China Eximbank agrees in principle to provide $285 million loan — via EPCF arrangement — for Mzima II Pipeline Water Project

On July 17, 2017, the Coast Water Works Development Agency — a government-owned parastatal in Kenya — signed an Engineering, Construction, Procurement, and Financing (EPCF) contract worth $335,340,000 (Kshs 36,756,123,035.42) with M/S Avic International Holding Corporation for the Mzima II Pipeline Water Project. Avic International Holding Corporation, in turn, sought a loan worth approximately $285,039,000 from China Eximbank to finance 85% of the cost of the $335.34 million EPCF contract. The project is designed to draw water from the Mzima springs at the Tsavo River and to supply to the arid parts of Taita Taveta county. It is also supposed to supply water to other coastal counties of Makueni, Taita Taveta, Kwale, Kilifi and Mombasa. The project is expected to take three years to implementation. Its commercial contract also provides for a one-year defects liability period. After the April 2017 commercial contract was signed, Avic International Holding Corporation was authorized to seek a loan from China Eximbank to fulfill its financing responsibilities under the EPCF contract. China Eximbank and the Office of the Attorney-General gave no objection to the loan agreement. However, according to Kenyan parliamentary records, ‘due to unavoidable circumstances, it took long for the loan agreement to be executed, leading to an expiry of the commercial contract in July 2020. The Coast Water Works Development Agency [then] requested […] an extension of one-year period to July 2021, which was granted.’ As of December 2022, project implementation had not yet commenced.

Additional details

1. Under most EPCF 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 Avic International Holding Corporation will be backed by a repayment guarantee from the Government of Kenya (i.e. a sovereign guarantee).

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