China Eximbank provides $645.82 million buyer’s credit loan for 600 MW Karuma Hydropower Dam and Associated Transmission Lines and Sub-stations Project (Linked to Record ID#30919)

📋 Staff Comments

1. In July 2016, the Government of Uganda concluded an an interest rate swap deal with Standard Bank and Standard Chartered on its China Eximbank BCL loan. Under the terms of the deal, the Government of Uganda agreed to pay a fixed interest rate of 2.58 percent (0.79 plus a swap premium of 1.79) on its loan, allowing Standard Bank and Standard Chartered to pay the floating interest, which is dependent on LIBOR. Thus, the Government of Uganda only benefits from the arrangement when LIBOR plus the agreed premium is higher than 2.58 percent. According to the Government of Uganda, the purpose of engaging in this interest rate swap was “to ensure certainty and hedge against future [LIBOR] rate fluctuations. However, as of 2018, the Government of Uganda had not yet benefited from the interest rate swap arrangement because the floating rate remained below 2.58 percent. As a result, the Government of Uganda incurred additional costs that it would not have incurred in the absence of the interest rate swap arrangement.
2. In the China’s Overseas Development Finance Dataset that Boston University's Global Development Policy Center published in December 2020 and the database of Chinese loan commitments that SAIS-CARI released in July 2020, a single, $1.4 billion China Eximbank loan for the 600 MW Karuma Hydropower Dam and Associated Transmission Lines and Sub-stations Project project is identified. However, AidData records two separate China Eximbank loans for this project (a PBC and a BCL) based on the loan agreements themselves. SAIS-CARI also records only one set of borrowing terms: 20-year maturity, 5-year grace period, and 2% interest rate. However, PBC and BCL agreements specify that these loans carry different borrowing terms. The BCL carries an annual interest rate of 3.827% (LIBOR plus 3.5% margin), a 15-year maturity, a 5-year grace period, a 0.5% management fee ($3,229,107.04), and a 0.5% commitment fee. The PBC carries a 2% interest rate, a 20-year maturity, a 7-year grace period, a 0.25% management fee (worth $1,973,343.19), and a 0.25% commitment fee. The PBC agreement can be accessed in its entirety via https://www.dropbox.com/s/znwu46a5h6vsclk/China%20EximBank%20Loan%20-%20Karuma%20Hydropower%20Dam%20and%20associated%20works%20Project%20PBC%20%282014%29%2046%20Total%20No%20340.pdf?dl=0. The BCL agreement can be accessed in its entirety via https://www.dropbox.com/s/rp79c47zockl9gi/China%20EximBank%20Loan%20-%20Karuma%20Hydropower%20Dam%20and%20associated%20works%20Project%20Contract%20No.%20140302052015210069.pdf?dl=0.
3. For loan and debt rescheduling records with variable interest rates, AidData calculates the all-in interest rate at T0 based on the reference rate (such as LIBOR or EURIBOR) on the loan start date, plus any known margin. Please see the methodology for additional details.
4. On July 28, 2021, the BCL agreement was amended in order to extend the loan’s disbursement period by two additional years (to allow for $73.915 million of unutilized funds to be utilized by the borrower). The amended agreement [No. 140302052015210069A] can be accessed in its entirety via https://www.dropbox.com/s/kklgyc75pkwedat/Supplementary%20Agreement%20to%20Buyer%20Credit%20Loan%20Agreement%20for%20Karuma%20HPP.pdf?dl=0.
5. The collateralization arrangement that governs the BCL and the PBC is described in detail in Article 6.12 of the PBC agreement and Article 12.k of the BCL agreement. Both loan agreements define the ‘security document’ as ‘each of the agreements and legal documents signed by the relevant parties for the purposes of creating security interests in favor of the Lender and enhancing the credit of the Borrower as stipulated in Article 6.12, including without limitation the On-lending Agreement(s), the Escrow Account, the Repayment Reserve Account Agreement, the Power Purchase Agreement, the Power Sales Agreement and the Assignment Agreement/Debenture. Article 6.12 reads as follows: ‘The borrower undertakes that the repayment of principal and payment of interest and fees under this Agreement shall be credit enhanced and the following arrangements: (1) After this Agreement has been signed by the Borrower and the Lender, the On-Lending Agreement(s) shall be duly signed as provided in this Agreement, in form and substance acceptable to the Lender. (2) The Repayment Reserve Account and the Sales Collection Account shall be opened and maintained with the Lender and the Escrow Account Bank and be subject to the respective escrow arrangement under the Repayment Reserve Account Agreement and the Escrow Account Agreement. The Repayment Reserve Account shall be used to maintain the minimum amount of balance as a debt service reserve as required by the Lender and the Lender shall be entitled to utilized the funds in the Repayment Reserve Account. The Sales Collection Account shall be used to collect the revenues generated from the Project and the required amount of funds in the Sales Collection Account shall be transferred to the Repayment Reserve Account as required by the Lender. (3) All the revenues (proceeds) generated from the Project shall be applied in