CDB provides $300 million loan for Rehabilitation and Improvement of Priority Road Project 3 - Phase I (PRP3-I) (Linked to Record ID#46971, #39001 and #39002)

Project narrative

On March 11, 2014, China Development Bank (CDB) and the Government of Sri Lanka signed a $300 million loan facility agreement [No. 4510201401100000245] for the Rehabilitation and Improvement of Priority Road Project 3 - Phase I (PRP3-I). This loan carried the following borrowing terms: a 15 year maturity, a 3 year grace period, an interest rate of 6-month LIBOR plus a 2.95% margin, a 0.5% management fee, and a 5% Sinosure insurance (risk) premium. The loan was apparently secured by (i.e. collateralized against) cash deposits in an escrow account. The borrower was expected to use the proceeds of the CDB loan to partially finance (a) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1/PACKAGE-4] between Sri Lanka's Road Development Authority (RDA) and Hunan Construction Engineering Group Corporation, which was signed on December 9, 2013; (b) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1/PACKAGE-3] between Sri Lanka's Road Development Authority (RDA) and Xi'an Dagang Road Machinery Company, which was signed on December 9, 2013; (c) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1/PACKAGE-2] between Sri Lanka's Road Development Authority (RDA) and China National Aero Technology Corporation Engineering (CATIC), which was signed on December 9, 2013; (d) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1(LOT2)/PACKAGE/C13] between Sri Lanka's Road Development Authority (RDA) and Xi'an Dagang Road Machinery Company, which was signed on January 21, 2014; (e) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1(LOT2)/PACKAGE/C12] between Sri Lanka's Road Development Authority (RDA) and China National Aero Technology Corporation Engineering (CATIC), which was signed on January 21, 2014; and (f) a commercial contract [ID# RDA/RNIP/PRP3/PHASE1/PACKAGE-1] between Sri Lanka's Road Development Authority (RDA) and China National Aero Technology Corporation Engineering (CATIC), which was signed on December 9, 2013. CDB deposited $300 million in an account controlled by the Central Bank of Sri Lanka on March 28, 2014. $149.36 million was disbursed in 2014 and 2015. $62.22 million was disbursed in 2016. The loan had achieved a 70.5% disbursement rate ($211.58 million out of $300 million) as of December 31, 2016. CDB disbursed $38,776,132.78 in 2017, $16,985,442 in 2018, $10,986,251 in 2019, $8,138,925 in 2020, and $13,533,826 in 2021. The loan had achieved a 100% disbursement rate ($300,000,576.78 out of $300,000,000) as of December 31, 2021. The borrower made repayments worth $23,100,000 in 2018, $23,100,000 in 2019, $23,100,000 in 2020 and $23,100,000 in 2021. The loan's amount outstanding was $227,255,064 as of December 31, 2017, $221,140,506 as of December 31, 2018, $209,026,757 as of December 31, 2019, $194,065,682 as of December 31, 2020, $184,499,508 as of December 31, 2021, and $172,949,508 as of June 30, 2022. By early 2022, it was clear that the loan was non-performing. On April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt repayments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Development Bank loans with amounts outstanding at the time of the announcement. By March 2023, the Government of Sri Lanka had accumulated $338 million in arrears to China Development Bank. PRP3 Phase I was divided into two parts, A and B. The contractors for PRP3-Phase I (A) were China National Aero-Technology International Engineering (CATIC - ENG) and Xi'an Dagang Machinery Co. Ltd. The contractors for PRP3-Phase I (B) were CATIC and Hunan Construction Engineering Group Corporation (Hunan). Under PRP3- Phase I (A), 6 roads were rehabilitated: 1. Ratnapura - Palawela - Karawita Road: 00.00km - 21.28 km 2. Veyangoda -Ruwanwella Road: 12.4 km - 32.2 km (19.8 km total length). This section also included the rehabilitation of a bridge. 3. Meegahajandura-Kumaragama Road: 0.00 km - 8.8 km 4. Galle-Udugama Road: 0.00 km - 35.35 km 5. Hiniduma-Opatha-Pitabaddara Road: 0.00 km - 31.5 km. This section also included the rehabilitation of a bridge. 6. Mawanella-Hemmathagama-Gampola Road: 0.00 km - 26.00 km. Under PRP3 - Phase I (B), 6 roads were rehabilitated: 7. Kiriella-Nedurana-Eheliyagoda Road: 0.00 km - 14.75 km. Contractor: CATIC 8. Ratnapura-Wewelwatte Road: 0.00 km - 27.50 km. Contractor: CATIC 9. Kandy-Jaffna Road: 1.65 km - 3.9 km (2.25 km total length). Contractor: Hunan 10. Marawila-Udubaddawa Road: 0.00 km - 19.55 km. Contractor: Hunan 11. Rambukkana-Katupitiya Road (0.00 km - 9.81 km) and Dambokka-Katupitiya Road (0.00 km - 8.75 km). These two roads were rehabilitated at the same time and are considered the same project by the Sri Lanka Ministry of Highways and Investment. Contractor: Hunan 12. Ayagama-Egaloya Road: 0.00 km - 23.00 km. PRP3 Phase I commenced its activities on September 9, 2014 and it was originally scheduled to reach completion by July 17, 2017. However, as of September 30, 2019, PRP3-II was still ongoing. The completion date of the project was extended to 31 December 2020. As of that date, the rehabilitation works of 12 roads 248.34 km and other 15 roads 72.45 km from variation orders were complete.