China Eximbank provides $1.175 billion buyer’s credit loan for 450MW Souapiti Hydroelectric Power Plant Construction Project (Linked to Record ID#53003 and ID#64408)

Project narrative

On September 4, 2018, China Eximbank and the Government of Guinea signed a buyer's credit loan agreement worth $1,175,468,700 for the 450MW Souapiti Hydroelectric Power Plant Construction Project. The loan carries the following borrowing terms: a 15-year maturity, a 5-year grace period, and a 4.6038% interest rate, a 0.5% commitment fee, and a 0.5% management fee. It is collateralized against the hydroelectric power plant's future sales receipts. The borrower is also required to maintain a minimum cash balance in a lender-controlled escrow account (beginning at $20 million and increasing to $90 million). The proceeds of the loan are to be used by the borrower to finance 85% of the cost of a $1.383 billion commercial (EPC) contract between China Three Gorges Corporation (CTGC) and the Government of Guinea, which was signed on January 22, 2016. The loan agreement also specifies that the remaining 15% of the cost of the project must be funded by the borrower. The Government of Guinea met this counterpart funding requirement by selling its 51% equity stake in Société De Gestion de Kaléta (SOGEKA) — the project company responsible for the 240MW Kaléta Hydroelectric Power Plant Construction Project (see Record ID#53003) — to China Three Gorges Corporation for $200 million on November 2, 2016. Then, on September 4, 2018, the Government of Guinea and China Eximbank signed the loan agreement. The Government of Guinea, in turn, used the loan proceeds to on-lend to a special purpose vehicle (SPV) called Société de Gestion et d'Exploitation du Barrage de Souapiti, SA (SOGES S.A. or 苏阿皮蒂电站管理公司 or 几内亚凯乐塔电站管理公司). SOGES S.A., which was established as a project company in August 2017, is jointly owned by the Government of Guinea (51% equity stake) and China International Water & Electric Corporation (49% equity stake). SOGES S.A signed a power purchase agreement (PPA) with the state-owned power utility, Electricité de Guinée (EDG), and once the Souapiti dam is operational, it will use the proceeds from the sale of electricity (generated by the dam) to EDG (for 20 years) in order to facilitate the repayment of the China Eximbank loan. Under the terms of the PPA, the Government of Guinea guaranteed the payment obligations of EDG to SOGES S.A. The Government of Guinea also issued a sovereign guarantee in support of the China Eximbank loan. The loan’s first tranche of $575 million was disbursed at the end of 2020. The loan’s second tranche of $300 million was originally expected to disburse in 2021 and the loan’s third tranche of $300 million was originally expected to disburse in 2022. However, neither of these disbursements took place. The second tranche was rescheduled for disbursement in 2023 and the third tranche was rescheduled for disbursement in 2024. The disbursements of the second and third tranches of the loan were then rescheduled again -- for 2026 and 2027, respectively. The Government of Guinea’s Ministry of Economy and Finance has identified the outstanding principal payment obligations of SOGES S.A. under the China Eximbank loan agreement as $575.11 million as of December 31, 2020, $575.11 million as of September 30, 2021, $575.11 million as of June 30, 2022, $575.11 million as of September 30, 2022. The purpose of the project was to construct a 450MW hydroelectric power plant (hydropower station) — with four power generation units — in the middle reaches of the Konkoure River (approximately 6 km downstream of China Eximbank-financed 240MW Kaleta hydropower station). Upon completion, the plant was expected to achieve an average annual output of 2.016 billion kilowatt-hours (kWh) and serve both domestic customers and several neighboring countries in West Africa (including Senegal, Mali, Sierra Leone, Liberia, and Guinea-Bissau through the West African power grid). The Souapiti hydropower station consists of a roller compacted concrete (RCC) gravity dam and a ground powerhouse equipped with four vertical-axis Francis turbine generators of 112.5 MW rated capacity each. Each turbine is designed to operate at a rated head of 87 meters. The RCC gravity dam is 120 meter-high and has a crest elevation of approximately 215.5 meters, while the dam axis length is approximately 1,164 meters. The normal storage capacity of the dam is approximately 6.3 billion cubic meters (bcm) and the design water storage level is 210 meters. The other mechanical component in the project includes 21 flat steel gates, 12 trash racks, two arc gates, six hydraulic hoists, two fixed hoists, one sewage gate crane, and a tailgate crane station. A double trolley 160/50 tonnes (t) bridge crane was utilized for the lifting and installation operations during the