priority to payment of any and all amounts due and payable under this Agreement. (4) The Borrower shall procure UEGCL as seller and UETCL as purchaser to sign the Power Purchase Agreement in form and substance acceptable to the Lender. (5) The Borrower shall procure UETCL as seller and the relevant distributor(s) relating to the Project as purchaser to sign the Power Sales Agreement in form and substance acceptable to the Lender. (6) The Borrower shall procure each of UEGCL and UETCL as assignor/chargor to sign with the Lender assignee/chargee the Assignment Agreements/Debenture in forma and substance acceptable to the Lender, which which UEGCL and UETCL shall assign and/or pledge, among others, all its assignable rights and interests and revenue under the Power Purchase Agreement and the Power Sales Agreement (as the case may be) to the Lender. (7) The Borrower undertakes to ensure that the successors of permitted assignees and transferee of the parties of the Security Documents shall abide by the provisions of the relevant Security Documents. (8) Notwithstanding the existence of the Security Document, the Borrower shall be fully liable for the payment and repayment obligations under this Agreement. The Borrower’s obligations under this Agreement shall not be affected or undermined by the execution, delivery and performance by the relevant parties of such Security Documents.’ 6. The BCL and PBC define the ‘Assignment Agreement/Debenture’ as ‘each or both (as the context may require) or (i) the assignment agreement/debenture entered into or to be entered into between UEGCL as assignor/chargor and the Lender as assignee/chargee, under which UEGCL shall assign and/or pledge, among others, all its assignable rights and interest under the Power Purchase Agreement to the Lender; and (ii) the assignment agreement/debenture entered into or to be entered into between UETCL as assignor/chargor and the Lender as assignee/chargee, under which UETCL shall assign and/or pledge, among others, all its assignable rights and interests and revenues under the Power Sales Agreement to the Lender, both of which are in form and substance acceptable to the Lender.’ The BCL and PBC define the ‘Escrow Account Agreement’ as the ‘escrow account agreement entered into to or to be entered into among the Lender, the Borrower, and other relevant parties as well as the Escrow Account Bank in respect of opening, maintenance and control of the Sales Collection Account and in form and substance acceptable to the Lender. The BCL and PBC define the ‘Escrow Account Bank’ as the ‘Export-Import Bank of China and/or such other reputable international bank registered in Uganda and approved by the lender.’ The BCL and PBC define the ‘On-Lending Agreement(s)’ as the ‘loan agreement(s) entered into or to be entered into between the Borrower and the lender and UEGCL and UETCL as co-borrowers (whereby the Borrower enters into separate on-lending agreement with each of UEGCL and UETCL respectively); whereby the proceeds of the Facility are on-lent by the Borrower to UEGCL and UETCL to implement the Project.’ The BCL and PBC define the ‘Power Purchase Agreement’ as the ‘power purchase agreement entered into or to be entered into between UEGCL as seller and UETCL as purchaser under the ‘Take or Pay’ terms in connection with the Project, in form and substance acceptable to the Lender.’ The BCL and PBC define the ‘Power Sales Agreement’ as the ‘power sales agreement entered into or to be entered into between UETCL as seller and relevant distributor(s) related to the Project as purchaser under the ‘Take or Pay’ terms in connection with the Project, in form and substance acceptable to the Lender.’ The BCL and PBC define the ‘Repayment Reserve Account’ as ‘the account in the name of the Borrower with the Lender and for the purpose of maintaining the minimum amount of the funds as debt service reserve pursuant to the Escrow Account Agreement.’ The BCL and PBC define the ‘Repayment Reserve Account Agreement’ as ‘the repayment reserve account agreement entered into or to be entered into among the Lender, the Borrower, and other relevant parties in respect of the opening, maintenance and control of the Repayment Reserve Account and in form and substance satisfactory to the Lender.’ The BCL and PBC define the ‘Sales Collection Account’ as ‘the account in the name of UEGCL and/or UETCL or other relevant parties with the Escrow Account Bank and for the purpose of collecting revenues generated from the Project pursuant to the Escrow Account Agreement.’ 7. The revenues generated by this project flow through a ‘cashflow waterfall’ arrangement (usefully described via https://pivotal180.com/project-finance-cash-flow-waterfall/ and https://www.lexology.com/library/detail.aspx?g=26f2629e-2040-4dda-a6d8-6600e478cf7f).
6. Under the terms of the BCL agreement, the borrower is responsible for paying 20 installments of $32,291,070.28 every six months between January 2021 and July 2030. The commencement date of the loan repayment period is December 24, 2020 and the first repayment date is January 21, 2021.
7. The June 2019 escrow account cash balance is drawn from the following source https://www.oag.go.ug/storage/reports/ACC_FIIT_AGCY_2018_19_1649574114.pdf. Conversion to USD based on an exchange rate of 1 UGX = 0.0003 USD.
