China Eximbank provides $220 million buyer’s credit loan for Addis Ababa–Djibouti Railway Rolling Stock Supply Project (Linked to Record ID#30171, #70085, #70086, #61941, #85163)

Project narrative

On May 15, 2013, China Eximbank and the Government of Ethiopia signed a $2,490,760,000 buyer’s credit loan (BCL) agreement for the Addis Ababa–Djibouti Railway Project. The BCL carried the following borrowing terms: a 15-year maturity, a 6-year grace period, and an interest rate of LIBOR plus a 3% margin. The loan was also backed by a credit insurance policy from China Export and Credit Insurance Corporation (SINOSURE). China Eximbank provided the loan, which was on-lent to Ethiopian Railways Corporation (ERC), in three separate loan tranches. The first tranche is worth $1,289,029,000 (captured via Record ID#70086) and it supported the Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project. The second tranche is worth $981,260,000 (captured via Record ID#70085) and it supported the Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project. The third tranche is worth $220,471,000 (captured via Record ID#70083) and it supported the Addis Ababa–Djibouti Railway Rolling Stock Supply Project. The borrower was expected to use the proceeds of the $1,289,029,000 China Eximbank loan tranche to finance 70% of the cost of a $1,841,470,000.00 commercial (EPC) contract between the Ethiopian Railway Corporation (ERC) and China Railway Engineering Corporation (CREC), which was signed on October 25, 2011 (and modified on November 5, 2012, February 7, 2013, and March 15, 2013) to support the construction of a 329 km Sebeta (Addis Ababa) to Miesso section of the railway. The borrower was expected to use the proceeds of the $981,260,000 China Eximbank loan to finance 70% of the cost of a $1,401,800,000 commercial (EPC) contract between the ERC and China Civil Engineering Construction Corporation (CCECC), which was signed on December 16, 2011 (and modified on modified on November 2, 2012, February 7, 2013 and March 8, 2013) to support the construction of a 339 km section of the railway that runs from Miesso (Meiso) to Dewelle (Dewanle) on Ethiopia's border with Djibouti. The borrower was expected to use the proceeds of the $220,471,000 China Eximbank loan to finance approximately 85% of a $259 million commercial contract between China North Industries Corporation (NORINCO) and the ERC, which was signed in March 2013 to support the Addis Ababa–Djibouti Railway Rolling Stock Supply Project. The purpose of the Addis Ababa–Djibouti Railway Project was to construct a 750.224 km railway from Sebeta to Nagad. The purpose of the Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project was to construct a 329.065 km railway section from Sebeta to Meiso (Mieso) that consists of two subsections: a 113.836 km railway subsection from Sebeta to Adama and a 215.229 km subsection from Adama to Meiso (Mieso). The purpose of the Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project was to construct a 339.182 km railway section from Meiso (Mieso) or to Dewelle (Dewanle/Dawanle) on Ethiopia's border with Djibouti. The line runs from Mieso to the east — via Mulu, Afdem, Bike,Gota, Erer, and Hurso — to Dire-Dawa. It then turns to the north before reaching Arawa, and then runs from Adigala to Lasarat, Aysha, Dawanle and the border between Ethiopia and Djibouti. The purpose of the Addis Ababa–Djibouti Railway Rolling Stock Supply Project was to acquire 5 electric locomotives, 6 diesel locomotives, 30 railway passenger cars and 1,100 railway freight cars for the Addis Ababa–Djibouti Railway. * Loan Disbursements: According to the Government of Ethiopia’s Aid Management Platform (AMP), the $1,289,029,000 (ETB 24,004,264,432) loan tranche for the Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project achieved a 104% disbursement rate, with China Eximbank making 14 loan disbursements (worth ETB 24,905,259,256) between 2014 and 2020: an ETB 1,062,992,126 disbursement on July 8, 2014, an ETB 5,420,000,000 disbursement on October 8, 2014, an ETB 2,303,030,303 disbursement on January 8, 2015, an ETB 5,597,115,886 disbursement on April 8, 2015, an ETB 1,808,159 disbursement on October 7, 2015, an ETB 1,740,583,177 disbursement on January 7, 2016, an ETB 825,731,677 disbursement on April 7, 2016, an ETB 2,165,153,034 disbursement on July 7, 2016, an ETB 143,690,666 disbursement on October 7, 2016, an ETB 923,238,863 disbursement on January 7, 2017, an ETB 325,274,645 disbursement on April 7, 