Narrative
Full Description
Project narrative
In 2018, China Eximbank and the Government of Zambia signed a $205,003,000 loan agreement for the Lusaka Urban Road (L400) Upgrade Project. As of July 2022, the loan had achieved a 96.5% disbursement rate ($197,877,928 out of $205,003,000). The Lusaka Urban Road (L400) Upgrade Project involves the design, rehabilitate, upgrade and construct approximately 402 km of selected urban and township roads in Lusaka City. At baseline, 14% of the road network in Lusaka was in good condition, 15% in fair condition. and 71% in poor condition. L400 was therefore initiated in order to enhance mobility within the city through reduced traffic congestion, travel times, and vehicle maintenance costs. The scope of works included widening selected roads which have very high traffic volume, improving selected roads to and within the industrial and commercial areas, construction of bus bays along selected bus routes as part of road safety measures, improving of public transport infrastructure, re-engineering selected junctions to improve traffic flow, construction of walkways along selected roads, providing interchange solution for Kafue Roundabout. AVIC International Project Engineering Company was the contractor responsible for project implementation. Lusaka Urban Road (L400) Upgrade Project was undertaken in three phases (as captured via Record ID#57194, #57190, #31329, #57218). Phase 1 began on July 7, 2013, and phase 3 was completed December 18, 2020. The proceeds of the $205,003,000 China Eximbank loan appears to have been used by the borrower for supplemental civil works after the completion of the project’s first three phases. On July 29, 2022, Ministry of Finance & National Planning (MOFNP) of Zambia announced that it was seeking lender approval to formally cancel the $205,003,000 China Eximbank loan’s undisbursed balance ($7,125,072.00); however, it also noted that it had not yet secured formal lender approval for this action. This announcement came approximately 21 months after the Government of Zambia defaulted on its repayment obligations to Eurobond holders and approximately 6 weeks after China, France, and 14 other countries formed a creditor committee to discuss the Zambian authorities’ request for a debt treatment under ‘the Common Framework for Debt Treatment beyond the DSSI’ endorsed by the G20 and the Paris Club.
Staff comments
1. In 2013, China Eximbank provided a loan for Phase 1 of the L400 Project (captured via Record ID#31329). In 2016, China Eximbank provided a loan for Phase 2 of the L400 Project (captured via Record ID#57218). In 2018, China Eximbank and ICBC provided loans for for Phase 3 of the L400 Project (captured via Record ID#57190 and ID#57194). More research is necessary to determine how the $205,003,000 loan that China Eximbank issued in 2018 relates to Phase 3 of the L400 Upgrade Project. 2. According to the World Bank's Debtor Reporting System (DRS), the weighted average grace period of all official sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 3.4733 years in 2018. AidData estimates the grace period of the China Eximbank loan that supported the Lusaka Urban Road (L400) Upgrade Project by using this figure. See https://www.dropbox.com/scl/fi/uyz6w7q31x2o8i6rna7ug/DRS-May-2024-Extraction-Official-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=n0a6270w91pdmmfyaoqva419r&dl=0 3. According to the World Bank's Debtor Reporting System (DRS), the weighted average maturity of all official sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 12.8605 years in 2018. AidData estimates the maturity of the China Eximbank loan that supported the Lusaka Urban Road (L400) Upgrade Project by using this figure. See https://www.dropbox.com/scl/fi/uyz6w7q31x2o8i6rna7ug/DRS-May-2024-Extraction-Official-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=n0a6270w91pdmmfyaoqva419r&dl=0 4. According to the World Bank's Debtor Reporting System (DRS), the weighted average interest rate of all official sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 5.728% in 2018. AidData estimates the interest rate of the China Eximbank loan that supported the Lusaka Urban Road (L400) Upgrade Project by using this figure. See https://www.dropbox.com/scl/fi/uyz6w7q31x2o8i6rna7ug/DRS-May-2024-Extraction-Official-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=n0a6270w91pdmmfyaoqva419r&dl=0 5. In July 2022, Zambia announced that it is cancelling certain projects in their entirety or cancelling undisbursed portions of certain Chinese loans unilaterally. 11 China Exim bank projects are cancelled, 3 ICBC projects are cancelled, 1 Jiangxi Bank project is cancelled. While it is unclear if the creditors agreed to this action, there is some evidence that shows the cancellation had ocurred. This issue warrants more investigation. The announcement can be accessed at https://www.dropbox.com/scl/fi/bxixfu3t97x14epaqayjv/MEASURES-TAKEN-REGARDING-SOME-LOAN-FINANCED-PROJECTS.pdf?rlkey=azvseog366a7ntoo93fjiatrj&e=3&dl=0