China Eximbank provides loan for 115kV Pakse-Khone Pha Pheng Transmission Line Project

In 2005, China Eximbank signed a loan agreement with the Government of Laos for the 115kV Pakse-Khone Pha Pheng Transmission Line Project. The face value and borrowing terms of the loan are unknown. The project involved the construction of 3 substations and two 115 kV transmission lines between Ban Jiangxai (Pakse) to Ban Na-Ban Hat (Thakho) measuring 122 kilometers in length. China-East Resources Import & Export Company (CERIECO) was the contractor responsible for implementation. Construction commenced in November 2003 and reached completion in November 2005. There are some indications that the China Eximbank loan for the 115kV Pakse-Khone Pha Pheng 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 Pakse-Kong Paping 115 KV Transmission Line Project. The Chinese project title is 老挝国家电力局115kV巴色-孔巴坪输变电项目. 2. 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. 3. This project may be related to the Southern Provinces Transmission Development I Project (captured via Project ID#64775). This issue warrants further investigation. 4. According to the World Bank's Debtor Reporting System (DRS), the weighted average maturity of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Laos was 13.7366 years in 2005. AidData estimates the maturity of the China Eximbank loan that supported the 115kV Pakse-Khone Pha Pheng Transmission Line Project by using this figure. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 5. According to the World Bank's Debtor Reporting System (DRS), the weighted average grace period of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Laos was 5.684 years in 2005. AidData estimates the grace period of the China Eximbank loan that supported the 115kV Pakse-Khone Pha Pheng Transmission Line Project by using this figure. See https://www.dropbox.com/s/949n5rctiue6d7c/IDS_Average_grace_period_and_maturity_on_new_external_debt_commitments.xlsx?dl=0 6.. According to the World Bank's Debtor Reporting System (DRS), the weighted average interest rate of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Laos was 3.4422% in 2005. AidData estimates the interest rate of the China Eximbank loan that supported the 115kV Pakse-Khone Pha Pheng Transmission Line Project by using this figure. See https://www.dropbox.com/s/ab8qt4n6jijcbhd/IDS_Average%20interest%20on%20new%20external%20debt%20commitments.xlsx?dl=0 7. To estimate the face value of the loan, AidData relies on the aggregate value ($33,130,000) of all official sector lending from Chinese creditors to government and government-guaranteed borrowing institutions in Laos in 2005, which the Government of Laos voluntarily disclosed to the World Bank's Debtor Reporting System (DRS). AidData relies on this figure because there are no other 2005 loan commitments in its dataset that are reportable to the World Bank under the DRS Reporting Directives. See https://www.dropbox.com/s/2sw4f7gluxa52fk/DRS%20Official%20Commitments%20from%20China%20Through%202021.xlsx?dl=0

Number of official sources

5

Number of total sources

7