China Eximbank provides $115.9 million loan for 80MW Nam Ngum 1 Hydropower Expansion Project (Units 7 & 8)

Project narrative

In 2015, China Eximbank issued a $115.9 million loan to the Government of Laos for the 80MW Nam Ngum 1 Hydropower Expansion Project (Units 7 & 8). The loan’s estimated borrowing terms included a 19.994-year maturity, a 6.9585-year grace period, and a 2% interest rate. The borrower was expected to use loan proceeds to finance 95% of the cost of a $122 million engineering, procurement and construction (EPC) contract that the Government of Laos and Dongfang Electric Group (DEC) and Electricite du Laos (EDL) signed in 2013. The purpose of the project was to install two additional power generation units (40MW each) — known as Unit 7 and Unit 8 —at the Nam Ngum 1 Hydropower Plant (HPP) in Keo-Oudom district within Vientiane province. The locational coordinates of the project site are 18.531068°N 102.547577°E. DEC was the EPC contractor responsible for implementation. However, it appears to have hired Sinohydro Corporation Engineering Bureau 15 Co. Ltd. as a subcontractor. Construction commenced in May 2015. The first power generation unit (Unit 7) and second power generation unit (Unit 8) successfully passed a 72-hour trial operation on April 10, 2018. The project was completed and the power plant was officially inaugurated on May 28, 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.