ICBC contributes $1.4 billion to $4.71 billion syndicated loan for 1,740 MW Nestor Kichner and Jorge Cepernic Hydroelectric Power Plant Construction Project (Linked to Project ID#37002, #59724, #95374, #95335, and #95364)

The initial plans for the Cóndor Cliff and La Barrancosa hydroelectric complex were conceived in the 1950s and a series of preliminary studies was carried out before 1980. However, it was not until 2007 that then President of Argentina Cristina Fernández de Kirchner (in office from 2007 to 2015) revived plans for the construction of the two dams under the names Kirchner and Cepernic as a tribute to former president Néstor Kirchner (also her late husband) and Jorge Cepernic, a former governor of Santa Cruz Province. The tendering process for the project drew criticism for its lack of transparency. Four entities participated in the public tender for this project. The so-called Unión Transitoria de Empresas (UTE) consortium — also known as the Represas Patagonia consortium — submitted the third-highest of the four bids, but was then allowed to make a second, discounted offer, thus reducing its bid to the lowest, in a move that was widely criticized as ‘irregular.’ On August 1, 2014, Argentina’s Ministry of Economy and Public Finance signed a $4,714,350,000 syndicated term facility (loan) agreement with Bank of China, China Development Bank, and ICBC for the 1,740 MW Néstor Kichner and Jorge Cepernic Hydroelectric Power Plant Construction Project. The loan agreement was later amended on January 27, 2015 and again in mid-2022. CDB, ICBC, and Bank of China contributed $2,498,605,500, $1,414,305,000, and $801,439,500, respectively, to the syndicated loan. Project ID#59724 captures BOC’s contribution, while Project ID#37002 captures CDB’s contribution and Project ID#59723 captures ICBC’s contribution. The syndicated term facility agreement carried the following borrowing terms: a 15.5 year maturity, a 5.5 year grace period, an interest rate of 6-month LIBOR plus an 3.8% margin, a default (penalty) interest rate of 1.5%, a commitment fee of 0.125%, and an upfront (one-time) management fee of 0.20%. As a credit enhancement, the borrower purchased a buyer’s credit insurance policy from Sinosure worth approximately 7.1% of the face value of the loan ($502,976,000). This measure was demanded by CDB as a condition of disbursement. The syndicated loan agreement also included a cross-default clause, which stated that if the borrower canceled the project, CDB financing for the Belgrano Cargas railway line project (captured via Project ID#36517) with the Government of Argentina would also be canceled. The borrower was expected to use the loan proceeds to finance approximately 85% of the cost of a $5,559,610,000 commercial contract between the Government of Argentina’s Ministry of Energy and the Unión Transitoria de Empresas (UTE) Consortium (established by China Gezhouba Group Company Limited, Electroingeniería S.A. and Hidrocuyo S.A.), which was signed on October 31, 2013 and amended on August 20, 2013, January 29, 2014, July 10, 2014, February 9, 2015, August 31, 2016, January 20, 2017, May 31, 2017, February 1, 2018, September 4, 2020 and December 15, 2020. The loan had achieved a 20.1% disbursement rate ($950,000,000 out of $4,714,350,000) as of November 2015, a 28.6% disbursement rate ($1,350,000,000 out of $4,714,350,000) as of May 2022, a 39.2% disbursement rate as of December 2022 ($1,849,000,000 out of $4,714,350,000), and a 49.8% disbursement rate of June 2022 ($2,349,000,000 out of $4,714,350,000). The loan was originally scheduled for repayment in 20 semi-annual installments between July 2020 and January 2030, with the first repayment date (July 28, 2020) falling 66 months after the financial closing date (January 28, 2015) and the final maturity date falling 180 months after the financial closing date (January 28, 2030). The loan's (principal) amount outstanding was $850,000,000 as of December 31, 2015, $1,350,000,000 as of December 31, 2017, $1,350,000,000 as of December 31, 2019, and $1,282,500,000 as of December 31, 2020. As of 2022, the borrower had paid the Sinosure insurance premium in full. The original purpose of the project was to construct two hydroelectric power plants (with 11 turbines) — the Néstor Kirchner hydroelectric power plant (also known as Cóndor Cliff power plant) and the Jorge Cepernic hydroelectric power plant (also known as La Barrancosa power plant) — with a capacity of 1,740 MW on the Santa Cruz River in the town of Puerto Santa Cruz. However, the total power generation capacity of the two hydroelectric power plants was later reduced from 1,740 MW to 1,310 MW as part of a rescoping exercise. The Néstor Kirchner hydroelectric power plant will be a 950 MW, 70-meter-high hydropower dam, 130 kilometers