China Eximbank provides $212.5 million preferential buyer's credit for 104MW Nam Chiane 1 Hydropower Project

Project narrative

In 2014, China Eximbank and the Government of Laos signed a preferential buyer’s credit (PBC) agreement worth approximately $212.5 million for the 104MW Nam Chiane 1 Hydropower Project. The loan’s estimated borrowing terms included a 23.0095-year maturity, a 6.2144-year grace period, and a 2% interest rate. The proceeds of the loan were to be used by the borrower to partially finance a $250 million commercial (EPC) contract that China Gezhouba Group Company Limited (CGGC) and Électricité du Laos (EDL) signed on April 15, 2012. The purpose of the project was to construct two 52MW hydropower stations on the Nam Chiane River — a left branch of the upstream Nam Ngiep River in Xiangkhouang Province. The project stretches from Keosed village in Khoun district, Xieng Khuang Province to Samkothong village in Thathom district, Xaysomboun Province. Contracted works included rock-fill dam panel, flushing sluice, access tunnels, power plant buildings, and switching plants. The total reservoir capacity reaches 14 million cubic meters, with the total installed capacity of 104MW (2*52MW), and the contract term lasts for 56 months. CGGC was the EPC contractor responsible for implementation. Construction began on July 1, 2013. A formal groundbreaking ceremony was held on May 3, 2014. As of June 2017, the project had achieved a 94% completion rate. The two 52MW power generation units put into operation on February 10, 2018. The power plant was commissioned on February 24, 2018. The originally anticipated project completion date was May 1, 2018. China Eximbank conducted an on-site post-loan inspection in May 2018. 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.