China Eximbank provides $76 million government concessional loan for Vientiane 115/22kV Electricity Transmission Line Project

On September 8, 2016, China Eximbank and the Government of Laos signed a $76 million government concessional loan (GCL) agreement for the Vientiane 115/22kV Electricity Transmission Line Project. The borrowing terms of the GCL are unknown. however, it is known that the borrower was to use the proceeds of the GCL to finance a commercial (EPC) contract between Tebian Electric Apparatus (TBEA) and Electricite du Laos (EDL), which was signed on January 28, 2016. The purpose of the project is to construct 115kV substations, 115kV transmission lines and surrounding 22kV distribution lines in the capital city of Vientiane. TBEA is the EPC contractor responsible for project implementation. However, Hubei Engineering Company Construction Company is also involved in the project (most likely as a subcontractor). A groundbreaking ceremony took place on November 21, 2017. There are some indications that the China Eximbank loan for the Vientiane 115/22kV Electricity Transmission Line 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 Vientiane New 115KV/22KV Substation, the Transmission and Distribution Line and the Distribution Network Project or the Nahai-Dongphosy 115/22 kV Transmission Line Project. 2. The Chinese project title is 万象新建115KV/22KV变电站、输变电线路及配电网. 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 $76 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

7

Number of total sources

10