China Eximbank provides RMB 481 million government concessional loan for Abeid Amani Karume International Airport (AAKIA) Project (Linked to Record ID#95627)

Project narrative

On April 16, 2010, the Export-Import Bank of China (China Eximbank) and the Government of Zanzibar signed a government concessional loan (GCL) agreement worth RMB 481 million (or approximately $70.4 million) for the Abeid Amani Karume International Airport (AAKIA) Project. The loan, which is captured via Record ID#33736, carries a maturity of 30 years, an estimated interest rate of 1%, and an estimated grace period of 7.3796 years. The proceeds of the loan were to be used by the borrower to finance a $70.4 million commercial (EPC) contract between the Government of Zanzibar and Beijing Construction Engineering Group (BCEG), which was signed on October 22, 2009. As of May 2018, China Eximbank had disbursed $56 million from the loan to the Government of Tanzania’s Ministry of Finance and Planning. To facilitate the repayment of the loan, an escrow account was established and revenues from the expanded airport are to be deposited in the account (with a percentage paid to China Eximbank and another percentage to the airport operator). The purpose of the project was to expand Abeid Amani Karume International Airport (AAKIA) on Pemba Island. The airport construction work involved an expansion of the runway, a new apron of 100,000 square meters (to replace the existing 21,000 sure meter apron), a 17,000 square meter terminal, the building of Terminal II, a utility house, a generator house (i.e. small power station), fire fighting water tanks, civil works, electrical and mechanical installations, fittings, fixtures and furnishings, operational and immigration counters, passenger seats and associated accessories. Beijing Architectural & Engineering Design Co. Ltd (BAED) was the contractor responsible for project design and Beijing Construction Engineering Group (BCEG) was the contractor responsible for project implementation. The design of the project began in 2010 after a ‘design and build’ contract was signed in 2009. The feasibility study for the project, which included an environmental impact assessment was carried out by the Government of Zanzibar, after which point China Eximbank hired a consultant and ‘improved on it’. No local companies or technical staff from the Government of Zanzibar or Zanzibar Airports Authority (ZAA) were part of the project design team. After site clearing activities commenced in September 2010, construction began on February 1, 2011. The project was originally scheduled to reach completion after 18 months. However, eighteen months later (July 2012), the project was still not complete. After after spending roughly half of the proceeds of the China Eximbank loan ($35.2 million) on building the new terminal, it was found that while the airport was designed for Code E aircrafts like Boeing 777, there wasn’t sufficient space between the taxiway and the aerobridge. This incredibly expensive mistake was attributed to a lack of oversight and coordination and resulted in the dismissal of the Turkish consultant hired for the project. The Turkish consultant was replaced with a French consulting company — Aeroport De Paris Engineering (ADPI) — that provided two mitigation options. The first involved demolition and restarting construction. The second entailed retaining it and shifting the code to the south. As $35.3 million had already been spent, the second option was deemed more suitable. BCEG blamed the delay in construction to varying expectations of client — from the initial building area of 17,000 square meters, it was later increased to 25,000 square meters, and original capacity of 1.1 million was later augmented to 1.6 million. However, it was found that to complete construction, additional funds of $58 million were required, which increased the overall cost of the project to $128.147 million. Due to failures incurred during project design and the substantial cost increase, the project was suspended in 2013 and later again in 2015. According to the project coordinator for the Government of Zanzibar, suspension of the project was a big blow: ‘We had told the President that we would do it before elections in October 2015’, the coordinator said. Although there were fears that China Eximbank would not release the additional funds and the project would have to be abandoned midway, a high level official from the Communist Party of China who visited the project site assured its completion. Importantly, however, it needs to be noted that the contractor (BCEG) for the project continued working on the site even after China Eximbank had suspended funding. According to an official who spoke to a group of researchers (Tong Wu, Jumanne Gomera and Veda Vaidyanathan) on the condition of anonymity ‘… although 35.2 million was already spent, total value of work done by contractor exceeded 70.4 million. They are working on good faith, although the money hasn’t come through.’ In conversations between the contractor and the new French consultant, ADPI, one of the challenges pointed out was of language. As there were substantial communication lapses between the Tanzanian operator, the French consultant and Chinese contractors, they created their own code names for various components so that ideas do not get lost in translation. ‘It’s like we created own personal dictionary’, said one interviewee (of the research team consisting of Tong Wu, Jumanne Gomera and Veda Vaidyanathan). Conflict of interests between the consultant and the contractor also came to light: ‘the contractor tries to work cheapest while the consultant [emphasizes] the quality, this naturally leads to differences in approach”. In addition to these challenges, there was also a difference in standards. Design and execution of the works comply with local laws and other standards specified in the employer’s requirements while Chinese standards prevail over other local and international standards in remaining areas. Although 90 per cent of Chinese standards are [recognized] by ILAC, IATA, ICAO and the British Standards were applied to the fire and safety systems. The definition of training by the Chinese contractor did not seem to be in sync with that of the officials. ‘We are not here to provide a five year engineering degree...we will provide training on specific parts of machines to those who are already familiar but not provide general training’. However, according to the consultant, the ZAA technicians do not have the capacity to operate and run the terminal as per the required standards. Capacity development, though required, is not part of the contract. Additionally, only a small part of materials such as cement, food, transport services, cables, pipes and aggregates were locally procured. Most of the materials were sourced from China. This was partly because local inputs did not meet quality specifications of the project. It was also pointed out, however, that China Eximbank funding requires Chinese contractors to source some of the material from China. Interestingly, the elevators, which were sourced from a French company, were also manufactured in China. Between December 2010 and September 2011, the project owner repeatedly proposed project design modifications. Then, on December 8, 2011, the President of Zanzibar visited the construction site and expressed a willingness to contract more debt to change the project design and extend the construction period. On March 27, 2012, the project owner organized a delegation to Beijing for further project design modification discussions. Then, on June 8, 2012, the project owner and BCEF agreed on a new budget and signed a revised EPC contract. However, due to various project design modifications and the substantial cost increase, the project was suspended in 2013. Also, a parliamentary session in August 2013, members of Zanzibar’s parliament reportedly expressed outrage at the lack of progress made in opening the new terminal. They also flagged evidence of poor workmanship. Then, in January 2014, construction works were resumed. On January 4, 2015, the expanded parking apron and extended and resurfaced taxiway were formally launched. The project was again suspended in 2015 (for unknown reasons). In May 2017, members of the Zanzibar House of Representatives raised concern over the rapidly increasing cost of the project, alleging corruption. The project was again put on hold. However, construction works officially resumed on January 31, 2018. Then, in July 2019, lawmakers questioned whether BCEG was building the airport according to international standards. As of November 2019, the project had still only achieved a 51% completion rate and the contractor was aiming to complete construction before Zanzibar’s elections in 2020. China Eximbank, also made it clear that it would not provide any additional funds, so the stakes were high to finish the project on time and within financial constraints. The expanded Abeid Amani Karume International Airport (AAKIA) was officially inaugurated on September 28, 2020 — at almost twice the original cost. The expansion of the airport was originally expected to bring in bigger aircraft, more cargo, and more tourists to the island. Government of Zanzibar officials insisted that there were considerable demand from Arab countries to introduce carriers like Emirates to the island. However, the COVID-19 pandemic all but halted tourism in much of East Africa, calling into question the financial viability of the airport. Revenue projections for the new terminal relied heavily on growing passenger traffic, making it unclear whether Zanzibar will be able to repay its outstanding debts to China Eximbank on schedule. Then, on November 3, 2022, China Eximbank and the Government of Tanzania signed an additional (supplementary) loan agreement worth $56.72 million for the Abeid Amani Karume International Airport (AAKIA) Project. The loan, which is captured via Record ID#95627, carries the following estimated borrowing terms: a 2% interest rate, a 15.8333-year maturity, and a 3.333-year grace period.