China Eximbank provides $262.2 million preferential buyer's credit for Phase III of Ethiopia-Hunan Industrial Park Project

Project narrative

On May 19, 2017, China Eximbank and the Government of Ethiopia's Ministry of Finance and Economic Development (MOFED) signed a $262,259,027.38 (ETB 6,034,721,687) preferential buyer credit (PBC) agreement [CHINA EXIMBANK PBC. No. (2017) 16 TOTAL No.(442)] for Phase III of the Ethiopia-Hunan Industrial Park Project. On July 5, 2017, the Ethiopian House of Representatives ratified the PBC under Proclamation No.1045/2017. The proclamation went into effect on August 3, 2017. The borrowing terms of the PBC (loan) include a 20.187-year maturity, an 6.68-year grace period, and a 2% interest rate. The loan's first and last scheduled principal payment dates were January 21, 2024 and July 21, 2037, respectively. Its first and last scheduled interest payment dates were July 21, 2019 and July 21, 2037, respectively. MOFED on-lent the proceeds of the loan to Ethiopia's Ministry of Trade and Industry. The borrower was expected to use the proceeds of the loan to finance approximately 85% of the cost of a $300 million commercial (EPC) contract with China Geo-engineering Construction Overseas Company Group (CGCOC). The purpose of the project was to construct a 122 hectare industrial park — in the Addis Ababa-Djibouti Port Industrial Economic Corridor — that will house at least 18 Chinese enterprises that produce heavy machinery and power equipment. More specifically, it involved the construction of access roads and utilities, factories, office spaces, and related infrastructure. The Adama (Ethiopia-Hunan) Machinery and Industrial Park is located on 300 hectares of land near the city of Adama and is about 100 kilometres to the south-east of the capital Addis Ababa. It is 2 km from the Ethiopia-Djibouti Railway Adama Station, and 300 meters from the Addis-Adama Expressway Exit. CGCOC was the general EPC contractor responsible for project implementation. However, China Civil Engineering Construction Corporation (CCECC) was also involved (most likely as a subcontractor). Project implementation commenced on November 9, 2017 and the project reached completion on October 7, 2018. Ethiopia-Hunan (Adama) Industrial Park Operation and Management Company is now responsible for investment promotion and the operation and management of the park. According to the CGCOC, Hunan companies including Sany Heavy Industry Company, TBEA Hengyang Transformer Company, and Foton Automobile are planning to establish factories in the industrial park. There are some indications that the China Eximbank loan for Phase III of the Ethiopia-Hunan Industrial Park 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.