China Eximbank provides $500 million loan for Welkait Sugar Mill Project

Project narrative

On May 4, 2014, China Eximbank and the Ethiopian Sugar Corporation (ESC) — an Ethiopian state-owned enterprise — signed a $500 million (ETB 9,727,626,459) loan agreement for the Welkait Sugar Mill Project. The Ethiopian Government issued a sovereign guarantee in support of the loan. The originally borrowing terms of the loan were as follows: an interest rate of 6-month LIBOR plus as 3% margin, a 13.671-year maturity (final maturity date: September 30, 2027), and a 4-year grace period. The borrower was expected to use the proceeds of the loan to partially finance a $647 million commercial (EPC) contract between ESC and China CAMC Engineering Co., Ltd. (CAMCE), which was signed on June 10, 2013. China Eximbank and ESC subsequently rescheduled the 2014 loan through a 2.416-year grace period extension. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to September 30, 2020 and September 30, 2027, respectively. Its first and last scheduled interest payment dates were reset to September 30, 2020 and December 31, 2029, respectively. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $500 million (ETB 9,727,626,459) loan for the Welkait Sugar Mill Project achieved a 114% disbursement rate, with China Eximbank making 44 loan disbursements (worth ETB 11,118,858,284) between 2015 and 2020: an ETB 554,010,424 disbursement on December 25, 2015, an ETB 1,786,218,847 disbursement on May 18, 2016, an ETB 448,903,299 disbursement on December 23, 2016, an ETB 28,238,854 disbursement on December 23, 2016, an ETB 124,292,734 disbursement on February 9, 2017, an ETB 138,110,858 disbursement on February 9, 2017, an ETB 35,899,704 disbursement on February 9, 2017, an ETB 92,355,665 disbursement on February 9, 2017, an ETB 296,084,581 disbursement on May 25, 2017, an ETB 242,822,856 disbursement on May 25, 2017, an ETB 26,193,982 disbursement on May 25, 2017, an ETB 20,337,902 disbursement on May 25, 2017, an ETB 164,283,295 disbursement on June 20, 2017, an ETB 271,695,163 disbursement on June 20, 2017, an ETB 106,574,404 disbursement on June 20, 2017, an ETB 278,058,734 disbursement on June 21, 2017, an ETB 355,556,821 disbursement on June 21, 2017, an ETB 331,393,450 disbursement on June 21, 2017, an ETB 19,022,653 disbursement on October 20, 2017, an ETB 216,925,077 disbursement on April 4, 2018, an ETB 443,315,855 disbursement on April 4, 2018, an ETB 398,505,561 disbursement on April 4, 2018, an ETB 198,158,894 disbursement on October 26, 2018, an ETB 88,128,548 disbursement on October 26, 2018, an ETB 384,778,609 disbursement on October 26, 2018, an ETB 114,884,096 disbursement on October 26, 2018, an ETB 755,478,704 disbursement on October 26, 2018, an ETB 424,036,093 disbursement on October 26, 2018, an ETB 141,070,367 disbursement on October 26, 2018, an ETB 186,832,817 disbursement on October 26, 2018, an ETB 198,158,894 disbursement on October 26, 2018, an ETB 114,884,096 disbursement on October 26, 2018, an ETB 399,053,780 disbursement on November 1, 2018, an ETB 98,778,655 disbursement on November 1, 2018, an ETB 255,406,833 disbursement on August 23, 2019, an ETB 207,818,195 disbursement on August 23, 2019, an ETB 120,484,148 disbursement on August 23, 2019, an ETB 498,639,680 disbursement on August 23, 2019, an ETB 199,168,958 disbursement on August 23, 2019, an ETB 125,539,899 disbursement on December 24, 2019, an ETB 69,558,427 disbursement on December 24, 2019, an ETB 131,099,561 disbursement on December 24, 2019, an ETB 12,440,636 disbursement on October 22, 2010, and an ETB 15,657,678 disbursement on October 22, 2020. The purpose of the project is to construct a sugar mill, construct a 135.5 meter-high and 840 meter-wide ‘May-Day’ irrigation dam on the Zarema River (next to the Waldiba Monastery) with the capacity to hold 3.5 billion cubic meters of water, install irrigation equipment, and construct a 4x30MW biogas power station (cogeneration power plant). About 70% of the electricity generated from the biogas power station (also known as the bagasse-fired power plant) will be used to run the sugar mill and 30% will connect to the surrounding area through a 137 kV electricity transmission line. The sugar mill (plant) will use sugarcane planted on 40,000 hectares of land and get irrigation water from the Tekeze, Kalema and Zarema rivers. Once it is fully operational, the sugar mill is expected to crush 24,000 tons of sugarcane per day (tcd), produce 484,000 tons of sugar per year, and produce 41.654 million liters of ethanol per year. The project site is located in Tigray Regional State’s Western Zone in Welkayit District. CAMCE is the general EPC contractor responsible for project implementation. However, Sur Construction is a subcontractor responsible for undertaking the construction of the irrigation dam. The project is being implemented in two phases (stages) and financed via two different loan tranches. On April 10, 2014, CAMCE signed a project design contract. Then, on October 9, 2016, a project commencement ceremony took place. Then, on March 15, 2019, Abraham Tekster, the Deputy Governor of Tigray, conducted an on-site project inspection. The project was originally expected to reach completion within 36 months (October 9, 2019). However, as of December 17, 2019, the Government of Ethiopia’s AMP noted that the ‘[irrigation] dam [was] not completed’ and the ‘field for sugar cane [was] not fully ready [for] production’. As of April 2020, the project had only achieved a 95% completion rate. On November 4, 2020, the Welkait Sugar Mill was damaged in an air raid during the Tigray conflict. The Chinese government ended up evacuating more than 600 of its citizens, including 187 employees from the Welkait Sugar Mill. As of September 2024, the project had achieved a 98% completion rate but remained incomplete due to security concerns. There are some indications that the China Eximbank loan for the Welkait Sugar Mill Project may have financially underperformed vis-a-vis the original expectations of the lender. in 2019, Ethiopia’s Ministry of Finance announced that it was seeking to privatize the Welkait Sugar Mill (as part of a broader effort to address the government’s debt sustainability problems and the ESC’s inability to fund the ongoing operations of multiple, faltering sugar factories). 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.