China Eximbank provides $491.7 million buyer's credit loan for 100 km Ali Sabieh to Nagad Section of Addis Ababa–Djibouti Railway Project (Linked to Project ID#59420, #85163, #70083, #70085, and #70086)

On May 22, 2013, China Eximbank and Djibouti's Ministry of Finance signed a $491,793,000 (FDJ 87,146,000,000) buyer's credit loan agreement [ID# BLADJI2013001] for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project. This borrowing terms of the loan, which is captured via Project ID#46183, were as follows: an interest rate of 6-month LIBOR plus a 3% margin, a 15-year maturity, a 5-year grace period, a 0.5% management fee, and a 0.5% commitment fee. The borrower also purchased buyer’s credit insurance from China Export and Credit Insurance Corporation, which is widely known as Sinosure. The proceeds of the loan were to be used by the borrower to finance 85% of the cost of a $578,580,000 commercial (EPC) contract between the Government of Djibouti’s Ministry of Economy and Finance in Charge of Industry and Planning and China Civil Engineering Construction Corporation (CCECC), which was signed on January 30, 2012 and amended on November 7, 2012. The Government of Djibouti agreed to cover the remainder of the commercial contract cost ($58 million). According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) had achieved a 32.2% disbursement rate ($114,115,453 out of $491,793,000) as of 2014 and it ultimately achieved a 84.6% disbursement rate (FDJ 73,753,000,000 out of FDJ 87,146,000,000). The purpose of the project was to construct a 100 km segment from Ali Sabieh to Nagad of the 756 km Addis Ababa–Djibouti Railway from Addis Ababa, the capital of Ethiopia, to Doraleh port in Djibouti. CREC and CCECC were the contractors responsible for project implementation. Their EPC contract went into effect on April 12, 2012 and its originally scheduled completion date was April 12, 2017. Construction began on December 31, 2014 (when CCECC laid the first track down in Galile) and the railway was opened for use on January 1, 2018. This project face several implementation problems. In 2015, President Guelleh pushed for the project to be completed before he stood for re-election in April 2016. Substantially reducing the project’s completion time pressured CCECC to accelerate their work. To address this challenge, CCECC reportedly used its own financing for the project’s initial stages until they received loan disbursements from China Eximban. CCECC also stopped work on the project for at least 2 weeks, and the Djiboutian authorities blamed CCECC manager Ding Zhaojun for the delay, claiming that he hadn’t settled all the required purchases on the Nagad to Doraleh portion. The Djiboutian authorities also complained about CCECC’s poor mismanagement, leading to $24 million in cost overruns because CCECC had not taken electrifying the railway into account. The Djiboutian government also claimed that CCECC used poor quality infrastructure materials and failed to comply with railway regulations. China International Engineering Consulting Corporation was later upon examine the quality of CCECC’s work. On July 28, 2016, CCECC signed the Ethiopia-Djibouti Railway Operation and Management agreement with a consortium of other Chinese companies. This consortium agreed to manage the railway for 5 years and provide training to Djiboutian workers who would assume management responsibility after the end of the 5-year term. It remains to be seen if the Djibouti-Addis Ababa Railway will find a path to commercial viability. Sinosure reportedly had to step in and write off approximately $1 billion in losses due to the poor commercial performance of the railway. According to a 2021 report published by the Overseas Development Institute (ODI), ‘[t]he railway is electrified along its entire route, to save on fuel, as this would need to be imported […] The decision [to electrify the railway] has, however, presented additional challenges. Energy supply is not always stable in Ethiopia, due to the variable level of water in the country’s dams, exacerbated by climate change. The construction of power transmission lines and lack of energy delayed the start of operations, even after construction was complete […]. The line has been flooded on several occasions, halting or delaying services. The Ethiopian government claims that the standards used by the Chinese companies to build the railway did not take flooding into account. Chinese stakeholders, however, argue that their standards accounted for potential floods, but that, in the flooded sections, tracks were stolen, causing structural damage to the railroad. Interviews also revealed a number of accidents involving animals (camels in particular) being hit by trains and killed. As the [Ethiopian Railways Corporation] has paid more than the market price for camels in compensation, there are suspicions that people are pushing their camels in front of trains deliberately. The plan is to build a fence along the railway, which should reduce accidents and enable trains to travel faster, from the current 50 km/h to 80 km/h. However, this may in turn create other problems, including interrupting paths used by people and animals; it is not clear whether this has been properly assessed. Profitability is another issue. Initially, the price of a passenger ticket was set at 30 Ethiopian birr (ETB). However, this was subsequently deemed too high and reduced to ETB, meaning that the project will generate less revenue than originally planned. This would not be a problem given that the project was planned to be catalytic, i.e. it was supposed to promote further economic activity, rather than being financially viable on its own. However, the railway does not seem to be playing this catalytic role since its last mile issues (it does not connect directly to the port in Djibouti or to industrial parks in Ethiopia) do not make the train a suitable mode of transport for business purposes. Our interviews revealed that last mile links were not [prioritized] during the construction of the new line, but are now being built. The last mile sections are managed by Ethiopian Shipping, a large parastatal. Ethiopian Shipping does not seem to be fully cooperating with the [Ethiopian Railways Corporation].’ There are some indications that the China Eximbank buyer's credit loan for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project may have financially underperformed vis-a-vis the original expectations of the lender. On December 31, 2017, the Government of Djibouti formally requested a restructuring of its loan with China Eximbank for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project. According to an email correspondence between the Executive Director of AidData and an IMF Mission Chief to Djibouti, in 2019, the Djiboutian authorities conducted discussions with China Eximbank to restructure a 2013 loan for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project (captured via Project ID#46183). The Djiboutian authorities reported to the IMF that a memorandum of understanding (MOU) had been signed in 2019 to extend the grace period from 5 years to 10 years, extend maturity of the loan from 15 years to 25 years, and to reduce the interest rate from 3.409% (0.409% [2013 avg. 6-month LIBOR] + 3% [300 basis points]) to 2.509% (0.409% [2013 avg. 6-month LIBOR] + 2.1% [210 basis points]). The Djiboutian authorities also indicated that arrears on interest payments on this loan that had been accumulated during the restructuring discussion (worth 1.2 percent of the country’s GDP) had been restructured—and that they were integrated to the principal and expected to be repaid over the extended amortization period. The new terms of the loan reportedly reduced the present value of the country’s debt-to-GDP ratio by 4 percentage points and smoothed total debt service. However, the final loan restructuring agreement (captured via Project ID#85163) was not signed until September 2, 2020. It not only codified the terms and conditions that were first specified in the 2019 MOU, but also sought to improve the performance and profitability of the railway in order to increase revenue generation. The restructuring agreement was ratified into Djiboutian law in February 2021. Then, in March 2020, International Monetary Fund (IMF) reported that the stock of the Government of Djibouti's external arrears -- including arrears to China, Belgium, Spain, Iran, Italy, Saudi Arabia, and UAE -- stood at $107 million. Two months later, in May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress. Then, in March 2022, the World Bank published a report (entitled ‘Djibouti Economic Monitor Winter 2021’), which noted that ‘[o]n the debt side, liquidity tensions are likely to arise due to the payment of deferred debt service linked to the DSSI, the maturing of the two [China Eximbank] loans on the water pipeline project connecting Djibouti to Ethiopia loan in 2022, and the Addis Ababa-Djibouti railway project in 2025.’ Then, on November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payment to China Eximbank. Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022. The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022. It also acknowledged that, as part of the Debt Service Suspension Initiative (DSSI), China Eximbank agreed to suspend principal and interest payments due in 2020 and 2021 under multiple loan agreements, and that the Government of Djibouti’s debt service obligations tripled with the expiration of DSSI. Then, in 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022.