project construction. The electricity generated by the Souapiti hydropower station is fed into the grid through an 8.7 km, 225kV double-circuit power transmission line connecting the Kaleta (Kaileta) substation. China International Water & Electric Corporation, a subsidiary of China Three Gorges Corporation (CTGC), was the general (EPC) contractor responsible for implementation. However, many subcontractors were also involved. Harbin Electric Machinery Company manufactured and supplied the turbines and other hydroelectric units for the project. Sinohydro Bureau 3rd was subcontracted by CTCG for the civil engineering, grouting, electromechanical, and metal structures works in 2016, while Sailors Automation Technology Company was subcontracted for the supply of automation components in September 2018. Tractebel Engie was engaged to provide supervisory services for the project. It also assisted in the environmental and social impact assessment (ESIA) as well as the resettlement action plan (RAP). Yellow River Engineering Consulting was subtracted by CWE for the design and engineering services of the project. Yingtai Group delivered nine 10kV voltage grade 1,600KW diesel generator sets for the project. Nodalis updated the feasibility study and evaluated the technical and economic viability of the hydropower project. On December 24, 2015, a groundbreaking ceremony took place. However, main civil construction works did not commence until April 2016. The first and second power generation units achieved grid connection on November 8, 2020 and November 30, 2020, respectively. The third power generation unit achieved grid connection on January 5, 2021. The fourth power generation unit achieved grid connection on March 25, 2021. The power plant reached its commercial operation date (COD) on June 24, 2021. A final project completion certificate was issued in July 2022. However, according to a Human Rights Watch (HRW) report published in April 2020, the Souapiti Hydroelectric Power Plant Construction Project has been plagued by a variety of social, environmental, and governance problems: ‘[t]he dam’s reservoir will ultimately displace an estimated 16,000 people from 101 villages and hamlets. The Guinean government had moved 51 villages by the end of 2019 and said it planned to conduct the remaining resettlements within a year. Forced off their ancestral homes and farmlands, and with much of their land already, or soon to be flooded, displaced communities are struggling to feed their families, restore their livelihoods, and live with dignity. […] Residents displaced by the dam are resettled in concrete houses on land ceded by other villages. Residents have so far not obtained legal titles to their new land, creating a risk of future land conflicts between displaced families and host communities. Displacement is rupturing longstanding social and cultural links between families in the area. “In our culture, our social and familial bonds are essential,” said one displaced resident. “Extended families are being split apart. Whenever there is something to celebrate or mourn in the family, we feel the distance.” Souapiti’s reservoir is also flooding a vast area of agricultural land, threatening communities’ means of subsistence. The dam’s reservoir will eventually flood 253 square kilometers of land, including an estimated 42 square kilometers of crops and more than 550,000 crop-bearing trees. A 2017 project document warned starkly that, “displaced populations will generally have less favorable land than they have been farming for generations.” Dozens of displaced residents told Human Rights Watch that they are already struggling to find adequate food for their families. “The people here are hungry, sometimes I don’t eat so my children can,” said a woman displaced from the village of Tahiré Center in 2019. Residents from several villages said that, whereas before being displaced they used to grow their own food, they must now find enough money to buy it from local markets. “With the fields gone, we’re slowly selling our cattle to make ends meet,” said a local herder and farmer. “We’re fragile like eggs because of the suffering here,” said a community leader relocated in 2019. “It’s only thanks to God that we survive.” Officials [from SOGES S.A.] acknowledged that displacement threatens communities’ livelihoods. “When you move a village, you’re breaking up the way they make a living, and you have to try to reestablish it,” said the [SOGES S.A.] head of environmental management and sustainable development. [SOGES S.A.] said it intends to restore communities to the same or improved standard of living that they enjoyed prior to the resettlement. SOGES S.A.] does not provide displaced residents with replacement farmland but said it will assist them to farm more intensively on their remaining land and find new income sources, such