2017, an ETB 372,159,087 disbursement on July 7, 2017, an ETB 1,422,471,270 disbursement on September 20, 2017, and an ETB 2,602,010,364 disbursement on November 12, 2020. According to the Government of Ethiopia’s AMP, the $981,260,000 (ETB 18,272,998,138) loan tranche for the Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project achieved a 75% disbursement rate, with China Eximbank making 8 loan disbursements (worth ETB 13,669,737,755 ) between 2014 and 2017: an ETB 5,580,000,000 disbursement on October 8, 2014, an ETB 2,585,858,586 disbursement on January 8, 2015, an ETB 1,515,331,236 disbursement on July 8, 2015, an ETB 243,681,645 disbursement on January 7, 2016, an ETB 1,660,143,553 disbursement on July 7, 2016, an ETB 1,092,814,700 disbursement on October 7, 2016, an ETB 448,108,619 disbursement on January 7, 2017, and an ETB 543,799,417 disbursement on July 7, 2017. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $220,471,000 (ETB 4,105,605,214) loan tranche for the Addis Ababa–Djibouti Railway Rolling Stock Supply Project achieved a 115% disbursement rate, with China Eximbank making 12 loan disbursements (worth ETB 4,738,085,121) between 2014 and 2021: an ETB 665,417,485 disbursement on December 4, 2014, an ETB 160,812,787 disbursement on August 4, 2015, an ETB 153,698,778 disbursement on September 8, 2015, an ETB 59,771,749 disbursement on December 14, 2015, an ETB 102,465,859 disbursement on December 21, 2015, an ETB 91,306,426 disbursement on February 18, 2016, an ETB 119,581,905 disbursement on May 26, 2015, an ETB 1,969,772,945 disbursement on June 8, 2016, an ETB 298,939,684 disbursement on October 28, 2016, an ETB 166,925,102 disbursement on April 6, 2017, an ETB 245,832,231 disbursement on June 21, 2019, and an ETB 703,560,172 disbursement on January 20, 2021. * Project Design: The 759 km Addis Ababa–Djibouti Railway (‘Yali Railway’) is the only railway line connecting landlocked Ethiopia with a Djibouti Port. The railway begins at Sebeta, just outside of Ethiopia's capital of Addis Ababa. The city is served by two stations in its southern outskirts, at Furi-Labu and Indode. The line then runs southeast to Modjo and Adama, both towns located in the Ethiopian Great Rift Valley. At Modjo, a railway junction exists for the planned Modjo–Hawassa Railway. In addition, at Modjo the railway is connected to the Modjo Dry Port, Ethiopia's most important inland dry port and also Ethiopia's main hub for domestic and international freight services. At Adama, the railway turns northeast towards Dire Dawa. At Awash, there is a junction with the Awash–Hara Gebeya Railway, which is under construction as of 2018. Directly after Awash station, the line crosses 60 meters above the Awash River canyon over a 155 meter long bridge, the main bridge of the railway.The railway then proceeds to Dire Dawa, where it turns and heads directly for Djibouti. Crossing the Ethiopia-Djibouti border between Dewale and Ali Sabieh, the line reaches the Djibouti passenger terminal at Nagad railway station, near Djibouti–Ambouli International Airport. In February 2001; the Government of Ethiopia asked CCECC to inspect the line and propose a construction plan. This plan was put on hold for several years due to a lack of funding. After years of continued deterioration due to mismanagement, a 2007 pre-feasibility study indicated that the line needed to be renovated (at a cost of approximately $3.4 billion. The proposed renovation of the railway was designed to include a double track from Addis Ababa to Adama, a single track from Adama to Dewele, a 1035 meter long bridge, the grand bridge at DK42, the 155 meter Awash grand bridge, and a Labu station upgrade. Upon completion, it was envisaged that the Yaji Railway would run passenger trains (at 120 km/hr) and cargo trains (at 80 km/hr). * Project Implementation: Construction began in 2012 and the project as a whole had achieved a 50% completion rate by 2014. Track laying for the railway began in May 2015. The railway was opened for passenger services on October 4, 2016. Then, on December 31, 2017, Ethiopian Railway Company issued a project handover certificate to CREC and CCECC. The next day, on January 1, 2018, a ceremony was held to mark the beginning of the railway’s commercial operations. Two days later, in January 3, 2018, a two-way passenger train on the Ethiopian section of the railway went into service. The Yali Railway was the first overseas railway constructed by Chinese enterprises that adhered to international