CDB participates in $781 million syndicated debt financing package for 400MW Lower Sesan II Hydropower Plant Project (Linked to Project ID#92481 and #92483)

The Lower Sesan II Hydropower Plant first emerged in a 1999 study of hydropower dam potential in the Nam Theun, Sekong, and Sesan River basins in Laos, Vietnam, and Cambodia funded by the Asian Development Bank (ADB). However, the ADB did not follow up on the project due to its marginal financial viability and its potentially serious environmental and social impacts, especially on migratory fish stocks and fishing livelihoods. Then, in June 2007, the Ministry of Industry, Mines, and Energy (MIME) of Cambodia granted permission for Electricité du Viet Nam (EVN) to conduct a detailed feasibility study. The study was implemented by a consulting firm, Power Engineering Consulting Joint Stock Company 1 (PECC1), in collaboration and consultation with technical ministries/agencies of the Royal Government of Cambodia. Then, on November 26, 2012, The Government of Cambodia and Hydro Power Lower Sesan 2 Co., Ltd. — a special purpose vehicle (SPV) and joint venture of the Royal Group of Cambodia (39%), Hydrolancang International Energy (51%), and Vietnam Electricity (EVN) (10%) — signed an implementation agreement (IA) for the 400MW Lower Sesan II Hydropower Plant Project. On the same day, Électricité du Cambodge (EDC) and Hydro Power Lower Sesan 2 Co., Ltd signed a Power Purchase Agreement (PPA). Under these two agreements, Hydro Power Lower Sesan 2 Co., Ltd. was granted a 45-year concession (40 years of operation and a construction period of 5 years) and it was specified that the electricity generated by Hydro Power Lower Sesan 2 Co., Ltd. — through the Lower Sesan II Hydropower Plant — would be sold to EDC at the fixed price of 6.95 US cents per kilowatt-hour. These agreements also specified that, after 40 years of operation, the ownership of the Lower Sesan II dam will be transferred to the Government of Cambodia. On December 12, 2012, the Government of Cambodia also agreed to guarantee the payment (power purchase) obligations of EDC and Cambodia’s Ministry of Industry, Mines and Energy to Hydro Power Lower Sesan 2 Co., Ltd under the PPA and the IA. The total cost of the 400MW Lower Sesan II Hydropower Plant Project, which was implemented on a Build-Operate-Transfer (BOT) basis, was $978 million and it was financed with a mix of debt and equity. In December 2013, China Development Bank (captured via Project ID#62217), ICBC (captured via Project ID#92481), and Bank of China (captured via Project ID#92483) provided a $781 million debt financing package (with a 17-year maturity and an interest rate of 6.5%) to Hydro Power Lower Sesan 2 Co., Ltd. for the 400MW Lower Sesan II Hydropower Plant Project. The financing was structured in the 2 tranches: (i) an initial bridge financing with ICBC under a financial leasing structure (the first for an infrastructure project in Cambodia); and (ii) a subsequent project financing by China Development Bank and Bank of China. Sinosure provided credit insurance. The Government of Cambodia issued a sovereign guarantee in the event on non-payment by EDC. The purpose of this project was to construct a hydroelectric power plant in the northeastern province of Stung Treng on the Se San River. Its locational coordinates are 13°32′59.5″N 106°15′49.4″E. The Lower Sesan II Dam is 80 meters tall and occupies a 36,000-hectare plot. The plant has eight turbines and each turbine has an installed capacity of 50 megawatts (400 MW total capacity). Upon completion, the plant was expected to produce 1.9 billion kilowatt-hours per year, boost electricity production in the country by 20%, and bring installed hydropower capacity to 1328MW. PowerChina HuaDong Engineering Corporation Limited (HDEC) was the contractor responsible for project design. Sinohydro Bureau 8 Co., Ltd was the contractor responsible for project implementation. Construction began in December 2013. The watergate was officially closed on September 25, 2017. The first turbine began producing electricity in November 2017. The dam was officially opened on December 18, 2018. The Chinese banks that financed the project divided environmental and social risks control into specific segments, including pre-loan investigation, loan review, contract management, loan issuance and post-loan management. They also required an environmental impact assessment (EIA) after the completion of the project. CDB went even further by introducing a standard review procedure. Sinosure also required that the project developer pay special attention to social and environmental responsibilities -- in particular, by resolving controversies around the dam through public consultation. The project developer held several public consultations with the affected communities in line with the guidelines of the Chinese banks. In July 2015, as requested by the local staff members of the CDB, the project developer held a dialogue with 140 people representing communities affected by the 400MW Lower Sesan II hydropower plant, Cambodian government representatives at national and sub-national levels, and NGOs to discuss their concerns and other issues related to the project. The participants then paid a visit on July 27, 2014 to the resettlement site to inspect on the quality of the housing construction, agricultural land, and dam construction. During the visit, community representatives and media held an informal on-site dialogue and raised questions to the Ministry of Mine and Energy’s secretary of state, project development, and the Stung Treng Deputy Governor in charge of Resettlement and Compensation Committee. Nevertheless, the project was affected by protests from thousands of villagers who were at risk of being displaced or losing their livelihoods. On February 13, 2014, villagers living in the dam reservoir lodged a petition to the Chinese embassy in Phnom Penh, relevant ministries of the Cambodian government, and the developer to discuss compensation and resettlement conditions in detail. On August 10, 2021, Human Rights Watch released a report about the various ways in which the 400MW Lower Sesan II Hydropower Plant Project allegedly harmed the lives and livelihoods of thousands of indigenous and ethnic minority people. The report claims that the construction of the Lower Sesan 2 dam displaced nearly 5,000 people without adequately providing compensation or livelihood assistance. It also notes that, although by community members occurred during the dam’s construction between 2011 and 2018, public officials ignored the complaints and moved forward with the construction project.

Additional details

1. This project is also known as 400MW Lower Sesan 2 Hydropower Plant Project, the Lower Se-San River Ⅱ Hydropower Station Project, the Lower Sesan 2 Power Development Project, or the Lower Se San 2 Dam Project. The Chinese project title is 柬埔寨桑河二级水电站项目. 2. The exact size of Bank of China, CDB, and ICBC’s respective financial contributions to the $781 million debt financing package are unknown. For the time being, AidData assumes that all 3 members of the lending syndicate contributed equal amounts ($260,333,333.33).

Number of official sources

26

Number of total sources

58