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

Project narrative

In 2009, China Eximbank 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 loan’s estimated borrowing terms include a 22.2696-year maturity, a 6.975-year grace period, and a 2.3143% interest rate. The borrower was expected to use the proceeds of the loan 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 funds for the remaining 20% of the commercial contract cost. 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 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.