standards (1,435 mm gauge line and electrification at 25 kV) and used Chinese equipment (CSR Zhuzhou for the rolling stock). The Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project was originally scheduled (under the terms of the EPC contract) to commence on February 12, 2012 and reach completion within 42 months (August 12, 2015). It was ultimately completed about 15 months behind schedule (November 12, 2016). The Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project was originally scheduled (under the terms of the EPC contract) to commence on April 12, 2012 and reach completion within 42 months (October 12, 2015). It was ultimately completed about 14 months behind schedule (December 12, 2016). The Addis Ababa–Djibouti Railway Rolling Stock Supply Project was implemented between 2013 and 2015. In April 2014, three diesel locomotives manufactured by arrived in Ethiopia by sea. Then, in October 2015, the ERC took delivery of 315 locomotives — that carry passengers and freight — from NORINCO and Metals and Engineering Corporation. On December 13, 2015, 22 electric locomotives, 6 diesel locomotives and 6 passenger carriages arrived in the Port of Djibouti. * Railway Operations & Management (Project Supervision and Control): On July 28, 2016, CREC and CCECC signed the Ethiopia-Djibouti Railway Operation and Management Agreement. The agreement specified that the CREC-CCECC consortium (also known as the CCECC-CREC JV and 中土集团与中铁二局亚吉铁路联营体公司) would manage the railway for 5 years (following construction completion). Then, on December 16, 2015, ERC and Société Djiboutienne de Chemin de Fer (SDCF) established a joint venture called the Ethio-Djibouti Standard Gauge Railway Company (EDR). ERC holds a 75% ownership stake and SDCF holds a 25% ownership stake in EDR. The main purpose of the EDR is to manage the Addis Ababa–Djibouti Railway (including the maintenance and renewal of all infrastructure and equipment) and to operate freight and passenger transport services on the line from 2024. The December 16, 2015 agreement specified that CREC and CCECC would operate and maintain the railway for six years from the launch of operations and provide two additional years of technical support during the gradual handover of management duties to EDR from 2024. The CREC-CCECC consortium officially transferred management and operation responsibilities to EDR in May 2024. * Financial Performance Problems: The project has faced financial problems associated with lower traffic volumes than predicted in the transport forecast and currency exchange rate fluctuations (as the project’s debt was issued in USD, but construction and operation costs as well as revenues are denominated in Ethiopian Birr or ETB). It remains to be seen if the Yali Railway will find a path to commercial viability. The price of a railway passenger ticket was initially set at 30 Ethiopian birr (ETB). However, this price was subsequently deemed too high and reduced to 4 ETB, which means that the railway will generate substantially less ticket revenue than originally planned. After the project was completed, the borrower repeatedly defaulted on its principal and interest payment obligations (before and after debt restructuring). Sinosure has made at least eight indemnity payments to China Eximbank worth approximately $200 million since February 2020. However, some reporting suggests that Sinosure has written off as much as $1 billion in losses due to the poor commercial performance of the Addis Ababa–Djibouti Railway. On or around September 4, 2018, China Eximbank and the Government of Ethiopia restructured the three buyer’s credit loan agreements for the Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project, the Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project, and the Addis Ababa–Djibouti Railway Rolling Stock Supply Project that were signed in May 2013. Under the terms of the restructuring agreements, the maturities of the loans were reportedly extended by an additional sixteen years (i.e., from 15 years to 31 years, or from 2028 to 2044). Additionally, the grace period of two of the loans were reportedly extended by 5 years, including the $1.28 billion China Eximbank buyer's credit loan and the $981 million China Eximbank buyer's credit loan (i.e., from 6 years to 11 years, or from 2019 to 2024). The grace period of the third loan (the $220 million China Eximbank buyer's credit loan) was reportedly extended by an additional 6 years (i.e., from 6 years to 12 years, or from 2019 to 2025). The 2018 debt rescheduling record for the $1.28 billion China Eximbank buyer’s credit loan that supported the Sebeta-Adama–Meiso Section of the Addis Ababa–Djibouti Railway Project is captured via Record ID#96154. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to July 21, 2024 and January 21, 2044. Its first and last scheduled interest payment dates were reset to July 21, 2014 and January 21, 2044. The 2018 debt rescheduling record for the $981 million China Eximbank buyer’s credit loan that supported the Meiso-Dewanle Section of the Addis Ababa–Djibouti Railway Project is captured via Record ID#96155. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to July 21, 2024 and January 21, 2044. Its first and last scheduled interest payment dates were reset to July 21, 2014 and January 21, 2044. The 2018 debt rescheduling record for the $220 million China Eximbank buyer’s credit loan that supported the Addis Ababa–Djibouti Railway Rolling Stock Supply Project is captured via Record ID#61941. After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to January 21, 2025 and July 21, 2044. Its first and last scheduled interest payment dates were reset to January 21, 2015 and January 21, 2044. The Government of Djibouti also requested a restructuring of its $491,793,000 buyer's credit loan agreement with China Eximbank for the 100 km Ali Sabieh to Nagad Section of the Addis Ababa–Djibouti Railway Project on December 31, 2017. The Djiboutian authorities reported to the IMF that a memorandum of understanding (MOU) was signed in 2019 to extend the grace period from 5 years to 10 years, extend maturity of the loan from 15 years to 25 years, and reduce the interest rate from 3.409% (0.409% [2013 avg. 6-month LIBOR] + 3% [300 basis points]) to 2.509% (0.409% [2013 avg. 6-month LIBOR] + 2.1% [210 basis points]). The Djiboutian authorities also indicated that arrears on interest payments on this loan that had been accumulated during the restructuring discussion (worth 1.2 percent of the country’s GDP) had been restructured—and that they were integrated to the principal and expected to be repaid over the extended amortization period The new terms of the loan reportedly reduced the present value of the country’s debt-to-GDP ratio by 4 percentage points and smoothed total debt service. However, the final loan restructuring agreement (captured via Record ID#85163) was not signed until September 2, 2020. It not only codified the terms and conditions that were first specified in the 2019 MOU, but also sought to improve the performance and profitability of the railway in order to increase revenue generation. The restructuring agreement was ratified into Djiboutian law in February 2021. * Operational Performance Problems: Energy supply is not always stable in Ethiopia, due to the variable level of water in the country’s dams. The lack of stable energy supply delayed the start of railway operations, even after construction was complete. ‘Overvoltage’ problems also led to repeated service interruptions after the railway began commercial operations in early 2018. This is a technical problem where surges in the electrical grid (due to Ethiopia exporting power to its neighbors) lead to overvoltage in the railway transmission line, akin to blowing a fuse. The railway line has also been flooded on several occasions, halting or delaying services. The Ethiopian Government claims that the standards used by the Chinese companies to build the railway did not take flooding into account. CCECC and CREC, however, argue that their standards accounted for potential floods, but that, in the flooded sections, tracks were stolen, causing structural damage to the railroad. Field interview evidence has also revealed a number of accidents involving animals (camels in particular) being hit by trains and killed. As the ERC has paid more than the market price for camels in compensation, there are suspicions that people are pushing their camels in front of trains deliberately. There is a plan is to build a fence along the railway, which should reduce accidents and enable trains to travel faster, from the current 50 km/h to 80 km/h. However, there is a risk that this may in turn create other problems, including interrupting paths used by people and animals. Railway service interruptions have also occurred due to protests, For example, in late July 2021, a group of Somali Region protestors blocked the railway line following an attack by Afar regional militia. The line reopened on August 3, 2021.