China Eximbank provides $989.4 million preferential buyer’s credit for Kadawatha to Meerigama Section of Central Expressway Project

On March 22, 2019, China Eximbank and the Government of Sri Lanka signed a $989,449,000 preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK PBC NO: (2018) 17 TOTAL NO.(474)] for the Kadawatha to Meerigama Section of Central Expressway Project. The agreement was signed between the Ambassador of China to Sri Lanka Cheng Xueyuan, on behalf of China Eximbank, and Dr. R.H.S Samarathunga, Secretary to the Treasury, on behalf of the Sri Lankan government. The PBC carried the following borrowing terms: a 20 year maturity, a 6 year grace period, a 2.5% interest rate, a 0.25% commitment fee, and an 0.25% ($2.5 million) management fee. The borrower is expected to use the PBC proceeds to finance 85% of the cost of a $1.164 billion commercial contract between the Government of Sri Lanka and Metallurgical Corporation of China, which it signed on August 14, 2015. China Eximbank disbursed $20,740,899.69 on February 24, 2022 and $30,828,753.09 on March 29, 2022. The loan had achieved a 6.6% disbursement rate ($65,419,324.37 out of $989,449,000) as of December 31, 2021. The borrower made no repayments between 2019 and 2022. The loan's amount outstanding was $51,569,653 as of June 30, 2022 and $65,419,324.37 as of September 27, 2022. The purpose of this project is to construct a 36.54 km segment of the four-lane Central Expressway that runs from Kadwatha to Merrigama (Mirigama). This section is 24.4 meters in width and it commences at the interchange with Outer Circular Highway (OCH). It then passes over mainly paddy and uncultivated lands. After Gampaha, it runs mostly parallel to the existing railway line. Metallurgical Corporation of China is the EPC contractor responsible for implementation. A foundation laying ceremony took place on July 26, 2017. However, the project faced major implementation delays due to the Easter bombings on April 21, 2019, the Covid-19 pandemic in 2020, and a controversy that resulted from allegations of overpricing. Construction did not commence until September 14, 2020. The project is expected to reach completion within 4 years (September 14, 2024). On May 26, 2021, a stone crushing facility was put into operation to support the project, which will reportedly require 950,000 tons of concrete gravel and 530,000 tons of concrete sand. Ultimately, the completion of this project is expected to directly or indirectly generate 1500 jobs in Sri Lanka. However, it has also encountered debt repayment problems. 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 Eximbank loans with amounts outstanding at the time of the announcement.

Additional details

1. This project is also known as Phase 1 and Section 1 of the Central Expressway Project and Central Expressway Project (Section 1 from Kadawatha to Mirigama). The Chinese project title is 斯里兰卡中部高速项目 or 斯里兰卡中部高速公路（CEP）项目 or 斯里兰卡中部高速公路一标段（CEP-1）项目. 2. Section II of the Central Expressway Project linking Mirigama to Kurunegala reportedly progressed faster and was opened on January 15, 2022. This section of road was constructed by local contractors with local funds. 3. On April 21, 2019, Easter Sunday, three churches in Sri Lanka and three luxury hotels in the commercial capital, Colombo, were targeted in a series of coordinated Islamist terrorist suicide bombings. Later that day, there were smaller explosions at a housing complex in Dematagoda and a guest house in Dehiwala. 4. The Government of Sri Lanka loan key number is 2019015.

Number of official sources

44

Number of total sources

64