POTENTIAL USD 80 MILLION US-ZAMBIA TRANSACTION - EXIM'S

UNCLAS LUSAKA 000935

SIPDIS
SENSITIVE

EX-IM BANK FOR BEN TODD

E.O. 12958: N/A
TAGS: ECON ETRD EAID BTIO BEXP SOCI ZA
SUBJECT: POTENTIAL USD 80 MILLION US-ZAMBIA TRANSACTION - EXIM'S
ROLE

EXPORT OPPORTUNITY
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1. (SBU) Since September the Zambian government (GRZ) has been in
talks with Med-1 Partners, a North Carolina-based small business
that constructs and sells fully mobile healthcare facilities, for
the purchase of up to seven of its mobile hospital units in a
potential USD 79.5 million transaction. The GRZ plans to use the
mobile hospitals to improve medical services in Zambia and expand
access to medical care for Zambian citizens throughout the country.


2. (SBU) The GRZ is also considering an offer from a Chinese company
to provide mobile medical units that includes concessional
financing. Med-1 Partners has approached the United States EXIM
Bank to explore a potential competitive financing package for the
sale of up to seven mobile hospitals.


3. (SBU) Given the competing Chinese offer that includes a
concessional financing package, the potential GRZ purchase of Med-1
mobile medical units represents a prime opportunity to utilize the
USG's Tied Aid War Chest. A concessional financing package would
level the playing field for Med-1 Partners' competitiveness and
allow them to compete on the basis of price and quality - apparently
preferred by the borrowers - rather than on financial terms against
the Chinese proposal.

EXIM REQUIREMENTS
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4. (SBU) We understand that EXIM can offer concessional terms under
the following conditions:

- The financing package must meet the 35 percent threshold for
concessionality for countries under an IMF program;
- The use of concessional financing may be used only to counter
situations where there is a reasonable evidentiary basis that there
is a foreign tied aid offer;
- The transaction for which EXIM concessional terms is sought is
commercially non-viable; and,
- There is potential for follow on sales because of the
demonstration effect in the region.

ZAMBIA'S IMF PROGRAM
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5. (SBU) Zambia is currently under an IMF Poverty Reduction Growth
Facility (PRGF). The IMF concluded a mission to Zambia in October
2009, and the Staff Report for the 2009 Article IV Consultation has
just been submitted to the IMF Executive Board for its
consideration. The Staff Report noted that the Zambian economy
showed resilience in the global economic downturn, the PRGF program
is on track, and Zambia continues to be at low risk for debt
distress. Zambia's debt position and progress under its PRGF is
such that the IMF included USD 400 million in allowed
non-concessional financing for energy projects in 2009, and is
expected to increase that limit for 2010. The GRZ has not yet
utilized any of its non-concessional debt capacity. Tied aid in
this potential transaction is IMF compliant and conforms with the
Principles and Guidelines to Promote Sustainable Lending Practices
in the Provision of Official Export Credits to Low Income Countries
of the Working Party on Export Credits and Credit Guarantees.

FOREIGN TIED AID OFFER AND THE NEED FOR TRANSPARENCY
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6. (SBU) The GRZ has informed Post that a Chinese entity has
proposed to sell mobile medical units to the GRZ. The Chinese
Ambassador has also confirmed that there is a Chinese company that
has proposed selling mobile hospitals to Zambia. China has a long
history of providing concessional financing for investments and
projects in Zambia, including the Ndola Stadium construction and the
Chambeshi Multi-Facility Economic Zone.


7. (SBU) It was the GRZ's announcement to health sector donors that
they planned to purchase Chinese-made mobile medical units that
prompted Embassy to alert Med-1 Partners to the potential
transaction. Embassy has not been able to confirm specific
information about the financing terms of the Chinese offer.
However, in a series of meetings since September, President Banda
and his advisors have repeatedly told the Ambassador that the
Chinese offer included a concessionary financing package. Based on
those meetings, we believe that the proposal includes concessionary
financing terms that could include a soft loan of 20-30 years at two
percent interest.


8. (SBU) Embassy and other donors to Zambia have continually
encouraged the GRZ to have open and transparent government tender
procedures to discourage corruption and to ensure that Zambia
receives value for money in its transactions. Open, competitive
procurement also creates a more level playing field for U.S.

companies interested in trading with or investing in Zambia. In
October, the Ambassador submitted a letter to Dr. Kapembwa Simbao,
Minister of Health, encouraging the GRZ to proceed with an open
tender for the mobile medical unit procurement. Ambassador's letter
also urged the Ministry of Health to share with the health sector
donors the analysis that led the GRZ to decide to pursue mobile
hospitals rather than other health care priorities. We made this
request because several health sector donors, particularly those
providing direct budget support, have objected to this new approach.
However, it appears that the GRZ believes it is within its
sovereign rights to make this decision without donor concurrence.
As a result, some donors (OECD Members) may object to U.S. support
for a mobile hospital sale.


9. (SBU) In a December 2 meeting, President Banda's principal
economic advisor told Ambassador that the GRZ would like to have an
open and competitive tender process for the purchase of the mobile
medical units. He balked, however, at providing specific details
about any competing bids' financial terms, calling such a move
"uncompetitive." Discussing potential EXIM financing for the
transaction, the advisor suggested that Med-1 Partners' financing
package would need concessionary terms to be competitive with other
bids, but that the GRZ could not divulge the terms of another bid if
the tender was to be open and fair.


10. (SBU) According to the Procedures for Enhanced EXIM
Bank/Treasury Cooperation on Tied Aid Transactions, EXIM will review
recipient governments' written or oral confirmations to EXIM or the
U.S. Embassy when establishing whether credible information about
foreign tied aid offers exists. While we have not received specific
financing terms of the foreign tied aid offer, Post believes that
the Ambassador's numerous conversations with President Banda and his
advisers represents credible oral confirmation of a competing
foreign tied aid offer.

HEALTH SECTOR COMMERCIALLY NON-VIABLE
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11. (SBU) The purchase of up to seven mobile medical units and
ancillary maintenance and repair costs represents a commercially
non-viable transaction for the Zambian government. As a low income
country, Zambia's health sector is neither large enough nor mature
enough to sustain private investment on commercial terms. As such,
health care is provided by the government on a subsidized basis.

POTENTIAL FOR FOLLOW-ON BUSINESS
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12. (SBU) While the potential transaction with the GRZ is the most
promising in the region, Med-1 Partners reports that it is in talks
with the government of Malawi and regional governments in South
Africa to sell additional units in the region. The GRZ has also
intimated that it could be in the market for more units if the
initial transaction is deemed successful. To support the potential
sale to the GRZ, Med-1 Partners is considering building a regional
maintenance and repair facility in Zambia to service its units in
the region. As such, Med-1 Partners believes strongly in the
potential for follow on sales on commercial terms in the region
because of the demonstration effect once the first units are on the
ground in Zambia.

BOOTH