CDB contributes to $123 million syndicated loan for Kessem Sugar Factory Project (Linked to Record ID#30113)

Project narrative

On June 30, 2011, China Eximbank and China Development Bank (CDB) and the Ethiopian Sugar Corporation (ESC) — an Ethiopian state-owned enterprise — signed a $123,000,000 (ETB 2,077,702,703) loan agreement for the Kessem Sugar Factory Project. China Eximbank's estimated contribution is captured via Record ID#30113 and CDB's estimated contribution is captured via Record ID#58592. The borrowing terms of the loan were as follows: an interest rate of 6 month LIBOR plus a 2.35% margin, a 2.893 year grace period, and a 11.898 year maturity. The loan's first and last scheduled principal payment dates were May 20, 2014 and May 20, 2023, respectively. Its first and last scheduled interest payment dates were November 20, 2012 and May 20, 2023, respectively. The Ethiopian Government provided a sovereign guarantee for the loan. The borrower was initially expected to use the CDB and China Eximbank loan proceeds to finance a $150 million commercial contract between the ESC and the Ethiopian state-owned Metals & Engineering Corporation (MetEC), which was signed in March 2011. However, in 2012, the Government of Ethiopia dismissed MetEC and re-issued the commercial contract to China National Complete Plant Import-Export Corporation (COMPLANT). According to the Government of Ethiopia’s AMP, the ETB 2,533,783,784 ($123 million) loan achieved a 110% disbursement rate, with China Eximbank and CDB making 6 loan disbursements (worth ETB 2,283,941,874) between 2012 and 2014: an ETB 387,188,627 disbursement on June 29, 2012, an ETB 261,859,928 disbursement on October 18, 2012, an ETB 215,748,901 disbursement on January 11, 2013, an ETB 417,546,480 disbursement on June 6, 2013, an ETB 484,171,322 disbursement on June 18, 2013, and an ETB 517,426,615 disbursement on April 30, 2014. The purpose of the project was to construct the Kessem sugar factory, which is located in Zone Three of the Awash Fentallie and Dulecha districts of Afar Regional State. The factory has a total of 20,000 hectares of land to be cultivated with cane & its plantation stretches to the areas known as Kessem and Bolhomon. The Kessem Dam, which has a capacity of holding 500 cubic meters water, is the source from which sugarcane cultivation was to be carried out. COMPLANT was the general EPC contractor responsible for project implementation. Construction began in May 2012 and ended on November 30, 2014. Irrigable land reached 2,946 hectares while the construction of 20.5 kilometers of main canal was completed. Then, in March 2015, the factory underwent a trial run. Factory operations began in 2016. However, according to the AMP, the project had only achieved a 99.05% completion rate as of April 2022. Currently, the sugar factory has 8,413 hectares of land covered with cane among which 6,000 hectares cultivated by a private company known as Amibara Agricultural Development (with which ESC has signed contractual agreement). Kessem Sugar Factory is capable of producing 260,000 tons of sugar and 30,000 cube meters of ethanol per year at maximum capacity. There are some indications that the loan from China Eximbank and CDB for the Kessem Sugar Factory Project may have financially underperformed vis-a-vis the original expectations of the lenders. According to the Government of Ethiopia’s Aid Management Platform, as of September 2019, ICBC suspended about $67 million worth of loan disbursements 'due to [the] cross-default situation of the country’ (see Record ID#58616). Then, in August 2021, China Eximbank withheld $339 million loan disbursements for 12 projects and halted project implementation due to Government of Ethiopia’s rapidly dwindling foreign exchange reserves and debt sustainability challenges. Demisu Lemma, the Director of Chinese Cooperation at the Ethiopian Ministry of Finance, noted at the time that the Ethiopian Government was in discussions with China Eximbank about a potential debt rescheduling (that would involved a 5-year maturity extension and a 1-year grace period extension). Then, after considerable delay, the G20 Common Framework (CF) creditor committee for Ethiopia convened in September 2021, with the French Government and the Chinese Government serving as co-chairs. The CF debt rescheduling talks were still ongoing in mid-2023.