The European Investment Bank (EIB) has yesterday signed a guarantee agreement for a loan of Francs CFA 14.3 billion granted to Compagnie Sucrière du Tchad (CST) by a group of banks from the CEMAC region (Communauté Économique et Monétaire de l'Afrique Centrale). The agreement was signed jointly with Proparco and DEG. CST, a wholly-owned subsidiary of Somdiaa SA (member of JL Vilgrain Group) will modernise sugar production facilities at its plants in Chad. The EIB operation consists of a local currency guarantee from Investment Facility resources covering the risk of non-repayment of the principal, up to a maximum of EUR 11.8 million, while Proparco and DEG provide similar guarantees of up to EUR 5 million each. At the same time, an upfront subsidy to CST of EUR 1.8 million was signed on Investment Facility resources, in support of the project's environmental and social investments.

The project concerns the modernisation of CST's plantation and sugar plant/refinery in Banda (southern Chad) and the confectionery and agglomerates factory at Farcha, near N'Djamena. In Banda, the current pivot irrigation system will be rehabilitated and partly replaced by drip irrigation networks. The objective is to reduce water consumption, and increase cane production and labour productivity. The project supports Chad's privatisation programme and will contribute positively to the local and national economy by reducing the country's sugar import bill. The Government budget will benefit from the project as CST currently generates 10% of total fiscal revenues. Moreover, CST provides the surrounding population with improved drinking water and sanitation facilities, as well as education and health services.

The joint guarantee agreement between the guarantors and Société Générale Tchadienne de Banque, which acts as a lender of record, was signed on the 4th of July 2005 in Paris. Although risk weighting for guarantees offered by IFIs and bilateral institutions is currently 20%, the COBAC (Commission Bancaire d'Afrique Centrale) has allowed a 0% risk weighting for this operation. As a result, the syndicate's banks, which had already reached their exposure limits with respect to the CST, were able to provide the local currency loans necessary for financing the project.

The operation provides further support to the sugar sector in Central Africa, following a loan to CST's predecessor Sonasut in 1976; various operations with CST's parent company, Somdiaa group, in Cameroon between 1966 and 2000; and an equity operation of 6.25% in AIG African infrastructure Fund LLC, which in turn owns 13.5% of Somdiaa. The current operation is one of classic credit enhancement, which is justified by an investment project with particularly positive social and economic effects. It will contribute to the development of the local financial markets, enable CST to obtain long-term financing in FCFA, and enable local banks to continue financing CST while respecting the prudential requirements of COBAC in terms of risk diversification.

The EIB, established in 1958 by the Treaty of Rome, finances capital investment projects that further the European Union (EU) policy objectives. It also participates in the implementation of the EU's co-operation policy towards third countries that have co-operation or association agreements with the Union.

Financing in Africa, the Caribbean and the Pacific (ACP) is carried out under the provisions of the Investment Facility, set up by the ACP-EU Partnership Agreement, signed in Cotonou in June 2000. Under the Cotonou agreement the total financial aid available amounts to EUR 15.2 billion for 2002-2006, of which EUR 11.3 billion is grant aid from the EU member states, EUR 2.2 billion is managed by the EIB under the Investment Facility and up to EUR 1.7 billion is in the form of loans from the EIB's own resources. The Investment Facility is a revolving facility (loan amortizations will be invested in new operations), aiming at supporting technically, environmentally, financially and economically sound projects in the private or the commercially run public sector.