ICBC provides $297.7 million loan for Phase 2 of 104MW Patuca III Dam Project

On September 22, 2013, the Industrial and Commercial Bank of China (ICBC) signed a $297,719,934.10 buyer’s credit loan agreement with Empresa Nacional de Energía Eléctrica (ENEE) — Honduras's government-owned and -operated electrical power company — for Phase 2 of the 104 MW Patuca III Dam Project. This loan carried the following borrowing terms: an interest rate of 6 month LIBOR plus a 4% margin, a 2% default (penalty) interest rate, a 15 year maturity, a 5 year grace period, a 0.8% commitment fee, and a 1% management fee. The Government of Honduras provided a sovereign guarantee for the loan on December 27, 2013. The first ICBC loan disbursement (of $48 million) took place on August 10, 2015. As of November 2016, the loan had achieved an 89.8% disbursement rate ($267.4 million out of $297.7 million). The borrower (ENEE) made no principal payment and an interest payment worth $15.86 million in 2018. Then, in 2019, the borrower made a principal payment worth $14.76 million and an interest payment worth $17.21 million. The loan's (principal) amount outstanding was $266.41 million as of December 31, 2018 and $258.91 million as of December 31, 2019. The purpose of the Patuca III project was to construct a hydroelectric dam in Patuca on the Rio Patuca in Olancho located in the south-eastern part of Honduras. The project involved the construction of a dam with a height of 57 meters, a shot and a pressure pipe creating a fall of 42.2 meters and a reservoir area of 51 square kilometers. At the end of the pipe is a surface house where two Kaplan turbines were to be installed. Construction of the project was expected to reduce dependence on expensive thermal energy and further diversify the country’s energy matrix. Upon completion, the project was expected have an estimated capacity of 104MW and is expected to generate 326 GWh per year. It was estimated that the completed project will serve a population of nearly one million people. The project was completed in several stages. The first phase, which was completed in 2013, involved the design and construction of the cofferdam, diversion tunnel, bridge access, land acquisition and other complementary works at a cost of approximately $153.0 million. The second phase was executed at an estimated cost of $554.4 million. It consisted of the acquisition of generators, purchase and installation of two turbines, construction of the transmission line, installation of transformers, construction of the curtain and the reservoir, construction of the machine house, access roads, among others activities. The second phase was financed with funds from ENEE ($205.6 million), as well as loans to the Central Government from Bancatlan ($14.8 million), Petrocaribe ($36.1 million) and the Industrial and Commercial Bank of China ($297.7 million). The contractor responsible for project implementation is Sinohydro. Project implementation officially commenced on September 21, 2015. The Patuca III dam was officially inaugurated in January 2021. The project was originally scheduled to reach completion in the spring of 2018. However, the project faced implementation delays due the the fact that ENEE had trouble raising $35 million of additional funding to address a set of resettlement and environmental protections concerns before the dam could become operational. A 2008 Honduran Government-sponsored environmental impact assessment (EIA) was 'so weak,' according to a 2012 letter from the Inter-American Development Bank (IADB) to the Honduran Government, 'that we could not even envision starting to study [Tegucigalpa's request for project funding] seriously.' Among the failings the IADB’s EIA identified, the Honduran Government neither adequately consulted with nor compensated affected communities. According to the IADB, changes in the Patuca river’s flow also threatened several species of migrating fish, as well as lizards, crocodiles and turtles. When the IADB declined to fund the 104MW Patuca III Dam Project, ICBC stepped in as an alternative source of financing. The Patuca III Dam Project was plagued by accusations of corruption. The Honduran National Anti-Corruption Council investigated several officials at ENEE for the alleged embezzlement of more than $4 million from the construction of the barracks that housed Sinohydro’s technicians and laborers.

Additional details

1. The Spanish project title is Proyecto Central Hidroeléctrica Patuca III (Piedras Amarillas), Fase II. The Chinese project title is 洪都拉斯帕图卡水电站 or 帕图卡III水电站项目. 2. According to the loan agreement, which can be accessed in its entirety at https://www.documentcloud.org/documents/20488291-hnd_2013_434_3_of_4, the Foreign Debt Serivice Account ("Cuenta de Reserva de Servicio de la Deuda" at ICBC New York) is to be used for the repayment of the debt (and accessed if the funds in the Local Account for Project Revenue Collection, or "Cuenta Local de Cobros de Ingresos del Proyecto", aren't enough). The loan agreement also specifies that, in event of default, the lender may withdraw any amount of money that has been deposited in the Foreign Debt Service Account ("Abroad Account") or the Local Account for Project Revenue Collection to ensure repayment of the loan. 3. It appears that Phase 1 of the project was funded by ENEE, Central Government Bank from Bancatlan, and Petrocaribe. AidData has not identified any evidence that ICBC funded Phase 1 (See: "Informe de Cartera Industrial and Commercial Bank of China"). 4. AidData has estimated the all-in interest rate (4.380%) by adding 4% to average 6-month LIBOR in September 2013 (0.380%). 5. The 2018 and 2019 principal payment, interest payment, and amount outstanding data are drawn from https://www.dropbox.com/s/vzl7f617upyln1k/OfferingCircular5-625-2030.pdf?dl=0

Number of official sources

19

Number of total sources

37