to the east of the town of El Calafate in Argentina’s Santa Cruz Province. The Jorge Cepernic hydroelectric power plant, which is located 170 kilometers from the city of Comandante Luis Piedrabuena in Santa Cruz Province, will be 45 meters high with an installed capacity of 360 MW. The locational coordinates of these power plants are 50°12′41.67″S 70°46′30.29″W and 50°11′31.76″S 70°7′14.64″W, respectively. Upon completion, the power plants are expected to flood more than 47,000 hectares of land. The project also involves the construction of a 500KV extra high voltage transmission line (Línea de Extra Alta Tensión) from Santa Cruz to Buenos Aires measuring 173 kilometers in length and 5 transformer substations for the purpose of connecting the Néstor Carlos Kirchner and Gobernador Jorge Cepernic Hydropower Project to the national electricity grid (known as Sistema Argentino de Interconexion Eléctrica). Upon completion, the Néstor Kichner and Jorge Cepernic Hydroelectric Power Plant Construction Project is expected to result in average annual power generation of 4,950 gigawatt-hours, which would mean that Argentina’s installed power capacity would increase by approximately 6.5 percent and its installed hydroelectric power capacity would increase by approximately 15 percent. The project is also expected, upon completion to meet the daily power consumption needs of 1.5 million households. It was additionally envisaged that the project would employ 5,000 people during construction. The UTE consortium is the general EPC contractor responsible for project implementation. The EPC contractor was authorized by the Government of Argentina to commence construction on February 15, 2015 and the project was originally expected to reach completion within 5 years (February 15, 2020). However, the equipment necessary for the construction of the hydroelectric power plants did not arrive at the project site until July 29, 2015. In October 2015, the Argentine Association of Environmental Lawyers of Patagonia and the Forest Bank Foundation (Fundación Banco de Bosques) initiated legal action, denouncing the project’s lack of a proper environmental impact assessment (EIA) and public consultation process. Then, in November 2015, newly elected Argentine President Mauricio Macri announced his intention to suspend construction of the Kirchner-Cepernic dams. On December 28, 2015, Argentina’s Ministry of Energy issued a stop-work order to the EPC contractor. The Kirchner-Cepernic dams are located on the Santa Cruz River near the famous Perito Moreno Glacier (a UNESCO World Heritage Site) that feeds from the same river, and the Macri administration considered these dams to be too risky on environmental grounds. When President Macri first announced suspension of the project, CDB, ICBC, and Bank of China had already disbursed $950 million under the syndicated term facility agreement. Then, on March 10, 2016, CDB sent a letter to Argentina's Finance Minister, Alfonso Prat Gay, asking for clarification on the future of the project. The letter said: ‘[t]he Kirchner-Cepernic dams and the Belgrano Cargas are major projects promoted by the Chinese Communist Party and signed during the same political time period in Argentina and each one of the payment facility agreements of the dams together with those of the Belgrano Cargas project contain cross default clauses.’ On December 21, 2016, the Supreme Court of Argentina suspended construction of the dams until the EIA process and a public hearing required under Argentina’s Environmental Impact Law of Hydraulic Works (Law 23,879, which sets out a detailed EIA procedure) was conducted. The suspension was also based on the grounds that the dams could destroy archaeological sites and have a negative impact on the Perito Moreno Glacier within Los Glaciares National Park—a top tourist spot in Argentina and one of South America’s largest bodies of ice. During the second half of 2017, the Kirchner-Cepernic dam projects were rescoped (to include a reduction in power generation capacity from 1,740 MW to 1,310 MW, the incorporation of a high voltage transmission line from Santa Cruz to Buenos Aires, and a longer period of implementation for the rescheduled works) and adapted to the findings of the EIA resulting from a public hearing held by Congress, as mandated by the Supreme Court. On October 10, 2017, Argentina’s Ministry of Energy issued a letter to the EPC contractor, authorizing it to resume project implementation. Approximately 3 weeks later, on October 31, 2017, an Argentinian state-owned corporation (sociedad anónima) known as Integración Energética Argentina S.A. (IEASA) -- formerly Energía Argentina S.A. ("ENARSA") -- was appointed as the project owner in place of Argentina’s Ministry of Energy and an announcement was made that