China Eximbank provides $98.4 million preferential buyer’s credit for Suriname National Broadband Network Project (Linked to Project ID#70442)

On December 30, 2016, China Eximbank and the Government of the Republic of Suriname signed a $98,467,581.61 preferential buyer’s credit (PBC) agreement [CHINA EXIMBANK PBC NO. (2016) TOTAL NO. (423)] for the Suriname National Broadband Network Project. The PBC (loan) was approved by Parliament in December 2016 and it was amended and supplemented by an Amendment Agreement that was signed by the lender and borrower on July 3, 2017. The loan officially went into effect in November 2017 after several preconditions ('conditions precedent') were met by the borrower, including but not limited to the signing of a repayment mechanism (escrow account) agreement and the submission of a drawdown schedule approved by the lender. The loan carries the following borrowing terms: a 15 year maturity, a 5 year grace period, a 3% interest rate, a 0% default (penalty) interest rate, a 0.4% ($393,870.33) management fee, and a 0.4% commitment fee. The loan is scheduled for 21, equal, semi-annual repayments of $6,165,946.18 ($4,688,932.46 in principal and $1,477,013.72 in interest) on February 21 and August 21 of each year after the expiration of the grace period. The Government of Suriname on-lent the proceeds of the loan to Telecommunicatiebefrijf Suriname (Telesur) -- Suriname’s state-owned telecommunications company -- on May 12, 2017. The borrower was expected to use the proceeds of the PBC to finance approximately 85% of the cost of a $115,844,213.66 commercial (equipment supply and implementation service) contract between Telesur and Huawei Technologies Co., Ltd., which was signed on June 15, 2016. Under the terms of a 2017 repayment mechanism (escrow account) agreement, the lender required that the borrower establish two escrow accounts: an SRD-denominated revenue account with a local Surinamese bank (FinaBank N.V) and a USD-denominated repayment reserve account with China Eximbank. Telesur was required to deposit at least 50% of its revenues, incomes, and funds (including broadband user revenues from the National Broadband Network Project) in the SRD-denominated revenue account. Telesur was also required to maintain a minimum cash balance in the repayment reserve account of $2,954,027.44 during the loan’s grace period (equivalent to total payable interest for one year or two semi-annual interest payments) and $9,377,864.92 during the loan’s repayment period (equivalent to total payable principal for one year or two semi-annual principal payments). The lender made the first loan disbursement (worth $4,877,322.70) on December 1, 2017, the second loan disbursement (worth $11,447,025.58) between December 1, 2018 and June 1, 2018, the third loan disbursement (worth $3,818,454.80) on June 1, 2018, the fourth loan disbursement (worth $6,840,268.83) on December 7, 2018, the fifth loan disbursement (worth $23,340,009.72) on December 7, 2018, the sixth loan disbursement (worth $2,890,986.27) on March 1, 2019, the seventh loan disbursement (worth $12,123,458.55) on March 1, 2019, the eight loan disbursement (worth $12,972,783.30) on May 21, 2019, the ninth loan disbursement (worth $2,468,279.95) on May 21, 2019, the tenth loan disbursement (worth $9,202,364.93) on August 27, 2019, the eleventh loan disbursement (worth $299,774.30) on December 13, 2019, the twelfth loan disbursement (worth $3,885,036.62) on December 13, 2019, and the thirteenth loan disbursement (worth $4,298,892.76) on March 19, 2020. All loan disbursements were directly deposited in a bank account (No. 202000001000000167014) controlled by Huawei Technologies Co. Ltd. As of July 21, 2020, the loan had achieved a 95.6% disbursement rate ($94,165,765.55 out of $98,467,581.61). The borrower made interest payments, principal payments, commitment fee payments, management fee payments in 2018, 2019, 2020, 2021, 2022, and 2023. On February 21, 2018, the borrower made an interest payment worth $4,623.76 and a commitment fee payment worth $56,812.97. It made an interest payment worth $255,771.72, a commitment fee payment worth $163,926.35, and a management fee payment worth $3,333.33 on August 21, 2018. It made an interest payment worth $390,477.10, a commitment fee payment worth $149,247.88, and a management fee payment worth $3,333.33 on February 21, 2019. It made an interest payment worth $956,817.01, a commitment fee payment worth $70,453.65, and a management fee payment worth $3,333.33 on August 21, 2019. It made an interest payment worth $1,349,640.03, a commitment fee payment worth $21,359.50, and a management fee payment worth $3,333.33 on February 21, 2020. It made an interest payment worth $1,428,180.78 (based on the loan's disbursed balance of $94,165,165.55), a commitment fee payment worth $8,699.23 (based on the loan's undisbursed balance of $4,301,816.06), and a management fee payment worth $3,333.33 on August 21, 2020. It made an interest payment worth $1,443,875.07 and a commitment fee payment worth $4,636.40 on February 21, 2021. It made an interest payment worth an unknown amount and a commitment fee payment worth an unknown amount on August 21, 2021. It made an interest payment worth an unknown amount and a commitment fee payment worth an unknown amount on February 21, 2022. It made an interest payment worth an unknown amount and a commitment fee payment worth an unknown amount on August 21, 2022. Then, on February 21, 2023, the borrower made its first (semi-annual) principal payment worth approximately $4,688,932 and an interest payment worth approximately $1,477,013. The purpose of the project was to utilize fiber optic cables to expand electronic services across Suriname. The project was divided into two phases. Phase 1 of the project (also known as the 'fiber-to-the-curb' phase) commenced in June 2017 and ended in October 2018. Phase 2 (also known as the 'fiber-to-the-home' phase) commenced in 2019. Phase 1 involved the replacement of old copper infrastructure with fiber optic cable and the placement of 253 additional multi-service access nodes in the broadband network