China Eximbank provides $198.8 million government concessional loan for 230KV Thavieng S/S-Laksao S/S and 115 KV Nam Phay HPP-Thongkoun2 S/S Transmission Lines Project

Project narrative

In May 2016, China Eximbank and the Ministry of Finance of Laos signed a $198,827,000 government concessional loan (GCL) agreement for the 230KV Thavieng S/S-Laksao S/S and 115 KV Nam Phay HPP-Thongkoun2 S/S Transmission Lines 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 proceeds of the loan were to be used by the borrower to finance a $198,827,000 commercial (EPC) contract between Électricité du Laos (EDL) — the state corporation of Laos that owns and operates the country's electricity generation, electricity transmission and electricity distribution assets — and NORINCO. The purpose of the 230kv Thavieng S/S-Laoksao S/S Transmission Line, with a total length of 220 km, was to transmit electricity from Thavieng Substation in XiengKhuang Province to Laksao Substation in Bolikhamxai Province and further to connect the Central 1 with the Central 2 regional power networks as well as to connect other possible local networks in Laos, and also to transmit power to Nakadok Mining area. The purpose of the 115kv Nam Phay HPP-Thongkoun2 S/S Transmission Line, located in Xaysomboun Province, was to transmit the electric power generated by Nam Phay Hydropower Plant to Thongkoun 2 Substation, constituting trunk line system linked within Central 1 Regional Power Network that secures power stability with improving quality of electricity. This transmission line is of double circuit, and the total length is 45km. The construction of the line sought to ensure that power generated by Nam Phay Hydropower Station, which is jointly invested by NORINCO International and Electricité du Laos, would be reliably delivered to the power grid of Laos and realize the expected investment returns. NORINCO was the EPC contractor responsible for implementation. On June 7, 2017, Minister of Energy and Mines of Laos Dr. Khammany Inthirath visited the 230kV Thavieng-Laksao Transmission Line project site. A project completion ceremony took place on September 14, 2018. There are some indications that the China Eximbank loan for the 230KV Thavieng S/S-Laksao S/S and 115 KV Nam Phay HPP-Thongkoun2 S/S Transmission Lines 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.