China Exmbank provides RMB 1.07 billion governmental concessional loan for Mekelle City Water Supply Project (Linked to Record ID#66045)

Project narrative

On May 10, 2018, the Chinese Government and the Government of Ethiopia signed a preferential loan framework agreement for the Mekelle City Water Supply Project. Then, on June 13, 2018, China Eximbank and the Government of Ethiopia's Ministry of Finance and Economic Development (MOFED) signed an RMB 1,070,000,000 (ETB 4,593,582,599 or $156 million) government concessional loan (GCL) agreement for the Mekelle City Water Supply Project (captured via Record ID#60762). The GCL carries the following borrowing terms: a 20.288 year maturity, a 7.778 year grace period, and a 2% interest rate. The loan's first and last scheduled principal payment dates were March 21, 2026 and September 21, 2038, respectively. Its first and last scheduled interest payment dates were September 21, 2020 and September 21, 2038, respectively. On the same day, China’s Ministry of Commerce and the Government of Ethiopia signed an RMB 540,000,000 (ETB 2,318,256,639) interest-free loan agreement for the Mekelle City Water Supply Project (captured via Record ID#66045). It carries a 21.982 year maturity and a 9.978 year grace period. The loan's first and last scheduled principal payment dates were June 1, 2028 and May 31, 2038, respectively. Ethiopia’s House of Representatives ratified both loan agreements on April 6, 2019. The proceeds of the GCL and the interest-free loan were on-lent to Ethiopia's Ministry of Water, Irrigation and Electricity. The borrower was expected to use the proceeds of the GCL and the interest-free loan to finance a commercial contract with the Government of Ethiopia and China Gezhouba Group Co. Ltd. (CGGC). According to the Government of Ethiopia’s AMP, two disbursements took place in 2020: an ETB 274,488,122 disbursement on April 2, 2020, and an ETB 682,257,203 disbursement on September 1, 2020. However, it is unclear if these disbursements took place through the RMB 1,070,000,000 (ETB 4,593,582,599) China Eximbank loan, the RMB 540,000,000 (ETB 2,318,256,639) MOFCOM loan, or both loans. This project involves the construction of the Gereb-Giba Dam on the Giba river and the installation of a water pipeline network to supply water to households, industrial parks and factories in and around the city of Mekelle (the capital of Ethiopia's northern Tigray regional state). Upon completion, the project is expected to meet the water needs of the estimated 400,000 residents of Mekelle. It is also expected to generate a maximum storage capacity of 363 million cubic meters during the rainy season, an annual water supply of 53.65 million cubic meters, and an average daily water supply of 124.43 thousand cubic meters. The project was also expected to create 1500 jobs for local people during the construction phase. CGGC was the EPC contractor responsible for implementation. A groundbreaking ceremony took place on September 22, 2019. Then, on March 17, 2020, a river closure ceremony took place and dozens of heavy trucks poured dirt and stone into the Giba river. The Chinese Ambassador to Ethiopia, Mr. Tan Jian, and Mr. Debretsion, President of Tigray Regional State attended the closure ceremony, which marked the beginning of a new phase of the project (dam main body filling). Then, on November 11, 2020, after a violent conflict erupted between the Tigray People's Liberation Front (TPLF) and the Government of Ethiopia, the Chinese Embassy in Ethiopia evacuated 600 Chinese workers (including CGGC workers assigned to the Mekelle City Water Supply Project) from Tigray State. The originally scheduled project completion date was March 1, 2023. There are some indications that the China Eximbank loan for the Mekelle City Water Supply Project may have 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 '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.