[Suspended] China Eximbank provides loan for 321 km Lusaka-Ndola Dual Carriageway Project (Linked to Record ID#53037 and ID#92430)

[Suspended] China Eximbank provides loan for 321 km Lusaka-Ndola Dual Carriageway Project In 2015, a Restricted Invitation to Tender (Ref: RDA/PPP/CE/001/15) was issued by the Road Development Agency (RDA) of Zambia.

It stated that the RDA intended to enter into a Public-Private Partnership Agreement in form of a concession to undertake the upgrading of the Lusaka to Ndola road to dual carriageway.

This Request for Proposals (RFP) solicited for financially and technically competent prospective concessionaires to implement the 321 km Lusaka-Ndola Dual Carriageway Project on a ‘Finance, Design, Construct, Operate, Maintain and Toll’ basis.

According to the RDA, the Economic Internal Rate of Return (EIRR) for the project was approximately 29 per cent and the cost of construction was estimated at K930 million.

However, in December 2016, the Government of Zambia’s PPP Council granted authority to change the procurement method for the project from a PPP model to an Engineering, Procurement, Construction plus Finance (EPC+F) model.

Then, on May 31, 2017, RDA and China Jiangxi Corporation for International Economic and Technical Cooperation (CJIC or 中国江西国际 or 江西国际) signed an EPC+F contract worth $1,245,775,986.98.

CJIC reportedly secured loans from the Jiangxi Branch of China Eximbank worth $1,245,775,986.98 in 2018 and Jiangxi Bank Co., Ltd. (Jiangxi Bank) on May 28, 2019 to finance this EPC+F contract. CJIC then on-lent the loan proceeds to the Government of Zambia.

The face value of the Jiangxi Bank loan, which is captured via Record ID#92430, was $187,000,000 (i.e. approximately 15% of the cost of the commercial contract).

Therefore, the estimated value of the loan from the Jiangxi Branch of China Eximbank is $1,057,909,588.98 (i.e. approximately 85% of the cost of the commercial contract). This loan is captured via Record ID#92425.

The Jiangxi Bank loan ultimately achieved a 100% disbursement rate, with a $30,000,000 disbursement taking place on October 14, 2019 and a $157 million disbursement taking place on October 31, 2021.

Official RDA documentation suggests that the China Eximbank loan disbursed approximately $147 million by the end of 2018.

The initial specification for the project included two roads (321 km and 45 km), construction of a new carriageway lane road (6.8m wide w/2m shoulders), median separation, service lanes, pedestrian accommodation facilities, 50mm Asphalt concrete on 200mm crushed stone base, 300mm cement stabilized sub-base, bypasses around Kapiri and Kabwe (business districts), drainage works, reconstruction of existing road, and construction of toll sites.

However, the final scope of the project included the construction of 321 km of the core Lusaka to Ndola Dual Carriageway, but not the 45 km of the Kafulafuta to Masangano dual road.

The core Lusaka-Ndola Dual Carriageway has several interlinks, including the Lusaka/Kabwe road − T002 (144 km), Kabwe/Kapiri Mposhi road − T002 (61 km), Kapiri Mposhi/Ndola road − T003 (116 km) and Kafulafuta/Masangano road − M006 (45 km). CJIC was the EPC contractor responsible for project implementation.

A formal groundbreaking ceremony took place on September 8, 2017. However, work on the project halted in June 2021 due to overdue contractor payments. Zambia’s Ministry of Finance reportedly issued a directive to postpone the construction on the project. Construction had not yet begun in earnest.

At that time (June 2021), RDA Public Relations Manager Masuzyo Ndholvu announced that ‘[t]o date, the contractor [CJIC] has carried out several preliminary activities such as setting up the construction camps site that is the preparation of designs, identified project-affected persons (PAPS) and property and services that may require to be relocated to pave way for the construction works on the Lusaka–Ndola dual carnage way on the great north road (GNR).’ The RDA also said at the time that project would ‘only resume once the debt situation improves in the country or funds are sourced.’ This statement suggests that China Eximbank suspended disbursements for the project.

