China Eximbank provides $32.2 million buyer’s credit loan for Tatek Production Line of the Mugher Cement Expansion Project (Linked to Record ID#45047, ID#725)

Project narrative

In November 2006, China Eximbank and the Government of Ethiopia’s Ministry of Finance and Economic Development signed a $500 million buyer’s credit facility agreement (互惠贷款) — also known as a master loan framework agreement and a master facility agreement — for an unspecified set of development projects. All subsidiary loans approved under the buyer’s credit facility agreement (captured via Record ID#45047) carried the following borrowing terms: a 13-year maturity, a 4-year grace period, and an interest rate of LIBOR plus a 2-3% margin. All of the subsidiary loans were secured with (i.e., collateralized against) Ethiopia's export receipts to China, which at the time primarily consisted of sesame seed export receipts. The buyer’s credit facility agreement also required that all Ethiopian exports (export receipts) to China to be overseen by the Commercial Bank of Ethiopia (CBE), the country’s largest state-owned financial institution. As a source of collateral, the borrower was required to maintain a minimum cash balance in a debt service reserve account (DSRA) at the CBE. The cash balance of the DSRA (escrow account) was $284,368,041 as of June 30, 2011, $308,914,767 as of June 30, 2012, $300,000,000 as of June 30, 2016, $300,000,000 as of June 30, 2017, $300,000,000 (ETB 8,260,410,000) as of June 30, 2018, $300,000,000 as of June 30, 2019, ETB 10,599,600,000 as of June 30, 2020, ETB 8,058,726,059 as of June 30, 2021, ETB 10,722,750,953 as of June 30, 2022, and ETB 9,832,603,839 as of June 30, 2023. 16 subsidiary loans for 16 different projects were reportedly approved under the buyer’s credit facility agreement. China Eximbank and the Commercial Bank of Ethiopia signed a subsidiary buyer’s credit loan worth ETB 1,145,843,829 ($90,980,800) for the Mugher Production Line of the Mugher Cement Expansion Project on November 4, 2008. The loan's first and last scheduled principal payment dates were March 31, 2012 and March 31, 2022, respectively. Its first and last scheduled interest payment dates were September 30, 2009 and September 30, 2021, respectively. The Commercial Bank of Ethiopia then on-lent the proceeds of the loan to Mugher Cement Enterprise (an Ethiopian state-owned enterprise). The ultimate borrower (Mugher Cement Enterprise) was expected to use the proceeds of the loan to finance approximately 64% of the cost of a $138 million commercial (EPC) contract that it signed with Sinoma International Engineering Co., Ltd. on December 6, 2006. The Government of Ethiopia’s Industrial Development Fund directly funded the remainder (34%) of the commercial contract cost. 64.5% of the face value of the loan ($58,682,616 or ETB 739,357,683) was earmarked for the Mugher Production Line of the Mugher Cement Expansion Project (‘Lot 1’), and 35.5% of the face value of the loan ($32,298,184 or ETB 406,486,146) was earmarked for the Tatek Production Line of the Mugher Cement Expansion Project (‘Lot 2’). Record ID#725 captures Lot 1 and Record ID#92136 captures Lot 2. According to the Government of Ethiopia’s AMP, the ETB 739,357,683 ($58.695 million) loan for Lot 1 achieved an 18% disbursement rate, with China Eximbank making 2 loan disbursements (worth ETB 135,479,525) between 2009 and 2010: an ETB 130,927,573 disbursement on December 31, 2009, and an ETB 4,551,952 disbursement on March 31, 2010. According to the Government of Ethiopia’s AMP, the ETB 406,486,146 ($32.305 million) loan for Lot 2 achieved a 31% disbursement rate, with China Eximbank making 3 loan disbursements (worth ETB 126,558,996) between 2009 and 2011: an ETB 30,000,000 disbursement on December 31, 2009, an ETB 12,804,711 disbursement on March 31, 2010, and an ETB 83,754,286 disbursement on April 8, 2011. The purpose of Lot 1 was to install clinker production machinery installed at Mugher cement factory, which is located approximately 150 km west of Addis Ababa. The purpose of Lot 2 was to construct a new cement factory 12 km west of the capital in the Tatek locality (near Tatek Military Camp). Upon completion, it was envisaged that the two factories would have the capacity to crush 900,000 tons of clinker per year and 2.4 million tons of cement per year (a 150 percent increase over the baseline level of 900,000 tons of cement per year). Sinoma International Engineering Co., Ltd. was the general EPC contractor responsible for project implementation. However, Chengdu Design & Research Institute of Building Materials Industry was also involved in the project (most likely as a subcontractor). Project implementation commenced in January 2008. The project was originally scheduled to commence in mid-December 2006 and reach completion within 21 months (approximately October 15, 2008). However, the cement plant did not go into operation until February 27, 2011.