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

Project narrative

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 loan’s estimated borrowing terms included a 18.1764-year maturity, a 5.05-year grace period, and a 3.1298% interest rate.. The borrower was to expected use the proceeds of the loan 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. 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.’ Additionally, 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 also 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.