China Eximbank provides $663.9 million preferential buyer’s credit for Section 1 (Matara to Beliatta) Extension of Southern Expressway Project (Linked to Record ID#53526, #33488, #53522 and #53529)

Project narrative

The purpose of the Extension of Southern Expressway Project (ESEP) was to enhance the efficiency of the transport system by linking the country's major economic centers with Colombo City and other parts of the country. It was also designed to facilitate the activities of the Hambantota International Development Hub Project. It involves a 96 km extension of the Southern Expressway from Matara to Hambantota, and it consists of 4 sections. ESEP Section 1 consists of the construction of a 30 km length road section from Matara to Beliatta. ESEP Section 2 consists of the construction of a 26 km length road section from Beliatta to Wetiya. The scope of this project includes the construction of 2 interchanges, 26 underpasses, 7 overpasses, 8 bridges, and 70 box culverts. ESEP Section 3 consists of the construction of a 15 km length road section from Wetiya to Andarawewa. The scope of this project includes the construction of 1 viaduct, 18 underpasses, 5 overpasses, 2 bridges, 45 box culverts, and 6 pipe culverts. This project also includes the construction of the Ranna-Wetiya Road (HR 21) and Sooriyawewa-Galwewa Junction-Embilipitiya Road (HR 06, HR 10). ESEP Section 4 consists of the construction of a 25 km length road section from Mattala to Hambantota via Andarawewa. The scope of this project includes the construction of 2 viaducts, 1 interchange, 6 bridges, 2 bridge underpasses, 2 overpasses, 10 culvert underpasses, 61 box culverts, and 1 aqueduct. China Eximbank financed each of these sections of ESEP with four different loans. On December 23, 2014, China Eximbank and the Government of Sri Lanka signed a $683.5 million preferential buyer’s credit (PBC) agreement [PBC No. (2014) 27 Total No. (321)] for Section 1 (Matara to Beliatta) of ESEP. The face value of the PBC was subsequently downsized to $663,982,749. It carries the following borrowing terms: an interest rate of 2%, a maturity of 20 years, a 5-year grace period, a 0.25% commitment fee, and a 0.25% management fee. The borrower was expected to use to the proceeds of the loan to partially finance a SLR 103,280,000,000 commercial contract [ID# RDA/SEEP/CONT/S1] between China National Aero-Technology Import & Export Engineering (CATIC Engineering) and Sri Lanka's Road Development Authority (RDA), which was signed on October 31, 2013. The PBC (loan) disbursed $67,118,384.68 in 2015, $96,874,812.09 in 2016, $136,330,765 in 2017, $119,488,461 in 2018, $56,896,204 in 2019, $187,274,123 in 2020, and $44,265,516 in 2021. The PBC had achieved a 106.6% disbursement rate ($708,248,265.77 out of $663,982,749) as of December 31, 2021. The borrower made no repayments on the PBC from 2014 to 2020. The borrower made repayments on the PBC worth $44,265,516 in 2021. Its amount outstanding was $300,323,962 as of December 31, 2017, $419,812,423 as of December 31, 2018, $476,708,627 as of December 31, 2019, $663,982,750 as of December 31, 2020, $619,717,234 as of December 31, 2021, and $597,584,475 as of June 30, 2022. Then, on April 7, 2016, China Eximbank and the Government of Sri Lanka signed a $360.3 million preferential buyer’s credit (PBC) agreement [PBC No. (2015) 38 Total No. (381)] for Section 2 (Beliatta to Wetiya) of ESEP. The face value of the PBC was subsequently downsized to $279,355,795. It carries the following borrowing terms: an interest rate of 2%, a maturity of 20 years, and a 5-year grace period. It disbursed $48,835,435.09 in 2016, $62,216,789 in 2017, $24,324,148 in 2018, $43,265,643 in 2019, $64,733,078 in 2020, and $35,980,703 in 2021. The PBC had achieved a 100% disbursement rate ($279,355,796) out of $279,355,795) as of December 31, 2021. The borrower made no repayments on the PBC from 2016 to 2020. The borrower made repayments on the PBC worth $9,311,860 in 2021. Its amount outstanding was $111,052,224 as of December 31, 2017, $135,376,372 as of December 31, 2018, $178,642,015 as of December 31, 2019, $243,375,092 as of December 31, 2020, $270,043,935 as of December 