China Eximbank provides $86.9 million preferential buyer's credit for Phongsaly-Lantouy International Checkpoint Section of National Road No. 1A Upgrading Project

Project narrative

On January 5, 2011, Guangdong No.3 Water Resources and Hydropower Engineering Board (广东省水利水电第三工程局) and the Ministry of Public Works and Transport of Laos signed a $91,590,903 engineering, procurement, and construction (EPC) contract for the Phongsaly-Lantouy International Checkpoint Section of the National Road No. 1A Upgrading Project. China Eximbank subsequently issued a $86,925,000 preferential buyer’s credit (PBC) to the Government of Laos in support of this project. The loan’s estimated borrowing terms included a 19.7202-year maturity, a 6.5761-year grace period, and a 2.0394% interest rate. The borrower was expected to use the loan proceeds to finance 95% of the cost of the EPC contract. The purpose of the project was to renovate a 141.7 km section of National Road No. 1A that runs from the town of Boun Neua (Bounneua orເມືອງບຸນເໜືອ) in Phongsaly Province to Lantouy International Checkpoint at the Laos-China border. Guangdong No.3 Water Resources and Hydropower Engineering Board was the EPC contractor responsible for implementation. Construction began on November 30, 2013 and the project was originally expected to reach completion on May 30, 2017. As of March 2014, 26.2% of the earth and stone works were completed, and 2.7% of the drainage works were completed. As of September 2014, the project had achieved a 40% completion rate. This project was ultimately completed, but its precise implementation end date is unknown. There are multiple indications that the China Eximbank loan for this 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 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.