[CPEC] China Eximbank provides $164.4 million buyer’s credit loan for Phase 2 (Thakot-Havelian Section) of KKH Highway Repair Project (Linked to Project ID#52525, #54424)

On February 19, 2014, China Road and Bridge Corporation (CRBC), a subsidiary of China Communication Construction Co. Ltd., and the Pakistan Ministry of Communications signed a memorandum of understanding on the Phase II Reconstruction and Expansion of the Karakoram Highway (Raikot-Islamabad). Shortly thereafter, CRBC submitted an engineering feasibility study report and preliminary design for the project to Pakistan’s National Highway Authority. Due to the high total cost of the 487-kilometer Raikot-Islamabad project, the Chinese Government and the Government of Pakistan decided to divide the project into three sections. The first section is Thakot-Havelian section. The second section is the Havelian-Islamabad section. The third section is the Thakot-Raikot section. On April 28, 2016, China Eximbank and the Government of Pakistan signed three different loan agreements for the Phase II (Thakot-Havelian Section) of the KKH Highway Repair Project. The proceeds of the buyer's credit loan (BCL), government concessional loan (GCL), and preferential buyer's credit (PBC) were to be used by the borrower to finance a PKR 133,980,000,000 commercial contract between the Government of Pakistan’s National Highway Authority and China Communications Construction Company Limited, which was signed on December 22, 2015. The buyer's credit loan (BCL) is worth $164.4 million [China Eximbank loan ID#1410202052016210417 and Government of Pakistan loan ID#BCL-CPEC-2016 and ID#2016210417]. The borrowing terms include a 5.2% interest rate but the maturity length and grace period are unknown (captured via Project ID #54423). The government concessional loan (GCL) is worth RMB 1,200,000,000 [CHINA EXIMBANK GCL NO. (2016) 6 TOTAL NO. (575) and Government of Pakistan loan ID#GCL16-6575-CPEC]. The borrowing terms include a 20 year maturity, a 5 year grace period, a 2% interest rate, a 0.2% (RMB 2.4 million) management fee, and a 0.2% commitment fee (captured via Project ID #52525). The preferential buyer's credit (PBC) is worth $966,193,365 [CHINA EXIMBANK PBC NO. (2016) 9 TOTAL NO. (397) and Government of Pakistan loan ID#PBC169397-CPEC]. The borrowing terms include: a 20 year maturity, a 5 year grace period, a 2% interest rate, a 0.2% ($1,932,386.73) management fee, and a 0.2% commitment fee (captured via Project ID #54424). This purpose of Phase 2 was to rehabilitate a 118 km road segment that runs from Thakot to Havelian on the Karakoram Highway in the Khyber Pakhtunkhwa Province. China Communications Construction Company Limited was the contractor responsible for project implementation. Its work was overseen by Pakistan’s National Highway Authority. A groundbreaking ceremony took place on April 28, 2016. Construction then began on September 1, 2016. The project was completed on November 18, 2019. There are some indications that the China Eximbank buyer’s credit loan for Phase 2 (Thakot-Havelian Section) of the KKH Highway Repair Project financially underperformed vis-a-vis the original expectations of the lender. On or around July 1, 2020, China Eximbank and the Government of Pakistan signed a debt suspension agreement. Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between July 1, 2020 and December 31, 2020 under the buyer’s credit loan agreement for Phase 2 (Thakot-Havelian Section) of the KKH Highway Repair Project. Then, on November 19, 2020, China Eximbank and the Government of Pakistan signed another debt suspension agreement [No. DSSI2021PHASE1-036]. Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between January 1, 2021 and June 30, 2021 under the buyer’s credit loan agreement for Phase 2 (Thakot-Havelian Section) of the KKH Highway Repair Project. Then, on or around July 1, 2021, China Eximbank and the Government of Pakistan signed another debt suspension agreement. Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between July 1, 2021 and December 31, 2021 under the buyer’s credit loan agreement for Phase 2 (Thakot-Havelian Section) of the KKH Highway Repair Project. The debt service suspension (rescheduling) from July 2020-December 2020 is captured via Project ID#96254. The debt service suspension (rescheduling) from January 2021-June 2021 is captured via Project ID#96251. The debt service suspension (rescheduling) from July 2021-December 2021 is captured via Project ID#96253.

Additional details

1. This project is also known as the Construction of KKH Phase II (Havelian-Thakot) Project and the Karakoram Highway (Phase II) Project (Havelian to Thakot). The Chinese project title is KKH二期项目（赫韦利扬-曼塞赫拉). 2. The China Eximbank PBC agreement can be accessed in its entirety via https://www.dropbox.com/s/ijip5clcqkgf815/China%20Eximbank%20Preferential%20Buyer%27s%20Credit%20Loan%20Agreement%20for%20KKH%20Phase%20II%20Project.pdf?dl=0. The China Eximbank GCL agreement can be accessed in its entirety via https://www.dropbox.com/s/wwc4esz7u2kiobj/China%20Eximbank%20Government%20Concessional%20Loan%20Agreement%20for%20KKH%20Phase%20II%20Project.pdf?dl=0 3. The November 2020 debt suspension agreement [No. DSSI2021PHASE1-040] can be accessed in it entirety via https://www.dropbox.com/s/xzpw6c8dp9e2lrt/13.%20Debt%20Suspension%20Agreement%20for%20BC%20Other%20Projects.pdf?dl=0. 4. The second proposed section of the highway from Havelian to Islamabad is captured via Project ID#52719. The third proposed section of the highway from Thakot to Raikot is captured in Project ID#53713.

Number of official sources

18

Number of total sources

28