China Development Bank provides $102.54 million loan for Thambuttegama Water Supply Project

Project narrative

In September 2014, China Development Bank (CDB) agreed in principle to provide a $400 million loan to Sri Lanka’s National Water Supply and Drainage Board for the implementation of the following water supply projects: Katana Water Supply Project; Thambuttegama Water Supply Project; and Kandy North Water Supply Project. A proposal made by Dinesh Gunawardena, Minister of Water Supply and Drainage, to proceed with the relevant activities pertaining to the loan arrangements, was approved by Sri Lanka’s Cabinet in September 2014. Then, on August 21, 2017, China Development Bank and Sri Lanka’s National Water Supply & Drainage Board signed a $102.54 million loan agreement [ID#4510201701100001265] for the Thambuttegama Water Supply Project (WSP). This loan carried the following borrowing terms: a 15.5-year maturity (final maturity date: March 6, 2033) and an all-in interest rate of approximately 2.954%. The Government of Sri Lanka issued a sovereign guarantee in support of the loan on October 4, 2017. The borrower was to use the proceeds of the China Development Bank loan to partially finance a $120.5 million commercial contract between Sri Lanka’s National Water Supply and Drainage Board and China National Aero-Technology Import & Export Corporation (AVIC), which was signed in July 2015. The remaining $18 million was to be provided by the Bank of Ceylon, a state-owned commercial bank in Sri Lanka. The principal amount outstanding under the $102.54 million loan was $35.64 million as of December 22, 2022. The purpose of the project is to provide safe drinking water via pipes to all 45 Grama Niladdhari divisions in Katana Divisional Secretariat covering 50% of the population in the area (similar to the CDB-financed Katana Water Supply Project captured via Record ID#53566). It involves the construction of a water intake structure with a capacity of 42,000 m3/day, a water treatment plant of 18,000m3/day, a ground reservoir of 1,500 m3 capacity, raw water and treated water transmission mains totaling up to an approximate length of 50 km, elevated towers of 1,500 m3 capacity, a distribution network of 135 km, and facilities to operate and maintain the water supply scheme. CATIC China Geo Eng JV — a joint venture of China Geo-Engineering Corporation (CGC) and China National Aero-Technology Import & Export Corporation (AVIC) — is the EPC contractor responsible for implementation. The project commenced in July 2018. As of September 30, 2018, it had achieved a ‘physical progress’ rate of 4%. As of early 2021, it had achieved a ‘physical progress’ rate of 61.2%. As of June 30, 2022, it had achieved a ‘physical progress’ rate of 85.23%. The project was originally expected to reach completion in June 2022. However, it encountered problems and delays during implementation. In March 2022, By early 2022, it was clear that the loan was non-performing and China Development Bank suspended loan disbursements. On April 12, 2022, the Government of Sri Lanka announced a ‘pre-emptive’ sovereign debt default, noting that it would suspend debt repayments to all external creditors other than multilateral institutions. Its decision to suspend external debt service reportedly affected all China Development Bank loans with amounts outstanding at the time of the announcement. As of March 2023, the Government of Sri Lanka had accumulated $338 million in arrears to China Development Bank.