China Eximbank provides $52.1 million for Tranche 1 of buyer’s credit loan for Aerial Express Project (Linked to Record ID#42494 and ID#42577)

Project narrative

On September 3, 2010, the Government of Ukraine’s State Investment Agency and the Export-Import Bank of China (China Eximbank) signed a loan framework agreement regarding the Aerial Express Project. Then, on July 5, 2011, China Eximbank and SC "National Project "Airexpress" (Ukrainian: «Дирекція з будівництва та управління національного проекту «Повітряний експрес») — a project company and special purpose vehicle (SPV) that was created by the Government of Ukraine — signed a $372,313,538 buyer’s credit loan agreement [№ BLA201123] for the Aerial Express Project. The borrowing terms of the loan were as follows: a 15.012 year maturity (July 5, 2026), a 3 year grace period, and a 6.5% interest rate. Ukraine’s Cabinet of Ministers issued a sovereign guarantee in support of the loan on June 16, 2011. SC "National Project "Airexpress" also purchased buyer’s credit insurance from Sinosure on July 25, 2012 (at an additional cost of $36.39 million). The China Eximbank loan was split into two tranches. The first tranche was worth $52,123,895 and it was earmarked for design and preparatory work (phase 1 of the project). The second tranche was worth $320,189,643 and it was earmarked for construction activities (phase 2 of the project). The borrower was to use the proceeds of the loan to finance two separate EPC contracts with China National Complete Engineering Corporation (Sinomach) that were signed on April 18, 2011. One EPC contract was for Phase 1 and the other EPC contract was for Phase 2. The purpose of the Aerial Express Project was to construct an 4.752 km passenger railway from Boryspil International Airport (BIA) to the capital city of Kiev. It was also originally expected to involve the installation of supporting electricity systems, information systems, signaling system, water supply and drainage systems, two new train stations, and one electricity substation. The first tranche of the loan fully disbursed in July 2013 and shortly thereafter many questions arose about the use of these funds. Law enforcement officers uncovered large-scale fraud involving the purchase of land, and Ukraine’s Center for Transport Studies (CTS) reported on November 21, 2013 that employees of SC "National Project "Airexpress" stole $20 million from the first tranche of the China Eximbank loan and spent the remaining $32,123,895 without producing a final project design. Consequently, China Eximbank never disbursed the loan’s second tranche. The Government of Ukraine also had difficulty meeting its repayment obligations related to the loan’s first tranche. China's Economic and Commercial Office in Ukraine initially reported that Ukraine’s Ministry of Finance had failed to honor its sovereign guarantee. Then, in July 2014, China Eximbank agreed to grant SC "National Project "Airexpress" an additional 2-year loan repayment holiday (i.e. grace period) on the first tranche of the loan. Under the terms of the July 2014 debt rescheduling agreement, SC "National Project "Airexpress" agreed to make four, equal, semi-annual principal payments: a $13,030,973.75 principal installment on July 21, 2016, a $13,030,973.75 principal installment on January 21, 2017, a $13,030,973.75 principal installment on July 21, 2017, and a $13,030,973.75 principal installment on January 21, 2018. However, in letter dated January 26, 2015, SC "National Project "Airexpress" notified China Eximbank that it would not be able to meet its loan repayment obligations. China Eximbank subsequently appealed to Ukraine's Ministry of Finance -- as the loan's guarantor -- to assume all of the outstanding repayment obligations of SC "National Project "Airexpress" (including $1,731,671.62 of penalty interest that had accrued on overdue debts). Ukraine's Ministry of Finance eventually stepped in and fully repaid the ($52,123,895) first loan tranche. Between January 29, 2015 and January 18, 2018, it made payments worth $61,780,890.53 to China Eximbank (including $52,123,895 in principal payments, $9,463,020.75 in interest payments, $$28,296.41 in fees, and $15,678.37 in loan penalties). More specifically, it made a $1,731,671.62 payment on January 29, 2015, a $1,753,437.85 payment on August 4, 2015, a $5,114.19 payment of September 16, 2015, a $4,689.94 payment on February 17, 2016, a $1,731,671.62 payment on March 2, 2016, a $14,793,822.86 payment on July 27, 2016, a $18,492.28 payment of August 12, 2016, a $14,329,727.47 payment on January 19, 2017, a $13,932,692.67 payment on July 20, 2017, and a $13,463,891.66 payment on January 18, 2018. Ukraine's Ministry of Finance also unsuccessfully attempted to reallocate the second loan tranche to the Podil-Voskresensk Bridge Project and the Kiev Subway Extension Project. Additionally, the Government of Ukraine initiated talks with Sinosure regarding the possibility of recovering approximately $30 million via insurance payments, but the outcome of these negotiations is unknown. According to Ukraine's Ministry of Finance, the loan's principal amount outstanding was $13.03 million as of December 31, 2017, $0 as of December 31, 2018, $0 as of December 31, 2019, $0 as of December 31, 2020, $0 as of December 31, 2021, $0 as of December 31, 2022, and $0 as of December 31, 2023. In April 2011, SC "National Project "Airexpress" selected Sinomach as the EPC contractor responsible for project implementation. Then, on December 28, 2021, a formal groundbreaking ceremony took place. However, on June 17, 2015, responsibility for the Aerial Express Project was transferred from SC "National Project "Airexpress" to the Ukrainian Ministry of Infrastructure. The State Administration of Railway Transport of Ukraine (Ukrzaliznytsia) subsequently assumed responsibility for the EPC contract from Sinomach and it was charged with financing a scaled-down and rescoped version of the project. Construction began on May 22, 2018 and Ukrzaliznytsia announced on November 30, 2018 that the first trains had left from Kiev to Boryspil airport. The express train from Kiev to Boryspil airport has a floating schedule of 21-30 voyages per day. Vladyslav Kaskiv, the former Head of Ukraine’s State Agency for Investment and National Projects, was closely involved in the Aerial Express Project. He put on an International wanted list in March 2016. He was detained in Panama in September 2016. A local court set his bail at $600,000. The Government of Panama refused to grant Kaskiv a political refugee status, and has was later extradited to Ukraine. Subsequently, Kaskiv was released on bail. As of May 2020, his case was pending before the High Anti-Corruption Court of Ukraine. Record ID#67775 captures the first tranche of the loan and Record ID#42577 captures the July 2014 rescheduling of the first tranche of the loan. Record ID#42494 captures the de facto cancellation of the second tranche of the loan.