Chinese lenders put more pressure on African borrowers

Chinese lenders are imposing even stricter collateral requirements on borrowers in low-income countries than before as they seek to hedge the risks of their massive overseas development finance program.

As part of a $200 million loan from China Eximbank for the expansion and modernization of Entebbe Airport, the Ugandan government is required to channel all revenue from the country’s only international airport into an escrow account , according to the contract obtained by AidData, a research company based in the United States. laboratory.

The document sheds light on a long-running controversy over the loan to the Ugandan government, which has damaged its relationship with the bank.

Although Chinese creditors have required sovereign borrowers to place project revenues in escrow as collateral for repayment more frequently than other development lenders, the Entebbe accord goes further.

“The Sales Collection Account will be used to collect revenue from Entebbe International Airport [including but not limited to revenues generated from the project)]“, he specifies.

“It’s more aggressive than what we’ve seen before,” said Bradley Parks, executive director of AidData. “[They are] taking all revenues from the underlying public infrastructure. It’s a pretty intrusive condition to impose on a sovereign borrower.

Nearly 30% of 100 Chinese loans examined in an AidData study last year used collateral mechanisms such as sales collection accounts, and 70% of those borrowers required borrowers to deposit all project revenues in escrow.

A loan, for the construction of water supplies in Benin, required revenue collection not only from the project but also from the underlying infrastructure. This was different from the Ugandan case in that the contract provided for the deposit of only part of these revenues in escrow.

Some analysts played down the controversy. “The Chinese have funded a new terminal, widened runways and new cargo and fuel depots,” said Deborah Brautigam, a professor at Johns Hopkins University who studies Chinese economic engagement in Africa.

“It would be very difficult to separate the revenue generated by the new and improved assets of the project from other revenue, and it would avoid any quibbles about which revenue should go into the escrow account.”

Citing a project supported by the US Agency for International Development where the Liberian government hired international financial controllers with co-signing authority, she called the Entebbe case “rather mild” in terms of sovereignty intrusions. .

But Nicholas Opiyo, a Ugandan civil rights lawyer, said the requirement to channel revenue into an account supervised by China Eximbank was onerous. “From the lender’s side, it’s a very good deal: it guarantees the value of your loan,” he said. Parliament, he added, also lacked proper scrutiny.

Experts believe that the debate, which pushed Uganda to try to renegotiate the agreement, arose because it mixed concessional and commercial elements.

“This is an example of government-to-government borrowing that is framed in largely commercial terms,” said Vijay Bhalaki, co-founder of Athena Infonomics, a development consultancy. He called the revenue collection clause “extraordinary but not unwarranted”.

While the 2% interest rate and seven-year grace period suggest that part of the deal is a concessional loan, other parts, such as the guarantee mechanism, management fees and d commitment and use requirements of Chinese entrepreneurs, are “like a business structure”. “, said Bhalaki.

China Eximbank did not respond to a request for comment.

Additional reporting by David Pilling from London

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