China Eximbank provides $162.35 million preferential buyer's credit for 230kV Nabong-Nam Ngum 1-Hin Heup Power Transmission Line Project

In August 2016, China Eximbank and the Government of Laos signed a preferential buyer's credit (PBC) agreement worth approximately $162.35 million for the 230kV Nabong-Nam Ngum 1-Hin Heup Power Transmission Line 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 partially finance a $191 million commercial (EPC) contract between China National Heavy Machinery Corporation (CHMC) and Électricité du Laos (EDL), which was signed on July 28, 2014. The purpose of the project was to construct 1 new substation, extend two existing substations, and construct a a 90-kilometer dual-circuit transmission line from Hinheup (Hin Heup) substation to Nabong substation via Nam Ngum 1 Substation. The project sought to evacuate power from the Nam Ngum 1 Hydropower Station Extension and other new-built hydropower stations in the northern part of Laos. It also sought to stabilize the power supply in the capital city of Vientiane. CHMC was the EPC contractor responsible for implementation. Construction began in November 2016 and was project completed and put into operation in May 2018. The project was completed 18 months ahead of the schedule specified in the EPC contract. A formal project completion ceremony took place on July 4, 2018. Then, on September 2, 2019, EDL issued a performance certificate to CHMC, which marked the end of the project warranty period. There are some indications that the China Eximbank loan for the N230kV Nabong-Nam Ngum 1-Hin Heup Power Transmission Line 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 230kV Hinheup-Nabong-Phonetong Project, the Hinheup-Nabong-Phonetong Electricity Transmission Lines and Substations Project, the Nabang-Nam Ngum-Xinhe Power Transmission Project, and the 230 kV Hinheup-Nam Ngum 1-Nabong Project. 2. The precise face value of the PBC is unknown. However, per China Eximbank’s policy of using PBCs to finance up to 85% of the cost of commercial (EPC) contracts, AidData assumes that the face value of the PBC for the 230kV Nabong-Nam Ngum 1-Hinheup Power Transmission Line Project is equivalent to 85% of $191 million. 3. The Chinese project title is 老挝230kV纳邦-南俄1-欣赫输变电项目 or 老挝230kV输变电项目. 4. 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