China Eximbank provides $96.05 million preferential buyer’s credit for 230kV Thavieng-Thabok Transmission Line and Substations Project

Project narrative

In 2015, China Eximbank and the Government of Laos signed a preferential buyer's credit (PBC) agreement worth approximately $96.05 million for the 230kV Thavieng-Thabok Transmission Line and Substations Project. 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 the proceeds of the loan to partially finance a $113 million commercial (EPC) contract between China International Water & Electric Corporation (CWE) and Électricité du Laos (EDL). The purpose of the project was to construct a 154.3 km 230kV transmission line between the Thavieng substation and the Thabok substation. Upon completion, it was envisaged that the project would connect northern Laos to the country’s central power grid and ease power transmission from Vientiane and Thailand to northern Laos. CWE was the EPC contractor responsible for implementation. Construction began in December 2012. A temporary project completion certificate was issued on September 15, 2015. Then, on December 11, 2017, the project passed final inspection by the project owner (EDL). A project completion ceremony was held on December 19, 2015. On January 16, 2018, the project warranty period ended and the project was transferred to the owner. There are some indications that the China Eximbank loan for the 230kV Thavieng-Thabok Transmission Line and Substations 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.