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

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 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. 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 Thavieng-Laksao Transmission Line Project or the 230kV Thavieng-Laksao S/S And 115kV Nam Phay HPP-Thongkoun2 S/S Transmission Line Project. It is sometimes transliterated from Chinese as 230 KV Power Transmission and Transformation from Tamian to Lasao Project. 2. The Chinese project title is 230千伏塔维扬－拉克绍及115千伏南湃－通昆输变电线路项目 or 老挝２３０ｋＶ＆１１５ｋＶ输变电线路 or 老挝230kV输变电项目 or 230kV Thavieng-Laksao输变电项目. 3. Per China Eximbank's policy of allowing borrowers to use GCLs to finance the full cost of EPC contracts, AidData assumes the face value of the GCL was $198,827,000. The GCL was almost certainly denominated in RMB, but AidData was not able to identify the face value of the GCL or the EPC contract in RMB. This issue merits further investigation.

Number of official sources

8

Number of total sources

22