[China Co-Financing Fund] IDB administers $10 million loan from CHC for Sustainable Rural Electrification Program II

On May 26, 2014, the Inter-American Development Bank (IDB) signed two loan contracts with the Government of Panama to finance the Sustainable Rural Electrification Program II: a $10 million loan that IDB issued from its ordinary capital (Loan 3165/OC-PN), and a $10 million loan from the People's Bank of China (Loan 3166/CH-PN) via the China Co-Financing Fund for Latin America and the Caribbean (CHC). The $20 million of loan financing authorized by IDB was designed to cover on part of the total project cost ($22.25 million). The Government of Panama was expected to provide $2.25 million of counterpart financing. The IDB approval date for the loan financing was April 16, 2014, and it refers to this project as ‘PN-L1095 : Sustainable Rural Electrification Program in Panama’. The CHC loan carries the following borrowing terms: a 25-year maturity, a 4.5-year (54-month) grace period, a 0.75% commitment (credit) fee, no management fee, and an annual interest rate of 3-month LIBOR plus a 0.09% funding margin (also known as the ‘Bank’s Cost of Funding’) and a 0.85% IDB lending spread. As of August 26, 2021, the CHC loan had achieved a 15.2% disbursement rate (with $1,522,564 out of $10,000,000 being disbursed). As of December 31, 2020, $8,158,683 of the $10 million IDB loan had been disbursed (to Panama National Bank, account No. 10000187105). The Rural Electrification Office (Oficina de Electrificación Rural, OER), attached to the Ministry of the President (Ministerio de la Presidencia) was responsible for project execution. The overall objective of the program is to increase access to sustainable electricity services in rural areas. It is hoped the project will result in a rural electrification coverage rate of approximately 71% by 2016 and is expected to directly benefit 40,300 people. These objectives are being met through three different components. The first is rural electrification through the extension of networks. This will be accomplished through payments of subsidies to private distributors, which had been receiving concession contracts since October 2013. These one-time subsidies were to cover the cost of investment in the infrastructure, while the private distributors would cover operation and maintenance costs. It was estimated in the loan contract's Anexo Único that 6,126 homes, 45 schools, and 10 health centers would be granted access to electricity with this step. $9,123,173 of the China Co-Financing Fund loan specifically, and $15,682,325 of the total project cost, was budgeted for this component. The second component, with $4,436,475 of the total project cost budgeted, is the expansion of the coverage of sustainable electricity service from photovoltaic systems and other renewable technologies for isolated areas in Panama, with a particular focus on areas with significant indigenous populations. An estimated 4,218 families, 62 schools, 11 health centers, and 14 regional congresses are expected be served through this component, per the loan contract's Anexo Único. Isolated systems are typically constructed and administered by an operator selected through a competitive bidding process, at which point the government provides a subsidy to the chosen operator for the system's construction and administration. These operators are typically specialized, and the construction processes have the participation of civil society, small companies, NGOs, electricity cooperatives, and/or user organizations. The loans captured in this project will finance the subsidies typically provided by the government. $370,027 of the China Co-Financing Fund loan specifically was budgeted for this component. The third component involves institutional strengthening of the OER. This was accomplished through providing financing to the OER for tools for planning and management, community promotion and development, selection of alternative energy sources, and system design. Additionally, technical support was provided to the OER through information technology and training regarding different program elements such as the calculation of subsidies. Of the China Co-Financing Fund loan, $506,800 went to institutional strengthening and program administration (with 414,000 for strengthening and training and 92,800 for audits). It was $2,131,200 of the total project cost in the budget. The project was planned to take four years to complete, 2014-2018. However, at the end of 2020, several projects had yet to be completed. It appears the first part of the project to begin construction was the isolated systems (component two) for the Panamá, Herrera, and Los Santos provinces, having begun execution by the end of 2015 and had reached 40% completion by the end of 2016. In Peñón, construction for 56.6 km of electric lines began on December 3, 2015, and was complete in August 2017. By November 2017, 8.2 km had been completed in Bajo Cedro, Chiriquí Grande district, and on By October 2018, portions of the project in the following provinces were in execution: Veraguas, Panamá Oeste, Los Santos, Herrera, Chiriquí, Coclé, and Bocas del Toro. As of December 31, 2020, nine separate contractors had been paid by project funds.

Additional details

1. The CHC loan contract can be accessed in its entirety via https://www.dropbox.com/s/mlm4zho2brirtma/CONTRATO%20DE%20PR%C3%89STAMO%20No.%203166%3ACH-PN.pdf?dl=0. 2. The Spanish project title is Programa de Electrificación Rural Sostenible en Panama. 3. IADB project identification number is PN-L1095. 4. AidData has estimated the all-in interest rate (1.16%) by adding average 3-month LIBOR in the second quarter of 2014 (0.23%) to the funding margin during the second quarter of 2014 (0.09%) and the IDB lending spread during the second quarter of 2014 (0.85%). 5. 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. 6. More details on the design of the project can be found at https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1653349118-19. 7. 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. 8. The IDB lending spread data are drawn from https://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=EZSHARE-1436601171-376.

Number of official sources

15

Number of total sources

22