China Eximbank provides 5-year maturity extension on $54.2 million buyer’s credit loan for Lot 2 of 97MW Neshe Multipurpose Dam Construction Project (Linked to Record ID#92164)

In November 2006, China Eximbank and the the Government of Ethiopia’s Ministry of Finance and Economic Development signed a $500 million buyer’s credit facility agreement (互惠贷款) — also known as a master loan framework agreement and a master facility agreement — for an unspecified set of development projects.

All of the subsidiary loans were secured with (i.e., collateralized against) Ethiopia's export receipts to China, which at the time primarily consisted of sesame seed export receipts.

The buyer’s credit facility agreement also required that all Ethiopian exports (export receipts) to China to be overseen by the Commercial Bank of Ethiopia (CBE), the country’s largest state-owned financial institution.

As a source of collateral, the borrower was required to maintain a minimum cash balance in a debt service reserve account (DSRA) at the CBE.

The cash balance of the DSRA (escrow account) was $284,368,041 as of June 30, 2011, $308,914,767 as of June 30, 2012, $300,000,000 as of June 30, 2016, $300,000,000 as of June 30, 2017, $300,000,000 (ETB 8,260,410,000) as of June 30, 2018, $300,000,000 as of June 30, 2019, ETB 10,599,600,000 as of June 30, 2020, ETB 8,058,726,059 as of June 30, 2021, ETB 10,722,750,953 as of June 30, 2022, and ETB 9,832,603,839 as of June 30, 2023. 16 subsidiary loans for 16 different projects were reportedly approved under the buyer’s credit facility agreement.

China Eximbank and the Commercial Bank of Ethiopia (CBE)— an Ethiopian state-owned bank — signed a subsidiary buyer’s credit loan worth $117,157,790.17 (ETB 1,082,214,356) for the 97MW Neshe Multipurpose Dam Construction Project on November 4, 2008.

The borrower was expected to use the proceeds of the loan to finance approximately 80% of the cost of a $147.3 million (ETB 1.3 billon) commercial contract between the Ethiopian Electric Power Corporation (EEPCo) — an Ethiopian state-owned enterprise — and China Gezhouba Group Corporation (CGGC), which was signed in December 2006.

The $117,157,790.17 (ETB 1,082,214,356) loan was provided in two tranches for two different lots (contracts): $62,949,044.83 (or ETB 581,478,798) was earmarked for the Neshe Multipurpose Civil Work Contract (‘Lot 1’) and $54,208,745.34 or (ETB 500,735,558) was earmarked for the Neshe Multipurpose Electro Mechanical Work Contract (‘Lot 2’).

The first and last scheduled principal payment dates for the loan that supported Lot 1 of 97MW Neshe Multipurpose Dam Construction Project were March 31, 2012 and July 21, 2021, respectively. The loan's first and last scheduled interest payment dates were July 1, 2009 and July 21, 2022, respectively.

The first and last scheduled principal payment dates for the loan that supported Lot 2 of 97MW Neshe Multipurpose Dam Construction Project were January 21, 2012 and July 21, 2021, respectively. The loan's first and last scheduled interest payment dates were July 1, 2009 and January 21, 2022, respectively.

According to the Government of Ethiopia’s AMP, the ETB 581,478,798 ($62,949,044.83) loan for Lot 1 achieved a 58% disbursement rate, with China Eximbank making 7 loan disbursements (worth ETB 336,241,047) between 2010 and 2012: an ETB 59,128,437 disbursement on April 8, 2010, an ETB 73,663,866 disbursement on April 8, 2011, an ETB 76,373,469 disbursement on July 7, 2011, an ETB 18,236,942 disbursement on October 10, 2011, an ETB 59,108,763 disbursement on October 10, 2011, an ETB 21,447,578 disbursement on January 8, 2010, and an ETB 28,281,993 disbursement on April 8, 2012.

According to the Government of Ethiopia’s AMP, the ETB 500,735,558 loan ($54,208,745.34) for Lot 2 achieved a 104% disbursement rate, with China Eximbank making 8 loan disbursements (worth ETB 521,882,224) between 2009 and 2012: an ETB 24,803,050 disbursement on December 31, 2009, an ETB 24,229,515 disbursement on April 8, 2010, an ETB 159,702,521 disbursement on April 8, 2011, an ETB 187,753,061 disbursement on July 7,, 2011, an ETB 39,950,859 disbursement on October 10, 2011, an ETB 18,469,723 disbursement on January 8, 2012, an ETB 39,639,860 disbursement on April 8, 2012, and an ETB 27,333,635 disbursement on October 10, 2012.

The purpose of the project was to construct the 97MW Fincha-Amerti-Neshi (FAN) hydroelectric power plant — also known as the Neshe multipurpose dam — on the Neshi River in the Blue Nile catchment within Eastern Wolega Zone in Oromia Regional State.

Upon completion, it was envisaged that the multi-purpose dam would enable the irrigation of a 6,000 hectare plot nearby, where sugarcane is grown by the state-owned Fincha Sugar Factory (also known as the Finchaa Sugar Estate). CGGC was the general EPC contractor responsible for project implementation.

Dam construction started on July 22, 2010. The project was originally scheduled for completion on August 25, 2011. It was ultimately completed on November 17, 2011. A formal inauguration ceremony was held on December 17, 2011.

Project implementation challenges and delays reportedly include a 24 month delay in the approval of the China Eximbank loan, power interruptions, and logistical problems while transporting construction materials from Djibouti port.

According to field interview evidence collected by Detlef Müller-Mahn and Million Gebreyes, the implementation of the project also provoked two sets of concerns among local residents: ‘First, there is a general feeling of unfairness, because apparently information about the new project and its opportunities was not made generally available.

Secondly, and worse than that, many people complain about broken promises and disappointed expectations, especially with regard to the payment of compensation and the organization of the out-grower scheme adjacent to the sugar cane plantation.

Many respondents confirmed that compensation for land that was taken for the new dam was not paid as originally agreed, which, as they explain, was due to insufficient asset valuations, incorrect surveys, mismanagement, and corruption.

Tensions in connection with the project were further aggravated when some of the resettled families realized that the new houses they had been given in the lowland area close to the sugar cane plantation were not as nice as they had expected, and that living conditions in that location were not favorable.

For that reason, many families left the new settlement again and went back to the highlands. They abandoned their new homes and the land they had been given.

However, as out-growers they were no longer free in their decision about what to cultivate and where to live, but had to grow sugar cane for the factory.

In 2017, when the farm managers of the sugar cane plantation realized that the land of the out-growers was no longer cultivated, they started to plant it with sugar cane. This again caused a major uproar among the settlers who claimed that the sugar company should pay rent to them.

The company did so in the first year, but when it refused to do so in the second year, people threatened that they would burn the plantation and attack the factory. As a consequence, almost 2000 hectares of the out-grower scheme were left without cultivation.

There are some indications that the China Eximbank loan for the Lot 1 of 97MW Neshe Multipurpose Dam Construction Project financially underperformed vis-à-vis the original expectations of the lender.

According to the Government of Ethiopia’s Debt Management and Financial Analysis System (DMFAS), the borrower secured a 5-year maturity extension, with the loan's final maturity date reset from July 21, 2021 to June 30, 2026.

There are also some indications that the China Eximbank loan for the Lot 2 of 97MW Neshe Multipurpose Dam Construction Project financially underperformed vis-à-vis the original expectations of the lender.

According to the Government of Ethiopia’s Debt Management and Financial Analysis System (DMFAS), the borrower secured a 5-year maturity extension, with the loan's final maturity date reset from July 21, 2021 to July 21, 2026.