China Eximbank and ICBC provide $1.53 billion USD syndicated loan for 750MW Kafue Gorge Lower Hydro Power Plant Construction Project

On August 10, 2010, the China-Africa Development Fund (CADF), SinoHydro, and the Government of Zambia signed a Memorandum of Understanding (MOU) regarding a build-operate-transfer (BOT) contract for the Kafue Gorge Lower Hydro Power Station Project. The project was designed to address a power deficit in Zambia. It would involve the construction of a 140-meter high concrete-face rock fill dam (CFRD) with a length of approximately 378 meters. A surface powerhouse and five generator units would also be built. It was originally envisage that the project would be completed by 2021 and created approximately 5,000 jobs. China Development Bank (CDB) was slated to provided financing to the project. The total cost of the project was reported to be $2 billion USD at the time. The China Ministry of Commerce announced that a commencement ceremony for the project was scheduled for July 20, 2011. However, after a change of government in 2011, Zambia’s incoming Minister of Finance questioned whether project would be sufficiently beneficial to Zambia and whether there were adequate transparency and control mechanisms in place. He wanted a second opinion regarding the technical solutions proposed by the Chinese side. The Government of Norway was asked to review the plans and give further advice, but the Norwegian Government did not wish to be involved. The Government of Zambia nevertheless decided to “unpack” the original proposal and looked for alternative funding and investors. It suspended its MOU with Sinohydro and CADF. However, after an open tendering process, SinoHydro re-won the EPC contract on October 19, 2015. The project was ultimately financed as a public-private partnership (PPP) with a 85:15 debt-to-equity ratio. A special purpose vehicle called the Kafue Gorge Lower (KGL) Power Development Corporation Limited was created to manage the implementation of this PPP. It is wholly-owned by Zambia Electricity Supply Corporation (ZESCO) Limited, a state-owned power company. Then, on November 13, 2017, Kafue Gorge Lower (KGL) Power Development Corporation Limited signed a $1,530,576,039.16 USD syndicated buyer’s credit agreement with China Eximbank and ICBC to finance 85% of the EPC contract with Sinohydro for the 750MW Kafue Gorge Lower Hydro Power Plant Construction Project. The Zambia Ministry of Finance provided a sovereign guarantee and Sinosure provided 95% insurance. While China Eximbank and ICBC covered the debt (85%) portion of the project cost, ZESCO Limited agreed to provide the remaining 15% through an equity contribution. It has reportedly already made an $186 million USD equity investment in the project. Construction began on January 15, 2016. However, the first loan disbursement ($479 million USD) from China Eximbank and ICBC did not occur until June 21, 2018. ZESCO Limited also hired a Norwegian private company, Norconsult, to act as its technical advisor and quality controller to ensure that SinoHydro and other contractors honor their contractual obligations and international standards.Significant progress was made between 2016 and 2019: the North Western Province was connected to the national electricity grid following the commissioning of a 132 KV transmission line; costly diesel generation machines were decommissioned; and other transmission lines were completed to support mining projects in the region. The project achieved a 72% completion rate. However, the broader project experienced major delays in late 2019 when Sinohydro announced that it was halting its work due to the fact that it had not been paid for its services. As of January 2020, $1.2 billion USD of the $1.5 billion syndicated loan had reportedly been disbursed by China Eximbank and ICBC.

Additional details

The Chinese project title is 赞比亚下凯富峡水电站BOT项目 or 赞比亚下凯富峡. Most sources, including the SAIS-CARI China Loans to Africa database, records the face value of this loan as $1.5 billion. However, the exact transaction amount reported by AidData ($1,530,576,039.16) comes from a 2019 report from the Zambian legislature (source ID 99467 p. 15).

Number of official sources

16

Number of unofficial sources

10