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

Project narrative

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 loan (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 was 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 (known as 'Section 1') 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 (MCC) 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 was originally expected to reach completion within 4 years (September 14, 2024) and directly or indirectly generate 1500 jobs in Sri Lanka. However, it faced major implementation delays. On May 26, 2021, a stone crushing facility was put into operation to support the project. It reportedly required 950,000 tons of concrete gravel and 530,000 tons of concrete sand. Then, in May 2024, a 35-meter concrete beam collapsed on the Central Expressway between Kadawatha and Meerigama (Mirigama), specifically in the Kadaoluwawa area in Bemmulla. The incident occurred within a 17 km section of the Central Expressway. A probe was ordered to investigate why the beam collapsed and the Sri Lankan authorities determined that two additional beams were in a dangerous condition. As of October 2024, the project had only achieved a 36% completion rate. In January 2025, the Lanka Infrastructure Development Consortium (LIDC)—comprising Access Engineering PLC, Maga Engineering (Pvt) Ltd, International Construction Consortium (Pvt) Ltd (ICC), KDA Weerasinghe & Co. (KDAW), and NEM Construction—urged President Anura Kumara Dissanayake to cancel the $1.164 billion commercial contract between the Government of Sri Lanka and Metallurgical Corporation of China, which was signed on August 14, 2015. They argued that the contract was too expensive, and that local construction firms could complete the project cheaper and faster. They pointed out that, under the August 14, 2015 commercial contract, the per-kilometer price of Section 1 of the Central Expressway Project was around $33 million. However, Section 2 of Central Expressway Project was built by local construction companies for around $18 million per km. LIDC’s letter to President Anura Kumara Dissanayake came after the Sri Lankan Cabinet approved in December 2024 the provision of nearly Rs. 7.5 billion in government funding to MCC for the completion 'critical remaining works' of Section 1 after years of delayed, and then suspended, construction activity (owing to non-disbursement of the China Eximbank loan). There is also some evidence the China Eximbank loan for the Kadawatha to Meerigama Section of Central Expressway Project financially underperformed vis-a-vis the original expectations of the lender. 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 affected all China Eximbank loans with amounts outstanding at the time of the announcement. China Eximbank did not make any additional disbursements under the PBC agreement for the Kadawatha to Meerigama Section of Central Expressway Project after April 2022.