This new development comes at a time when China’s main project insurer, China Export and Credit Insurance Corporation, known as Sinosure, cast doubt on the viability of some infrastructure projects. The firm has already incurred losses of more than $1 billion on the Ethiopian-Djibouti railway alone.
Last week, Wang Wen, the chief economist for Sinosure, said that the planning behind many of China’s major infrastructure projects abroad has been “downright inadequate,” leading to huge financial losses.
“Chinese developers and financiers of projects in developing nations need to step up their risk management to avoid disaster. We can see the mistakes of the Addis-Djibouti Railway line, which has cost Sinosure a $1 billion loss,” said Mr Wang.
The $4 billion Addis Ababa-Djibouti freight railway, which was inaugurated at the start of this year, saw Ethiopia seek to restructure its debt in September by extending the repayment terms, following its underuse as a result of power shortages.
“Ethiopia’s planning capabilities are lacking, but even with the help of Sinosure and the lending Chinese bank, it was still insufficient,” Mr Wang said at a Belt-and-Road infrastructure financing forum in Hong Kong.
The plan to securitise and sell the Chinese debt to investors comes at a time when many African nations are seeking to either restructure their debts with Beijing or get friendlier terms, with more grant packages as they face a rising debt dilemma.
In September, Addis announced that China had agreed to restructure some of its loans, including a loan for a $4 billion railway linking its capital Addis to neighbouring Djibouti.
Ethiopian Prime Minister Abiy Ahmed said their loans will be restructured, with a further 20-year extension, which will see its annual repayments reduced to an affordable level.
“In our conversation with our Chinese partners, we had the opportunity to enact limited restructuring of some of our loans. In particular, the loan for the Addis Ababa-Djibouti railway, which was meant to be paid over 10 years, has now been extended to 30 years. Its maturity period has also been extended,” PM Abiy said.
Nairobi, which has been ramping up the freight numbers for its SGR line between Nairobi and Mombasa, was also on record as asking for a 50 per cent grant on its $3.8 billion third phase of railway construction between Naivasha and Kisumu.
The first phase of the project, which cost $3.2 billion, was financed by the China Exim Bank, with a concessional loan of $1.6 billion with a 20-year life, a grace period of seven years and an annual interest rate of two per cent.
The concessional loan, on the other hand, was for 10 years, with a grace period of five years; an insurance cover of 6.93 per cent and an interest of a six-month average of the London Inter-bank Offered Rate plus 3.86 per cent.
This loan also had a grant element of 35 per cent and the first repayments are due next year. If the railway doesn’t break even by then, Kenyan taxpayers will have to foot that bill, realising Sinosure’s fears, given that it offered insurance for this loan.
In July, Kenya’s Transport Cabinet Secretary James Macharia told a parliamentary committee that the SGR operator had made a loss of $110 million in its first year of operations.
“On average, the line made a monthly loss of $7.5 million in the 2017/2018 financial year largely as a result of low cargo business. However, we now project that it will turn around and make a profit of $50 million by June next year, averaging $4.2 million profit monthly as we ramp up cargo volumes,” Mr Macharia said.
However, according to the Kenya Ports Authority (KPA), the SGR cargo haulage has raked in more than $16.2 million in the past nine months, at $1.8 million a month, as the train’s daily tonnage capacity moved above 800 containers, out of the 1,700 containers that arrive at the Port of Mombasa.
“Since the start of SGR cargo freight operations in January, a total of $16.2 million has been billed, collected and remitted to the SGR escrow account, which is under the custody of Kenya Railways,” KPA managing director Daniel Manduku said.