China Eximbank provides $229.1 million preferential buyer’s credit for Kumul Submarine Cable Project

China Eximbank provides $229.1 million preferential buyer’s credit for Kumul Submarine Cable Project On July 6, 2016, during PNG Prime Minister Peter O'Neill's state visit to China, China Eximbank and the Ministry of Treasury of the Government of Papua New Guinea signed a $229,198,215.15 (PGK 726,460,000) preferential buyer’s credit (PBC) agreement for the Kumul Submarine Cable Project.

The Ministry of Treasury of the Government of Papua New Guinea on-lent the proceeds of the PBC to PNG DataCo Ltd. (a PNG state-owned enterprise), which in turn use the proceeds of the PBC to finance approximately 85% of the cost of a $270 million (PGK 879,000,000) commercial contract with Huawei PNG Pty Limited and thereby make payments for the acquisition of PNG DataCo Ltd.’s infrastructure assets.

The PGK-denominated on-lending facility agreement between the Government of Papua New Guinea and PNG DataCo Ltd. was signed on December 2, 2016. PNG DataCo Ltd.’s obligations under the on-lending agreement are fixed at a USD foreign exchange rate of USD 0.3155.

During the financial year that ended on December 31, 2018, PNG Dataco made 2 drawdowns under its on-lending facility agreement agreement with the Government of Papua New Guinea on June 24, 2018 and November 15, 2018. These drawdowns (disbursements) were worth PGK 258,442,445. As of December 31, 2019, the loan had achieved a 100% disbursement rate.

The loan’s outstanding amount (including principal and amortized interest) was $237,656,369.50 (PGK 738,979,943) as of December 31, 2019 and PGK 753,269,375 as of December 31, 2020.

The Kumul Submarine Domestic Fiber Cable Network is a national backbone transmission network that involved the laying of 5,457-5,600 kilometers of submarine fiber optic cable to connect at least 15 coastal and maritime provincial centers across Papua New Guinea. It consists of three systems.

System 1 (blue line) connects Jayapura, Papua Province to Arawa with 7 branching units connecting to Vanimo, Wewak, Lorengau, Madang, Kimbe, Kavieng and Kokopo. System 2 (green line) connects Madang to Pom with 3 branching units connecting to Lae, Popondetta and Alotau. System 3 (black line) connects Daru and Kerema to the existing branching units in the LNG system.

The submarine cable network was constructed in two phases: Phase I of the project involved connecting Port Moresby to Madang, with landing stations in the Port Moresby, Alotau, Popondetta, Lae and Madang. Phase II involved connecting Madang to Wewak, Vanimo and New Guinea Islands.

The ultimate goal of the project was to improve access to broadband and internet services to all users throughout the coastal centers of the country.

This network also sought to provide additional interconnection points to international submarine cables in Madang, Vanimo and Jayapura (Indonesia) resulting in more reliable international telecommunication services for PNG. Huawei PNG Pty Limited was the contractor responsible for implementation.

PNG DataCo Ltd., the wholesale arm of Kumul Telikom Holdings (a state-owned company in PNG), was also involved in implementation.

China National Machinery Import and Export Corporation was a subcontractor and the designated provider of cable equipment.

Phase A (System 2) commenced in November 2018 with the arrival of the cable-laying ship carrying 6,000 km of fiber optic cable in Port Moresby and it was successfully completed on February 19, 2020.

Phase B (System 1) started immediately thereafter in late February 2020, linking Vanimo from Jayapura, and linking Wewak, Lorengau, Kimbe, Kokopo, and Kavieng with the cable network, and eventually landing in Kieta on May 18, 2020.

Phase C (System 3) was completed with the landing of the cable in Daru, Western Province on June 2, 2020, marking the completion of the laying of the 5,457 km of domestic cable. The project as a whole was ultimately completed ahead of schedule on or around August 21, 2020.

It has generated controversy because the underlying commercial contract with PNG DataCo Ltd. and Huawei Technologies Co Ltd. was reportedly overpriced by 30-50%, creating a heavy public debt load.

According to a report published in The Australian, there are also concerns that revenue generated by the the Australian Government-financed Coral Sea Cable System (CSCS) is being used to ‘cross-subsidize’ the Kumul Submarine Cable Project (i.e. facilitate loan repayment to China Eximbank).

Additionally, there are indications that the ultimate borrower (end user) of the China Eximbank loan is underperforming vis-a-vis original expectations.

On December 16, 2021, the PNG Government's Department of Treasury agreed to amend the repayment terms of its on-lending agreement with PNG DataCo Ltd. to 'accommodate the financial capability of [PNG DataCo Ltd.]’.

In its audited financial statement for the year ending on December 31, 2020, PNG DataCo Ltd. claimed that 'the completion of the company's core network infrastructure in the Domestic Submarine Cable and the Coral Sea Cable Network will contribute to the further growth in revenue outside the [Kumul Telikom Holdings] Group [and] this will reduce dependency on the [Kumul Telikom Holdings] Group and the related unfavorable business arrangements currently in place which have cause hindrance in doing business freely.' In February 2021, Tony Morisause, the General Manager of PNG DataCo Ltd. announced that his company was already planning an upgrade to the cable management system, as he claimed all available bandwidth had already been superseded by demand.

On September 11, 2022, a 7.6 magnitude earthquake struck Papua New Guinea, damaging the Kumul Submarine Cable.

The Chinese government donated USD 3.47 million (PGK 13 million) to Papua New Guinea for repairs, captured via ID#101809.