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ZTE provides $1.53 billion, CDB-backed supplier's credit for Phases 1-3 of National Telecommunications Network Infrastructure Expansion Project (Linked to Record ID#30884)
| Funder | China Development Bank (CDB) |
|---|---|
| Recipient Organization | ZTE Corporation (formerly Zhongxing Telecommunication Equipment Corporation) |
| Country | Ethiopia |
| Start Date | Dec 01, 2006 |
| End Date | Dec 03, 2033 |
| Duration | 9,864 days |
| Number of Grantees | 1 |
| Roles | Recipient |
| Data Source | AidData Chinese Aid |
| Grant ID | 59129 |
Grant Description
ZTE provides $1.53 billion, CDB-backed supplier's credit for Phases 1-3 of National Telecommunications Network Infrastructure Expansion Project At the FOCAC summit in 2006, Zhongxing Telecom Corporation (ZTE) and the Ethiopian Telecommunications Corporation (ETC), which was eventually renamed Ethio Telecom, agreed to a three-year sole supplier framework agreement worth $1.9 billion.
The deal, which was finalized in March 2007, gave a single supplier (ZTE) the right to supply and install all telecommunications equipment in Ethiopia over a three-year period.
According to the World Bank, there is “no evidence [...] that there was a commercial justification for the award of such a large contract to one supplier, that a competitive tender took place, or that there was an effective contractual mechanism for price protection and technical compliance.” Under the terms of the deal, ZTE provided a $1,530,725,464.08 supplier credit (i.e. vendor financing) on December 1, 2006 for ETC to purchase its equipment.
This supplier’s credit was, in turn, supported by a export seller's credit from China Development Bank (CDB) to ZTE.
After the debt rescheduling agreement was finalized, the loan's first and last scheduled principal payment dates were reset to December 31, 2016 and June 1, 2028, respectively. Its first and last scheduled interest payment dates were reset to June 1, 2008 and June 1, 2028, respectively. ETC's national telecom network infrastructure expansion project involved three phases of construction.
The first phase was the Ethiopian Millennium Project, which began in April 2007 and ended in September 2007; the second phase focused on the GSM and IP-based systems that cover the cities and roads; and the third phase started in October 2008 and covered the countryside and remote areas.
By 2010, ZTE pledged to roll out a 10,000 km optical fiber transmission network; increase the number of fixed lines in operation to 4.4 million, thus raising teledensity to 6%; attain 1,000,000 Internet subscribers, thus raising Internet subscribers density from 0.02% to 0.23%; expand 3G services to rural areas, in particular to major towns out of Addis Ababa; install wireless and VSAT connections to 15,000 villages including installation of CDMA Wireless Local Loop; expand the CDMA network with a capacity of 2.5 million subscribers; install 50,000 public telephones all over the country; establish a Network Operation Centre; establish a state-of-the art call centre; and establish a modern customer care and billing system.
As a result of the project's completion, the number of mobile subscribers grew sharply from less than 1.2 million in September 2007 to around 17.5 million in 2012. This was augmented by 2.4 million CDMA customers. The number of internet and data subscribers grew sevenfold, from 71,059 in 2009 to around 221,000 by the end of 2012.
In 2013, it was reported that the third phase of construction would be jointly undertaken by ZTE and Huawei (as captured via Record ID#30884), but that project was later suspended. There is also some circumstantial evidence that this project may have been plagued by corruption.
Press reports cite three cases of alleged corruption between July 2007 and August 2008: (1) In July 2007, the ETC allegedly dismissed 16 high-level employees for corruption as a result of an audit report that suggested irregularities in purchases from international suppliers.
The contracts in question allegedly were worth US$54 million. (2) In January 2008, the country’s Federal Ethics and Anti-Corruption Commission (FEACC) brought charges against a former ETC CEO and 26 former ETC executives for allegedly “procuring low quality equipment from companies that were supposed to be rejected on the basis of procurement regulations.” The contracts in question allegedly were worth US$154 million. (3) In August 2008, the FEACC arrested a senior ETC manager after receiving an audio recording and transcript from an anonymous source in which the manager is allegedly recorded soliciting a bribe from an international supplier.
