Japanese Yen 100 billion loan for Section 3 of the Central Expressway

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Cabinet approval was granted this week to obtain a Japanese Yen 100 billion loan to complete the Section 3 of the Central Expressway (CEP). Section 3 consists of 32.5km from Pothuhera to Galagedara and the Cabinet paper noted that it had been arranged as an Engineering Procurement Contract (EPC) of Japanese contractors under Japanese banks’ financing.

The government will also be going ahead with Ms. Tasei Corporatiion and Katahira and Engineers International Pvt Ltd of Japan as the civil contractor and the construction supervision consultant of the project respectively.MUFG Bank Ltd (MUFG) has been appointed by the Sri Lankan government as the mandated lead arranger for making a financing arrangement for the CEP III through a syndicated yen loan from Japanese banks, together with Nippon Export and Investment Insurance (NEXI) as the Export Credit Agency of the facility.

The loan facility has been agreed with an effective interest rate of 2.7 percent per annum and to be repaid in 15 years with a four-year availability period, two years grace and nine years for repayment.The External Resources Department has conducted several rounds of negotiations with MLA and NEXI with regard to the loan agreement.As per the arrangement of the loan for the construction of 32.5km long expressway through hilly terrain, the GOSL and MUFG have agreed to execute a General Loan Agreement (GLA) with MUFG and seven Individual Loan Agreements (ILA) with MUFG and syndicated financing partners of the facility. ILAs will be signed based on the progress of the construction of the third section of the expressway.

To execute the GLA and ILA, NEXI will conduct an independent Environmental and Social Due Diligence (ESDD) for the entire project initially and thereafter for the main section under the ILAs. The phased signing of ILAs will facilitate for providing budgetary allocation in instalment basis, according to the Cabinet paper. The GOSL however has agreed to pay JPY 30 Million for the ESDD Consultant fee and to cover legal counsels of MUFG and NEXI, which would cost US$ 201,312. MUFG and NEXI have already recruited legal and ESDD consultants.

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