31, 2021, and $260,732,076 as of June 30, 2022. On September 16, 2014, China Eximbank and the Government of Sri Lanka signed an RMB 1,555,990,000 government concessional loan (GCL) agreement [GCL No. (2014) 17 Total No. (520)] for Section 3 (Wetiya to Andarawewa) of ESEP. The face value of the GCL was subsequently downsized to RMB 1,554,305,538. It carries the following borrowing terms: an interest rate of 2%, a maturity of 20 years, 5-year grace period, 0.25% commitment fee, and a 0.50% management fee. It disbursed RMB 316,061,411.45 in 2016, RMB 400,369,285 in 2017, RMB 143,579,999 in 2018, RMB 241,713,406 in 2019, RMB 452,781,436 in 2020, and RMB 0 in 2021. The GCL had achieved a 100% disbursement rate (RMB 1,554,505,537.45 out of RMB 1,554,305,538) as of December 31, 2020. The borrower made no repayments on the GCL from 2016 to 2020. The borrower made repayments on the GCL worth RMB 103,633,702 in 2021. Its amount outstanding was RMB 716,430,696 as of December 31, 2017, RMB 860,010,695 as of December 31, 2018, RMB 1,101,724,101 as of December 31, 2019, RMB 1,554,505,538 as of December 31, 2020, RMB 1,450,871,836 as of December 31, 2021, and RMB 1,399,054,985 as of June 30, 2022. On September 16, 2014, China Eximbank and the Government of Sri Lanka also signed an RMB 2,528,170,000 government concessional loan (GCL) agreement [GCL No. (2014) 18 Total No. (521)] for Section 4 (Mattala to Hambantota via Andarawewa) of ESEP. The face value of the GCL was subsequently downsized to RMB 1,987,801,117. It carries the following borrowing terms: an interest rate of 2%, a maturity of 20 years, and a 5-year grace period. It disbursed RMB 233,021,118.80 in 2015, RMB 161,616,270.74 in 2016, RMB 724,430,382 in 2017, RMB 247,681,494 in 2018, RMB 329,405,454 in 2019, and RMB 291,646,397 in 2020. The GCL had achieved a 100% disbursement rate (RMB 1,987,801,116.54 out of RMB 1,987,801,117) as of December 31, 2020. The borrower made no repayments on the GCL from 2014 to 2020. The borrower made repayments on the GCL worth RMB 132,520,074 in 2021. Its amount outstanding was RMB 1,119,067,772 as of December 31, 2017, RMB 1,366,749,266 as of December 31, 2018, RMB 1,696,154,721 as of December 31, 2019, RMB 1,987,801,117 as of December 31, 2020, RMB 1,855,281,043 as of December 31, 2021, and RMB 1,789,021,006 as of June 30, 2022. Record ID#38337 captures the PBC for Section 1. Record ID#53526 captures the PBC for Section 2. Record ID#33488 captures the GCL for Section 3. Record ID#53522 captures the GCL for Section 4. Section 1 was implemented by four Chinese firms — AVIC International Engineering Corporation (a subsidiary of Aviation Industry Corporation of China), China State Construction Engineering Corporation (CSCEC or 'China State Construction’), China Harbour Engineering Corporation (CHEC), and China Railway First Survey and Design Institute Group. It commenced on January 16, 2016 and it was completed on January 19, 2019. Section 2, which was implemented by China State Construction Engineering Corporation (CSCEC), commenced on October 28, 2016. Its target completion date was October 27, 2019, and as of December 31, 2018, it was 61.23% complete. It was completed on February 23, 2020. Section 3, which was implemented by China State Construction Engineering Corporation (CSCEC), commenced on January 25, 2016, and as of December 31, 2018, it was 88.77% complete. Its original target completion date was January 24, 2018, but this section ran behind schedule due to soil issues and delays in possession of the site. It was completed on February 23, 2020. Section 4, which was implemented by China Harbour Engineering Company Ltd. (CHEC), commenced on January 19, 2016. Its target completion date is May 28, 2019, and as of December 31, 2018, it was 86.06% complete. Sections 1-4 were complete, and the Southern Expressway opened to traffic on February 23, 2020. The completion of the ESEP project has successfully linked Hambantota Port and Mattala Rajapaksa Hambantota Airport. However, this project has also encountered debt repayment problems. 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 Eximbank loans with amounts outstanding at the time of the announcement.