CDB reschedules $290 million buyer's credit for Omo Kuraz 2 Sugar Factory Construction Project (Linked to Project ID#58656)

On October 1, 2013, China Development Bank and Ethiopian Sugar Corporation (ESC) — an Ethiopian state-owned enterprise — signed a $290 million (ETB 5,482,041.588) buyer's credit (loan) agreement for the Omo Kuraz 2 Sugar Factory Construction Project (captured via Project ID#58656). The borrowing terms of the loan were as follows: an interest rate of 6-month LIBOR plus a 2.6% margin, a grace period of 3 years, and a maturity of 13 years. The Government of Ethiopia issued a sovereign guarantee in support of the loan. Sinosure provided buyer’s credit insurance. The borrower was expected to use the proceeds of the loan to partially finance a $682 million commercial (EPC) contract that it had signed in March 2013 with China National Complete Plant Import Export Corporation (COMPLANT) for the construction of the Omo Kuraz 2 sugar factory and Omo Kuraz 3 sugar factory. According to the Government of Ethiopia’s Aid Management Platform (AMP), the $290 million (ETB 5,482,041.588) loan for the Omo Kuraz 2 Sugar Factory Construction Project achieved a 120% disbursement rate, with China Development Bank making 19 loan disbursements (worth ETB 6,554,551.271) between 2014 and 2018: an ETB 1,145,280,176 disbursement on May 29, 2014, an ETB 449,017,120 disbursement on March 6, 2015, an ETB 261,364,209 disbursement on November 3, 2015, an ETB 285,352,353 disbursement on December 23, 2015, an ETB 122,759,215 disbursement on January 7, 2016, an ETB 815,954,636 disbursement on September 26, 2016, an ETB 549,281,319 disbursement on September 26, 2016, an ETB 133,426,866 disbursement on October 24, 2016, an ETB 147,108,527 disbursement on October 24, 2016, an ETB 241,605,770 disbursement on February 15, 2017, an ETB 67,915,564 disbursement on February 24, 2017, an ETB 149,759,299 disbursement on February 24, 2017, an ETB 228,357,488 disbursement on September 25, 2017, an ETB 132,889,199 disbursement on September 25, 2017, an ETB 117,929,128 disbursement on September 25, 2017, an ETB 77,856,763 disbursement on November 28, 2017, an ETB 635,784,607 disbursement on January 3, 2018, an ETB 77,305,249 disbursement on April 13, 2018, and an ETB 915,603,784 disbursement on May 24, 2018. According to the AMP, the CDB loan was restructured on an unspecified date to reduce the amount that the borrower would be responsible for repaying by 50% over a 5-year period. This loan rescheduling is captured via Project ID#92357. The purpose of the project was to construct the Omo Kuraz 2 Sugar Factory in South Omo within South Nations Nationalities and Peoples Regional State (SNNPRS). The precise locational coordinates of the factory are 5.90692, 36.03851. Upon completion, the factory was expected to crush 6,000 to 12,000 tons of sugar cane a day. The factory was also expected to generate 60MW of electricity and send 40MW of electricity to the national power grid (as the sugar factory only requires 20MW). COMPLANT was the general EPC contractor responsible for implementation. Construction began in July 2014. Then, on December 3, 2016, a training course was completed for local employees on the operations and maintenance of the sugar factory. Two weeks later, on December 18, 2016, the Prime Minister of Ethiopia conducted an on-site project inspection. As of the end of the fiscal year 2016/17, the project had achieved a 94.5% completion rate but it was running behind schedule. The sugar factory began trial production activities on March 27, 2017. It went into full production on December 31, 2017. However, in October 2019, Ethiopia's Auditor-General Gemechu Dubiso announced that he was investigating the possibility that funds earmarked by ESC for ten state-owned sugar factories (potentially including the Omo Kuraz 2 Sugar Factory) were stolen or misappropriated. Then, in July 2021, the Government of Ethiopia announced that it would privatize the Omo Kuraz 2 sugar factory due to debt sustainability problems and the inability of the ESC to fund the operations of the faltering sugar factory and several others.

Additional details

1. This project is also known as the Omo Kuraz 2 Facility Project. The Chinese project title is OMO2糖厂 or 埃塞奥姆2糖厂 or 埃塞OMO2糖厂项目 or 埃塞俄比亚OMO2糖厂项目. The Amaric project title is ኦሞ ኩራዝ 2 ስኴር ፋብሪካ. 2. The all-in interest rate (2.961%) was estimated by adding a 2.6% margin to average 6-Month LIBOR in October 2013 (0.361%). 3. In 2012, China Development Bank issued a $500 million loan (export buyer’s credit) to the Ethiopian Sugar Corporation (ESC) for the construction of the Omo Kuraz 2-3 Project (i.e. the construction of the Omo Kuraz 2 sugar factory and the construction of the Omo Kuraz 3 sugar factory). $210 million of this loan was initially earmarked for the construction the Omo Kuraz 2 facility. 4. The Commercial Bank of Ethiopia (CBE) financed the resettlement costs of former residents at the Omo Kuraz 2 Sugar Factory project site, as well as the construction of the COMPLANT’s staff residencies. 5. The AMP system identification number for the project is 87143436114989. 6. More research is needed to identify the precise date on which the CDB loan rescheduling agreement was signed and the precise terms of the agreement. For the time being, AidData assumes a debt rescheduling date of July 2021 (since this is when it was first revealed that the debt contracted for the Omo Kuraz 2 Sugar Factory Construction Project could not be repaid by the borrower). This issue warrants further investigation.

Number of official sources

7

Number of total sources

14