Additional details

1. In 2019, the IMF identified the combined value of the China Eximbank loans for the Addis Ababa–Djibouti railway project and the Ethiopia-Djibouti Water Pipeline project as $814 million (see https://www.imf.org/~/media/Files/Publications/CR/2019/1DJIEA2019002.ashx). In email correspondence with AidData, IMF officials subsequently identified the face value of the China Eximbank loan for the Addis Ababa–Djibouti railway project as $491,793,000 and the value of the China Eximbank loan for the water pipeline project as $322,050,000, which sums to $814 million. In an annual report published by Djibouti’s Ministry of Economy and Finance (https://www.dropbox.com/s/1tkijc0o367s9eh/rapport-annuel-dfe-2018.pdf?dl=0) in 2018, the face value of the China Eximbank loan for the Addis Ababa–Djibouti Railway Project is also recorded as $491,793,000 . 2. In the database of Chinese loan commitments that it released in July 2020, SAIS-CARI identifies the grace period of this loan as 6 years, rather than 5 years. AidData relies on the 5 year value reported by the IMF. 3. The all-in interest rate was calculated as follows: 0.409% (2013 avg. 6-month USD LIBOR) + 3% (300 basis points) = 3.409%. 4. This project is also known as the Dewanle-Negad Section of the Addis Ababa–Djibouti Railway Project. The Chinese project title is 东非亚吉铁路项目. The French project title is Chemin de Fer or Projet de construction de la nouvelle ligne du Chemin de Fer Djibouti-Ethiopie. 4. Project ID#59420 captures another China Eximbank loan to the Government of Djibouti in 2015 for the Addis Ababa–Djibouti Railway Power Supply Project (Lot 2). Three additional loans for the Addis Ababa–Djibouti Railway Project were issued by China Eximbank to the Government of Ethiopia (as captured via Project ID#70083, #70085, and #70086). 5. The original value of the January 30, 2012 commercial contract (known as the ‘Dewanle-Negad Section and Port Rail Way’ EPC contract) was $505,000,000. The November 7, 2012 revision increased the value of the commercial contract to $578,580,000.

Number of official sources

20

Number of total sources

35