[China Co-Financing Fund] IDB administers $50 million loan for Rural Roads Improvements Program

On March 27, 2015, the Inter-American Development Bank (IDB) signed two loan contracts with the Government of Paraguay to finance the Rural Roads Improvements Program: a $50 million loan that IDB issued from its ordinary capital (Loan 3363/OC-PR), and a $50 million loan from the People's Bank of China (Loan 3364/CH-PR) via the China Co-Financing Fund for Latin America and the Caribbean (CHC). The $100 million of loan financing authorized by IDB was only designed to cover part of the total project cost. Spain's Instituto de Crédito (ICO) also provided a $25 million loan to support the project. The IDB approval date for the loan financing was November 26, 2014, and it refers to this project as ‘PR-L1084: Rural Roads Improvements Program’. The CHC loan carries the following borrowing terms: a 23-year maturity (final maturity date: March 15, 2038), a 5.5-year (66-month) grace period (first loan repayment date: September 15, 2021), 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 0.85% IDB lending spread. The general objective of the Rural Roads Improvements Program is to help improve the connectivity of rural area in Paraguay — specifically, in the departments of the eastern region of the country , in order to provide better connection between the areas where goods are produced and consumed, as well as provide better connection to social and transportation services. The program's goals will be accomplished through three different components. The first is engagement in civil works. This is the largest part of the program, with over 92% (115.3 million USD) of total project funding budgeted for it. 19,200,202.43 USD of the loan from the China Co-Financing Fund specifically had been spent on this portion as of December 31, 2019. More specifically, this component includes the improvement of 392.48 km of neighborhood roads; routine maintenance for an average period of three years of 530 km of local roads and support for the development of Road Maintenance Microenterprises (Microempresas de Mantenimiento Vial, MEMV); the replacement of approximately 1,900 m of small, already-deteriorated wooden bridges with reinforced concrete bridges; and the technical and environmental inspection of these works. The second component includes financing the execution of the following: (i) engineering studies and projects, economic analyzes, socio-environmental studies related to the main neighborhood roads and the replacement of small bridges; (ii) socio-economic studies and evaluation of the impacts and results of the program and activities related to its follow-up and monitoring; (iii) independent external financial audit; and (iv) program administration, including operational and personnel expenses of the Program Executing Unit and the hiring of a technical support/fiduciary consulting company. 6.72% of total project funding ($8.4 million) was budgeted for this project component. $1,373,367.42 of the loan from the China Co-Financing Fund specifically had been spent on the auditing, monitoring, and evaluation portions, as well as project administration, as of December 31, 2019. The third is financing social-environmental mitigation measures and various training programs related to both these measures and subsequent hiring in the works and maintenance of the program, including specific topics and procedures for training and job creation for women. Only about 1% of total project funding was budgeted for this project component, and none of the loan from the China Co-Financing Fund specifically had been spent on it as of December 31, 2019. The Paraguayan Ministry of Public Works and Communications (Ministerio de Obras Públicas y Comunicaciones, MOPC) was responsible for project execution. A consortium — consisting of APPE (Assessoria para Proyectos Especiais Ltda.), CONTEC S.A. Ingenieros Consultores, and HAGAPLAN Engenharia e Servicos Ltda. — was selected to help implement the project, although other contractors likely participated. The Central Bank of Paraguay (BCP, Banco Central del Paraguay) held the funds in a bank account, account No. 1.052 - MIHA5080US$. As of December 31, 2019, 2020, CHC loan had achieved a 41.1% disbursement rate (with $20,573,569.85 being disbursed and $29,426,430.15 not yet being disbursed). Construction on neighborhood road improvement (part of the first component), had started between the end of 2015 and July 2016, per a MOPC report, and was expected to be finished by 2019. Additionally, three, out of about 44 bridges (also part of the first component), had reached an average 84.38% physical progress by June 1, 2021. However, due to the number of individual infrastructure projects that are financed by this program, a precise construction start date and overall project progress level is not available.

Additional details

1. The CHC loan contract can be accessed in its entirety via https://www.dropbox.com/s/nimv4jdefwmbymn/CONTRATO%20DE%20PR%C3%89STAMO%20No.%203364%3ACH-PR.pdf?dl=0. 2. AidData has estimated the all-in interest rate (1.15%) by adding average 3-month LIBOR in the first quarter of 2015 (0.25%) to the funding margin during the second quarter of 2015 (.05%) and the IDB lending spread during the first quarter of 2015 (0.85%). 3. 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. 4. 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. 5. By December 31, 2019, $23,624,680 had been disbursed from the CHC loan and $32,837,556 from the IDB's ordinary capital loan. In total, $56,462,236 was disbursed through both loans by December 31, 2019. By June 2020, the two loans had jointly disbursed $68,462,236. 2. $68,462,236 - $56,462,236 = $12,000,000 that was disbursed in the first half of 2020, but it is unknown which of the two loans disbursed. Therefore, at least $23,624,680 was disbursed by June 2020 (the amount from the end of 2019). At most, $35,624,680 was disbursed by June 2020 (assuming all $12 million from the unknown source came from the CHC loan). 6. The IDB lending spread data are drawn from https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376.

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