China Eximbank provides $378.5 million preferential buyer’s credit for Phase III of the Outer Circular Highway Project (Kadawatha to Kerawalapitiya Section)

Project narrative

On September 16, 2014, China Eximbank and the Sri Lanka Ministry of Finance signed a $494.03 million preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK No. PBC (2014) 15 Total No.(309)] for Phase III of the Outer Circular Highway Project (Kadawatha to Kerawalapitiya Section). The face value of the PBC was subsequently downsized to $378,545,530. The PBC carries the following borrowing terms: a 2% interest rate, a 20 year maturity, a 5 year grace period, a 0.25% commitment fee, and a 0.25% management fee. The borrower was expected to use the proceeds of the PBC (loan) to finance approximately 95% of the cost of a commercial contract [ID# RDA/OCH/NS/II] between Sri Lanka's Road Development Authority (RDA) and Metallurgical Corporation of China Ltd (MCC) , which was signed on February 22, 2013. China Eximbank disbursed $12,764,499.92 in 2015, $47,825,409.95 in 2016, $78,892,477.69 in 2017, $80,969,279 in 2018, $82,451,347 in 2019, and $86,161,576 in 2020. The loan had achieved a 102.7% disbursement rate ($389,064,589.56 out of $378,545,530) as of December 31, 2021. The borrower made repayments worth $25,236,368 in 2020 and $25,236,368 in 2021. The loan's amount outstanding was $128,963,328 as of December 31, 2017, $209,932,607 as of December 31, 2018, $292,383,954 as of December 31, 2019, $353,309,162 as of December 31, 2020, $328,072,794 as of December 31, 2021, and $315,454,610 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 Eximbank loans with amounts outstanding at the time of the announcement. The project was to construct an expressway in the outskirts of Colombo which connects with the Southern Expressway and other national roads radiating from Colombo city in order to mitigate traffic congestion in the Colombo Metropolitan Region and enhance connectivity with other regions of the country, thereby contributing to the strengthening of economic development among the regions in Sri Lanka. The Outer Circular Highway (OCH) is located at the Colombo Metropolitan Region and passes through two administrative districts, namely Colombo and Gampaha. The OCH Project consists of three main sections: Phase I runs from Kottawa to Kaduwela (11.0 km) (Phase I); Phase II runs from Kaduwela to Kadawatha (8.9 km); and Phase III runs from Kadawatha to Kerawalapitiya (9.32 km). Metallurgical Corporation of China Ltd (MCC) was the contractor responsible for project implementation. Construction commenced on January 1, 2016. The originally anticipated completion date was June 30, 2019. However, this project faced delays due to poor contractor performance, several houses refusing to vacate, and land acquisition problems at Kadawatha IC due to trade union activities in the survey department.. This project was ultimately completed on November 7, 2019.