[Disbursed] China Eximbank disbursed $122.38 million for $147.4 million preferential buyer's credit to Topstar for Phases II and III of the National Digital Terrestrial Television Broadcasting System (Linked to Record ID#56770, #56767, #56827, #57618 and #107873)

Project narrative

On December 26, 2016, the Export-Import Bank of China and the Government of Zambia signed a $232,181,138.85 preferential buyer’s credit (PBC) agreement for Phases II and III of the National Digital Terrestrial Television Broadcasting System. The PBC carried the following borrowing terms: a 2% interest rate, a 5-year grace period, and a 20-year maturity. The principal amount was scheduled to be repaid in equal semi-annual installments after the end of the 5-year grace period. The loan was secured with (1) all of the income of Zambia National Broadcasting Corporation (ZNBC); (2) all of the revenue generated via Phases II and III of the National Digital Terrestrial Television Broadcasting System Project, including future dividends receivable from Topstar Communications Company Ltd. Under the terms of an escrow account agreement, these sources of income and revenue were to be deposited in two separate escrow accounts (most likely a revenue account and a reserve account). As of July 2022, the loan had achieved a 83% disbursement rate ($192,735,724.78 out of $232,181,138.85). As a condition precedent to the loan agreement becoming effective, the Government of Zambia was required to on-lend 63.5% of the proceeds from the PBC (worth $147,434,528.10) to Topstar Communications Company Ltd. (captured via Record ID#56816) and on-lend 36.5% of the PBC proceeds (worth $84,746,610.75) to Zambia National Broadcasting Corporation (ZNBC) (captured via Record ID#56767). The on-lending (subsidiary) loan agreement was finalized on February 10, 2017 (with a final maturity date of July 15, 2037). Topstar Communications Company Ltd. is a special purpose vehicle and a joint venture between ZNBC (40% equity stake) and StarTimes (60% equity stake), which was established on May 12, 2016. The proceeds of the $232,181,138.85 PBC were to be used to finance 85% of the cost of a $273,154,281 commercial (EPC) contract between Zambia’s Ministry of Information and Broadcasting Services and Star Times Communication Network Technology Co. Ltd (Star Times), which was signed on September 18, 2015. China Eximbank expected the Government of Zambia to directly finance the remaining 15% of the commercial contract cost. However, due to debt mismanagement challenges, StarTimes ultimately covered this cost by providing a $41 million supplier's credit (loan) to the Government of Zambia in 2017 (captured via Record ID#56827). As of December 21, 2022, ZNBC and Topstar Communications Company Ltd. had accumulated principal and interest arrears under their on-lending agreements with Zambia's Ministry of Finance worth $20,896,302.51. This project involved the supply, delivery, installation and commissioning of a National Digital Terrestrial Television Broadcasting System. More specifically, it involved the design, manufacture and installation of plant and equipment and construction and commissioning buildings (studios) in Chinsali, Kasama, Mansa, Kabwe, Mongu and Chipata districts. The establishment of Topstar Communications Company Ltd. as a joint venture involved (1) the provision of digital television (TV) signal transmission service for TV stations and charge transmission fee; (2) the provision of decoders of Set-Top-Boxes (STBs) for every household with a TV set; (2) the provision to each subscriber, a basic television package of not less than twenty five channels which include local TV and international programs, and charge a monthly maintenance subscription fee of US$3 tax exclusive; (4) the provision a basic television package at half price to the poor families identified by government as such; and (5) the provision of two free channels for digital television universal access to viewers who fail to pay monthly maintenance subscription of US$3. Star Times was the EPC contractor responsible for implementation. This project was officially completed and handed over the local authorities at a ceremony that was held on June 14, 2019. However, a physical inspection that was carried out in November 2020 revealed four major implementation problems: (1) Although the July 2020 project status report revealed that civil works at the Kasama Studio were completed and the site handed over by the contractor, a visit to the site revealed that it was not operational as equipment had not yet been installed. (2) Although the project status report for October 2020 stated that the civil works at the Chinsali studio were completed and the site handed over by the contractor, a visit to the site revealed that it was not operational as equipment had not been installed. (3) The July 2020 status report revealed that the civil works at the Kabwe Studio had only achieved an 83% completion rate (with remaining works including fitting of fixtures and fittings, aluminium at the entrance, supply generator, connection of power, paving the car park, tiling of the outside step, plumbing works and completion of the generator storage room) and works had stalled and the contractor was not on site. (4) The October 2020 status report revealed that the civil works at the Chipata studio had only achieved an 82% completion rate (with remaining works including fitting of fixtures and fittings and aluminum at the entrance of the building, connection of power and paving of the car park) and works had stalled and the contractor was not on site. Then, on July 29, 2022, the Ministry of Finance & National Planning (MOFNP) of Zambia announced that it was seeking lender approval to formally cancel the $232,181,138.85 loan’s undisbursed balance ($39,445,414.07); however, it also noted that it had not yet secured formal lender approval for this action. This announcement came approximately 21 months after the Government of Zambia defaulted on its repayment obligations to Eurobond holders and approximately 6 weeks after China, France, and 14 other countries formed a creditor committee to discuss the Zambian authorities’ request for a debt treatment under ‘the Common Framework for Debt Treatment beyond the DSSI’ endorsed by the G20 and the Paris Club.