China Eximbank provides $321 million government concessional loan for Banha-Sekong Power Transmission Project

On May 16, 2017, China Eximbank and the Ministry of Finance of Laos signed a $321 million government concessional loan (GCL) agreement for the Banha-Sekong Power Transmission Project. The proceeds of the loan were to be used by the borrower to finance a $321 million 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 China Gezhouba Group Company Limited (CGGC), which was signed on October 13, 2016. The purpose of the project was to construct a 237-kilometer 500kV high-voltage transmission lines (measuring 237 km in length) and two 230kv substations in Champasak, Attapeu, Saravan, and Sekong provinces. Ultimately, the project sought to connect the power grids in the southern and central regions of Laos, improve the supply and stability of power to the southern region, and increase the export of electricity to earn foreign exchange. China Energy Construction Guangxi Institute was the contractor responsible for project design. CGGC was the contractor responsible for project implementation. Project implementation commenced on January 12, 2018. On October 7, 2019, the 230 kV Banha Substation which is part of the project, was put into operation. Then, on November 1, 2020, a 18.573 km 500Kv double-circuit transmission line from Banha substation to the Cambodian border was completed. There are some indications that the China Eximbank loan for the Banha-Sekong Power Transmission 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 Banha-Banlaike 25-Sekong Power Transmission Project. 2. The Chinese project title is 老挝班哈至色空输变电项目 or 班哈-班莱克25-色空输变电项目 or 持老挝班哈至色空输变电项目. 3. The China Eximbank loan that supported this project is not included in the Overseas Development Finance Dataset that Boston University’s Global Development Policy Center published in December 2020. 4. 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 $321 million. 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

18