China Eximbank provides $322 million preferential buyer’s credit for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project (Linked to Project ID#59453)

On September 2, 2012, a Memorandum of Understanding (MOU) between the Government of the Federal Democratic Republic of Ethiopia and the Republic of Djibouti on Supply of Water to Djibouti was signed. Then, on September 11, 2013, China Eximbank and the Djiboutian Ministry of Finance signed a $322,050,000 (FDJ 57,163,000,000) preferential buyer’s credit (PBC) agreement for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project. The PBC carried the following terms: a 2% interest rate, a 20-year maturity, and a 7-year grace period. The proceeds of the loan (captured via Project ID#59425) were to be used by the borrower to partially finance a $339 million commercial contract between Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD) and CGC Overseas Construction Co. (CGCOC) Ltd., which was signed on April 11, 2013. The Government of Djibouti was responsible for the remainder of the commercial contract cost (approximately $17 million). According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) ultimately achieved a 108.2% disbursement rate (FDJ 61,826,000,000). Phase 1 of the Ethiopia-Djibouti Water Pipeline Project involved the construction of a 63-mile long water pipeline from the Ethiopian town of Hadagalla into the interior of Djibouti, where it was expected to supply safe drinking water to 700,000 residents of Ali-Sabieh region, Dikhil region, Arta region and Djibouti City. CGC Overseas Construction Co. (CGCOC) Ltd. was the contractor responsible for project implementation. Its work was overseen by Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD). The originally envisaged project implementation start and end dates (as specified in the April 11, 2013 commercial contract) were July 1, 2015 and March 30, 2018. A groundbreaking ceremony took place on March 22, 2015. However, Phase 1 implementation did not commence until March 30, 2015. As of February 2017, ONEAD reported that Phase 1 had achieved an 87% completion rate. CGC Overseas Construction Co. (CGCOC) Ltd encountered some difficulties during project implementation, including electricity power outages that made it impossible to transmit the water through the pipeline. CGC Overseas Construction Co. (CGCOC) Ltd was reportedly forced to spend more money than originally anticipated on diesel generators due to power shortages needed to pump the water. Phase 1 was officially completed and handed over to the local authorities on June 30, 2017. Then, on December 25, 2017, China Eximbank and the Government of Djibouti signed an RMB 303,660,000 (or $43.38 million USD or 8,460,208,609 DJF) government concessional loan (GCL) agreement for Phase 2 of the Ethiopia-Djibouti Water Pipeline Project. The GCL, captured via Project ID#59453, carries the following terms: 20-year maturity, 7-year grace period, 2% interest rate, 0.25% commitment fee, and a 0.25% management fee. The Djiboutian legislature ratified the GCL agreement on June 25, 2018. This purpose of Phase 2 is to provide electricity to various sites along a 63-mile long water pipeline that runs from the Ethiopian town of Hadagalla into the interior of Djibouti, where it is expected to supply safe drinking water to 700,000 residents of Ali-Sabieh region, Dikhil region, Arta region and Djibouti City. CGC Overseas Construction Co. (CGCOC) Ltd. is the contractor responsible for the implementation of Phase 2. However, AidData has not yet identified any evidence that Phase 2 implementation has commenced. There are some indications that the China Eximbank preferential buyer's credit for Phase 1 of the Ethiopia-Djibouti Water Pipeline 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. Then, 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, in March 2022, the World Bank published a report (entitled ‘Djibouti Economic Monitor Winter 2021’), which noted that ‘[o]n the debt side, liquidity tensions are likely to arise due to the payment of deferred debt service linked to the DSSI, the maturing of the two loans on the water pipeline project connecting Djibouti to Ethiopia loan in 2022, and the Addis Ababa-Djibouti railway project in 2025.’ 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 being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022.

Additional details

1. This project is also known as Phase I of the Transboundary Water Supply Project. The French project title is le Projet Transfrontalier d'adduction d'eau (phase 1) or Le Projet transfrontalier d’Approvisionnement d’eau potable Ethiopie-Djibouti or Adduction d’eau phase I. The Chinese project title is 埃塞至吉布提跨境供水项目. 2. In 2019, the IMF identified the combined value of the China Eximbank loans for the Addis Ababa–Djibouti Railway Project and Phase 1 of the Ethiopia-Djibouti Water Pipeline project as $814 million (see https://www.imf.org/~/media/Files/Publications/CR/2019/1DJIEA2019002.ashx). In an email correspondence with AidData (see source ID#93167), IMF officials subsequently identified the face value of the China Eximbank loan for the Addis Ababa–Djibouti railway project as $491,793,000 and the face value of the China Eximbank loan for phase 1 of the the water pipeline project as $322,050,000, which sums to $814 million. A 2018 annual report published by Djibouti’s Ministry of Economy and Finance (https://www.dropbox.com/s/1tkijc0o367s9eh/rapport-annuel-dfe-2018.pdf?dl=0) also identifies the face value of the face value of the China Eximbank loan for phase 1 of the the water pipeline project as $322,050,000. 3. In the database of Chinese loan commitments that it released in July 2020, SAIS-CARI identifies the grace period of the China Eximbank PBC as 8 years, rather than 7 years. However, official sources refer to the grace period as 7 years, so AidData relies on this value for the time being. The RMB 303,660,000 GCL that China Eximbank issued in 2017 for Phase 2 is not included in the database of Chinese loan commitments that SAIS-CARI released in July 2020. Nor is it included it in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020. 4. The principal point of contact at ONEAD for this project is Mme Deka Khaireh Allaleh. Phone number: +25377812863. Email address: dkhaireh2001@yahoo.fr. 5. Djibouti’s external public debt increased from 34 percent of GDP in 2013 to 72 percent in 2021.

Number of official sources

41

Number of total sources

66