China Eximbank provides $65 million preferential buyer’s credit for 230kV Hin Heup—Naxaythong Transmission Line and Substation Project

In 2009, the Export-Import Bank of China and the Government of Laos signed a $65 million preferential buyer’s credit (PBC) agreement for the 230kV Hin Heup—Naxaythong Transmission Line and Substation Project. The borrowing terms of the loan are unknown. However, it is known that the borrower was to use the proceeds of the PBC to finance 80% of the cost of a $72.2 million commercial (EPC) contract between China International Water and Electric Corporation (CWE) and Électricité du Laos (EDL), which was signed on April 4, 2008. EDL contributed the remaining 20% of financing. The purpose of the project was to construct five electricity transmission lines — a 13 km 115kV transmission line from the Nam Lik 1-2 Hydropower Station to the Ban Don substation in Meuangfeuang district; a 31 km 115kV transmission line from the Nam Lik 1-2 Hydropower Station to the Hinheup (Hin Heup) substation in Hinheup district; a 17 km-long 115kV transmission line from Ban Don Substation in Meuangfeuang district to Hinheup (Hin Heup) substation in Hinheup district; a 12 km-long 115kV transmission line from Phontong substation in Chanthabouly district to Naxaithong substation; and a 71.5 km-long 230kV transmission line from Hinheup substation to Naxaythong substation in Naxaithong district — and the reconstruction of 4 substations (Ban Don 115/22kV substation, Hinheup (Hin Heup) 230/115/22kV substation, Naxaythong 230/115/22kV substation and Phongtong 115/22kV substation). CWE was the EPC contractor responsible for implementation. Construction began on April 1, 2009. The Hinheup (Hin Heup) substation was put into operation on March 13, 2010. A project handover certificate was issued by EDL on November 26, 2012. The project was officially completed on December 1, 2012. There are some indications that the China Eximbank loan for the 230kV Hin Heup—Naxaythong Transmission Line and Substation Project may have financially underperformed vis-a-vis the original expectations of the lender. Laos’ gross foreign exchange reserves were dangerously low between 2019 and 2021, hovering between 1.4 and 2.3 months of import cover, and total public and publicly-guaranteed (PPG) debt increased from 68 percent of GDP ($12.5 billion) in 2019 to 88 percent in 2021 of GDP (or $14.5 billion). 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.’ The Laotian authorities sought and secured debt service payment deferrals from their Chinese creditors in 2020 and 2021; according to the World Bank, ‘[d]ebt service deferrals granted by major lenders in 2020-2021 amounted around 3.6 percent of GDP in 2021’ and ’[a]s a result, actual debt service payments are estimated to have declined to 48 percent of total revenues in 2021, compared to 65 percent in the 2021 [Government of Laos] plan.’ The country’s central bank (Bank of the Lao P.D.R) also made a $300 million drawdown under its currency swap agreement with the People’s Bank of China (PBOC) in June 2020 — when its gross reserves stood at only 1.5 months of import cover and credit rating agencies warned of a high default probability. Then, in 2021, the short-term emergency loan from the PBOC was ‘rolled over’ for another year. Around the same time, 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) in September 2020. 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. According to the World Bank’s International Debt Statistics, the Government of Laos was responsible for making average annual debt service payments to Chinese creditors worth $232 million between 2019 and 2019 and average annual debt service payments to Chinese creditors worth $60 million between 2020 and 2021 (a substantially lower figure due to payment deferrals); however, it expected to make average annual debt service payments to Chinese creditors worth nearly $678 million over the next seven years (2022-2028).

Additional details

1. This project is also known as the 230 KV Transmission Lines (Hinheup-Naxaythong) and Substations Project or the 230kv Power Transmission Line from Nam Lik 1-2 Hydropower Station project. 2. The Chinese project title is 南立1-2水电站输电线路, 老挝230kV输电线路(HinHeup-Naxaythong)及变电站枢纽工程 or 老挝230kV输变电项目. 3. The China Eximbank loan that supported this project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020.

Number of official sources

10

Number of total sources

12