China Development Bank contributes $1.89 billion to $2.099 billion syndicated buyer’s credit for Belgrano Cargas Railway Line Rehabilitation Project (Linked to Project ID#69134, #59690)

On June 25, 2012, China Development Bank (CDB) and the Industrial and Commercial Bank of China (ICBC) and Argentina's Ministry of Economy and Public Finance signed a $2,099,965,834 syndicated buyer’s credit facility (loan) agreement for the Belgrano Cargas Railway Line Rehabilitation Project. CDB contributed $1,899,965.834 to the loan syndicate (captured via Project ID#36517) and ICBC contributed $200,000,000 to the loan syndicate (captured via Project ID#69134). The loan carries the following borrowing terms: a 15-year maturity, a 4.5 year grace period, an interest rate of LIBOR plus an 2.9% margin, a 2% default (penalty) interest rate, a commitment fee of 0.125%, an an upfront (one-time) management fee of 0.20%. As a credit enhancement, the borrower purchased a buyer’s credit insurance policy from Sinosure worth 7.21% of the face value of the loan ($151,407,536.63). The borrower was expected to use the proceeds of the loan to finance 85% of the cost of a $2,470,548,040 commercial contract between Argentina’s Ministry of the Interior and Transport and China Machinery Engineering Corporation (CMEC), which was signed on March 11, 2010. As of May 2022, the loan had achieved an 88.3% disbursement rate ($1,855,660,000 out of $2,099,965,834). The loan's (principal) amount outstanding was $504,821,918.39 as of December 31, 2015, $1,230,795,697.28 as of December 31, 2017, $1,478,957,102.66 as of December 31, 2019 and $1,376,381,351.22 as of December 31, 2020. The purpose of the project is to replace 1593 km of track along the Belgrano Freight Railway, which stretches from Retiro station in the Autonomous City of Buenos Aires through a total of 14 Argentine provinces: Buenos Aires, Santa Fe, Córdoba, San Luis, Mendoza, San Juan, La Rioja, Catamarca, Tucumán, Santiago del Estero, Chaco, Formosa, Salta, and Jujuy. The rail network even connects with two neighboring countries: one of its branches links with Chile through the Socompa border crossing in Salta province, continuing to the port of Antofagasta on the Pacific. There are two alternative connections with Bolivia, neither of which are currently operating. The first is through La Quiaca in Jujuy province, the second through Salvador Mazza in Salta province. The project also involves the acquisition of 1000 wagons and 30 locomotives. This project will be implemented as part of the Argentine government’s Belgrano Plan, which is a set of transportation, infrastructure, production, health, employment, housing, and education policies and programs that target the country's northern provinces. The rail replacement works is scheduled to take place in three phases. Work on the first phase will cover 535 km and it includes the Santurce-Tostado-Chorotis-Las Breñas section, the Pampa del Infierno-Los Frentones section, and the Los Pirpintos-Los Tigres-Taco Pozo sections in Santa Fe, Chaco, and Santiago del Estero provinces. Work on the second phase is 500 km in length and it includes the Coronda-Santo Tomé and Laguna Paiva-Naré sections, both in Santa Fe province, and Talavera-Pichanal-Embarcación-Chalicán, between Salta and Jujuy. The third phase of the project is 558 km in length and it includes refurbishment of the Tucumán-Metán-Joaquín V. González and Metán-Chalicán sections in Tucumán, Salta, and Jujuy provinces. These activities are expected to generate 23,000 jobs, including both direct and indirect employment. The project implies major logistical work, including the transportation of more than 2 million sleepers, 170,000 tons of rail, and 5 million tons of ballast stone. CMEC is the general EPC contractor responsible for project implementation. However, China South Locomotive & Rolling Stock Corporation (CSR) and CRRC Qishuyan —a subsidiary of the CRRC Corporation Limited —are also involved in the project as subcontractors. An official project commencement ceremony took place on July 18, 2014. However, construction activities did not begin until December 2014. The project was originally expected to reach completion within two years (December 2016). CMEC had delivered 107 locomotives and 2500 carriages by February 2017. Then, in January 2018, locomotives manufactured by China's CRRC Qishuyan, arrived in Argentina. On May 31, 2019, President Macri attended the inauguration ceremony of the first 700 km of renewed railway tracks of the Belgrano Cargas train in the town of Joaquin V. Gonzalez in Salta province. As of May 2022, the project had achieved a 77.96% completion rate. The Belgrano Cargas Railway Line Rehabilitation Project was at risk of cancellation and loan default in 2016. On July 18, 2014, Argentina’s Ministry of Economy and Public Finance signed a $4,714,350,000 syndicated term loan facility agreement with three Chinese state-owned banks (Bank of China, China Development Bank, and ICBC) for the construction of two hydroelectric dams (the so-called Kirchner-Cepernic dams) on the Santa Cruz River in Patagonia. The loan agreement included a cross-default clause, stating that if the borrower canceled the project, CDB financing for a separate project (the $2,099,965,834 loan for the Belgrano Cargas Railway Line Project) would also be cancelled. In November 2015, newly elected Argentine President Mauricio Macri announced his intention to suspend the construction of the Kirchner-Cepernic dams. These dams are located on the Santa Cruz River near the famous Perito Moreno Glacier (UNESCO World Heritage Site) that feeds from the same river, and the Macri administration considered these dams to be too risky on environmental grounds. When President Macri first announced his intention to suspend the project, CDB, ICBC, and Bank of China had already disbursed $950 million under the syndicated term loan agreement. Then, on March 10, 2016, CDB sent a warning letter to Argentina's Finance Minister, Alfonso Prat Gay, The letter said: "The Kirchner-Cepernic dams and the Belgrano Cargas are major projects promoted by the Chinese Communist Party and signed during the same political time period in Argentina and each one of the ... facility agreements contain cross-default clauses." The Macri administration subsequently reversed course and announced that it no longer intended to suspend construction of the Nestor Kirchner and Jorge Cepernic Hydroelectric Dams. On January 19, 2022, an MOU was signed between the Ministry of Transport, the Administración de Infraestructuras Ferroviarias Sociedad del Estado, and China Railway International Group Co., Ltd. regarding cooperation in railway matters. This was signed so as to carry out the Modernization and Electrification Project of the Belgrano Norte Railway.