the Kirchner-Cepernic dams would return to their original names (Cóndor Cliff and La Barrancosa). Dam construction resumed in March 2018. Then, on September 5, 2018, IEASA was formally identified as the project owner in the commercial contract with the UTE Consortium. As of December 2, 2018, the project had undertaken the excavation, earthwork, and filling phases of construction. Then, on August 30, 2019, the project owner (IEASA) and an Argentinian state-owned corporation (sociedad anónima) known as Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA) signed a power purchase agreement (PPA), with IEASA serving as the seller and CAMMESA serving as the buyer. However, between late 2018 and 2021, CDB, Bank of China, and ICBC reportedly halted loan disbursements due to the fact that the Government of Argentina fell behind on the payment of invoices (interim payment certificates). Consequently, the EPC contractor (the UTE consortium) had to contract a $300 million loan from China Gezhouba Group Company Limited in August 2022 (as captured via Project ID#95335) and a $40 million loan from ICBC Argentina in August 2022 (as captured via Project ID#95364). On June 15, 2021, approximately 18 months after Alberto Fernández assumed the Presidency of Argentina and Cristina Fernández de Kirchner (the former President of Argentina) assumed the Vice Presidency of Argentina, an announcement was made that the names of the Cóndor Cliff and La Barrancos dams would be changed back to the Néstor Kirchner and Jorge Cepernic dams. As of August 2021, the project had still only made limited progress: the Néstor Kirchner hydroelectric dam (also known as Cóndor Cliff dam) had achieved a 19.3% completion rate, the Jorge Cepernic hydroelectric dam (also known as La Barrancosa Dam) had achieved a 27.1% completion rate, and the high voltage transmission line had achieved a 6.5% completion rate. By May 2022, the project as a whole had only achieved a 28.64% completion rate, and the Jorge Cepernic hydroelectric dam (also known as La Barrancosa Dam) was expected to be put into commercial operation by the end of 2024 while the Néstor Kirchner hydroelectric dam (also known as Cóndor Cliff dam) was expected to be put into commercial operation by the end of 2027. On May 26, 2022, Argentina's legislature authorized the Minister of Economy to sign an amended version of the syndicated loan agreement (ID# IF-2022-07542376-APN-SSRFID#SAE) with Bank of China, ICBC, and CDB. Based on modifications to the October 31, 2013 commercial contract (via Addenda Nos. III to IX) with the UTE consortium, the lenders and borrower determined that it was necessary to amend to loan agreement to (a) identify a new project owner (IEASA), (b) document the reduction in power generation capacity (from 1,740 MW to 1,310 MW) due to a rescoping of the project design, (c) modify the semi-annual repayment scheme, and (d) extend the loan availability period by 30 additional months (from July 27, 2020 until January 27, 2023). Construction activities recommenced during the second half of 2022 -- with support from a $280 million bridge loan from Argentina's National Treasury -- and the first of the eight turbines arrived (by ship at the Santa Cruz port of Punta Quilla) for installation on December 7, 2022. CDB, BOC, and ICBC did not release additional loan disbursements until Argentina's President Alberto Fernández met with his Chinese counterpart, Xi Jinping, at the G20 summit in Bali in mid-November 2022. CDB, BOC, and ICBC reportedly made two loan disbursements in December 2022: one worth $212 million and another worth $287 million (to reimburse the Argentine National Treasury for the cash advance/bridge loan). Then, in June 2023, they made another loan disbursement worth $500 million. The 1,740 MW Nestor Kichner and Jorge Cepernic Hydroelectric Power Plant Construction Project has become a major source of controversy and protest. In July 2017, a public hearing was held at the National Congress, in which nongovernmental organizations warned of the deep deficiencies and technical and informational omissions in the project’s original EIA presented by Emprendimientos Energéticos Binacionales S.A. (EBISA). They argued that EBISA lacked the necessary independence and suitability for this type of study because its former president, engineer Jorge Marcolini, was also an official of the ministry that had to evaluate the EIA. In addition, EBISA was not authorized to carry out analysis of the environmental risks of the work because it was not registered in the Registry of Environmental Impact Consultants of the Ministry of the Environment at the time of publication of the EIA. Also, the EIA lacked crucial information, and state technical organizations such as the Argentine Institute of Nivology, Glaciology and