Narrative
Full Description
Project narrative
On August 24, 2016, the Public Service Pensions Fund (PSPF) and China State Construction Engineering Corporation signed a $72,001,602.99 commercial (EPC) contract for the Longacres Mall Construction Project. ICBC subsequently issued a buyer’s credit (loan) to PSPF and authorized it to used the proceeds of the loan to partially finance the August 24, 2016 commercial contract. The Government of Zambia issued a sovereign guarantee in support of the loan. The loan’s principal amount outstanding was $52,726,058 as of December 31, 2020, $52,726,058 as of June 30, 2021, $52,726,058 as of June 30, 2022, and $41,263,871 as of December 31, 2022. The purpose of the project was to construct a large shopping mall, entertainment center, office building, four-star hotel, parking lot, overpass, and related ancillary facilities on Alick Nkhata Road in the Longacres suburb of Lusaka. China State Construction Engineering Corporation was the EPC contractor responsible for project implementation. It took possession of the project site on September 15, 2016. Construction began in May 2017 and the Longacres Mall was officially commissioned on December 24, 2022. However, there are indications that this project underperformed vis-a-vis the original expectations of the project owner (PSPF). The project’s originally scheduled completion date was March 15, 2019. However, on May 7, 2019, the commercial contract between PSPF and China State Construction Engineering Corporation was modified such that the contract price was increased to $107,136,292.69 and the expected project completion date was pushed out until July 31, 2021. There are also questions about the financial health of the borrowing institution. Section 29 (2) of the Public Service Pensions Act No 35 of 1996 stipulates that the PSPF Board shall not invest assets in excess of twenty percent (20%) of its net asset value in any one form of investment. However, the investment in the Longacres Mall Construction Project was expected to cost $107,136,293 (K2,249,862,153), thus exceeding the 20% threshold as the net assets were valued at K918,639,295 as of December 31, 2019.
Staff comments
1. This project is also known as the Alick Nkhata project. The Chinese project title is 赞比亚养老金商业综合体项目. 2. The precise face value of the ICBC buyer’s credit is unknown. For the time being, AidData assumes that it is equivalent to 85% of the original commercial contract value (0.85*$72,001,602.99 = $61,201,362.54). 3. On May 23, 2018, the Public Service Pensions Fund and Alick Nkhata Property Development Limited (SPV) signed an International Management Agreement (IMA) with Radisson Hotels Asp Denmark to enable them run the hotel under construction at Longacres Mall. 4. The Public Service Pensions Fund Board (PSPFB) is a statutory pension scheme that was established under Act No. 35 of 1996 to manage the pension scheme for public servants. The Public Service Pensions Fund (PSPF) is a partially funded defined benefit pension scheme, which provides retirement pensions to permanently employed civil servants and dependent survivor. It is a contributory scheme whereby the employer (Government) and employee each contributes 7.25% of the basic salary. Prior to 14 November 2014, public servants who contribute to the PSPF had a statutory retirement age pegged at 55 years while early retirement (subject to approval after application) was 45 years or 20 years of continuous service. In 2014, a law was passed which changed the statutory retirement age to 65 years. 5. This loan is not included in the SAIS-CARI database of Chinese loan commitments that was released in 2020 and re-released in 2021. 5. According to the World Bank's Debtor Reporting System (DRS), the weighted average grace period of all ‘private’ sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 3.7841 years in 2016. AidData estimates the grace period of the ICBC loan that supported the Longacres Mall Construction Project by using this figure. See https://www.dropbox.com/scl/fi/iymnqwd205mvs5h8crtv8/DRS-May-2024-Extraction-Private-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=bi71wlqbrbnfienx75a7bq1g2&dl=0 6. According to the World Bank's Debtor Reporting System (DRS), the weighted average maturity of all ‘private’ sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 16.2602 years in 2016. AidData estimates the maturity of the ICBC loan that supported the Longacres Mall Construction Project by using this figure. See hxttps://www.dropbox.com/scl/fi/iymnqwd205mvs5h8crtv8/DRS-May-2024-Extraction-Private-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=bi71wlqbrbnfienx75a7bq1g2&dl=0 7. According to the World Bank's Debtor Reporting System (DRS), the weighted average interest rate of all ‘private’ sector lending from all Chinese creditors to government and government-guaranteed borrowing institutions in Zambia was 4.2599% in 2016. AidData estimates the interest rate of the ICBC loan that supported the Longacres Mall Construction Project by using this figure. See https://www.dropbox.com/scl/fi/iymnqwd205mvs5h8crtv8/DRS-May-2024-Extraction-Private-Chinese-Loan-Commitments-to-Zambia.xlsx?rlkey=bi71wlqbrbnfienx75a7bq1g2&dl=0