The 321 km Lusaka-Ndola Dual Carriageway Project faced allegations of overpricing and poor value-for-money.

In a 2018 statement to Parliament, Zambia’s Minister of Infrastructure and Housing Ronald Kaoma Chitotel revealed that, although the total EPC+F contract value of $1,245,775,986 (approx.

K11.1 billion) was a major increase from the original estimated K930 million), the project’s economic internal rate of return (EIRR) had declined to 15%.

Then, in January 2022, Zambia’s Minister of Infrastructure, Housing Urban and Development Charles Milupi announced that the New Dawn Government was working hard to ensure that the 321 km Lusaka-Ndola Dual Carriageway Project would recommence by the end of the rainy season with a revised cost that would be substantially less than that negotiated by the previous Patriotic Front (PF) Government.

Several months earlier, Milupi said that ‘[o]verpricing, you have to have a benchmark and we are developing a benchmark which is a standard per unit price. That is why I have said very very categorically that no road will cost $1.2 billion, it won’t!

As long as I am Minister, as long as this government is in place, as long as President Hakainde Hichilema is in place, there will be no road costing $1.2 billion per kilometer […].’ Then, in February 2022, local media reported that ‘the contractor [CJIC] who was picked by the previous PF regime to work on the Lusaka-Ndola dual carriageway at a cost of US$1.2 billion is back in Zambia and has agreed to do the works at a 50 per cent lower rate.’ In response, Zambia Association of Citizen Contractors (ZACCO) General Secretary Danny Simumba stated ‘that the nation deserves to know what exactly has led to the reduction in the amount from the initial one point two billion dollars to five hundred billion dollars.’ He said that ‘in the absence of such information, people would continue speculating that there was corruption in the initial transaction.’ At the time, William Harrington, a former Zambian Minister of Communications and Transport, also said that ‘[t[his whole matter smells of corruption in a dubiously awarded contract over which the contractor should be summoned for questioning by the [Anti-Corruption Commission] and to show cause why he should not be arrested for what appears to be a dubious scheme to steal money from the people of Zambia in collusion with the former Patriotic Front regime through overpricing.’ Then, on July 29, 2022, Ministry of Finance & National Planning (MOFNP) of Zambia announced that it was seeking lender approval to formally cancel the Jiangxi Bank loan’s undisbursed balance ($157,000,000); however, it also noted that it had not yet secured formal lender approval for this action.

The announcement came approximately 21 months after the Government of Zambia defaulted on its repayment obligations to Eurobond holders and approximately 6 weeks after China, France, and 14 other countries formed a creditor committee to discuss the Zambian authorities’ request for a debt treatment under ‘the Common Framework for Debt Treatment beyond the DSSI’ endorsed by the G20 and the Paris Club.

A dispute later ensued between RDA and CJIC.

RDA requested that CJIC provide detailed information about how it used the $30,000,000 advance payment (proceeds from the Jiangxi Bank loan disbursement) for the 321 km Lusaka-Ndola Dual Carriageway Project.

Then, after RDA cancelled the May 31, 2017 EPC+F contract for the 321 km Lusaka-Ndola Dual Carriageway Project, CJIC claimed to be entitled to a payment of $250,718,857.22.

Zambia’s Auditor General later found that there were no copies of invoices or any other documents and physical evidence that CJIC had expended the $30,000,000 advance payment (proceeds from the Jiangxi Bank loan disbursement) on the 321 km Lusaka-Ndola Dual Carriageway Project.

After reviewing the evidence in a Special Audit Report of the Auditor General on External Public Debt of the Republic of Zambia for the Period from 1st January 2006 to 31st December 2022, a Parliamentary Select Committee noted that ‘[g]oing forward, [we urge] the Secretary to the Treasury to always ensure that contracts for the supply of goods and services which are financed through debt must only be executed after securing the funds.’