China Eximbank provides $482.8 million preferential buyer credit for Phase 1 of Yaoundé-Douala Highway Project

Project narrative

On March 8, 2012, China Eximbank and Cameroon's Ministry of Economy, Planning, and Regional Development (MINEPAT) signed a $482,800,000 preferential buyer credit (PBC) agreement [CHINA EXIMBANK PBC NO. (2012) 10TOTAL NO.(198) 1420303052012210261] for Phase 1 of the Yaoundé-Douala Highway Project. The loan carries the following borrowing terms: a 20 year maturity, a 7 year grace period, a 2% interest rate, a 0% default (penalty) interest rate, a 0.30% commitment fee, and a 0.30% management fee. The borrower was expected to use the proceeds of the loan (PBC) to finance approximately 85% of the cost of a $568,000,000 commercial (EPC) contract between Cameroon’s Ministry of Public Works of the Republic of Cameroon and China First Highway Engineering Co. Ltd. (CFHEC), which was signed on August 8, 2011. As of December 31, 2020, the loan had achieved a 73.2% disbursement rate (with an undisbursed balance of CFA 69.4 billion). The loan’s amount outstanding was equivalent to CFA 188.1 billion as of December 31, 2020. The purpose of the Yaoundé-Douala highway project is to facilitate the construction of a 209.3 km (or 215 km) road linking Douala on the western coast with the capital city of Yaoundé. Phase 1 involved the construction of a 68.3 km long road, which runs from Yaoundé to Bot Makak/Bibodi. Phase 2 is expected to involve the construction of a 141 km road between Bibodi and Douala. The six-lane highway was originally expected to be the first new motorway since the country's independence. The project as a whole (including Phase 1 and Phase 2) seeks to replace the existing hazardous two-lane highway, and it aims to boost domestic and sub-regional trade as well as shorten the distance between Douala and Yaoundé from 265 km to 215 km. CFHEC was the general EPC contractor responsible for Phase 1 implementation. Phase 1 construction activities began on April 15, 2014, and the originally expected project completion date was October 13, 2018; however, by April 29, 2014, there was reportedly a protracted conflict between CFHEC and the Control Mission led by the SCET-Tunisie/Louis Berger. Project implementation was delayed by unpaid indemnity owed to those living along the first 10 km of highway. The Cameroonian authorities also reportedly made modifications to the specifications of the project by increasing the speed limit from 100 km/hour to 110 km/hour and adding extra lanes, leading the EPC contractor to assert that according to the budget only 47 km of the road could be constructed under such conditions. By January 2015, construction had recommenced, as reported by the China’s Ministry of Commerce (MOFCOM) who noted that tree felling had taken place along 40 km of the road’s route and that earthworks had started not long before. Then, in 2017, delays in payment to the contractor led to a one month suspension of construction beginning on May 2, 2017 and concluding in June 2017 after settlements were paid. As of May 2019, Phase 1 had achieved a 74% completion rate. As of February 2020, the project had achieved a 80% completion rate and 6 of 36 engineering structures were not yet finished. In April 2020, the company in charge of supervising the works, SCET-TUNISIE, reported that the project was scheduled to reach completion by December 2020 in spite of the impacts of the COVID-19 pandemic. As of August 2021, the project had achieved a 98% completion rate. CFHEC announced that the road passed the provisional acceptance at the end of December 2021. Then, in a post on July 11, 2022, CFHEC reported that they had officially obtained the commencement order for the operation of the Yaoundé-Douala Highway. Phase 2 of the Yaoundé-Douala Highway Project, which commenced in October 2024, appears to be funded by the African Development Bank with construction being undertaken by CFHEC. There are some indications that the China Eximbank loan for Phase 1 of the Yaoundé-Douala Highway Project may have financially underperformed vis-a-vis the original expectations of the lender. In January 2019, Cameroon unilaterally withheld debt service payments to China Eximbank. The lender responded by withholding new loan disbursements. Then, in July 2019, China Eximbank and the Government of Cameroon signed a debt rescheduling agreement (as captured via Record ID#88213). Under the terms of the agreement, China Eximbank agreed to reschedule 18 loans previously contracted by the Government of Cameroon — with scheduled principal repayments between July 2019 and March 2022 — by allowing the borrower to defer scheduled principal repayments between July 2019 and March 2022 to later dates but without any maturity extensions. The total amount of restructured debt was equivalent CFA 148 billion ($253 million) — or 70% of the loan principal that was scheduled for repayment between July 2019 and March 2022. Under the terms of the agreement, the Government of Cameroon agreed to repay 30% of the loan principal according to the original July 2019-March 2022 schedule (i.e. without any payment deferrals). The lender and the borrower also agreed to cancel the committed but undisbursed loan balances worth approximately CFA 10 billion (for certain loans with disbursement deadlines that had already passed). Then, in January 2020, the International Monetary Fund (IMF) classified the Government Cameroon as facing a high risk of debt distress. Eighteen months later, during an address before Cameroon’s National Assembly on June 28, 2021, the Minister of Water and Energy (MINEE) Gaston Eloundou Esommba provided an update on the ICBC-financed Bini à Warak Hydroelectric Power Plant Project. He noted that the project had been 'on hold' since November 2019 because ICBC suspended the loan agreement, even though the Government of Cameroon had already mobilized XAF 22 billion of counterpart funding. He also explained that 'the reason for this suspension is that Cameroon did not settle some of its debts towards China on time, so, it is in a cross-default situation.’