China Eximbank provides $218 million preferential buyer's credit for Phase II of Aysha Wind Power Project (Linked to Record ID#30911)

Project narrative

On May 12, 2017, China Eximbank and the Government of Ethiopia signed a preferential buyer's credit (PBC) loan agreement [CHINA EXIMBANK PBC. No (2017) 8 TOTAL No. (434)] worth $218,692,386 for Phase 2 of the Aysha Wind Power Project. On July 5, 2017, the Ethiopian House of Representatives ratified the PBC agreement under Proclamation No.1044/2017. The proclamation went into effect on August 3, 2017. The borrowing terms of the PBC (loan) included a 20.207-year maturity, an 7.703-year grace period, and a 2% interest rate. The loan's first and last scheduled principal payment dates were January 21, 2025 and July 21, 2037, respectively. Its first and last scheduled interest payment dates were July 21, 2018 and July 21, 2037, respectively. The loan was on-lent to Ethiopian Electric Power Corporation (EEPCO) and the borrower was expected to use the proceeds of the loan to finance approximately 85% of the total cost of a $257,285,160 commercial (EPC) contract between EEPCO and Dongfang Electric Corporation, which was signed on January 15, 2016. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $218,692,386 (ETB 3,216,027,397) PBC achieved a 34% disbursement rate as of October 28, 2019, with China Eximbank making 3 loan disbursements (worth $59,759.07180 or ETB 1,727,628,763) between 2018 and 2019: a $12,882,512.77 (ETB 355,185,058) disbursement on June 29, 2018, a $12,244,641.29 (ETB 355,832,746) disbursement on August 9, 2019, and a $34,631,917.74 (ETB 1,016,610,959) disbursement on October 25, 2019. The purpose of the project was to install 80 wind turbines with a single unit capacity of 1.5 megawatts with a total installed capacity of 120 megawatts. The project also involved the construction of access roads for operation and maintenance (O&M), the construction of one 230kV step-up substation connected to the 230kV national grid, and provision of training to the O&M team. The EPC contract with Dongfang Electric Corporation also specified a 5-year Defect Liability Period. Once operational, the wind farm was originally expected to have an annual power output of 467 gigawatt-hours and provide power to the Addis Ababa-Djibouti railway and the Dire Dawa Industrial Park. It was also expected to ensure stable and sufficient power for the Addis Ababa-Djibouti Economic Corridor. Additionally, it was envisaged that part of the electricity that generated by Aysha wind farm would be exported to Djibouti to generate foreign exchange for Ethiopia. The project site is located in the Shenelle Zone of the Ethiopian Somali State some 465 km north-east of Addis Ababa. Dongfang Electric Corporation is the EPC contractor responsible for project implementation. The implementation of the project commenced on February 25, 2017 and it was originally expected to reach completion within 18 months (August 25, 2018). However, a formal groundbreaking ceremony did not take place until May 2018 and the project has encountered various delays and implementation problems. First, EEPCO was unable to pay an advance payment to Dongfang Electric Corporation (per the contractual schedule) due to ‘financial constraints’. Second, wind turbine installation has proven challenging due to high and variable wind speeds, which have made it difficult to lift heavy load; the nacelle, tower and generator had to be hoisted into place when the wind speed was less than 10m/s. Third, due to high temperature, most of the concrete pouring of the WTG foundation had to be done at night. Fourth, land compensation and right of way issues led to implementation problems. When Dongfang Electric Corporation started site works after receiving right of way from EEPCO, some people started to build dwelling near the project site and Dongfang Electric Corporation was forced to stop site work. Fifth, there was a delay of cement supply from a local factory due to projects’ priority by government. Sixth, construction was interrupted due to the COVID-19 pandemic. In late March 2020, Dongfang Electric Corporation was delivering equipment — including a wind turbine, a generator and a tower — from Djibouti Port to the project site in Ethiopia. But at that time Ethiopia had just shut down its border to minimize the spread of the coronavirus, which left four Chinese technicians stranded in Ethiopia. Dongfang Electric Corporation then sent technicians from its headquarters in China to enable the work required to transport the equipment. That action reportedly prevented the construction work from grinding to a halt. On July 12, 2021, Dongfang Electric Corporation (DEC) held an online open house event at the Aysha Wind Farm Project. Then, on October 27, 2021, the first wind turbine was successfully connected to the grid for power generation. By August 2021, the project had reportedly achieved a 75% completion rate and generated more than 300 local jobs. The project's scheduled completion date was eventually pushed back until 2022. Phase II of Aysha Wind Power Project (also known as 'Aysha Wind Farm II') was ultimately connected to the national grid in September 2022 with 16 of the 32 installed wind turbines generating 32 GWh from September to December 2022. During the peak period of construction, 540 local employees were hired, accounting for 86% of all project employees. There are some indications that the China Eximbank loan for Phase II of the Aysha Wind Power Project may have financially underperformed vis-a-vis the original expectations of the lender. According to the Government of Ethiopia’s Aid Management Platform, as of September 2019, ICBC suspended about $67 million worth of loan disbursements 'due to [the] cross-default situation of the country’ (see Record ID#58616). Then, in August 2021, China Eximbank withheld $339 million loan disbursements for 12 projects and halted project implementation due to Government of Ethiopia’s rapidly dwindling foreign exchange reserves and debt sustainability challenges. Demisu Lemma, the Director of Chinese Cooperation at the Ethiopian Ministry of Finance, noted at the time that the Ethiopian Government was in discussions with China Eximbank about a potential debt rescheduling (that would involved a 5-year maturity extension and a 1-year grace period extension). Then, after considerable delay, the G20 Common Framework (CF) creditor committee for Ethiopia convened in September 2021, with the French Government and the Chinese Government serving as co-chairs. The CF debt rescheduling talks were still ongoing in mid-2023.