China Eximbank provides $29.4 million preferential buyer’s credit for Nam Theun 2 (NT2) Tailrace Outlet No. 3 Irrigation Subproject (Linked to Record ID#63933)

Project narrative

In 2013, China Eximbank and the Government of Laos signed a preferential buyer’s credit (PBC) agreement for the Nam Theun 2 (NT2) Tailrace Outlet No. 3 Irrigation Subproject. The loan’s estimated borrowing terms included a 19.5233-year maturity, a 6.416-year grace period, and a 2.164% interest rate. The proceeds of the loan were to be used by the borrower to finance 95% ($29.4975 million) of the cost of a $31.05 million commercial contract with China North Industries Group Corporation Limited (NORINCO) and Sinohydro Corporation Ltd. (Sinohydro), which was signed in April 2013. This project — also known as Phase 1 of the Xebangfai-Xebanghieng Irrigation and Flood and Drought Management Scheme — involved the construction of an irrigation canal system, access roads, farm bridges, and other supporting works (measuring 101 km in length and covering 2800 hectares) in the irrigation area controlled by Nam Theun 2 Tailrace Outlet No.3. The ultimate purpose of the project — located in Nhommalath District within Khammouane Province — was to utilize water discharged from outlet No. 3 of the Nam Theun 2 Hydroelectric Project, to improve the living conditions of the people inhabiting the irrigated areas, increase food production, and reduce flood damage. NORINCO and Sinohydro were the EPC contractors responsible for implementation. Construction commenced on November 2, 2013 and ended on January 6, 2015 {{"驻老挝大使关华兵出席甘蒙省灌溉项目开工仪式"}}. At a project completion ceremony on February 5, 2015, then Deputy Prime Minister of Laos Somsavat Lengsavad struck a gong 12 times to ask for a constant flow of water 12 months a year and a good harvest every year. Upon completion, the project reportedly benefited 1,300 farming households in nine villages by providing a stable source of irrigation water for 2,800 hectares of paddies and other cash crops. There are multiple indications that the China Eximbank loan for this project may have financially underperformed vis-a-vis the original expectations of the lender. In 2020, the Laotian authorities urgently sought debt relief from China Eximbank. At that time, the gross reserves of the Bank of Laos stood at only 1.5 months of import cover and credit rating agencies warned of a high default probability. In 2020, China Eximbank also agreed to reprofile multiple loan agreements that it had previously signed with the Government of Laos (as captured via Record ID#96464). These debt service payment deferrals lasted for approximately 4 years (2020 and 2023) and provided approximately $1.892 billion of cash flow relief ($1.422 billion in deferred principal payments and $470 million in deferred interest payments). Deferred principal and interest repayments in 2020 were worth $202 million. Deferred principal and interest payments were worth $426 million in 2021. Deferred principal and interest payments were worth $594 million in 2022. Deferred principal and interest payments were worth $670 million in 2023. In 2023, an agreement was signed between the Laos Department of Forestry, Ministry of Agriculture and Forestry, and Nam Theun 2 Power Company for the conservation of Elephants and Swamp Cypress in the Nam Theun 2 area.