China Eximbank provides loan for Nong Dern-Seno-Phin Transmission Line Expansion Project

In November 2014, China Eximbank and the Government of Laos signed a loan agreement for the Nong Dern-Seno-Phin Transmission Line Expansion Project. The borrowing terms of the loan are unknown. However, it is known that the borrower was to use the loan proceeds to finance a $54 million EPC contract between China-East Resources Import & Export Company (CERIECO) and EDL-GEN, which was signed in May 2014. The purpose of this project was to construct a 42.8 km, 115kv transmission line between the Nong Dern Substation and a newly constructed Seno Substation and to construct a 108.2 km, 115kv transmission line between the between the Seno Substation and the newly built Phin Substation. The ultimate purpose of the project was to ensure that there is an adequate supply of electricity in the central part of the country and especially to the Savan-Seno Special Economic Zone (SEZ). CERIECO was the EPC contractor responsible for implementation. The project commenced in 2015 and it was completed in December 2015. A project completion certificate was issued by the project owner (EDL-GEN) in September 2016. The transmission lines and substations officially went into use on January 9, 2017. There are some indications that the China Eximbank loan for the Nong Dern-Seno-Phin Transmission Line Expansion 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 (or transliterated) as the Nong Dern-Seno-Pin Transmission Line Expansion Project, the 115kV Ban Met(Seno)-M. Phin Power Transmission Line Project, the 115kV Nongdeun-Ban Met (Seno) Power Transmission Line Project, the Nong Deun-Seno-Meuang Phine 115kV Transmission Project, or the Mengpin Power Transmission & Distribution Project. 2. The Chinese project title is 老挝孟聘输变电项目 or 老挝诺顿-色诺-孟平115kV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. Électricité du Laos (EDL) is the state corporation of Laos that owns and operates the country's electricity generation, electricity transmission and electricity distribution assets. The company also manages the import and export of electricity from the national electricity grid of the country. EDL-Generation Company Limited (EDL-Gen) was incorporated in 2010 and operates as a subsidiary of Electricite Du Laos. 5. The face value of the loan is unknown. For the time being, AidData assumes that it is equivalent to 85% of the value of the $54 million EPC contract.

Number of official sources

8

Number of total sources

10