NAMIBIA REEVALUATES CHINESE EXIM LOANS

UNCLAS SECTION 01 OF 02 WINDHOEK 000324

SENSITIVE
SIPDIS

STATE FOR EEB; AF/S PHAEDRA GWYN

E.O. 12958: N/A
TAGS: EINV PREL PGOV CH WA
SUBJECT: NAMIBIA REEVALUATES CHINESE EXIM LOANS

REF: A. WINDHOEK 302

B. WINDHOEK 118


1. (SBU) Summary: During President Hu Jintao's state visit
to Namibia in 2007, the two governments signed an agreement
for a concessionary loan, and a credit line - each valued at
approximately USD 130 million. In July, the Namibian
government (GRN) announced the suspension of its line of
credit from the Export Import Bank of China (ExIm). Namibian
officials have expressed concern that conditions that forbid
open tendering for projects and equipment purchases financed
by ExIm may result in the GRN having to pay highly inflated
prices. The GRN officials have not abandoned the line of
credit, but have acknowledged they wish to reevaluate the
terms of the agreement. While the ExIm credit line
arrangement may have fallen out of favor, there is little
evidence China-Namibia relations have suffered any
significant damage. End Summary.


2. (SBU) During Chinese President Hu Jintao,s February 2007
visit to Namibia, he reaffirmed his country's special
relationship with Namibia and signed five bilateral
agreements with Namibian President Hifikepunye Pohamba. Two
of the agreements covered project/equipment financing. One
established a soft (concessionary) loan facility of RMB one
billion (USD 130 million),while another provided the GRN a
credit line of an equivalent amount. The Export Import Bank
of China (ExIm) administers both financing packages on behalf
of the Chinese government. The credit line is essentially an
export financing product that permits ExIm to lend the GRN up
to 80 percent of the cost of Chinese equipment purchased by
Namibia, while the concessionary loan provides a below market
financing option for infrastructure projects.


3. (SBU) Under both arrangements, the GRN in conjunction with
the Chinese government identifies public infrastructure
projects and equipment purchases to be financed. The Chinese
government then assists with the selection of contractors for
the projects. Use of the ExIm financing facilities generally
precludes the GRN from procuring goods, works and related
services under normal Namibian or international competitive
bidding procedures. In several cases, Namibia's National
Tender Board has exempted line ministries from publicly
advertising tenders for work to be performed that was funded
under the concessionary loan and credit lines. By skirting
the GRN's normal tender procedures, critics argue that there
is no way to ensure that the Chinese companies are both the
cheapest and most reliable since the bids are not open to
competition or public review.


4. (SBU) In late July, news reports indicated that the
Namibian government (GRN) would suspend its USD 130 million
ExIm credit line. According to Ministry of Finance Permanent
Secretary Calle Schlettwein, the recent corruption scandal
involving a contract to procure X-ray scanners from Chinese
manufacturer Nuctech (reftel A) had pushed the GRN to relook
at the Chinese credit line. Speaking at a public policy
forum on August 24, Schlettwein opined that the Nuctech
scandal could have been averted if the GRN had refused the
conditions of the Chinese ExIm loan and followed its standard
competitive tendering procedures. Schlettwein estimated that
this government contract, which involved a third party,
likely increased the contract price by 30 percent.
Schlettwein clarified, however, that the GRN had not
abandoned the credit line, but was simply looking at
renegotiating the terms.


5. (SBU) Yet another proposed deal has tarnished the luster
of Chinese lending. Media outlets revealed that the GRN had
declined China's offer to finance the installation of 62
kilometers of new railway in Namibia's north. China proposed
the China National Machinery and Equipment Import and Export
Corporation (CMEC),financed by ExIM, to perform the
construction work. The deal was contingent on the GRN not
submitting the rail project out for public tender. The CMEC
quote was allegedly four to ten times higher than what other
companies had estimated the construction should cost.
Negotiations with CMEC to lower the cost were unsatisfactory,
and the GRN is now seeking private sector investors.


6. (SBU) Asked at the August 24 public forum whether Chinese
assistance comes with too many strings attached, Schlettwein
said all donors impose conditions on their aid. The Chinese,
he explained, tie their loans to the commitment that Namibia
will purchase Chinese equipment, labor and services. The
Europeans and United States, on the other hand, link their
assistance to assurances that a recipient country's business
and trade rules and regulations meet with their approval.
The Permanent Secretary cited affirmative action clauses in

WINDHOEK 00000324 002 OF 002


the Namibian procurement process as sticking points for
Europe and the United States. As another example,
Schlettwein remarked that Europeans have tried to block the
imposition of royalty payments on the export of raw
materials - a sensitive issue for Namibia as its economy is
highly dependent on commodities.

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Comment
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7. (SBU) While the ExIm credit line may have fallen out of
favor, there is no evidence that the GRN has changed its
position on Chinese grants, interest free loans, and
concessionary loans. Minister of Works and Transport Helmut
Angula recently defended the concessionary loan agreement,
stating that the terms were quite favorable: four percent
interest with a five year grace period. He further stated
that other companies (competitors to Chinese companies) had
no funds to offer Namibia to finance infrastructure projects.
Responding to questions about Chinese intentions in Namibia,
Schlettwein insisted the GRN would look for the best
financing options available to it, whether the financing
comes from China or other countries. In a conversation with
Ambassador Mathieu on August 13, the Minister of Trade and
Industry Hage Geingob made a similar point.


8. (SBU) GRN officials have long touted the Chinese
government as "friends of Namibia" for the assistance it
provided to SWAPO (the ruling party) during the struggle
against apartheid. While this "friendship" may have led
Namibian politicians to turn a blind eye in the past to the
conditions attached to Chinese assistance to Namibia, the GRN
is perhaps slowly becoming more pragmatic about how it
sources international financing in the future. End Comment.
MATHIEU