China Eximbank provides $98.6 million preferential buyer’s credit for Phase 2 of TelOne Broadband Expansion Project

On December 1, 2015, China Eximbank and the Government of Zimbabwe signed a $98,617,482 preferential buyer’s credit (PBC) agreement for Phase 2 of the TelOne Broadband Expansion Project. Then, on April 5, 2016, Zimbabwe’s Parliament ratified the PBC agreement. The PBC carries the following borrowing terms: a 2% interest rate, a 20-year maturity, a 5-year grace period, a 0.25% commitment fee, and a 0.25% management fee. The Government of Zimbabwe, in turn, used the proceeds of the PBC to on-lend to TelOne, a state-owned telecommunications company at a 5% interest rate. The ultimate borrower (TelOne) was expected to use the loan proceeds to finance 85% of the cost of its $116.8 million commercial contract with Huawei Technologies Co., Ltd. The remaining 15% was to be directly funded by TelOne. The guarantor of the loan is NetOne (Private) Limited. The borrower is expected to maintain a minimum cash balance in an escrow account (debt service reserve account) at China Eximbank. The balance of the escrow account was $0 as of December 31, 2016, $4,341,790 as of December 31, 2017, $4,343,991 as of December 31, 2018, ZWL 220,015,319 as of December 31, 2019, ZWL 157,681,155 as of December 31, 2020, ZWL 720,123,439 as of December 31, 2021, and ZWL 1,294,710,690 as of December 31, 2022. In the event that the funds in the escrow account are insufficient to repay the interest and the principal of the loan, the PBC agreement indicates that the extra revenues from an escrow account that was set up for another China Eximbank-financed project (Phase 3 of NetOne Expansion Project, which is captured in Project ID#52620) will be used to settle the TelOne loan. The borrower is responsible for making 30, equal semiannual repayments between January 21, 2022 and January 21, 2037. The first drawdown (disbursement) took place on March 14, 2017. Total loan disbursements amounted to $78,630,649 in 2017 and $14,355,910 in 2018. As of September 2019, TelOne reported that the China Eximbank loan (PBC) had almost fully disbursed ($98,495,973 out of $98,617,482). By 2021, the borrower had accumulated arrears. The loan's amount outstanding (including principal, interest, and arrears) was $104,067,388.34 as of 2021. The purpose of the TelOne Broadband Expansion Project is to replace, upgrade, and transform the state-owned company’s transmission backbone call and access network into a modern telecommunications infrastructure providing a wide range of voice data and video services. TelOne completed the first phase of the project between 2010 and 2013 at a cost of $18.2 million, of which the Government of Zimbabwe contributed $6.2 million and TelOne contributed $12 million from its own resources. Phase 1 supported the following routes: Harare-Mutare Fibre Optic Transmission, Harare-Bulawayo Optic Transmission and installation of the Bulawayo-Victoria Falls Internet Protocol Microwave Radio Link. Phase 2, which was supported by China Eximbank, focused on the following project components: capacity upgrades in Mashonaland Central and West Provinces; the Bulawayo-Beitbridge Fibre Optic Transmission Route; the Bulawayo-Victoria Falls Fibre Optic Transmission Route; the Gweru-Masvingo Fibre Optic Transmission Route; and the supply, installation and commissioning of internet protocol multi-media systems access and converged billing system. Huawei Technologies was the contractor responsible for project implementation. Phase 2 of this project commenced on or around February 1, 2017. Then, on October 10, 2017, TelOne announced the completion of the laying of 330 km of fiber optic cable. On March 13, 2019, Zimbabwean President E.D. Mnangagwa officially commissioned the TelOne Beitbridge-Masvingo-Harare Optic Fibre Link (a sub-project under Phase 2 of the TelOne Broadband Expansion Project). As of September 2019, TelOne reported that it had completed Phase 2. The completion of this project reportedly achieved a better billing system, faster internet speed, improved voice call quality, and better performance of TelOne’s toll free and interactive voice response services. However, there are signs that the China Eximbank loan contracted by the TelOne for the Phase 2 of the TelOne Broadband Expansion Project has underperformed financially. According to a report released by the Debt Management Office of Zimbabwe’s Ministry of Finance in mid-2022, the loan was in arrears at the end of 2021. By the end of 2021, the Government of Zimbabwe's total external debt arrears to China Eximbank included $13 million for the NetOne Expansion Phase 1 Project, $47 million for the NetOne Expansion Phase 2 Project, $67 million for the Rehabilitation of Municipal Water and Sewage Treatment Works Project (City of Harare Project), $7 million for the National Defence College Project, $54 million for the Victoria Falls Airport Renovation and Expansion Project, $3 million for the Robert G. Mugabe International Airport Expansion Project, $0.5 million for Phase 2 of the TelOne Broadband Expansion Project, and $73 million for the Medical Equipment and Supplies Project.

Additional details

1. This project is also known as Tel-One Backbone and Broadband Access Phase Two Project, the TelOne Backbone Network Project, Tel-One Backbone Fibre Optic Transmission and Broadband Access Project, and the TelOne Backbone and Broadband Access Phase II Project. 2. In the database of Chinese loan commitments that it released in July 2020, SAIS-CARI does not identify the borrowing terms for this loan. AidData records the borrowing terms (2% interest rate, 20-year maturity, 5-year grace period, 0.25% commitment fee, and 0.25% management fee) that were reported to Zimbabwe’s Parliament at the time that the loan agreement was ratified. 3. The escrow account balances are drawn from https://www.telone.co.zw/Content/Uploads/reports/c4dee6b5-00c2-46c6-97b0-d419b133d7cc.pdf and https://www.telone.co.zw/Content/Uploads/reports/25768e16-4bfc-4515-99c6-8f9197014953.pdf and https://www.telone.co.zw/Content/Uploads/reports/ad066ba3-1381-40ac-abeb-5fc3feb8423d.pdf and https://www.telone.co.zw/Content/Uploads/Reports/d4b8d95a-9f4f-4c6a-85ad-5b91910b4528.pdf and https://www.telone.co.zw/Content/Uploads/Reports/98604a0f-259b-4e41-accc-463fd53accb9.pdf and https://www.telone.co.zw/Content/Uploads/Reports/93a00e75-5f95-4ca0-a98f-8e10c9abdf08.pdf and https://www.telone.co.zw/Content/Uploads/Reports/0cab979f-2fe5-4590-b71d-b70136c7c24f.pdf 4. According to Telone, '[the] Restricted funds in Stanbic Escrow Account and The Debt Service Reserve Accounts are classified as such since they are not accessible for the Company's use in the short term and are pledged as security for the China Exim Bank loan.' This statements suggests that China Eximbank has privileged access to cash balances in multiple bank accounts, which requires further investigation.

Number of official sources

17

Number of total sources

28