VZCZCXYZ0017
PP RUEHWEB

DE RUEHLS #0935/01 3481338
ZNR UUUUU ZZH
P 141338Z DEC 09
FM AMEMBASSY LUSAKA
TO SECSTATE WASHDC PRIORITY 7502

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 
------------------ 
 
¶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 
----------------- 
 
¶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 
-------------------- 
 
¶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 
-------------------------------- 
 
¶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 
------------------------------------- 
 
¶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 
-------------------------------- 
 
¶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