and 35,000 households were successfully transferred to the higher bandwidth broadband network. While 85% of the $115,844,214 commercial contract was earmarked for phase 1 and phase 2, the remaining funds (approximately $17 million) from Telesur were earmarked for a Safe City project component, which involved the installation of 300 CCTV surveillance cameras on behalf of the Government of Suriname in the city of Paramaribo. Huawei Technologies was the contractor responsible for project implementation. Its work was overseen by Telesur. Multi Electric Systems was also involved as a subcontractor. Project implementation commenced on June 9, 2017. Then, on December 28, 2018, the Safe City project component was officially launched. Telesur also installed the first CCTV camera’s in Paramaribo in partnership with Huawei Technologies Co., Ltd (who manufactured every camera) in August 2018. By February 2019, around 300 CCTV cameras had been installed in Paramaribo, and there were plans to expand the Safe City project component to Wanica, Albina and Nickerie. On December 20, 2019, the National Broadband Network Project officially reached completion. Multiple regions reported increased bandwidth after the implementation of the project. However, the National Broadband Network Project has financially underperformed vis-a-vis its original objectives and the expectations of the lender. The Government of Suriname defaulted on its sovereign debt obligations three times during the COVID-19 pandemic. In December 2021, the International Monetary Fund (IMF) announced that ‘Suriname owes arrears to China and India, which have provided assurances, although less specific than those provided by the Paris Club creditors, that they intend to work with Suriname towards a debt restructuring that will restore sustainability. China has consented to [IMF] financing notwithstanding these arrears. [...] An update will be circulated to the [IMF] Executive Board not later than one week prior to the scheduled Board consideration. On the basis of the Surinamese authorities’ commitment noted above, [IMF] staff expect that debt to China and India will be treated on comparable terms with other bilateral creditors. The arrears constitute a form of financing contribution to the program. China and India have acknowledged that Suriname will continue to run arrears on their official debt until a debt treatment can be agreed.’ The IMF also disclosed in December 2021 that ‘[t]he stock of external arrears is estimated to be at 11 percent of GDP by end-2021, including arrears of USD 61 million to China.’ Then, in February 2022, China Eximbank withdrew $1,477,013.72 (the monetary value of one semi-annual interest payment) from the repayment reserve account -- that was set up as a credit enhancement (and quasi-collateral arrangement) for the loan supporting the National Broadband Network Project -- in order to cover the cost of a missed interest payment by the borrower. At the time of the withdrawal, the standing cash balance of the repayment reserve account was approximately $2,954,027.44. China Eximbank also 'locked' ('froze') the SRD-denominated revenue account at a local Surinamese bank (FinaBank N.V) and replenished the repayment reserve account with funds that were deposited in the revenue account. After a period of negotiation, the revenue account was 'unlocked' ('unfrozen'). On August 21, 2022, Telesur paid its scheduled interest payment to China Eximbank in full. Then, in early 2023, Telesur subsequently sought and secured approval from the Government of Suriname to make its first principal and interest payment (worth $6,165,946.18) to China Eximbank in February 2023. Shortly after the borrower made the payment to the lender, the IMF informed Telesur and the Government of Suriname that the $6,165,946.18 principal and interest payment ought to be returned to the borrower to ensure 'comparable treatment' across external creditors (many of whom were still not being repaid). Telesur and the Government of Suriname then requested that China Eximbank return the $6,165,946.18 principal and interest payment in April 2023. One month later, in May 2023, the IMF announced that ‘[a]n agreement was reached with Paris Club (PC) creditors for a two-step debt treatment in June 2022, and bilateral agreements with most of the PC creditors have been completed. An agreement-in-principle with bondholders was reached on May 4, 2023. The authorities are actively negotiating in good faith with China and India on a debt restructuring agreement.’ However, as of June 2023, China Eximbank had still not responded to the request for the return of the $6,165,946.18 principal and interest payment that was made in February 2023. At that time, the IMF also published a report estimating that the Government of Suriname's total principal and interest arrears to China had increased from $61 million to $107 million. In a June 2, 2023 letter to the IMF, the President of Suriname explained that '[I]n January 2023, Telesur, the state-owned telecommunication company, made an erroneous payment of USD 7 million to [China Eximbank]. We commit not to make payments on any official bilateral debt under restructuring negotiation until the process is complete. We will make sure that the payments from Telesur to [China Eximbank] since the EFF approval will be reflected in the eventual debt restructuring with [China Eximbank] to ensure comparability treatment with other official creditors. We have taken steps to prevent any further such payments by Telesur. Telesur is no longer allowed to meet with [China Eximbank] representatives without MoFP officials being present. The Minister of Finance sent a letter to all the parties involved (including [China Eximbank]) such that no payment on the Telesur’s loan to [China Eximbank] will be made until a restructuring agreement within the parameters of the IMF EFF program have been reached, and a Presidential Decree [has been issued] stating that the debt restructuring process will be respected and payments by Telesur are prohibited until the debt restructuring agreement between Suriname and China has been reached.'