8. The Government of Uganda’s agreement code for the PBC agreement and the BCL agreement is L-0639. The system identification number in the Government of Uganda’s Aid Management Platform (AMP) is 87299228334.

📚 Sources & References

• Annual Report 2015-16
• Annual Report for the 12 Months Period Ended June, 2019
• Annual Report for the 12 Months Period Ended June, 2019
• Annual Report for the 18 Months Ended June 2017
• Annual Report of the Auditor General for the Audit Year Ended December 2016 - Central Government & Statutory Corporations
• April 2019 AMP Flat Export
• Building Hydropower Plants in Uganda: Who is the Best Partner?
• Campaign roads under threat?
• Challenges of and opportunities from the commodity price slump
• China Hydropower Construction Group and Uganda Government signed a memorandum of cooperation on the construction of Karuma Hydropower Station and supporting transmission lines
• China's Global Energy Finance
• China's Overseas Development Finance
• Construction at Karuma hydro power project starts
• Counselor Ouyang Daobing and Zhao Xiufen visited the Kaluma Hydropower Project
• Electricity projects set to boost Uganda
• ELECTRIFICATION OF INDUSTRIAL PARKS PROJECT
• Energy Sector Semi-Annual Budget Monitoring Report Financial Year 2018/19, final REPORT ON PUBLIC DEBT
• GRANTS
• GUARANTEES 2024 WEB
• Goverment agencies disagree over Karuma
• Isimba power
• Inside Uganda's debt burden
• Karuma dam to be commissioned in 2022
• Karuma Escrow
• Karuma Hydro Electricity Power Project
• KARUMA HYDRO ELECTRICITY POWER PROJECT - AMP Dec 2024
• KARUMA HYDRO POWER PROJECT 600MW
• Karuma Hydroelectric Power Plant (600MW) PPP
• Karuma Hydroelectric Power Station
• Karuma Hydropower Project
• Karuma Hydropower Project_BCL Agreement_36211
• Karuma Hydropower Station starts generating electricity next year
• Karuma Interconnection Project
• MINISTRY OF FINANCE
• PLANNING AND ECONOMIC DEVELOPMENT
• Parliament gives the green light for Chinese loans
• Parliament okays $1.435 billion loan for Karuma
• Projects Under Implementation
• Report and Opinion of the Auditor General on the Financial Statements of Treasury Operations for the Year Ended 30th June 2016
• REPORT OF THE AUDITOR GENERAL TO PARLIAMENT FOR THE FINANCIAL YEAR ENDED 30TH JUNE 2021
• REPORT ON PUBLIC DEBT (DOMESTIC AND EXTERNAL LOANS)
• GUARANTEES AND OTHER FINANCIAL LIABILITIES AND GRANTS FOR FINANCIAL YEAR 2015/16
• REPORT ON PUBLIC DEBT
• GUARANTEES
• OTHER FINANCIAL LIABILITIES AND GRANTS FOR FINANCIAL YEAR 2016/17 AND THE MEDIUM TERM DEBT MANAGEMENT STRATEGY 2017/18 – 2020/21
• REPORT ON PUBLIC DEBT
• GUARANTEES
• OTHER FINANCIAL LIABILITIES AND GRANTS FOR FINANCIAL YEAR 2020/21
• REPORT ON PUBLIC DEBT
• GUARANTEES
• OTHER FINANCIAL LIABILITIES AND GRANTS FOR FINANCIAL YEAR 2020/21
• REPORT ON PUBLIC DEBT
• GUARANTEES,OTHER FINANCIAL LIABILITIES AND GRANTSFOR FINANCIAL YEAR 2017/18
• REPORT ON PUBLIC DEBT
• GUARANTEES,OTHER FINANCIAL LIABILITIES AND GRANTSFOR FINANCIAL YEAR 2018/19
• Supplementary Agreement to Buyer Credit Loan Agreement for Karuma HPP
• The commencement ceremony of the Karuma Hydropower Station in Uganda was held
• Uganda : Staff Report for the 2015 Article IV Consultation and Fourth Review Under the Policy Support Instrument
• Uganda commissions $1.7 bln China-financed hydropower plant
• Uganda says concludes interest rate swap deal over Chinese loan
• Uganda to commission Chinese-financed mega hydropower plant
• Uganda's power sector reform: There and back again?
• Zhao Yali
• Ambassador of Uganda, inspected the Karuma Hydropower Project and expressed condolences to employees of China Hydropower Group
• Zheng Zhuqiang accompanied Ugandan President Museveni to inspect the Karuma Hydropower Project
• 中企海外项目双周报（2024.2.3-2024.2.18)
• 中国进出口银行向卡鲁玛水电站项目出具预付款保函
• 驻乌干达大使赵亚力考察卡鲁玛水电站项目并慰问中国水电集团员工 Loan applications and disbursements are still being received and processed as the projects continue to evolve. Ongoing monitoring and evaluation are in place to ensure project continuity.