China Eximbank provides preferential buyer’s credit for Nam Ngum 2 (NN2) 230/500kV Transmission Line Project

In 2009, China Eximbank signed a preferential buyer’s credit (PBC) agreement with the Government of Laos for the Nam Ngum 2 (NN2) 230/500kV Transmission Line Project. The borrowing terms and face value of the PBC are unknown. However, it is known that the borrower was to use the PBC proceeds to partially finance an EPC contract with China-East Resources Import & Export Co. (CERIECO), a subsidiary of China Machinery Engineering Corporation (CMEC). The purpose of the project was to construct a 69 km 230kV electricity transmission line and a 27 km 500kV electricity transmission line to evacuate power from the Nam Ngum 2 (NN2) Hydroelectric Power Plant. CERIECO was the EPC contractor responsible for project implementation. The project was completed in December 2009. There are some indications that the China Eximbank loan for the Nam Ngum 2 (NN2) 230/500kV 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 Nam Ngum 2 Hydroelectric Power Project: Package 4B: 230/500kV Transmission Line Project. The Chinese project title is 老挝NN2 230KV/500KV输电线路项目 or 老挝Nam Ngum 2水电站配套高压230/500千伏输电项目. 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. Nam Ngum 2 Power Company Limited (NN2) is a company registered in the Lao People's Democratic Republic ("Lao PDR") and which is awarded the concession for the development of the Nam Ngum 2 Hydroelectric Power Project from the Government of the Lao PDR. Nam Ngum 2 Hydroelectric Power Project ("NN2HPP") has an installed capacity of 615 MW achieved its Initial Operation Date ("IOD") on March 26, 2011, and thereafter the Commercial Operation Date ("COD") on January 1, 2013. NN2 is established by the joint venture between SouthEast Asia Energy Limited ("SEAN") holding 75 percent of the total share capital and EDL-Generation Public Company ("EDL-Gen") holding 25 percent of the total share capital. NN2HPP has generating capacity of 2,310 GWh per year. All the power generated is sold to Thailand via the Electricity Generating Authority of Thailand ("EGAT") pursuant to the Power Purchase Agreement ("PPA") for a period of 25 years from the COD which would result in the benefits of both Thailand and Lao PDR. See https://ckp.listedcompany.com/misc/debenture/prospectus/20210215-ckp-debenture-prospectus-nn2-012017-en.pdf

Number of official sources

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