Staff Comments
- China Development Bank offers export seller’s credits to Chinese companies that are implementing overseas projects. The companies may, in turn, use the proceeds of an export seller's credit to either make equity investments or provide loans (i.e. supplier’s credits) to the host government or other entities in the host country. In this particular case, China Development Bank provided a $1.5 billion export seller's credit to ZTE, and ZTE then used the proceeds of the export seller's credit to lend to the Government of Ethiopia. Under the deal, ZTE provided a $1.5 billion supplier credit (I.e. vendor financing) to ETC to help it acquire equipment from ZTE.
- Some sources also indicate that ZTE may have offered ETC a separate $400 million supplier’s credit for engineering construction activities, although it is unclear if this agreement was ever finalized (and whether a Chinese bank provided ZTE with an additional export seller’s credit). The terms of the framework agreement between Ethiopian Telecommunications Corporation (ETC) and ZTE specified the commercial terms and conditions under which nine telecommunication equipment acquisition contracts would be placed. ZTE committed, under the agreement, that all technology supplied would be state of the art and all its prices internationally competitive. For each of the nine equipment packages, the ETC agreed to provide technical specifications, in response to which ZTE would submit a technical proposal to meet those specifications. The proposals for each package were then to be agreed on, and ZTE would provide ETC with its price for the supply and installation of compliant equipment. The contract for that package was then to be signed, incorporating the terms of the financing agreement and framework agreement. The contract would grant the ETC 30 days from the date of signature to verify whether there were any “big problems with the technical proposal” and whether the supplier’s prices “far exceed[ed] reasonable industry prices.” If any such problems were identified, ZTE was required to adjust the technical proposal or price accordingly. During the 30-day verification period, the ETC (with the help of its consultants) would assesses ZTE’s prices by comparing them with market prices of comparable equipment. When agreed-on milestones were reached during execution of the telecommunication equipment acquisition contracts, the ETC would pay ZTE by issuing a promissory note that stated the amount payable. The promissory note would record a debt due from the ETC to ZTE. The ETC would then pay the capital plus interest due on the promissory note to ZTE under the terms of the financing agreement.
- One source (https://www.sciedupress.com/journal/index.php/jms/article/viewFile/25488/16079) identifies the face value of the loan as $1,550,260,000. The World Bank's Debtor Reporting System (https://www.dropbox.com/scl/fi/g794svts1vdwnvksjllsh/August-2024-IDS-Download-Ethiopia-s-Borrowings-and-Borrowing-Terms-from-Private-Sector-PRC-Creditors.xlsx?rlkey=i6j0mqp1jrx5en6xll3ebgl3g&dl=0) identifies the face value of the loan was $1,488,811,000. AidData relies on the face value of the loan ($1,530,725,464.08) that is recorded in the Government of Ethiopia’s Debt Management and Financial Analysis System (DMFAS). See https://www.dropbox.com/scl/fi/7nrczfanixvivmiyzqx3i/MOFED-Loan-Level-Data-on-Borrowing-Terms-and-Loan-Performance-September-2024_OTHER_PUBLIC.xlsx?rlkey=5sqhh9ii4t3x8cmz0jf6s7cod&dl=04. 