[Disbursed] China Eximbank disbursed $192.79 million for $337.6 million preferential buyer’s credit for Ndola International Airport Construction Project (Linked to Record ID#57092 and #107879)

Project narrative

In November 2016, China Eximbank and the Government of Zambia signed a $337,621,439.90 preferential buyer's credit (PBC) agreement for the Ndola International Airport Construction Project (captured via Record ID#57087). The borrowing terms of the PBC are unknown. Then, on July 31, 2017, ICBC and the Government of Zambia signed a $59,580,254 loan agreement for the Ndola International Airport Construction Project (captured via Record ID#57092). The borrowing terms of the ICBC loan are unknown. The proceeds of the China Eximbank PBC were to be used by the borrower to finance 85% of the cost of a $397,201,694 commercial (EPC) contract between Zambia Airports Corporation Limited (ZACL) and AVIC International Holding Corporation, which was signed on September 11, 2013 and amended on August 25, 2014. The proceeds of the ICBC loan were to be used by the borrower to finance 15% of the cost of the $397,201,694 commercial (EPC) contract between Zambia Airports Corporation Limited (ZACL) and AVIC International Holding Corporation. The Government of Zambia's Ministry of Finance on-lent the proceeds of the China Eximbank and ICBC loans to Zambia Airports Corporation Limited on April 13, 2017 (final maturity date: January 15, 2037). By July 2022, the China Eximbank loan had achieved a 57.1% disbursement rate ($192,785,140.88 out of $337,621,439.90). By December 31, 2022, ZACL had accumulated principal and interest arrears under its on-lending agreement with Zambia's Ministry of Finance worth $30,385,929.60. The project involved the construction of a 12,000 square meter terminal building, 3 aero bridges, a 3.5 kilometer runway, a cargo terminal, a 50-room hotel, a new fire and rescue station, a cargo terminal, an aircraft maintenance hangar, and a fuel farm. AVIC International Holding Corporation was the general EPC contractor responsible for implementation. It reportedly fulfilled the government policy of having 20 percent sub-contracting to local contractors by engaging 60 local sub-contractors. 2,700 people were employed during the project construction period. A formal groundbreaking ceremony took place on June 25, 2017. However, the construction site was not handed over to the EPC contractor until September 28, 2017. The EPC contract went into effect and construction began on October 26, 2017. By December 17, 2019, the overall project had achieved a 58% completion rate; the passenger terminal completion rate was 61%, the business complex completion rate was 49%, the air traffic control building completion rate was 54%, the runway, taxiway and apron completion rate was 98%, and the viaduct completion rate was 80%. As of March 2020, the project had achieved an overall completion rate of 60%. As of April 2021, the project had achieved an overall completion rate of 88.9%. The project was originally expected to reach completion on October 20, 2020. However, due to implementation delays related to financing problems and the COVID-19 pandemic, the intended project completion date was pushed out to January 31, 2022. The airport was officially commissioned on August 5, 2021, but the airport was still reportedly waiting for operational certifications at that time. The project was also plagued by financial problems due to overdue contractor payments and debt service payments. According to Clause 43.1 of the commercial contract between AVIC International Holding Corporation and ZACL, if the client (ZACL) failed to make payment within a stipulated period of time, the EPC contractor (AVIC International Holding Corporation) was entitled to the payment of interest for the late payment, which was to be calculated from the date by which the payment should have been made until the date on which payment was made by applying the interest rate as per local practice. If the payment was delayed for more than 56 days, the EPC contractor would have the right to suspend the works or terminate the commercial contract. Contrary to the clause, AVIC International Holding Corporation had not been paid a total of $97,324,668 being outstanding interim payment certificates (IPCs) for a period of more than fourteen months. In addition, there was no documentation availed to the Auditor General of Zambia to indicate why, despite the financing agreement being in force, the lender had not paid the contractor. On April 5, 2021, AVIC International Holding Corporation claimed interest on late payments on outstanding IPCs in amounts totaling $1,913,155. AVIC International Senior Consultant, Lei Yingqi, later confirmed that AVIC International Holding Corporation as an EPC contractor was using borrowed funds at high interest rates to ensure that the project continued to progress and the employees continued to be paid. He also indicated that ‘support from abroad was cut off or delayed’, which suggests that the source of the borrowed funds was not China Eximbank or ICBC. China Eximbank halted disbursements for the Ndola International Airport Construction Project in 2020 due to the accumulation of debt service arrears by ZACL and the Government of Zambia. The borrower's failure to make full and timely debt service payments resulted in a debt restructuring process, which led to a debt service standstill in 2020 to ensure fair treatment of all creditors. Zambia's Ministry of Finance & National Planning (MOFNP) subsequently took over the financing of the project after rescoping it to prioritize major aspects that ensure full operation of the airport. Then, on July 29, 2022, Zambia's MOFNP announced that it was seeking lender approval to formally cancel the China Eximbank loan’s undisbursed balance ($144,836,299.02); 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. MOFNP also announced on July 29, 2022 that it planned to finance the completion of the Ndola International Airport Construction Project with general government revenues, and it signaled its intention to rescope the project to focus on the ‘selected works’ (i.e. access road and completion of the fuel farm). Then, in 2024, Zambia's Auditor General revealed that '[t]he Zambia Airports Corporation Limited’s reduced revenue collections as a result of effects of the COVID pandemic that resulted in travel restrictions contributed to the constraints in the ability to service the [China Eximbank] loan.'