Environmental Sciences and the National Institute of Seismic Prevention did not have enough time to go over all the details and implications before the EIA was finalized. These shortcomings became evident in November 2019 when landslides were detected on the banks of the Santa Cruz River at the site where the Cóndor Cliff (Néstor Kirchner) Dam was to be built. Calculation and analysis errors in the construction of the Cóndor Cliff Dam caused a 20-meter crack in one of the landfill containment slopes beside the Santa Cruz River, which forced a redesign of the project and generated an additional outlay of $250 million—that is, about 5% of the total value of the project. In mid-2021, the problem worsened and it was confirmed the crack was by then at least 70 meters long. The EPC contractor built retaining walls to stop its advance, although various groups complain this is only a temporary solution. Many potential social impacts in the area remain unaddressed. While the project does not require people to be resettled, the construction will impact 14 indigenous communities in Santa Cruz, especially the Comunidad Mapuche Tehuelche de Lof Fem Mapu living in Puerto Santa Cruz, within the area of the project. For these communities the river is a fundamental social space, and the project will impact their burial grounds and community dynamics. In addition, the works are being undertaken with no free, prior, and informed consent—a right acknowledged by the International Labour Organization Convention No. 169, which Argentina has ratified, and the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). In August 2017, the Lof Fem Mapu community filed an appeal against the national and provincial governments and against the company over the lack of free, prior, and informed consent. On October 30, 2017, a federal judge ruled in favour of the community, ordering the state to set up a dialogue. Between March 2018 and November 2019, six dialogues were held. In the final dialogue, an intercultural cooperation agreement was signed, allowing the presence of indigenous intercultural technicians at the construction sites. The companies and financiers involved, as well as the Chinese state, have not responded to concerns and complaints made by civil society organizations. These include a letter dated May 20, 2020 addressed to the Minister for Commerce of the People’s Republic of China and the Director of China’s State-Owned Assets Supervision and Administration Commission signed by 73 civil society organizations from Argentina, Peru, and Ecuador. The letter raised concern about the project and demanded immediate action—in particular, insisting on the suspension of construction until a free, prior, and informed consultation process with affected indigenous communities was conducted, and a comprehensive EIA was undertaken that includes environmental and social impacts. The letter also raised issues related to Covid-19, asking the Chinese Government to exclude these controversial projects from receiving possible pandemic-related financial support. At peak level of construction, the project created over 5,000 jobs directly and 15,000 jobs indirectly. During the Covid-19 pandemic, there were reports of violations of labour and health rights of the workers employed on the project, particularly in terms of overcrowded conditions, lack of epidemiological control, lack of testing, and insufficient sanitation. In early 2020, workers complained they had not been given any health or safety guarantees and quarantine measures were not complied with. Due to a Covid-19 outbreak in late October 2020, public health authorities ordered the total closure of the Cóndor Cliff site for three weeks.

Additional details

1. No sources explicitly state that this is a buyer's credit loan. AidData assumes this is the case for the following reasons: (1) The loan is provided to a foreign borrower, (2) the loan is denominated in USD, (3) the face value of the loan is explicitly identified in multiple official sources, (4) the loan is used to finance a commercial contract with a Chinese company, and (5) the loan was insured by Sinosure via its export buyer's credit insurance service, which is specifically used when banks are providing buyer's credit financing. 2. The Government of Argentina's internal identification number for this loan is 534106035/CDB-0. The Government of Argentina’s Sistema de Análisis y Control de la Deuda (SIGADE) loan identification number is 27647000. 