The funding arrangements described below are related to Government of Lao PDR (GOL) equity funding arrangements for its investment participation in Nam Thaun 2 Hydropower Project.
As we can see in chart below, the GOL equity providers are lenders (ADB, EIB) and donors (AFD and IDA). The Ministry of Finance (MOF), representing the GOL on-lend the fund to LHSE for financing its 25% equity in Nam Theun 2 Power Company Limited (NTPC). When NTPC generates revenue from electricity sales, NTPC shall share the profits to LHSE and other shareholders as well. LHSE shall use this income (dividend) to cover the costs of operation and maintenance of LHSE and to pay for loans and taxes to MOF/GOL. Certain portion of profits LHSE is entitled to reserve as Cumulative Fund in accordance with Lao Laws. As Borrower, the MOF shall repay the loans to ADB and EIB in accordance with Agreements.
The Royalty and Tax payments from NTPC shall be made directly to MOF/GOL, while the personal income tax shall be paid to local authorities.
The GOL/LHSE base equity requirement is 87.5 millions USD.
The loans and grants provided by the GOL Equity providers are dominated in USD.
The GOL Equity providers require the GOL to adopt and implement poverty alleviation programmes, environmental programmes and social and economic development programmes in a manner that is appropriate to their respective institutional guidelines. The involvement of these multilateral agencies is a highly positive endorsement of their perception of the Project and the safeguards that have been built into the contractual framework of the Project.
The provision of the loans and grants from these institutions include certain terms and conditions that will restrict the use of the funds with all the GOL Equity providers providing finance only for costs that are eligible for funding by their institution. For example, in the case of any World Bank NTSEP Grants, the Grants can only be used for pre-agreed social and environmental costs. For other institutions, the loans would have to meet their funding requirements on issues such as procurement policy, eligibility of goods and services, minimum drawdown amounts, etc. It is therefore the case that the fund from the GOL Equity providers will carry certain restrictions and will not be available for purposes other than those specified.
As the base component of the GOL Equity will be tied to specific eligible costs, and will not be available to fund non-specified costs, it means that the four Shareholders will not contribute their equity pro-rata at each drawdown. This means that on some occasions, the GOL may not be required to provide any contribution and on other occasions, the GOL may provide the bulk of the equity contribution from the Shareholders.
As the facilities from the GOL Equity providers are tied to specific costs, and are non-accelerable, the GOL is open to having its equity more front-ended, subject to meeting all GOL Equity Loan restrictions and agreements with the other Shareholders.