CHEC provides loan — via deferred payment arrangement — for Extension and Dredging Works of Berths 17 and 18 at Port Sudan Project

On or around June 8, 2006, Sea Ports Corporation (SPC) — a Sudanese state-owned company — and China Harbour Engineering Co. Ltd (CHEC) signed a deferred payment ("延期付款”) agreement for the Extension and Dredging Works of Berths 17 and 18 at Port Sudan Project. The loan carried an 8-year maturity and the borrower (SPC) was expected to make monthly repayments with the retained (ring-fenced) portion of its monthly operating income. The other borrowing terms of the loan are unknown. However, is is known that SPC used the deferred payment arrangement to finance a $110 million commercial (EPC) contract that it signed with China Harbour Engineering Co. Ltd on June 8, 2006. The purpose of the project was to construct two 70,000-ton (TEU) container terminals at Port Sudan (Berths 17 and 18). The total length of the terminals is 781 meters with a water depth of 16 meters. The project scope also included dredging activities (for a foundation trench, turning basin, main channel) with a total volume of 3.5 million cubic meters. CHEC was the contractor responsible for implementation. Project implementation commenced in January 2007. The project was originally expected to reach completion within 30 months (July 2009). As of December 2009, construction of the main terminals and ancillary works were complete, but site cleaning activities had not yet been undertaken. The project was ultimately completed in February 2011. An official project completion ceremony was held on December 21, 2011. However, the deferred payment (lending) arrangement between SPC and CHEC appears to have underperformed vis-à-vis the original expectations of CHEC. Sudan’s Ministry of Finance initially set up a special bank account into which SPC deposited its monthly operating income (worth approximately $200 million a year), and SPC was allowed to retain some but not all of these funds for its own purposes (such as construction and maintenance of port facilities and servicing its debts to CHEC). However, Sudan’s Ministry of Finance subsequently took away SPC’s ability to retain a portion of its monthly income around 2011 (when the Sudanese Government faced an acute foreign exchange shortage), which made it substantially more difficult for SPC to honor its monthly repayment obligations. CHEC later disclosed that SPC was in arrears but continued to make interest payments.

Additional details

1. This project is also known as the Port Sudan New Container Terminal and Dredging Project. The Chinese project title is 17-18號泊位延長段及疏浚工程 or 苏丹港17/18号码头. 2. In a typical receivables financing agreement (or deferred payment agreement), the company that the project owner in the host country has selected as its engineering, procurement, and construction (EPC) contractor is also a lender to the project owner. The company assigns receivables under its EPC contract with the project owner to one of or more banks. Upon assignment of receivables, the bank or banks will release funds to the company so it can discharge its obligations under the receivables financing agreement as a lender. Receivables financing is also known as accounts receivable financing (finance) or A/R financing (finance) or 应收账款融资 (in Chinese). These other terms are used because the accounts receivable of a company (i.e., unpaid invoices) are being used as collateral to unlock working capital—typically in the form of a bank loan (‘receivables loan’). Sellers often face cash flow problems when their buyers do not make full payment at the due date of the invoice. A receivables financing arrangement addresses this problem by allowing them to sell their outstanding invoices to a bank at a discounted rate. This approach allows the seller to receive the remaining invoice amount before the due date of the invoice. The bank either gets its money back at invoice maturity through the seller (acting as a collecting agent) or directly from the debtor. 3. In Chinese, a deferred payment agreement is known as《延期付款协议》. 4. The face value of the deferred payment agreement is unknown. For the time being, AidData assumes that it is equivalent to 85% of the value of the EPC contract ($110 million). 5. SPC Contact: Mr. Jalal Eldin. M.A. Shelia (General Manager) Tel: +249912308514 Email: spcp@sudanmail.net; Spcp21@sudanports.gov.sd; spc_dmea@yahoo.com. 6. Sea Ports Corporation (SPC) is an independent state corporation of Sudan that governs, constructs and maintains the ports, harbors and lighthouses of Sudan. The company was founded in 1974 by the government of Sudan to be the national port operator and port authority. 7. This loan is omitted from the SAIS-CARI database of Chinese loan commitments that was released in July 2020.

Number of official sources

14

Number of total sources

28