[Suspended] China Eximbank provides loan for 321 km Lusaka-Ndola Dual Carriageway Project (Linked to Project ID#53037 and ID#92430)

In 2015, a Restricted Invitation to Tender (Ref: RDA/PPP/CE/001/15) was issued by the Road Development Agency (RDA) of Zambia. It stated that the RDA intended to enter into a Public-Private Partnership Agreement in form of a concession to undertake the upgrading of the Lusaka to Ndola road to dual carriageway. This Request for Proposals (RFP) solicited for financially and technically competent prospective concessionaires to implement the 321 km Lusaka-Ndola Dual Carriageway Project on a ‘Finance, Design, Construct, Operate, Maintain and Toll’ basis. According to the RDA, the Economic Internal Rate of Return (EIRR) for the project was approximately 29 per cent and the cost of construction was estimated at K930 million. However, in December 2016, the Government of Zambia’s PPP Council granted authority to change the procurement method for the project from a PPP model to an Engineering, Procurement, Construction plus Finance (EPC+F) model. Then, on May 30, 2017, RDA and China Jiangxi Corporation for International Economic and Technical Cooperation (CJIC or 中国江西国际 or 江西国际) signed an EPC+F contract worth $1,245,775,986.98. CJIC reportedly secured loans from Jiangxi Bank Co., Ltd. (Jiangxi Bank) and the Jiangxi Branch of China Eximbank worth $1,245,775,986.98 in 2018 to finance this EPC+F contract. The Government of Zambia reportedly issued a sovereign guarantee in support of the loans. The face value of the Jiangxi Bank loan, which is captured via Project ID# 92430, was $187,000,000 (i.e approximately 15% of the cost of the commercial contract . Therefore, the estimated value of the loan from the Jiangxi Branch of China Eximbank is $1,058,909,588.93 (i.e. approximately 85% of the cost of the commercial contract). This loan is captured via Project ID# 92425. The borrowing terms of the China Eximbank loan and the Jiangxi Bank Co., Ltd. (Jiangxi Bank) are unknown. However, it is known (based on official RDA documentation) that China Eximbank disbursed approximately $147 million by the end of 2018. It is also known that, as of July 2022, the Jiangxi Bank loan had achieved a 16% disbursement rate ($30,000,000 out of $187,000,000). In a statement to Parliament, Zambia’s Minister of Infrastructure and Housing later revealed that, although the total contract value of $1,245,775,986 (approx. K11.1 billion) was a major increase from the original estimated K930 million), the project’s EIRR had declined to 15%. The initial specification for the project included two roads (321 km and 45 km), construction of a new carriageway lane road (6.8m wide w/2m shoulders), median separation, service lanes, pedestrian accommodation facilities, 50mm Asphalt concrete on 200mm crushed stone base, 300mm cement stabilized sub-base, bypasses around Kapiri and Kabwe (business districts), drainage works, reconstruction of existing road, and construction of toll sites. However, the final scope of the project included the construction of 321 km of the core Lusaka to Ndola Dual Carriageway, but not the 45 km of the Kafulafuta to Masangano dual road. The core Lusaka-Ndola Dual Carriageway has several interlinks, including the Lusaka/Kabwe road − T002 (144 km), Kabwe/Kapiri Mposhi road − T002 (61 km), Kapiri Mposhi/Ndola road − T003 (116 km) and Kafulafuta/Masangano road − M006 (45 km). CJIC was the EPC contractor responsible for project implementation. A formal groundbreaking ceremony took place on September 8, 2017. However, work on the project halted in June 2021 due to overdue contractor payments. Zambia’s Ministry of Finance reportedly issued a directive to postpone the construction on the project. Construction had not yet begun in earnest. At that time (June 2021), RDA Public Relations Manager Masuzyo Ndholvu announced that ‘[t]o date, the contractor [CJIC] has carried out several preliminary activities such as setting up the construction camps site that is the preparation of designs, identified project-affected persons (PAPS) and property and services that may require to be relocated to pave way for the construction works on the Lusaka–Ndola dual carnage way on the great north road (GNR).” The RDA also said at the time that project would “only resume once the debt situation improves in the country or funds are sourced.’ This statement implies that the China Eximbank either suspended disbursements for the project. Then, in January 2022, Zambia’s Minister of Infrastructure, Housing Urban and Development Charles Milupi announced that the New Dawn Government was working hard to ensure that the 321 km Lusaka-Ndola Dual Carriageway Project would recommenced by the end of the rainy season with a revised cost that would be substantially less than that negotiated by the previous Patriotic Front (PF) Government. Several months earlier, Milupi said that ‘[o]verpricing, you have to have a benchmark and we are developing a benchmark which is a standard per unit price. That is why I have said very very categorically that no road will cost $1.2 billion, it won’t! As long as I am Minister, as long as this government is in place, as long as President Hakainde Hichilema is in place, there will be no road costing $1.2 billion per kilometer […].’ Then, in February 2022, local media reported that “the contractor [CJIC] who was picked by the previous PF regime to work on the Lusaka-Ndola dual carriageway at a cost of US$1.2 billion is back in Zambia and has agreed to do the works at a 50 per cent lower rate.” In response, Zambia Association of Citizen Contractors (ZACCO) General Secretary Danny Simumba stated ‘that the nation deserves to know what exactly has led to the reduction in the amount from the initial one point two billion dollars to five hundred billion dollars.’ He said that ‘in the absence of such information, people would continue speculating that there was corruption in the initial transaction.’ At the time, William Harrington, a former Zambian Minister of Communications and Transport, also said that “[t[his whole matter smells of corruption in a dubiously awarded contract over which the contractor should be summoned for questioning by the [Anti-Corruption Commission] and to show cause why he should not be arrested for what appears to be a dubious scheme to steal money from the people of Zambia in collusion with the former Patriotic Front regime through overpricing.’ Then, on July 29, 2022, Ministry of Finance & National Planning (MOFNP) of Zambia announced that it was seeking lender approval to formally cancel the Jiangxi Bank loan’s undisbursed balance ($157,000,000); 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.

