China Development Bank provides $67.3 million buyer’s credit loan for Supply of Computed Tomography (CT) Scanners to GOK Hospitals Project (Linked to Project ID#52926)

On December 11, 2017, China Development Bank and the Government of Kenya’s National Treasury signed a buyer’s credit loan agreement worth $67.3 million (KES 7 billion) for the supply of computed tomography (CT) scanners to 37 public county hospitals. The loan carried the following borrowing terms: a 5.66-year maturity (final maturity date: April 15, 2023) and an annual interest rate of LIBOR plus a 4.95% margin. It was scheduled for repayment in semi-annual installments and backed by a Sinosure credit insurance policy. The borrower was expected to use the proceeds of the loan to finance approximately 80% of the cost of a commercial contract between Neusoft Medical Systems Co., Ltd (东软医疗系统有限公司) -- a Chinese medical equipment manufacturer -- and Kenya’s Ministry of Health, which was signed in August 2017. The Government of Kenya was responsible for directly financing the remaining 20% of the commercial contract cost. The borrower made principal repayments worth $20,000,000 between July 1, 2020 and June 30, 2021 (Fiscal Year 2020-2021) and $20,000,000 between July 1, 2021 and June 30, 2022 (Fiscal Year 2021-2022). The loan’s amount outstanding was $50,300,000 as of June 30, 2020, $30,300,000 as of June 30, 2021, and $10,300,000 as of June 30, 2022. The purpose of the project was to supply, install, and maintain computed tomography (CT) scanners in 37 of Kenya’s public county hospitals, including Moi Teaching and Referral Hospital and Kenyatta National Hospital. The project, which is officially considered to be part of the Belt and Road Initiative (BRI), also involved 37 Kenyan radiologists and radiographers traveling to China to train on the use of the machines. Neusoft Medical Systems Co., Ltd was the contractor responsible for project implementation. Project implementation commenced on May 12, 2018. All 37 CT scanners were shipped to Kenya in 2018. However, in 2018, a probe into the procurement process for the project erupted in scandal as members of Parliament's Public Accounts Committee charged that the machines had been overpriced fourfold to benefit senior government officials in the Ministries of Health and National Treasury. A Kenyan government audit came to the following conclusion: ‘[t]he Ministry [of Health] in 2017/18 financial year paid [KES] 1,740,000,000 for Computed Tomography (CT) scanners. This was 20% of the contract value which was paid as a condition precedent for the Government of Kenya to obtain a loan of [KES] 7,000,000,000 from the People’s Republic of China to finance the purchase of the CT scanners. The scanners were procured through Neusoft Medical Systems Co. Ltd. However, no procurement documents for Neusoft Medical Systems [were] provided at the time of conclusion of the audit review. Information available indicate[s] that Neusoft Medical Systems was proposed by the Government of the People’s Republic of China as a leading manufacturer of CT scans. Consequently, it was not possible to ascertain whether due diligence and fidelity to the Public Procurement and Asset Disposal Act, 2015 was observed. In particular, Section 85 which requires tenders to be evaluated by the evaluation committee of the procuring entity for the purpose of making recommendations to the Accounting Officer through the head of procurement to inform the decision of the award of the contract to the successful tenderers. Under the circumstances, procurement laws and regulations may have been flouted as the necessary procurement documents were not provided for audit review.’

Additional details

1. The loan identification number in the National Treasury’s debt register is 2017057 (2017057_1). 2. AidData has estimated the all-in interest rate by adding 4.95% to the average 6-month LIBOR rate in August 2017 (1.454%). 3. The Chinese project title is 肯尼亚开展的健康医疗诊断集成项目. 4. Neusoft Medical Systems Co., Ltd participated in a risk mitigation mechanism with China Development Bank. Pursuant to the mechanism, Neusoft Medical Systems Co., Ltd purchased buyer’s credit facility insurance from China Export & Credit Insurance Corporation (Sinosure). The National Treasury of Kenya paid for the insurance policy and named Neusoft Medical Systems Co., Ltd as the insurance holder. The beneficiary under the buyer’s credit facility insurance policy is China Development Bank. The insurance policy covered the repayment of up to 95% of the principal amount and accrued interest on the loan provided by China Development Bank. In addition, Neusoft Medical Systems Co., Ltd entered into a risk mitigation cooperation agreement with the China Development Bank. Under this agreement, Neusoft Medical Systems Co., Ltd agreed to provide a pledge on it bank deposits, which amounted to RMB 21.8 million as of June 30, 2021, to cover the repayment of the remaining 5% of the principal amount and accrued interest on the loan provided by China Development Bank. 5. This CDB loan is not included in the database of Chinese loan commitments that SAIS-CARI released in July 2020. Nor is it included in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020. 6. At least one source identifies the commitment date as August 21, 2017 rather than December 11, 2017. This issue warrants further investigation. 7. The amounts outstanding, disbursements, and repayments data are drawn from the Kenyan Treasury’s External Public Debt Register. See https://www.dropbox.com/s/549ixt2gj1jbjvi/External-Public-Debt-Register-as-at-End-June-2022.pdf?dl=0 and https://www.dropbox.com/s/0et4jg1qfg1bo7r/External-Public-Debt-Register-as-at-End-June-2021.pdf?dl=0 and https://www.dropbox.com/s/233j706743q7f1g/External-Public-Debt-Register-as-at-End-June-2020.pdf?dl=0 and https://www.dropbox.com/s/qkoybr9ja0ohemy/External-Public-Debt-Register-as-at-End-June-2009.pdf?dl=0 and https://www.dropbox.com/s/thy3s6ggjcjd97z/External-Public-Debt-Register-as-at-End-June-2012.pdf?dl=0 and https://www.dropbox.com/s/fzbfq01vas6m0i9/External-Public-Debt-Register-as-at-End-June-2019.pdf?dl=0 and https://www.dropbox.com/s/ennrl6d4zd2nizs/External-Public-Debt-Register-as-at-End-June-2018.pdf?dl=0 and https://www.dropbox.com/s/8ibazrj1a8oho2d/External-Public-Debt-Register-as-at-End-June-2017.pdf?dl=0 and https://www.dropbox.com/s/wdbjl0wq49i09x1/External-Public-Debt-Register-as-at-End-June-2015.pdf?dl=0

Number of official sources

10

Number of total sources

22