the excavated earth. In order to minimize the impact of traffic noise and dust brought by vehicle transportation during construction, Hydrochina-CGCOC JV strictly controlled and managed the driving times and routes. Speed bumps were set up on a windy road to reduce dust blown by fast-driving vehicles. Trees, flowers and plants were grown around the booster stations. Hydrochina-CGCOC JV also built stone drainage and afforested slopes near the assembly site of wind turbines, thereby preventing soil erosion. Local floral and fauna species were reportedly protected. An official inauguration ceremony for the Adama Wind Farm II (Adama II Wind Farm) took place on May 18, 2015. The wind farm was then transferred to the project owner (EEPCO) and put into operation in June 2016. The 153MW Adama Wind Farm II Project reportedly created thousands of jobs for local people during the construction phase and continued to provide hundreds of jobs for local people during the operation phase. There are some indications that the China Eximbank loan for the Adama Wind Farm II Project may have financially underperformed vis-a-vis the original expectations of the lender. 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 Record 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.