China Eximbank provides $127.77 million concessional loan for 60MW Nam Khan 3 Hydropower Plant Project

Project narrative

On October 13, 2006, the Chinese Government and the Government of Laos signed a Memorandum of Understanding (MOU) regarding the Nam Khan 2 & 3 hydropower plants. Then, in 2012, China Eximbank and the Government of Laos signed a $127.77 million concessional loan agreement for the 60MW Nam Khan 3 Hydropower Plant Project. The loan’s borrowing terms included a 20-year maturity, an estimated grace period of 6.3382 years, and a 5% interest rate. The proceeds of the loan were to be used by the borrower to finance 95% of the cost of a commercial (EPC) contract that Sinohydro Corporation Ltd. and Électricité du Laos (EDL) signed on February 8, 2012. The purpose of the project was to construct a dam and hydroelectric power plant with installed capacity of 60MW and the ability to generate 241 million kWH of electricity per year. The project scope also involved the construction of a 15kV high-voltage transmission line connecting the plant to the Xieng Nguen power station. The Nam Khan 3 hydroelectric power plant is located is located 60 km upstream from Nam Khan 2 Dam and between Ban Donmoh district, Ban Khonwai district, and Xieng Ngeun district within Luang Prabang Province. Sinohydro Corporation Ltd. was the EPC contractor responsible for implementation. The project officially commenced in December 2012. Dam closure occurred on November 3, 2013. Impoundment took place on January 17, 2016 and the dam gates were closed for water storage on March 4, 2016. The first power generation unit successfully generated electricity on April 24, 2016. Then, on May 30, 2016, the rotor of the second power generation unit was hoisted into position and installation work commenced. The power plant became fully operational on June 25, 2016. There are multiple indications that the China Eximbank loan for this project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, the Laotian authorities urgently sought debt relief from China Eximbank. At that time, the gross reserves of the Bank of Laos stood at only 1.5 months of import cover and credit rating agencies warned of a high default probability. In 2020, China Eximbank agreed to reprofile multiple loan agreements that it had previously signed with the Government of Laos (as captured via Record ID#96464). These debt service payment deferrals lasted for approximately 4 years (2020 and 2023) and provided approximately $1.892 billion of cash flow relief ($1.422 billion in deferred principal payments and $470 million in deferred interest payments). Deferred principal and interest repayments in 2020 were worth $202 million. Deferred principal and interest payments were worth $426 million in 2021. Deferred principal and interest payments were worth $594 million in 2022. Deferred principal and interest payments were worth $670 million in 2023. Additionally, according to a report published by the World Bank in April 2022, ‘[t]he energy sector, mostly represented by Électricité du Laos (EDL), accounted for over 30 percent of total PPG debt in 2021. […] EDL’s debt service obligations [were] still unsustainable [at the time], with future debt service accounting for about two fifths of EDL’s total operating revenue.’ In September 2020, a Chinese state-owned enterprise purchased a major public infrastructure asset in Laos—a large part of the country’s electricity transmission grid—from EDL as part of an apparent debt-for-equity swap. China Southern Power Grid Co. and EDL established a joint venture known as Électricité du Laos Transmission Company Limited (EDLT). China Southern Power Grid Co. purchased a 90% ownership stake in EDLT in exchange for a $600 million fee (equity infusion). Then, in March 2021, EDLT signed a 25-year concession agreement, which made it responsible for management of the country’s high-voltage transmission network above 230 kilovolts. Independent observers suggested at the time that EDL would likely use the $600 million upfront payment from China Southern Power Grid Co. to service its outstanding debts to Chinese creditors, although this has not been independently confirmed.