China Eximbank provides RMB 227 million government concessional loan for Vientiane Capital and Saravan Province Electricity Transmission and Distribution System Extension and Upgrading Project

On March 15, 2011, CCC Engineering Ltd. (CCCE) and Électricité du Laos (EDL) signed a $34,650,000 commercial (EPC) contract for the Vientiane Capital and Saravan Province Electricity Transmission and Distribution System Extension and Upgrading Project. China Eximbank subsequently signed an RMB 227 million government concessional loan (GCL) loan agreement with the Government of Laos. The borrowing terms of the GCL are unknown. However, it is known that the borrower was to use the GCL proceeds to finance a $34,650,000 commercial contract with CCCE and Jiangsu ETERN Co., Ltd. The project involved upgrading the distribution system in Vientiane Capital, the 2nd circuit of 115kV transmission line extension from Xeset to Saravan, and the transmission line bay extension at 115kV Xeset substation, as well as upgrading the transmission line bay extension & transformers at 115kV Saravan substation. CCCE and Jiangsu ETERN Co., Ltd. were the contractors responsible for implementation. On June 12, 2012, Mr. Soukanh MAHALATH, Member of Secretariat of Lao People's Revolutionary Party, Party Secretary and Mayor of Vientiane Capital Laos, conducted an on-site project inspection after construction was already underway. The precise implementation start and end dates of this project are unknown. There are some indications that the China Eximbank loan for the Vientiane Capital and Saravan Province Electricity Transmission and Distribution System Extension and Upgrading 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. 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. 2. 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

Number of official sources

5

Number of total sources

6