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Monday 21 January 2019
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Inside the Chinese loans

• Contract subject to Chinese laws             • Loan facility managed by China                • No third party advice allowed

chinaA 2013 concessional loan agreement between the EXIM Bank of China and Namibia has provided a glimpse into some of the conditions set by China when granting loans to Namibia. This includes dictating who should be awarded contracts.
The Patriot has seen a 2013 concessional loan agreement between EXIM Bank of China and the Government of Namibia for the funding of the Omakange-Ruacana road’s upgrade from gravel to bitumen standard.
This is the same bank that government approached in November 2015 in search for a soft loan that the Namibian government was looking to take out with China Exim Bank to finance the airport works.
The road was opened in August 2015 by President Hage Geingob. The development of the Ruacana-Omakange Road to bitumen standard was done by China Machinery Engineering Corporation.
The agreement was signed off by former finance minister Saara Kuugongelwa-Amadhila on behalf of government and Wang Fade, deputy general manager from the Concessional Loan Department on behalf of the Export-Import Bank of China which is fully owned by the Chinese government.
The loan conditions in the contract are overly skewed in favour of Chinese companies and it stipulates that Namibia’s assets are not entitled to any right of immunity on the grounds of sovereignty if Namibia fails to meet its obligations in the contract.
Questions sent to finance minister Calle Schlettwein this week yielded no responses by the time of going to print yesterday.
For the past 10 years or so, Chinese companies have made billions from state contracts in Namibia with little or no skills transfer taking place. Some of the companies have also been accused of flouting the country’s labour laws.
On 29 September 2012, China and Namibia entered into a framework agreement for the provision of government interest-subsidised concessional loans by China to Namibia.
Namibia requested for a US$46.5 million (N$600 million at current exchange rate) loan. This was after Roads Authority and China Machine Engineering Corporation entered into an agreement on 14 March 2012 for the upgrading to bitumen standard of main road 67 between Omakange and Ruacana.
The contract states that all payments by Namibia shall be paid in full to China without set-off or counterclaim or retention, free and clear of and without any deduction or withholding for or on account for any taxes or any charges.
Under the contract, the appointment of the contractor lies in the hands of China.
“The lender shall be entitled to examine and supervise the utilisation of the proceeds of the facility and the performance of this agreement. The borrower shall facilitate the aforesaid examination and supervision of the Lender. The borrower shall cause the relevant authority to issue the necessary entry visa into the borrower’s country to loan officer of the lender and give the necessary assistance,” reads a part of the contract.
The agreement also blocks Namibia from seeking any favourable terms from third parties.
“The borrower hereby represents, warrants and undertakes that its obligations and liabilities under this agreement are independent and separate from those stated in agreements with other creditors, and the Borrower shall not seek from the lender any kind of comparable  terms and conditions which are stated or might be stated in agreements with other creditors.”
The contract also forces Government to include all amounts due and payable in each of its annual budgets during each fiscal year.
“For the avoidance of doubt, the borrower may not justify any of its non-payment under this agreement regardless of whether it has allocated the corresponding expenditures in its budgets.”
If Namibia fails pay any due and payable principal, interest, commitment fee, management fee or any other sums; submits untrue documents; fails to punctually perform any of its other obligations; change the project terms or it suspends repayment to its creditors, China may terminate the loan and declare all accrued interest and other sums payable immediately without notice or other legal formality of any kind.
“Where there occurs any change of the laws or government policies in the country of either the lender or borrower, which makes it impossible for either the lender or borrower to perform its obligations under this agreement, the lender may, by written notice to the borrower, terminate the disbursement of the facility,” reads the contract further.
It also states that claims or disputes arising out of the contract shall not affect Namibia’s obligations under the agreement.
Critics have also questioned a clause in the contract which forces Namibia to subscribe to Chinese laws.
According to the said clause: “This agreement as well as the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of China.”
Disputes can only be submitted to the Hong Kong International Arbitration Centre for arbitration “if disputes are not resolved through friendly consultation”.
“The arbitral award shall be final and binding upon both parties. The arbitration shall take place in Hong Kong.”
Critics have also questioned why government would agree to pay a management and commitment fee if it is not the one managing the money.

Chinese companies
A large number of tenders awarded to Namibians are subcontracted to foreign-owned companies without the knowledge of the Ministry of Works and Transport or the Tender Board.
These arrangements, which constitute about 84%, are entered into illegally between Namibians, who have been awarded Government contracts by the Tender Board and foreign companies, said Works and Transport Minister Alpheus !Naruseb when he contributed to the debate in the National Assembly on Tuesday on the impact of Chinese involvement in the Namibian construction industry.
The motion was tabled by the Workers’ Revolutionary Party Member of Parliament, Jan van Wyk, two weeks ago.
“This is usually done as a one-off fee paid to the owners of the Namibian entity. Thereafter the contract and the work are done by the foreign-owned entity,” the minister said.
He said these arrangements are common and they regrettably fail to strengthen local construction capacity, as the money earned by the Namibian entity is not reinvested in the construction industry.
!Naruseb said the case is similar to most joint venture arrangements, which, according to him, are owned 51% by Namibians and 49% by foreign nationals.
On the state of the Namibian construction industry, !Naruseb said a survey conducted by the Construction Industry Federation between 25 November and 1 December 2016 indicated that more than 70% of companies rely on Government projects.
As of December 2016, Government owed contractors more than N$1 billion due to late payments because of national budget cuts.
As a result, indications are that close to 75% of businesses are currently experiencing cash flow problems.
!Naruseb said 1 008 employees of 115 companies were retrenched between 1 September and 30 November 2016.
The minister said data for the past three financial years from April 2014 show that 108 building construction projects were awarded through the Tender Board with a total value of N$4 billion.
Of these building construction projects, 90 were awarded to 100% Namibian contractors to the value of N$2 billion.
Seven of them were awarded to joint ventures between foreign contractors and Namibian contractors valued at N$1 billion, while 11 of the construction project were awarded to foreign contractors valued at close to N$1 billion.
The minister said while Government will continue to provide its support to the industry, it must also diversify and find alternative sources of income in order to survive.
“Reliance on Government contracts alone is unsustainable in the long term,” he highlighted.
– Additional reporting by Nampa




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