China Eximbank provides $385.8 million preferential buyer's credit for Kribi-Lolabe Highway Construction Project

Project narrative

On May 16, 2014, China Eximbank signed a $385,808,808.60 in preferential buyer credit (PBC) agreement [CHINA EXIMBANK PBC NO. (2014) 6 TOTAL NO. (300)] with Cameroon's Ministry of Economy, Planning, and Regional Development (MINEPAT) for the Kribi-Lolabe Highway Construction Project. The borrowing terms of the loan were as follows: a 2% interest rate, a 0% default (penalty) interest rate, a commitment fee of 0.25%, a management fee of 0.25%, a grace period of 5 years, and a maturity of 20 years. The proceeds of the PBC were to be used by the borrower to finance 85% of the total cost ($453,892,716.00) of a commercial (EPC) contract between the Steering and Monitoring Committee of the Kribi Industrial and Port Complex of Cameroon and China Harbour Engineering Company Ltd., which was signed on November 28, 2012. The remaining 15% ($68,083,907.40) was to be provided by the Government of Cameroon's MINEPAT. However, after MINEPAT failed to meet its counterpart funding commitment, CHEC provided a loan (‘pre-financing’) worth approximately $68,083,907.40 to the Government of Cameroon to finance the remaining 15% of the cost of the $453,892,716.00 commercial contract. The borrowing terms of the CHEC loan are unknown. The borrower agreed to deposit project-related revenues in a special account to facilitate repayment. Under the terms of a Repayment Mechanism Agreement, the borrower was expected to deposit all project (toll) revenues in a CFA franc special (control) account and maintain a minimum cash balance in a separate escrow account (compte séquestre) equivalent to two, semi-annual debt service (principal, interest, and fee) payments. The cash balance of the control account was CFA 705,803,000 as of May 31, 2023. As of December 31, 2020, the China Eximbank loan (PBC) had achieved a 80.6% disbursement rate (with an undisbursed balance of CFA 40.1 billion). The loan’s outstanding amount was equivalent to CFA 163.5 billion as of December 31, 2020. The purpose of this 38.5 km (+4.5km) highway construction project was to facilitate access to the Kribi deep-sea port. It involved construction of a 38.5 km 2x2-lane highway -- with a maximum design speed of 110 kilometers per hour -- starting from Mboro village and running to Bibolo in the Kribi II district. It also included (a) the construction of 4.5 km of road that connects Kribi-Lolabe highway to the Edéa-Kribi highway (or Nationale 7 Edéa-Kribi), and (b) the construction of two interchanges, three separated interchanges, one toll station at the main road, and one ramp toll station. The highway (expressway) was designed and constructed according to Chinese standards. China Harbour Engineering Company Ltd. (CHEC) was the contractor responsible for implementation. Construction commenced on January 1, 2015. However, it was temporarily halted on November 26, 2018 due to (a) the failure to appoint a highway operator, (b) the failure to sign an escrow account agreement, and (c) and accumulated payment arrears worth CFA 75.5 billion. As of March 2019, the project had achieved an 88% completion rate. Then, during last few months of 2019, construction was again temporarily halted before resuming in January 2020. CHEC and the Cameroon Ministry of Public Works stated that the project had achieved an 88.14% completion as of January 2020. Then, on December 30, 2020, Cameroon’s Minister of Public Works and Minister of Finance signed a public-private partnership (PPP) contract with CHEC to finance the Cameroonian Government’s 15% of the project cost, tacitly acknowledging that the Cameroonian Government could not honor its commitment to finance 15% of the commercial contract cost due to a series of crises. The timeline for completion of the project was subsequently revised to August 2021. As of November 3, 2021, the project had achieved a 98.19% completion rate. The project achieved provisional acceptance (completion) on December 31, 2021. The highway was opened to traffic in July 2022. There are some indications that the China Eximbank loan for the Kribi-Lolabe Highway Construction Project may have financially underperformed vis-a-vis the original expectations of the lender. In January 2019, Cameroon unilaterally withheld debt service payments to China Eximbank. The lender responded by withholding new loan disbursements. Then, in July 2019, China Eximbank and the Government of Cameroon signed a debt rescheduling agreement (as captured via Record ID#88213). Under the terms of the agreement, China Eximbank agreed to reschedule 18 loans previously contracted by the Government of Cameroon — with scheduled principal repayments between July 2019 and March 2022 — by allowing the borrower to defer scheduled principal repayments between July 2019 and March 2022 to later dates but without any maturity extensions. The total amount of restructured debt was equivalent CFA 148 billion ($253 million) — or 70% of the loan principal that was scheduled for repayment between July 2019 and March 2022. Under the terms of the agreement, the Government of Cameroon agreed to repay 30% of the loan principal according to the original July 2019-March 2022 schedule (i.e. without any payment deferrals). The lender and the borrower also agreed to cancel the committed but undisbursed loan balances worth approximately CFA 10 billion (for certain loans with disbursement deadlines that had already passed). Then, in January 2020, the International Monetary Fund (IMF) classified the Government Cameroon as facing a high risk of debt distress. Eighteen months later, during an address before Cameroon’s National Assembly on June 28, 2021, the Minister of Water and Energy (MINEE) Gaston Eloundou Esommba provided an update on the ICBC-financed Bini à Warak Hydroelectric Power Plant Project. He noted that the project had been 'on hold' since November 2019 because ICBC suspended the loan agreement, even though the Government of Cameroon had already mobilized XAF 22 billion of counterpart funding. He also explained that 'the reason for this suspension is that Cameroon did not settle some of its debts towards China on time, so, it is in a cross-default situation.’ However, in its 2023 annual report, La Caisse Autonome d'Amortissement du Cameroun (CAA) noted that the borrower had complied with the minimum account balance requirement under its Repayment Mechanism Agreement for the Kribi-Lolabe Highway Construction Project with China Eximbank.