China Eximbank provides RMB 1.8 billion government concessional loan for National Air Bridge Project (Linked to Project ID#85358)

On August 5, 2008, China Eximbank and the Government of Indonesia signed an RMB 1.8 billion ($240 million) government concessional loan (GCL) agreement [China EXIMBANK GCL No. 2008 (19)] for the National Air Bridge Project. The GCL carried the following borrowing terms: 2.5% interest rate, 14.5-year maturity, 5 year grace period, a commitment fee of RMB 927,500.00, and management fee of RMB 6,300,000.00. The first principal repayment date was September 21, 2013 and the final principal repayment date was March 21, 2023. The proceeds of the GCL were to be used by the borrower to finance a commercial contract between China’s Xi’an Aircraft Industrial Corporation and Indonesia’s state-owned Merpati Airlines (or PT Merpati), which was signed in September 2007. The loan officially went into effect (entered into force) on June 30, 2010, and it ultimately achieved a disbursement rate of at least 86.12% (RMB 1,550,083,479.73). The purpose of the project was to facilitate Merpati Airlines’ acquisition of fifteen MA60 aircraft from China’s Xi’an Aircraft Industrial Corporation. It was envisaged that the aircraft would support Merpati Airlines’ five-year marketing strategy by focusing on nighttime flights and highly profitable routes. A launch ceremony for the first two MA60 aircraft took place on September 10, 2007. These aircraft were to be used for regional flights in the East Java region. The 13 remaining aircraft were to be delivered in stages in subsequent years. However, after the delivery of the first two aircraft, Merpati Airlines reportedly failed to honor its contractual obligations, which led to a halt in delivery of the remaining 13 aircraft. Merpati Airlines said that it would only be able to pay for a total of eight aircraft due to financing problems. The Indonesian and Chinese governments agreed to review the deal after Merpati Airlines fell into financial turmoil, which nearly sent the airline into bankruptcy. In September 2008, the Indonesian government came to the company's rescue by providing some 300 billion rupiah in working capital funds. However, in February 2009, a group of Chinese state-owned lenders demanded that the Indonesian government settle the contentious commercial dispute. Although China Eximbank was the only lender to issue a loan in support of the National Air Bridge Project, China Development Bank (CDB) and Bank of China (BOC) joined China Eximbank in an orchestrated suspension of all financing for power plant projects in Indonesia. The Indonesian government was informed that China Eximbank, CDB, and Bank of China would release loan disbursements for ongoing power plant projects as soon as the Merpati Airlines dispute was settled. The suspension of funding for these power plants undermined the Indonesian government’s political commitment to fast-track the construction of much-needed electricity generation capacity. According to the Indonesian Minister of Energy, the Chinese lenders put the Indonesian government in a ‘hostage situation’ that could only be solved if the Indonesian authorities accepted the Chinese demand to first settle the dispute with Merpati Airlines. The Chinese lenders also reportedly demanded higher interest rates for the loans that they had previously issued for various power plant projects. In response, the Indonesian government dispatched a high-level delegation, led by its Finance Minister and Trade Minister, to China to seek clarification regarding Beijing’s intentions and to de-link the disputed aircraft deal from power plant financing. The dispute was resolved after the ministers’ trip. China Eximbank repossessed the remaining 13 aircraft. The Indonesian government also scrapped its plans to re-launch of Merpati Airlines in 2015 due to pressure from creditors for full settlement of outstanding debts. After the dispute was resolved, Indonesia’s Finance Minister requested that Chinese yuan (RMB), instead of US dollars, be used for future procurement of power plant project loans from Chinese banks. Crashes destroyed two of the MA60 aircraft in May 2011 and June 2013. The suspension of the China Eximbank loan is captured in Project ID#38038. The RMB 1,550,083,479.73 amount that was disbursed prior to loan suspension is captured in Project ID#85358.

Additional details

This project is also known as the Procurement of Aircraft for National Air Bridge Project. The Chinese project title is 款购买15架中国自行研制的新一代涡浆支线新舟60飞机. The China Eximbank loan that supported this project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020.

Number of official sources

11

Number of total sources

29