China Co-Financing Fund] IDB administers $50 million loan from CHC for Panama City and Bay Sanitation Program II

On November 12, 2015, the Inter-American Development Bank (IDB) signed two loan contracts with the Government of Panama to finance the Panama City and Bay Sanitation Program II: a $60 million loan that IDB issued from its ordinary capital (Loan 3506/OC-PN), and a $50 million loan from the People's Bank of China (Loan 3506/CH-PN) via the China Co-Financing Fund for Latin America and the Caribbean (CHC). The $35 million of loan financing authorized by IDB was designed to cover the total project cost. The IDB approval date for the loan financing was July 29, 2015, and it refers to this project as ‘PN-L1109 : Panama City and Bay Sanitation Program II’. The CHC loan carries the following borrowing terms: a 20-year maturity, a 5.5-year (66-month) grace period, a 0.75% commitment (credit) fee, no management fee, and an annual interest rate of 3-month LIBOR plus a 0.05% funding margin (also known as the ‘Bank’s Cost of Funding’) and a 1.15% IDB lending spread. As of September 30, 2020, the CHC loan had achieved a 32.6% disbursement rate (with $16,341,295.38 out of $50 million being disbursed). As of October 2020, the IDB loan and CHC loan had jointly achieved an 41.31% disbursement rate (with $45,441,163.7 out of $110 million being disbursed). The objective of the program is to continue to contribute to improving the sanitary conditions and environmental health of the Panama Bay and the Panama City Metropolitan Area (Área Metropolitana de la Ciudad de Panamá, AMP) by increasing the treatment capacity of the AMP's sanitary sewer system through the rehabilitation, expansion, and improvement of physical infrastructure in the sanitary system. The program would also increase the system's sustainability through institutional strengthening. More specifically, the program's goals would be reached by undertaking the following activities: (1) The construction of the second treatment module of the Juan Díaz Wastewater Treatment Plant (Juan Díaz Planta de Tratamiento de Aguas Residuales, PTAR), including the necessary studies, civil works, equipment, and environmental management plan ("component one"). (2) Financing studies, designs, and civil works on infrastructure to both improve sewage collection and transportation services to the Juan Diaz Treatment Plant, as well as rehabilitate deteriorated infrastructure ("component two"). Such works include the construction or rehabilitation of 105 kilometers of collectors and separation networks for pluvial and sanitary drainage, as well as the required interconnections, among others. This includes the construction of Punta Paitilla, Punta Pacifica, and Matasnillo collector systems; financing studies for the Bella Vista and Calidonia collector systems; rehabilitation of the Lajas collector; and construction of the Juan Diaz River (Río Juan Díaz) collector. As of December 31, 2017, $25 million of the China Co-Financing Fund loan was budgeted for the design and construction of the Juan Díaz Wastewater Treatment Plant (Planta de Tratamiento de Aguas Residuales (PTAR) Juan Díaz), though not the operation and maintenance, and the other 25 million USD would go to the collectors and infrastructure rehabilitation (though not the feasibility and design studies, likely referencing those for the Bella Vista and Calidonia collector systems). A further project goal ("component three") was institutional strengthening, by: (A) Strengthening the capacity of the Panama Ministry of Health's (Ministerio de Salud, MINSA) Project Coordinating Unit in the operation and maintenance of the main infrastructure of the first iteration of the Panama City and Bay Sanitation Program, which began work in 2006 and was at 92% completion in 2015. This includes providing the Project Coordinating Unit training materials, technical equipment, computer equipment, vehicles, analysis of contract models, and a system for monitoring and protecting the quality of rivers and streams that cross the metropolitan area of Panama City. (B) Providing financing to the ad hoc Sustainability Committee specifically for its work with improving the management of MINSA's Project Coordinating Unit and (C) Providing funding to support the promotion of programs to reduce excessive water consumption, as well as initiatives to protect the quality of water in rivers, streams, and the bay. However, the proceeds of the China Co-Financing Loan, as of December 31, 2017, did not support this portion of the project. MINSA was responsible for project execution, as well as the Institute of Aqueducts and Sewers (Instituto de Acueductos y Alcantarillados Nacionales, IDAAN). Contractors included Suez International S.A.S. and Consorcio BCC, as well as a few others that received significantly smaller contracts. On May 30, 2017, the President of Panama gave the order to begin construction on the second module of the Juan Díaz Treatment Plant. As of April 30, 2019, improvements to the Punta Paitilla and Punta Pacifica sewage networks were completed. The January-June 2020 PMR Operational Report indicates that the project timeline had been extended to account for COVID-19, with several project components rescheduled for completion in 2021 and 2022. For a report of progress on each individual project component as of October 2020, see the January-June 2020 PMR Operational Report. As of May 2021, the Juan Díaz Treatment Plant second module had reached 91% physical progress. Funds from the China Co-Financing Fund were held in an account in the National Bank of Panama (Banco Nacional de Panamá), account number No.010000199367 Ministerio de Salud-MINSA-BID (Fondo Chino) 3506/CH-PN. The CAF Development Bank of Latin America (Corporacion Andina de Fomento (CAF) – Banco de Desarrollo de América Latina) provided an additional $110 million loan. The European Investment Bank provided $50 million. The Government of Panama was to provide $71.37 million. The project's total cost was estimated to be about $341.3 million in 2017. Of that amount, $210.285 million was budgeted for component one, $98.4 million was budgeted for component two, $11.6 million for component three, and over $21 million in operating expenses and unexpected costs.

Additional details

1. The CHC loan contract can be accessed in its entirety via https://www.dropbox.com/s/5bz5s5sw2xc1bo0/CONTRATO%20DE%20PR%C3%89STAMO%20No.%203506%3ACH-PN.pdf?dl=0. 2. IADB project identification number is PN-L1109. 3. The Spanish project title is Programa de Saneamiento Ambiental de la Ciudad y la Bahía de Panamá Fase II. 4. AidData has estimated the all-in interest rate (1.52%) by adding average 3-month LIBOR in the fourth quarter of 2015 (0.32%) to the funding margin during the fourth quarter of 2015 (0.05%) and the IDB lending spread during the fourth quarter of 2015 (1.15%). 5. According to the CHC loan contract, the ‘Bank's Cost of Funding’ means a cost margin calculated quarterly relative to a three (3)-month LIBOR Dollar Interest Rate, using the weighted average cost of funding instruments applicable to the Flexible Financing Facility, expressed in terms of an annual percentage, as determined by the Bank. AidData identified this cost margin via https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376. 6. The China Co-Financing Fund for Latin America and the Caribbean was established on January 14, 2013 with a contribution of $2 billion by the People's Bank of China. It is administered by the IDB. For more information, see umbrella Project ID#86526. 7. Budget numbers from the "Informe y Estados Financieros 31 de diciembre de 2017" are in balboas, though the exchange rate is one USD to one balboa. Thus the amounts provided in the budget are assumed to be the amounts in USD. 8. The IDB lending spread data are drawn from https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376.

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