China Eximbank provides $344.4 million preferential buyer’s credit for Phase 1 of Doraleh Multipurpose Port and the Damerjog Livestock Export Terminal Project (Linked to Record ID#91872)

China Eximbank provides $344.4 million preferential buyer’s credit for Phase 1 of Doraleh Multipurpose Port and the Damerjog Livestock Export Terminal Project On April 15, 2016, China Eximbank and the Government of Djibouti signed a preferential buyer’s credit (PBC) agreement worth $344,472,829.25 (FDJ 61,213,000,000) for Phase 1 of the Doraleh Multipurpose Port and the Damerjog Livestock Export Terminal Project.

The Djiboutian legislature ratified the PBC agreement on June 7, 2016.

According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) ultimately achieved a 89.2% disbursement rate (FDJ 54,594,000,000). The proceeds of the PBC were to be used by the borrower to partially finance a commercial contract (No.

PDSA-GHDC-01) worth $476,779,000.42 that was signed by China State Construction Engineering Corporation (CSCEC), China Civil Engineering Construction Corporation (CCECC), and Port of Djibouti S.A. (PDSA) on August 16, 2014.

PDSA is a joint venture between the Government of Dijbouti (76.5% equity stake) and China Merchants Group (23.5% equity stake). PDSA was responsible for the remainder ($132,306,173.17) of the commercial contract cost.

In 2016, PDSA also obtained a $50 million loan (captured via Record ID#91872 from the Industrial and Commercial Bank of China (ICBC) for the Doraleh Multipurpose Port Project. The Government of Djibouti issued a sovereign guarantee in support of the ICBC loan on May 3, 2016.

The objective of the Doraleh Multipurpose Port (DMP) was to relieve pressure on the Port of Djibouti SA as the pace of trade between Africa and the rest of the world increased.

More specifically, the DMP project component was designed to expand the existing port's capacity by adding seven new berths in the first phase, including a roll on/roll off facility, with a total length of 1,200 meters.

Each berth was meant to accommodate ships with cargoes of up to 100,000 tons in a naturally deep-water bay that will require minimal dredging.

Upon completion, the designed annual throughput of bulk cargo volume and the container volume were to be 7.08 million tons and 200,000 TEU, respectively.

The livestock port at Damerjog, located in the Arta region 13 km south-east of the capital, was meant to comprise a quay 655 meters long for up to five ships and a holding area for 150,000 head of livestock.

The ultimate objective of this component of the project was to create a livestock port with an anticipated capacity of 10 million heads of livestock per year that could export livestock from Ethiopia and South Sudan to the Gulf countries and North Africa. CCECC and CSCEC were the contractors responsible for project implementation.

A foundation stone laying ceremony took place on September 8, 2013. However, construction at the DMP did not begin until August 2014. Construction at the livestock port at Damerjog commenced on October 26, 2014. Construction activities ended in February 2017. The DMP was formally inaugurated on May 24, 2017 and then put into use in July 2018.

This project has been plagued by controversy. In 2004, DP World acquired a 33.4-percent stake in the Doraleh Container Terminal SA (DCT).

Then, on October 30, 2006, the Republic of Djibouti, DCT and Dubai International (Djibouti) FZE signed a concession agreement that granted Dubai International (Djibouti) FZE — a subsidiary of DP World — the exclusive right to design, build and manage the terminal.

DCT commenced operations on December 15, 2008 (though it was formally inaugurated on February 7, 2009) as the first deep-water terminal in Africa that could permit ships of 15,000 TEU to dock alongside.

However, the relationship between DP World and the Republic of Djibouti eventually deteriorated and the Republic of Djibouti initiated discussions with China about the possibility of developing a greenfield multi-purpose port adjacent to DCT.

In early 2013, China Merchants Group and its affiliates agreed with Djibouti to develop, build, and operate a new multipurpose port, bulk terminal, crude oil terminal and ship repair yard in order to transform the old port of Djibouti.

On February 5, 2013, CMPort’s wholly-owned subsidiary, China Merchants Holdings (Djibouti) FZE, acquired 23.5% equity stake in Port De Djibouti S.A. (PDSA) for $185 million to participate in the restructuring of the Port de Djibouti.

However, DCT’s consent was never sought at any point in time prior to, or during, the construction and development phase of the Doraleh Multipurpose Port (DMP). Mr.

Aboubaker Omar Hadi, Chairman, Djibouti Ports and Free Zones Authority (DPFZA), took the position that the Republic of Djibouti did not need to take DCT’s consent as the DMP was not an “additional” container handling facility, but a “replacement” for the Old Port.

DP World commenced arbitration proceedings against the Republic of Djibouti in the London Court of International Arbitration on July 8, 2014.

The London Court of International Arbitration eventually found the Republic of Djibouti to be in breach of its agreement with DP World and issued a ruling on March 19, 2019 ordering it to pay $385.7 million (plus interest) as compensation to DP World.

There are some indications that the China Eximbank preferential buyer's credit for Phase 1 of Doraleh Multipurpose Port and the Damerjog Livestock Export Terminal Project may have financially underperformed vis-a-vis the original expectations of the lender.

According to the International Monetary Fund (IMF), the stock of the Government of Djibouti's external arrears -- including arrears to China, Belgium, Spain, Iran, Italy, Saudi Arabia, and UAE -- stood at $107 million in March 2020.

Then, in May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress.

Then, on November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payment to China Eximbank.

Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022.

The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022.

It also acknowledged that, as part of the Debt Service Suspension Initiative (DSSI), China Eximbank agreed to suspend principal and interest payments due in 2020 and 2021 under multiple loan agreements, and that the Government of Djibouti’s debt service obligations tripled with the expiration of DSSI.

Then, in 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022.