[China Co-Financing Fund] IDB administers $30 million loan from CHC to Program to Strengthen the National Electricity Distribution System of Ecuador II

On September 30, 2015, the Inter-American Development Bank (IDB) signed two loan contracts with the Government of Ecuador for the Program to Strengthen the National Electricity Distribution System of Ecuador II: a $50 million loan that IDB issued from its ordinary capital (Loan 3494/OC-EC), and a $30 million loan from the People's Bank of China (Loan 3494/CH-EC) via the China Co-Financing Fund for Latin America and the Caribbean (CHC). The IDB identified the total anticipated project cost as $90.6 million, and noted that the Government of Ecuador was expected to provide $10.6 million of counterpart financing. This was the second project aimed at improving the National Distribution System (SND) with co-financing from the IDB’s ordinary capital and the CHC (see Project ID#85317). The IDB approval date for this loan financing was June 24, 2015, and it refers to this project as ‘EC-L1147 : Program to Strengthen the National Electricity Distribution System of Ecuador II’. The $30 million CHC loan that was issued on September 30, 2015 carries the following borrowing terms: a 24.66-year maturity, a 5.66-year grace period, a 0.75% commitment (credit) fee, no management fee, and an annual interest rate of 3-month LIBOR plus a 0.5% funding margin (also known as the ‘Bank’s Cost of Funding’) and a 1.15% IDB lending spread. As of December 23, 2019, the CHC loan had achieved a 95.84% disbursement rate ($28,752,130 out of $30,000,000). Four CHC loan disbursements took place between 2015 and 2019: $16.8 million on December 2, 2015, $10.9 million on December 21, 2017, $800,000 on May 22, 2019, and $1.5 million on December 23, 2019. The first loan repayment date was scheduled for May 15, 2021 and the loan’s final maturity date is May 15, 2040. The project has several objectives, including (1) with the vast majority of the financing, the expansion and reinforcement of electrical grid infrastructure, (2) improvement of the efficiency and reliability of the SND, and, (3) with a small percentage of the financing, strengthening local electricity companies by developing training strategies and conducting courses for personnel. Infrastructure improvement included steps such as connecting SND lines and feeders, rehabilitating electrical substations, and reinforcing feeder lines, among others. Per the ‘Perfil de Proyecto,’ this project was part of a greater overall effort by the Government of Ecuador (Plan Maestro de Electrificación (PME) 2013-2022) to expand the country's electrical system. As of December 31, 2019, all of the funds from the CHC that had been spent have gone towards the refurbishment of the SND infrastructure, with $27,787,273 spent on the re-enforcement of the sub-transmission network and $964,857 spent on inspection services for financed works. The project remains in its implementation phase. The Ministry of Electricity and Renewable Energy (Ministerio de Electricidad y Energía Renovable/MEER) is responsible for project implementation, having signed a subsidiary agreement with Ecuador's Ministry of Finance to be transferred loan resources. Funds also went to several local electric distribution companies (EEDs) which helped with project implementation. A full list of these companies can be found on page 8 of "Estado de inversiones acumuladas y estado de flujos de efectivo". In April 2021, Consorcio PMK Ecuador, signed a nearly $8 million contract to help implement part of the efficiency improvement portion of the project, though the funds for this were pulled from the IDB ordinary capital contribution.

Additional details

1. The CHC loan contract can be accessed in its entirety via https://www.dropbox.com/s/2qlt35rg1rgsrqa/CONTRATO%20DE%20PR%C3%89STAMO%20No.%203494%3ACH-EC.pdf?dl=0. 2. The Ministry of Electricity and Renewable Energy/Ministerio de Electricidad y Energía Renovable/MEER is now the Ministry of Energy and Non Renewable Natural Resources/Ministerio de Energía y Recursos Naturales No Renovables/MERNNR. 3. The China Co-Financing Fund for Latin America and the Caribbean was established on January 14, 2013 with a contribution of $2 billion by the People's Bank of China. It is administered by the IDB. For more information, see umbrella Project ID#86526. 4. According to the CHC loan contract, the ‘Bank's Cost of Funding’ means a cost margin calculated quarterly relative to a three (3)-month LIBOR Dollar Interest Rate, using the weighted average cost of funding instruments applicable to the Flexible Financing Facility, expressed in terms of an annual percentage, as determined by the Bank. AidData identified this cost margin via https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376. 5. AidData has estimated the all-in interest rate (1.49%) by adding average 3-month LIBOR in the third quarter of 2015 (0.29%) to the funding margin during the third quarter of 2015 (0.05%) and the IDB lending spread during the third quarter of 2015 (1.15%). 6. The IDB lending spread data are drawn from https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376.

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