as fishing or cattle-raising. Displaced residents, however, have so far received no such assistance. “We’re not asking for something extraordinary. Prepare land for us to continue our activities, a pasture area for livestock farming. Respect the promises made,” said the president of Tahiré District, which encompasses several villages relocated in June 2019. International human rights standards require that resettled populations have immediate access to livelihood sources, and that resettlement sites should include access to employment options. The 2015 and 2017 action plans prepared to guide the resettlement recommended that [SOGES S.A.] begin work on livelihood restoration programs as soon as construction on the dam started in 2015. At the end of 2019, however, [SOGES S.A.] had not started implementing livelihood restoration measures and displaced populations were receiving no support to help them reestablish the farming-dependent lifestyle they had left behind. [SOGES S.A.]told Human Rights Watch that it is, “in the process of redoubling its efforts to invest in the restoration of livelihoods in the coming month and for years to come.” [SOGES S.A.] pointed out that, in the short term, the government has provided food assistance – two deliveries of rice over six months and cash for basic essentials – to displaced families. “It helps people get on their feet,” said a [SOGES S.A.] official. But residents said that, given how long it would take to find new livelihoods, this was not enough. “We consumed what we were given in just over a month,” said a father of five who resettled in June 2019 from Warakhalandi. International standards recommend that displaced communities receive support until they return to the living standards they enjoyed prior to resettlement. [SOGES S.A.] also said that it compensates residents for the trees and crops growing on flooded land, although it has provided no payments to reflect the value of the land itself. Farmers have therefore received no compensation for land lying fallow as part of a crop rotation system, nor for land used for grazing animals. A lack of transparency in the compensation process – with [SOGES S.A.] failing to adequately inform people about how compensation is calculated – has also fueled dissatisfaction with the payments made. Some residents said they have not been paid any compensation at all; others contend that, while they had been compensated for perennial crops, like fruit trees, they have received nothing for annual crops like rice or cassava. “The government gave us what they wanted. We accepted money without negotiation because we didn’t know the value of our resources,” said one village leader. Several women said that the bulk of compensation has been paid to men in family or community leadership roles, giving women little say over how money is used. Residents from all the villages Human Rights Watch visited said that they had complained to representatives of [SOGES S.A.] or to local government officials about the resettlement process, but that they had received either no response or one that did not address their concerns. “Someone says give [your complaint] to this person. They ask you to wait. He also has his director. Who are we supposed complain to?” said a community leader from Konkouré district. [SOGES S.A.] told Human Rights Watch that it had “delayed” in implementing a formal grievance policy, and only did so in September 2019, after more than fifty villages had been moved. [SOGES S.A.] did not explain the reason for the delay. As of December 2019, 110 complaints had been submitted to the new grievance mechanism. [SOGES S.A.] said that for future relocations is it negotiating agreements with communities that set out the Agency’s responsibilities during the process. While this could help clarify displaced residents’ rights, a sample agreement shared by [SOGES S.A.] contains only a single paragraph summary of the Agency’s obligations and offers no detail on how [SOGES S.A.] will address key issues like lack of agricultural land and support for livelihood assistance. [SOGES S.A.] should also ensure that residents have access to independent legal advice, of their choice, prior to signing agreements. According to the IMF Guinea country report for 2024, The authorities plan to continue mobilizing external financing to scale-up public investments. While relying on the authorities’ projections for 2023-28, the project loan disbursement projection has been adjusted downward for 2023-28 to bring it to level more compatible with past execution rates. the remaining two loan disbursements for the Souapiti hydropower project from Eximbank China would be delayed to 2026 and 2027. These 2 delayed disbursement came from the $1.2 billion loan signed on September 4, 2018, with $299.7 million being delayed to 2026, and $300.6 million being delayed until 2027.