3. The original (2014) loan agreement can be accessed in its entirety via https://www.documentcloud.org/documents/20484849-arg_2014_435. The amended (2022) version of the loan agreement can be accessed in its entirety via https://www.dropbox.com/s/vnovtbguodotosq/2022%20CDB%20ICBC%20and%20BOC%20syndicated%20loan%20agreement%20for%20construction%20of%20the%20Nestor%20Kirchner%20and%20Jorge%20Cepernic%20Hydroelectric%20Dams.pdf?dl=0. The amended (2022) loan agreement can be accessed in its entirety via https://www.dropbox.com/s/vnovtbguodotosq/2022%20CDB%20ICBC%20and%20BOC%20syndicated%20loan%20agreement%20for%20construction%20of%20the%20Nestor%20Kirchner%20and%20Jorge%20Cepernic%20Hydroelectric%20Dams.pdf?dl=0. 4. This project is also known as the President Dr. Néstor Carlos Kirchner and Gobernador Jorge Cepernic Hydropower Project, the Néstor Kirchner-Jorge Cepernic Hydropower Plant Project, and the Cóndor Cliff-Barrancosa Hydropower Plant Project. The Spanish project title is El Proyecto de Aprovechamiento Hidroeléctrico del Río Santa Cruz or El Proyecto de Aprovechamientos Hidroeléctricos del Río Santa Cruz Cóndor Cliff-La Barrancosa. The Chinese project title is 阿根廷圣克鲁斯河水电项目 or 的阿根廷“基塞”水电站项目. 5. This loan is collateralized and the proceeds and receivables generated from the power purchase agreement (PPA) between IEASA and CAMMESA serve as one source of collateral. However, the full extent of the collateralization arrangement is unknown. CDB serves as the security agent and the contract refers to a range of security documents, but these documents are separate from the loan agreement and not available. The loan agreement also mentions the revenue derived from the sale arrangement of the generated electricity. Project assets, which are defined in the loan agreement as ‘assets or revenues in respect of, or arising from, the Project, including all the rights, interests and benefits of the Project Owner under the Power Purchase Agreement and the proceeds and receivables generated from such rights, interests and benefits’, are explicitly excluded from the public asset exception to the sovereign immunity waiver. 6. The March 10, 2016 warning letter can be accessed in its entirety via https://www.dropbox.com/s/q6s26ninx4ldnes/Cross-Default%20Letter%20from%20China%20Development%20Bank%20to%20the%20Government%20of%20Argentina%2010%20March%202016.pdf. 7. AidData has estimated the all-in interest rate of the loan by adding 3.8% to the average 6-month LIBOR rate (.328%) in July 2014. 8. The Nestor Kirchner and Jorge Cepernic Hydroelectric Dams were named after the president and the governor, respectively. 9. Unión Transitoria de Empresas (UTE) was legally incorporated by China Gezhouba Group Company Limited (CGGC Limited), Electroingeniería S.A. and Hidrocuyo S.A. under Public Deed #36 of Argentina on October 13, 2013, before Notary Public Ester Perla Resch, under Registry #36, Río Gallegos, Province of Santa Cruz. 10. The 2022 (amended) loan agreement specifies that ‘[t]he Borrower shall repay the Loans in twenty (20) instalments (each a "Repayment Instalment") on the relevant Repayment Dates as follows: (i) the first Repayment Instalment shall be equal to one-twentieth of the Repayment Base Amount in respect of the first Repayment Date; (ii) the second Repayment Instalment shall be equal to one-nineteenth of the Repayment Base Amount in respect of the second Repayment Date; (iii) the third Repayment Instalment shall be equal to one-eighteenth of the Repayment Base Amount in respect of the third Repayment Date; (iv) the fourth Repayment Instalment shall be equal to one-seventeenth of the Repayment Base Amount in respect of the fourth Repayment Date; (v) the fifth Repayment Instalment shall be equal to one-sixteenth of the Repayment Base Amount in respect of the fifth Repayment Date; (vi) the sixth Repayment Instalment shall be equal to one-fifteenth of the Repayment Base Amount in respect of the sixth Repayment Date; and (vii) each of the seventh to twentieth Repayment Instalments shall be equal to one-fourteenth of all the Loans outstanding as at close of business in Beijing on the last day of the Availability Period. The "Repayment Base Amount" means, in respect of each of the first six Repayment Dates, "the aggregate amount of: (a) all the Loans made and outstanding as at close of business in Beijing on the tenth Business Day immediately prior to that Repayment Date; and (b) all the Loans that are due to be made under the then proposed Utilisations with a proposed Utilisation Date after the tenth Business Day immediately prior to but on or before that Repayment Date.’ 11. The Sinosure export credit insurance policy agreement has an effective date of December 18, 2014. Amended versions of the agreement (No. LBA2014044-01 and No. LBA2014044 – PD02) were signed on July 1, 2016 and September 1, 2017. The policy insures certain political and commercial risks related to the $4,714,350,000 syndicated loan agreement and provides a minimum pay-out ratio of 95% of all of the principal and interest under the agreement.

Number of official sources

35

Number of total sources

89