China Eximbank provides RMB 690 million government concessional loan for Caustic Soda Plant and Industrial Zone Project (Linked to Project ID#96221, 98029)

On April 22, 1992, Myanmar Paper and Chemical Industries and Yunnan Provincial Chemicals Import and Export Corporation signed a contract for a caustic soda plant. The original memorandum was signed Dec 5, 1989. The plant was reported to cost 6 million USD. In December 1998, China's Kunming Electro-Chemical Plant (KECP) in Yunnan province and the Myanmar Paper and Chemical Industry (MPCI) under the Ministry of Industry No.1. signed a contract to renovate the caustic soda and chlorine plant at Sittoung Paper Mill No.1 in Mon state. Under the contract, the Chinese side is to bear the cost of the renovation of 1.2 million U.S. dollars which cover the supply of machinery equipment and transfer of technical know-how, while the Myanmar side is to repay with the products of caustic soda. It is unclear if it is the same project signed earlier in 1992. In June 2010, China Eximbank and the Ministry of Defense of Myanmar signed an RMB 690 million government concessional loan (GCL) agreement for the Caustic Soda Plant Construction Project. The borrowing terms of the loan are unknown. The proceeds of the loan were to be used by the borrower to finance a commercial contract between Myanmar Economic Holdings Ltd (MEHL) and China Ordnance Industries Group Corporation Limited (NORINCO). The purpose of the project was to construct a caustic soda plant in Thaton Township within Mon State. It was envisaged that the plant would produce chemicals for the soap industry. China Eximbank made an initial RMB 276 million ($40 million) disbursement in support of this project and the Ministry of Defense used the disbursed funds to pay NORINCO for the acquisition of equipment (to support the caustic soda plant). Then, in December 2013, MEHL and the Ministry of Defense transferred responsibility for the caustic soda plant and the RMB 690 million loan to Myanmar’s Ministry of Industry. The Government of Myanmar subsequently decided to suspend the caustic soda plant project and replace it with an industrial zone project in Thaton Township within Mon State. According to the Public Accounts Committee of Myanmar’s Parliament, approximately 2/3 of the funds that were paid to NORINCO were unrecoverable. There are some indications that the China Eximbank loan for the Caustic Soda Plant and Industrial Zone Project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, China Eximbank and the Government of Myanmar signed a debt suspension agreement as part of the G-20 Debt Service Suspension Initiative (DSSI). Under the terms of the agreement, the lender agreed to suspend principal and interest payments due between May 1, 2020 and December 31, 2020 under 3 buyer’s credit loan (BCL) agreements, 6 government concessional loan (GCL) agreements, and 27 preferential buyer’s credit (PBC) agreements (as captured via Project ID#98029). Debt service payments under many of these loan agreements were again deferred in 2021 (as captured via Project ID#96221).

Additional details

1. This project is also known as the Ion Membrance Caustic Soda & Polyvinyl Chloride (PVC) Project. The Burmese project title is ေကာ့စတစ္ဆုိဒါစက္႐ုံ. 2. The implementation status of the industrial zone project is unknown. This issue warrants further investigation. 3. The China Eximbank loan that supported this project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020. 4. Some sources identify Myanmar Economic Holdings Ltd (MEHL) as the borrower. MEHL is a major conglomerate run by the Burmese military (through the Ministry of Defense. 5. According to the World Bank's Debtor Reporting System (DRS), the weighted average maturity of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Myanmar was 19.3343 years in 2010. AidData estimates the maturity of the China Eximbank loan that supported the Caustic Soda Plant and Industrial Zone Project by using this figure. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 6. According to the World Bank's Debtor Reporting System (DRS), the weighted average grace period of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Myanmar was 5.0126 years in 2010. AidData estimates the grace period of the China Eximbank loan that supported the Caustic Soda Plant and Industrial Zone Project by using this figure. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 7. According to the World Bank's Debtor Reporting System (DRS), the weighted average interest rate of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Myanmar was 3.7267% in 2010. AidData estimates the interest rate of the China Eximbank loan that supported the Caustic Soda Plant and Industrial Zone Project by using this figure. See https://www.dropbox.com/s/ab8qt4n6jijcbhd/IDS_Average%20interest%20on%20new%20external%20debt%20commitments.xlsx?dl=0

Number of official sources

1

Number of total sources

10