China Eximbank provides $89.8 million loan for Bahir Dar-Woldiya-Combolcha Substation Project

Project narrative

On December 25, 2017, China Eximbank and Ethiopian Electric Power Corporation (EEPCo) — an Ethiopian state-owned power company — signed an $89,817,892.24 buyer's credit loan agreement for the Bahir Dar-Woldiya-Combolcha Substation Project. The borrowing terms of the loan included a 16.095-year maturity, a 5.573-year grace period, and a 8.56% interest rate. The loan's first and last scheduled principal payment dates were July 21, 2023 and January 21, 2034, respectively. Its first and last scheduled interest payment dates were July 21, 2018 and January 21, 2034, respectively. The Ethiopian Government issued a sovereign guarantee in support of the loan. The borrower was expected to use the proceeds of the loan to finance approximately 85% of the cost of a $99.4396 million (ETB 2 billion) commercial (EPC) contract between EEPCo and Shanghai Electric Group Company, which was signed on May 9, 2016. The project involves electricity substation construction and expansion in three towns: Bahir Dar, Woldiya and Combolcha (Kombolcha). More specifically, it involves the construction of a new 400/230/33/15kV Woldiya II substation, the construction of a new 400/230/33kV Combolcha III substation, and the expansion of the existing 400kV Bahir Dar II substation (by 1 line bay), and the expansion of the existing 230kV Combolcha II substation (by 1 line interval). Upon completion, the project is expected to meet the power demands of industrial parks, an electrified train, and condominiums near the towns of Bahir Dar, Woldiya and Combolcha (Kombolcha). Shanghai Electric Group Company is the general EPC contractor responsible for project implementation. However, it hired Powerchina Jiangxi Electric Power Construction Co., Ltd. as a subcontractor on August 30, 2017. Project implementation was originally scheduled to commence in October 2017 and reach completion within 18 months (May 2019). Construction of the 400/230/33/15kV Woldiya II substation had achieved a 48% completion rate as of June 2, 2021. However, there are indications that the China Eximbank loan for the Bahir Dar-Woldiya-Combolcha Substation Project financially underperformed vis-a-vis the original expectations of the lender. As of August 2023, the project remained incomplete due to the fact that China Eximbank suspended loan disbursements for its implementation. Also, 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.