[Cancelled] ICBC provides $191.25 million buyer’s credit for FTJ Luapula University Construction Project

Project narrative

On January 24, 2018, the Industrial and Commercial Bank of China (ICBC) and the Government of Zambia signed a $191,250,000 buyer’s credit (loan) agreement for the FTJ Luapula University Construction Project. The borrowing terms of the loan included a 1% upfront (management) fee ($1,912,500) and a 1% commitment fee. The loan was also insured by Sinosure. Its other borrowing terms are unknown. The borrower was expected to use the loan proceeds to finance 85% of the cost of a $225 million commercial (EPC) contract between Zambia’s Ministry of Higher Education and China Energy Engineering Group (CEEG), which was signed in August 2017 and amended in August 2022. The Government of Zambia was responsible for covering the remaining 15% of the commercial contract cost ($33,750,000) through an advance payment. As of July 2022, the loan from ICBC had achieved a 0% disbursement rate ($0 out of $191,250,000). However, the borrower did pay the $1,912,500 upfront (management) fee as well as $2,868,750 in commitment fees to the lender. The purpose of the project was to construct facilities at two locations of Frederick Titus Jacob (FTJ) Chiluba University (formerly named Luapula University) in the cities of Mansa and Kasama. China Energy Engineering Group (CEEG) was the general (EPC) contractor responsible for implementation. However, 15 MCC Africa and Ndilia Associates were also involved in the project. In November 2013, the then-President of Zambia, Michael Sata, laid a foundation stone for the construction of the Luapula University which President Edgar Lungu later renamed after late second Republican President Fredrick Titus Jacob Chiluba. The Government of Zambia handed over the project site in Mansa to contractors in November 2015. It was originally anticipated that construction would take place between March 2016 and March 2018. However, this project encountered several implementation challenges and delays. Chief among them was the fact that the Government of Zambia decided to suspend construction projects that had achieved a completion rate of 80% or less due to its public financial management problems. Then, between July 2019 and December 2019, the Zambian Government undertook an exercise to determine which projects should be canceled or postponed. It was decided at that time that the FTJ Luapula University Construction Project would proceed. However, in April 2020, project implementation stalled again due to funding problems. At that time, the project had only achieved a 5% completion rate. On April 21, 2020, Zambia’s Minister of Foreign Affairs Joe Malanji wrote to the Chinese Ambassador to Zambia to ask for loan disbursements to be expedited. Joe Malanji emphasized in his letter that the Government of Zambia had already honored its commitment to finance 15% of the total cost of the commercial contract with CEEG (through a $33,750,000 advance payment to the contractor). By June 9, 2021, the project component in Mansa had still only achieved a 20% completion rate. According to a 2021 report to Parliament, Zambia’s Ministry of Finance was in negotiations with the contractor to re-scope the project as this would enable the release of the funds by the financier [ICBC]. 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 ICBC loan’s undisbursed balance ($191,250,000); 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. Then, following guidance that Zambia's Attorney General issued on March 6, 2024, the Government of Zambia's Ministry of Higher Education began the process of terminating its August 8, 2022 (amended) commercial contract with China Energy Engineering Group (CEEG) and seeking reimbursement of its $33,750,000 advance payment.