Additional details

1. The $147 million loan disbursement from China Eximbank for the 321 km Lusaka-Ndola Dual Carriageway Project is captured via Project ID#53037. China Eximbank’s apparent suspension of the loan for the 321 km Lusaka-Ndola Dual Carriageway Project is captured via Project ID#92425. 2. This project is also known as the Lusaka-Kapiri Mposhi-Ndola Dual Carriageway Project and the Upgrade T2 Road from Lusaka to Ndola, 321 km; Luansha-Fisenge Masangano Road, 45 km; Kabwe and Kapiri-Mposhi bypasses. The Chinese project title is 赞比亚卢萨卡至恩多拉高速公路项目 or 卢萨卡至恩多拉高速公路项目. 3. According to the Annual Work Plans of Zambia Road Development Agency, the source of funding for the project was reported to be China Eximbank, in 2017, in 2018 and 2019, but in 2020 it was reported to be the Bank of China. This issue warrants further investigation. 4. The RDA 2018 Approved Road Sector Annual Work Plan (RSAWP) shows a disbursement of K1.4 billion ($147 million) for 86 km worth of works under the Lusaka-Ndola Dual Carriageway Project (for the period covering 2018) and it identifies China Eximbank as the source of funding. 5. The China Eximbank loan is not included is not included the database of Chinese loan commitments that SAIS-CARI released in July 2020. Nor is it included it in the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020. 6. In 2019, a Zambian parliamentary committee was informed that ‘the contract [for the Lusaka-Ndola dual carriageway] was to be financed using the Contractor Financing Initiative (CFI) model of Financing. However, in order to keep the country’s debt at sustainable levels, the Ministry of Finance (MoF) had granted authority to terminate the aforesaid signed contract. The Road Development Agency shall engage the office of the Attorney General to ensure that any litigation costs were avoided.’ CFI is another term for the EPC+F modality. Under most EPC+F contractual arrangements, a loan is extended to the EPC contractor but with a sovereign guarantee from the host government. 7. Jiangxi Bank Co., Ltd. (Jiangxi Bank) is a state-owned commercial bank in China. 8. The $187 million loan is identified by SAIS-CARI and Boston University’s Global Development Policy Center as supporting the ‘Chalala Barracks’ Project (also known as the 6th Regiment Chalala Barracks Project). However, the 6th Regiment Chalala Barracks Project was supported by a $181 million buyer's credit from China Eximbank, which was used to partially finance a $201,391,650 commercial contract between the Ministry of Defense of the Government of Zambia and Jiangxi Zhongmei Engineering Construction Co., Ltd. (as captured via AidData via Project ID#88394). In July 2022, the Ministry of Finance & National Planning (MOFNP) of Zambia disclosed that the $187 million Jiangxi Bank loan was issued to finance approximately 15% of the $1,245,775,986.98 cost of the commercial contract for the 321 km Lusaka-Ndola Dual Carriageway Project between RDA and China Jiangxi Corporation for International Economic and Technical Cooperation, which was signed on May 30, 2017.

Number of official sources

11

Number of total sources

34