ICBC provides $550 million buyer’s credit loan for Omo Kuraz 5 Sugar Plant Project

Project narrative

On July 23, 2015, the Industrial and Commercial Bank of China (ICBC) and the Ethiopian Sugar Corporation (ESC) — an Ethiopian state-owned enterprise — signed a $550,000,000 (ETB 11,262,597,025) export buyer’s credit (loan) agreement for the Omo Kuraz 5 Project. The Government of Ethiopia issued a sovereign guarantee for this loan. The loan originally carried the following borrowing terms: an 7.832-year maturity (final maturity date: May 20, 2023), a 3-year grace period, and an interest rate of LIBOR plus 2.95% margin. The loan's first scheduled first scheduled interest payment date was December 20, 2016. The borrower was expected to use the proceeds of the loan to finance 85% of the total cost of a $647 million commercial contract between Jianglian Heavy Industry Co., Ltd. and the ESC, which was signed on August 13, 2013. ICBC and ESC subsequently rescheduled the 2015 loan through a 7-year maturity extension and a 1.5-year grace period extension. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to December 31, 2019 and June 20, 2030, respectively. Its last scheduled interest payment date was reset to June 20, 2028. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $550 million loan achieved an 88% disbursement rate, with ICBC making 9 loan disbursements (worth ETB 9,961,853,894) between 2016 and 2018: an ETB 2,448,261,038 disbursement on May 31, 2016, an ETB 298,977,218 disbursement on April 30, 2017, an ETB 692,625,989 disbursement on September 18, 2018, an ETB 75,043,474 disbursement on November 23, 2018, an ETB 27,682,313 disbursement on November 23, 2018, an ETB 34,611,272 disbursement on November 23, 2018, an ETB 778,810,201 disbursement on November 23, 2018, an ETB 280,385,250 disbursement on November 23, 2018, and an ETB 5,325,457,140 disbursement on November 23, 2018. The Omo Kuraz Sugar Project consists of five sugar plants (Omo Kuraz 1, Omo Kuraz 2, Omo Kuraz 3, Omo Kuraz 4, and Omo Kuraz 5). The Omo Kuraz 5 Sugar Plant Project involves the construction of the fifth factory in the Omo-Kuraz Sugar Project. This factory is located in Awi Zone’s Jawi District of Amhara region. Upon completion, the facility is expected to produce 242,000 tons of sugar and 20 million 827 liters ethanol a year at full capacity. As part of the project, extensive irrigation infrastructure is also being constructed on Omo River in order to enable 100,000 hectares of land to be covered with sugarcane. Jiangxi Jianglian International Engineering Co. Ltd (JJIEC), a subsidiary of Jianglian Heavy Industry, is the contractor responsible for project implementation. According to the ESC, the project is being undertaken in two phases. Phase 1 construction activities commenced in November 2016. To date, 30,000 hectares of land at the project site have been irrigated, of which 16,0000 hectares are covered with sugarcane. However, this project has also become a source of scandal and controversy. On July 25, 2017, Yuan Jialin, the JJIEC head of the Omo Kuraz 5 Project, was detained in relation to an alleged act of corruption: paying a $30 million bribe (‘commission’) for Ethiopian Ministry of Finance officials to illegally grant a contract to JJIEC. Yuan Jialin, wrote a letter to Ethiopian Prime Minister Abiy Ahmed on May 29, 2018, requesting his personal intervention. In his letter, he indicated that he had been denied bail for nearly a year. He also wrote that “JJIEC […] operates on the highest standard and uses fair and competitive system of procurement and carefully controls projects at hand to be free from corruptive and fraudulent activities." Jialin also argued in the letter that it was difficult to commit corruption in a strictly monitored purchase process. He claimed that there has not been any evidence to substantiate the charges brought against him. He also noted that, while JJIEC recruited a lawyer to investigate the alleged corruption, he was subjected to an inappropriate search which resulted in physical and psychological damages to him. He also asserted that the documentary evidence presented to substantiate the charges against him were counterfeit. He also warned that the ‘dire situation’ of the Omo Kuraz 5 project might hamper the bilateral relations between the Ethiopian Government and JJIEC, and requested that Prime Minister Abiy Ahmed establish a neutral and separate body to see his case and give him a speedy trial. There are indications that the ICBC loan for the Omo Kuraz 5 Sugar Plant Project financially underperformed vis-a-vis the original expectations of the lender. According to the Government of Ethiopia’s Aid Management Platform, as of September 2019, ICBC suspended about $67 million worth of loan disbursements for the Omo Kuraz 5 Sugar Plant Project 'due to [the] cross-default situation of the country.' 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. As of September 2024, ICBC was still withholding loan disbursements for the Omo Kuraz 5 Sugar Plant Project.