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 Ethiopia was 3.25-years in 2006. AidData estimates the grace period of the CDB/ZTE loan by using this figure. See https://www.dropbox.com/scl/fi/g794svts1vdwnvksjllsh/August-2024-IDS-Download-Ethiopia-s-Borrowings-and-Borrowing-Terms-from-Private-Sector-PRC-Creditors.xlsx?rlkey=i6j0mqp1jrx5en6xll3ebgl3g&dl=05. 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 Ethiopia was 16.75-years in 2006. AidData estimates the maturity of the CDB/ZTE loan by using this figure. See https://www.dropbox.com/scl/fi/g794svts1vdwnvksjllsh/August-2024-IDS-Download-Ethiopia-s-Borrowings-and-Borrowing-Terms-from-Private-Sector-PRC-Creditors.xlsx?rlkey=i6j0mqp1jrx5en6xll3ebgl3g&dl=06. 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. 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 Ethiopia was 6.3699% in 2006. AidData estimates the interest rate of the ZTE/CDB loan by using this figure. See https://www.dropbox.com/scl/fi/g794svts1vdwnvksjllsh/August-2024-IDS-Download-Ethiopia-s-Borrowings-and-Borrowing-Terms-from-Private-Sector-PRC-Creditors.xlsx?rlkey=i6j0mqp1jrx5en6xll3ebgl3g&dl=0. As of September 2024, the Government of Ethiopia recorded the loan's all-in interest rate as 6.76% in DMFAS. See https://www.dropbox.com/scl/fi/7nrczfanixvivmiyzqx3i/MOFED-Loan-Level-Data-on-Borrowing-Terms-and-Loan-Performance-September-2024_OTHER_PUBLIC.xlsx?rlkey=5sqhh9ii4t3x8cmz0jf6s7cod&dl=07. The loan identification number in the Government of Ethiopia’s Debt Management and Financial Analysis System (DMFAS) is 20770001 and the corresponding project name in DMFAS is ‘ZTE- TELECOM VENDER FINANCING’. See https://www.dropbox.com/scl/fi/7nrczfanixvivmiyzqx3i/MOFED-Loan-Level-Data-on-Borrowing-Terms-and-Loan-Performance-September-2024_OTHER_PUBLIC.xlsx?rlkey=5sqhh9ii4t3x8cmz0jf6s7cod&dl=08. The Chinese project title is 中兴埃塞俄比亚项目 or 中兴公司电信网工程项目.
Sources & References
- An Overview of Chinese Agricultural and Rural Engagement in Ethiopia
- The Dragon's Gift: The Real Story of China in Africa
- Ethiopia ICT Sector Performance Review 2009/2010
- ZTE signs US$1.5 billion loan with Ethiopia
- Telecom Deal by China's ZTE
- Huawei in Ethiopia Faces Criticism
- What is happening in ICT sector in Ethiopia
- Chinese Development Aid in Africa: What, where, why, and how much?
- Contributing to the Development of Ethiopia with Wisdom and Strength
- 吴邦国会见埃塞俄比亚联邦院议长
- Build Bridges: China's growing role as infrastructure financier in Africa
- 简练：埃塞俄比亚发展问题与中国通讯商的角色
- Ethiopia: Investigators of Alleged ETC Shady Deal Granted Custody Extention
- Ethiopia: Toward a Foreign-Funded 'Revolutionary Democracy'
- Africa and China: How Africans and Their Governments are Shaping Relations with China
- ICT Sector - mint
- Diagnosing Corruption in Ethiopia: Perceptions
- Realities, and the Way Forward for Key Sectors
- CDB CSR Report 2009
- 电信战非洲
- Chinese Ambassador to Ethiopia Lin Lin inspects ZTE's telecommunications network project
- Chinese Telecommunications Companies in Ethiopia: The Influences of Host Government Intervention and Inter-firm Competition
- Telecom Wars Africa
- Infrastructure Development in Ethiopia and Its Impact on Economic Diplomacy With China
- List of Ethiopia- China Cooperation Major Projects from Ethiopia's Ministry of Finance September 2024
- MOFED Loan-Level Data on Borrowing Terms and Loan Performance September 2024_OTHER_PUBLIC
- Beltways of Agency: Drivers
- Modalities and Outcomes of Chinese Engagement in Ethiopian Infrastructure Investments 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.
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ZTE Corporation (formerly Zhongxing Telecommunication Equipment Corporation)
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