Additional details

1. The loan contract can be accessed in its entirety via https://www.dropbox.com/s/qzg7l2gfhv1ul32/%242.09%20billion%20credit%20facility%20in%202014%20from%20CDB%20and%20ICBC%20for%20Belgrano%20Cargas%20railway%20line.pdf?dl=0. 2. The Government of Argentina's internal identification number for this loan is 434106544/CDB-0. The Government of Argentina's Sistema de Análisis y Control de la Deuda (SIGADE) loan identification number is 27646000. 3. The Chinese project title is 阿根廷贝尔格拉诺铁路改造项目. The Spanish project title is Proyecto de modernización de los trenes del Belgrano Cargas Fase 1 (ver CMEC CC). 4. AidData has estimated the all-in interest rate by adding 2.9% to the average 6-month LIBOR rate in June 2012 (0.736%). 5. The first Memorandum of Understanding to improve the railway system was signed between the People's Republic of China, Ministry of Federal Planning, Public Investment and Services of the Argentine Republic on November 16, 2004. 6. China South Locomotive & Rolling Stock Corporation (CSR) was awarded a contract worth around RMB 1.7 billion ($270 million) to supply 100 diesel locomotives and 3500 wagons of various types as part of the reconstruction of Argentina's Belgrano Cargas network. 7. The March 10, 2016 warning letter can be accessed in its entirety via https://www.dropbox.com/s/q6s26ninx4ldnes/Cross-Default%20Letter%20from%20China%20Development%20Bank%20to%20the%20Government%20of%20Argentina%2010%20March%202016.pdf

Number of official sources

47

Number of total sources

70