China Eximbank provides $24.4 million buyer’s credit for Addis Ababa–Djibouti Railway Lot 2 Power Supply Project (Linked to Record ID#91818)

Project narrative

On November 30, 2015, the Shanghai Branch of China Eximbank and the Government of Djibouti’s Ministry of Finance signed a $24,420,139 (FDJ 4,339,000,000) preferential buyer's credit (PBC) agreement to support the Addis Ababa-Djibouti Railway Power Supply Project Project Lot 2 (captured via Record ID#59420). Sinosure provided a credit insurance policy in support of the loan. The loan carried an interest rate of 6-month LIBOR plus a 3.25% margin. The other borrowing terms of the loan are unknown. However, it is known that the Government of Djibouti’s Ministry of Finance was expected to use the proceeds of the $24,420,139 China Eximbank loan and EEPCO was expected to use the proceeds of a $27.32 million China Eximbank loan to finance a $51.72 million (RMB 360 million) commercial (EPC) contract between Electricité de Djibouti and Shanghai Electric Power T&D Engineering Co., Ltd., which was signed on December 24, 2014. The commercial contract covered Lot 2 (within the borders of Djibouti) and Lot 3 (within the borders of Ethiopia) of the Addis Ababa–Djibouti Railway Power Supply Project. According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) achieved a 67.4% disbursement rate (FDJ 2,926,000,000). According to July 2020 email correspondence between AidData’s Executive Director and the IMF Mission Chief to Djibouti, the outstanding balance of the $24.4 million PBC was $20 million in 2019. Lot 2 involved the electrification of the Addis Ababa-Djibouti Railway between the Ali-Sabieh, Holl-Holl and Nagad substations in Djibouti. It also supported a 63kV electricity transmission line from Nagad to Holl-Holl and Ali Sabieh (measuring 90 km in length). Lot 3 involved the construction of a new 10.6 km 230kV double-circuit double-bundle transmission line, the construction of three 230kV single-circuit double-bundle transmission lines (measuring 73.25 km in length), the construction of a new 132.21 km 230kV transmission line, and the expansion of an existing 230kV substation. Shanghai Electric Power T&D Engineering Co., Ltd. was the EPC contractor responsible for Lot 2 implementation. As of 2016, the project had achieved an 85% completion rate. The project eventually reached completion, but its precise completion date is unknown. There are some indications that the China Eximbank preferential buyer's credit for the Addis Ababa–Djibouti Railway Lot 2 Power Supply Project may have financially underperformed vis-a-vis the original expectations of the lender. According to the International Monetary Fund (IMF), the stock of the Government of Djibouti's external arrears -- including arrears to China, Belgium, Spain, Iran, Italy, Saudi Arabia, and UAE -- stood at $107 million in March 2020. Two months later, in May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress. Then, on November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payment to China Eximbank. Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022. The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022. It also acknowledged that, as part of the Debt Service Suspension Initiative (DSSI), China Eximbank agreed to suspend principal and interest payments due in 2020 and 2021 under multiple loan agreements, and that the Government of Djibouti’s debt service obligations tripled with the expiration of DSSI. Then, in 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as amounting to DJF 24,104,000,000 ($135,285,797) on December 31, 2022.