Narrative
Full Description
Project narrative
In 2015, during Zambian President Edgar Lungu's state visit to China, the Chinese Government and the Government of Zambia signed a memorandum of understanding (MOU) on a Solar-Powered Milling Plant Project. Then, on July 22, 2016, China Development Bank (CDB) and the Government of Zambia’s Ministry of Finance signed a $170 million loan agreement for the Solar-Powered Milling Plants Project. The loan reportedly carries a 12-year maturity and an interest rate of LIBOR plus 350 basis points. It is backed by a Sinsoure credit insurance policy. In order to facilitate loan repayment, Zambia Cooperative Federation (ZCF) created a special account into which various agricultural cooperatives (participating in the project and benefiting from the solar-powered milling plants) were required to deposit 1,700 kwachas (about $100) per month for a period of 15 years. At the end of the 15-year period, the solar-powered milling plants will become the property of the various agricultural cooperatives. The borrower is expected to use the proceeds of the loan to finance 85% of the cost of $200 million commercial contract between ZCF and Shandong Dejian Group (also known as Shandong Dejian Group Co., Ltd.). The Government of Zambia is responsible for providing the remaining $30 million in counterpart financing. As of December 4, 2018, the CDB loan had achieved an 88.2% disbursement rate ($150 million out of $170 million) and the Government of Zambia had released $20 million in support of the project. The project involved the construction of 1,000-2,000 milling plants — using solar-powered equipment (40 x 12 V/200AM batteries) purchased from China — in remote areas without electricity in eight Zambian provinces (Lusaka, Muchinga, Central Province, Luapula, Copperbelt, North Western, Western and Southern Provinces). The project was also expected to create 4,749 long-term stable jobs. Shandong Dejian Group was the contractor responsible for project implementation and its work was being overseen by Zambia Cooperative Federation (ZCF), which served as the project owner. Construction began on March 7, 2016 and was originally scheduled to reach completion within 24 months (March 6, 2018). However, a formal groundbreaking ceremony did not place until April 17, 2019. The project remained incomplete as of March 31, 2022. Project implementation delays resulted from the failure of the Government of Zambia to meet its $30 million counterpart contribution (advance payment) requirement in a timely manner, mobility restrictions related to the COVID-19 pandemic, temporary work suspensions by contractors due to fears of physical insecurity, and a failure by ZCF to obtain a 'no objection' notification from Zambia Public Procurement Agency (ZPPA) and Zambia Environmental Management Agency (ZEMA) as some procurement requirements were not met. By December 2016, 250 milling plants had been constructed. By December 2018, 1,300 milling plants had been constructed. Ultimately, it was expected that 2,000 milling plants would be constructed. These milling plants were expected to create about 3,000 jobs and help stabilize the price of mealie-meal, from which the Zambians prepare their staple food, nshima. In January 2019, Xinhua reported that 1,830 solar-powered milling plants out of the planned 2,000 had been constructed. However, in October 2020, ZCF project director Derek Sokoni reported that 1,571 milling plants were up and running (in 79 regions across 10 provinces). Then, in December 2022, Zambia's Auditor General revealed that only 1,571 milling plants had been constructed. Official Chinese sources characterize the project as a major success, arguing that it 'brought an end to the current state of producing cornmeal by manual labor and guaranteed local food supply' and 'its success […] led to a drop of 1/3 in the price of food.' They also note that the project’s solar power technologies have resulted in 'annual average reduction of 27,633 tons of carbon dioxide.' However Zambian media have reported that many of the plants were ‘white elephants’ and provided poor value-for-money. In December 2021, a Zambian media outlet reported that half of the 307 Zambia Cooperative Federation (ZCF) solar-powered milling plants in Eastern Province had stopped working, several were abandoned by cooperatives, and 30% had solar panels stolen. Then, at the time of a January 2024 audit by Zambia's Office of the Auditor General, 555 of the project's solar-powered milling plants were not functional. The project reportedly reached completion, but its precise completion date is unknown.
Staff comments
1. This project is also known as the Zambia Solar Milling Plants Project and the Zambia Cooperative Federation Milling Plant Project. The Chinese project title is 赞比亚阳光磨坊项目 or 赞比亚太阳能磨坊厂项目 or 施的赞比亚2000套太阳能磨坊项目 or 赞比亚1683座太阳能磨坊项目. 2. AidData estimated the all-in interest rate (4.499%) by adding 3.5% to average 6-month LIBOR in July 2016 (0.999%). 3. In June 2017, the Chinese Government provided a separate RMB 250 million grant for the Three Maize Flour Milling Plants Construction Project (captured via Record ID#87538). 4. One official source (https://www.cnsddj.com/news/132.html) suggests that this project was financed on an EPC+F basis. This issue warrants further investigation. 5. It is unclear what the grace period of the loan was. According to the World Bank's Debtor Reporting System (DRS), the weighted average grace period of all official sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 4.3254 years in 2016. https://www.dropbox.com/scl/fi/uyz6w7q31x2o8i6rna7ug/DRS-May-2024-Extraction-Official-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=n0a6270w91pdmmfyaoqva419r&dl=0. However, based on the observed data, it is highly likely that there was a repayment in October 2020. 6. Section 28 of Zambia's Public Finance Management Act No. 2 of 2018 provides that General Revenues collected by appointed agents on behalf of Government should be transmitted to the Consolidated Fund as prescribed by the Treasury and that subject to any express direction of the Secretary to the Treasury in respect of the operation of any Fund or working account, all monies received by an accounting officer or any office holder responsible for the collection of money should be deposited into the Consolidated Fund not later than the next business day following the day of receipt, unless otherwise directed by the Secretary to the Treasury. During the period between January 2017 and January 2024, the Zambia Co-operative Federation Limited collected amounts totalling K15,468,184 as lease fees from co-operatives operating the Solar Powered Milling Plants across the country. Contrary to the Act, as of January 31, 2024, the collected amount had not been deposited in the Consolidated Fund. See https://www.ago.gov.zm/?wpfb_dl=300 7. One of five 'candidate' CDB loans was rescheduled through the October 27, 2020. By the timing of the October 2020 rescheduling, CDB had issued five loans to the Government of Zambia (that had exited or likely exited their grace periods). (1) A $30 million CDB loan in 2015 to Development Bank of Zambia (DBZ) for on-lending to SMEs (captured via Record ID#52190) (2) A $178.5 million CDB loan for the Safe City Project (captured via Record ID#57033) (3) A $175.92 million CDB loan in 2013 for Upgrading of Mansa-Luwingu Road Project (captured via Record ID#30719) (4) A $29.5 million CDB supplementary loan in 2016 for Upgrading of Mansa-Luwingu Road Project (captured via Record ID#53044) (5) A $170 million CDB loan in 2016 for the Solar-Powered Milling Plants Project (as captured via Record ID#52463) Record ID#52190 seems like a very unlikely candidate because it is known that DBZ was actively paying down the loan’s principal amount outstanding in 2021 and 2022. That leaves 4 candidate loans for 3 candidate projects. The one loan for the Safe City Project and the two loans for the Upgrading of Mansa-Luwingu Road Project are ‘credible candidates’. However, none of these loans are known to be supported by a Sinosure credit insurance policy, and the Zambian MOF has disclosed that the CDB loan that was rescheduled in October 2020 was supported by a Sinosure credit insurance policy. The CDB loan for the Solar-Powered Milling Plants Project is known to be supported by a Sinosure credit insurance policy, so it might be the most likely candidate (by ‘process of elimination’). As a result, the debt treatment is only applied to this loan. This issue warrants further investigation.