China Development Bank provides $2.5 billion loan for 4800MW Kusile Coal-Fired Power Plant Construction Project (Linked to Record ID#52560)

Project narrative

On July 24, 2018, China Development Bank (CDB) and Eskom — South Africa's state-owned energy utility company — signed a $2.5 billion loan (term facility) agreement for the 4800MW Kusile Coal-Fired Power Plant Construction Project. The loan carries the following borrowing terms: a 15-year maturity, a 5-year grace period, and a 3.7149% interest rate. The borrower is expected to make 20, equal semiannual installments (on March 12 and September 12 of each year) over a 10 year period (after the expiration of the grace period). The South African Government issued a sovereign guarantee in support of the loan. However, the interest rate and other key terms and conditions in the loan agreement remain unavailable, as President Ramaphosa indicated that this information will not be made public due to confidentiality clauses. The successful conclusion of the $2.5 billion CDB loan agreement brought Eskom in line with the company’s commitment to secure 62% of its financial year 2018/19 funding requirement. The loan’s estimated disbursement rate was 83.62% in 2022 and 88% in 2023. The purpose of the project is to construct the Kusile coal-fired power station (plant), which contains six units with about 800MW capacity each, totaling about 4800MW in the La Faral area of Limpopo, South Africa. The project also includes a power station precinct, power station buildings, administrative buildings, roads, and a high-voltage yard. The total cost of the project is $19.1 billion. Construction of the Kusile Station commenced on June 5, 2007. However, by April 2011, the project had only achieved a 21% completion rate. In 2015, it was reported that Unit 1 would come online in 2016 and the last unit would come online by 2021. However, the project was still being implemented as of 2022. The expected completion year of the Kusile Power Station is now 2026 (after being pushed back from its originally scheduled completion date of 2023). Project delays have resulted from the financial management problems of Eskom and the termination of a turbines contract with Alstom. According to IJGlobal, in the 11 years since the project was announced, it has attracted no fewer than 22 banks, export credit agencies, and investment funds all of which offered different services, such as Bank of America (advisory service); Deutsche Bank (loan); JP Morgan (funding plan adviser); Barclays (advisory service); Credit Suisse Group (transaction adviser); Societe Generale (loan); and China Development Bank (loan). The loan from the China Development Bank came at an opportune time as many banks and insurers in Europe, the US, and Japan have in the past few years announced changes to their energy investment policies to exclude financing for new coal-fired power projects. There are some indications that the $2.5 billion CDB loan for the 4800MW Kusile Coal-Fired Power Plant Construction Project may have underperformed vis-a-vis the original expectations of the lender. In February 2019, the CEO of Eskom was asked the following question by a reporter: 'Can you indicate and comment in general terms on the World Bank, DBSA, China Development Bank and other DFI loan covenants, and what may be considered a breach, such as failure to meet required going concern status, debt service coverage ratio and/or other metrics?' He responded that 'I am cautious not to breach the confidentiality of the lenders, but generally speaking, the going-concern status of Eskom is informed by normal credit metrics — interest cover, debt service cover, and so on. When we do find ourselves in a situation where we will not meet these requirements, many of the terms do allow us to put forward an action plan on how it’s going to be resolved.' Then, in February 2023, South Africa’s National Treasury announced that it would would take on ZAR 254 billion ($14 billion) of Eskom's ZAR 423 billion debt that was at risk of default, to enable the state-owned power utility to pay down its principal and interest obligations.