Narrative
Full Description
Project narrative
On April 15, 2019, Talco Aluminium Company (TALCO) — a state-owned enterprise (SOE) in Tajikistan—signed a $545 million engineering, procurement and construction (EPC) plus finance (EPC+F) contract with China Machinery Engineering Corporation (CMEC) for an Aluminum Smelter Modernization Project (also known as the TALCO 300kt/a Electrolytic Aluminum Production Line Rehabilitation Project). The agreement was only to become effective upon the satisfaction of certain conditions precedent. On November 1, 2019, the Government oof Tajikistan issued a decree, converting TALCO from an SOE (or so-called ‘state unitary enterprise’) into an open joint-stock company and effectively allowing for its (partial) privatization. Then, on December 4, 2019, Radio Liberty’s Tajik Service quoted China’s former ambassador to Tajikistan, Yue Bin, as saying that CMEC would purchase an ownership stake in TALCO in return for the Chinese company investing $545 million. Yue offered no details about the size of any ownership stake to be sold and TALCO has not commented publicly on the prospect of it being partially privatized. However, the conditions for its sale were created. Then, in May 2020, the Government of Tajikistan approved the EPC+F (loan) agreement. The purpose of the project is to modernize TALCO’s aluminum smelter in the town of Tursunzoda. The project scope includes rehabilitation of TALCO’s existing production line electrolytic aluminum series and ancillary facilities. CMEC is the EPC contractor responsible for project implementation. It is responsible for the design and optimization, procurement of equipment, civil engineering and construction, installation, training, commissioning, warranty and other works of the project. The project’s construction period is 24 months and it includes two phases; each phase will last for 12 months upon commencement of construction. CMEC and Global Advanced Manufacturing Institute (GAMI) are the contractors responsible for project design and implementation. As of May 2023, GAMI was undertaking a project feasibility study. According to a World Bank-IMF Debt Sustainability Analysis (DSA) that was published in May 2020, ‘[t]he Ministry of Finance [of Tajikistan] does not record non-guaranteed debt of SOEs. In 2019, TALCO, a loss-making state-owned aluminum company, was allowed to borrow without a government guarantee. Subsequently, TALCO has signed a MOU to borrow $545 million from China to modernize its plant. The finalization of contract and associated disbursement are expected in 2020.’ The IMF also warned that the $545 million loan presents a substantial contingent liability risk, as it is non-guaranteed SOE debt worth 6.5% of Tajikistan’s GDP.
Staff comments
1. Under most EPC+F contractual arrangements, a loan is extended to the EPC contractor but with a sovereign guarantee from the host government. Therefore, AidData assumes that the loan issued to CMEC is backed by a repayment guarantee from the Government of Tajikistan (i.e. a sovereign guarantee). 2. The Chinese project title is 塔吉克300kt/a电解铝技改项目 or 塔吉克斯坦共和國塔吉克300kt/a電解鋁技改項目. 3. Global Advanced Manufacturing Institute (GAMI) was established in China in 2008 by wbk Institute of Production Science of the Karlsruhe Institute of Technology (KIT). KIT is one of the first technical universities in Germany and worldwide known for its high-quality education and research. 4. There is some evidence that China Eximbank and Sinosure may be supporting the EPCF arrangement (https://www.dropbox.com/scl/fi/cgqkbol9zmh811li77nmk/AAA-Homepage-Reference-to-China-Eximbank-Sinosure-and-TALCO.pdf?rlkey=pzm1smaaobhg3hwr4g0sx6siw&dl=0). This issue warrants further investigation.