Additional details

1. This project is also known as the Telesur National Broadband Project (TNBP) and the Telesur National Breedband Project (TNBP). The Chinese project title is Telesur的国家宽带拓展项目 or 苏里南国家宽带项目. 2. The Chinese Government has also provided a grant for a Road Monitoring Project (as captured via Project ID#70442), which is closely related to the Safe City Project. 3. Sources that do not have a language listed are in Dutch. 4. A confidential source with direct knowledge of the transaction informed AidData of the purpose of the two escrow accounts (revenue account and repayment reserve account), the minimum cash balance requirements that apply to the repayment reserve account, the conditions placed on the revenue account, the actual cash balance of the repayment reserve account as of February 2023 and June 2023 (approximately $9,377,864.92), and the borrower's record of making and missing principal and interest payments to China Eximbank. 5. On December 11, 2017, China Eximbank, Suriname's Ministry of Finance and Telesur signed the repayment mechanism agreement for the National Broadband Network Project. See https://www.rekenkamer.sr/rapporten-en-statistieken/rekenkamer-jaarverslagen?download=20:rekenkamer-verslag-2017 6. In March 2022, the IMF reported that the February 2022 ‘[p]ayment from the repayment reserve account for the Telesur loan will be reflected in the eventual debt restructuring with [China Eximbank] to ensure there is comparability of treatment with other official creditors.’

Number of official sources

15

Number of total sources

33