Xayaburi dons green credentials

IFR Asia 1243 - 02 Jul 2022 - 08 Jul 2022
6 min read
Emerging Markets, Asia
Kit Yin Boey

Xayaburi Power (XPCL) plans to turn the page on its chequered environmental past with the proposed sale of Laos’s first green hydropower project bond, as it seeks to establish its sustainability credentials.

“The issuance in green format reflects XPCL’s recognition of the importance of sustainable operation to achieve the UN’s Sustainable Development Goals,” said a spokesman for CK Power, which owns 42.5% of Xayaburi Power.

“This is supported by XPCL’s low GHG [greenhouse gases] footprint as a run-of-river hydropower plant and the comprehensive environmental and social monitoring and management programmes spelt out in our green bond framework.”

A run-of-river hydroelectric power plant operates without diverting, disrupting or storing water, which means that the water intake will equal the water outflow volume.

Bankers believe this to be only the second green project bond out of Asia ex-Japan to include solely run-of-river hydropower assets. India's JSW Hydro Energy sold a US$707m 4.125% 10-year non-call five senior bond in May last year, secured by the issuer’s hydropower assets.

The company plans to raise Bt10bn (US$285m) from the green bond sale in tenors of three, four and five years to Thai institutional and high-net-worth investors, since Laos does not have an active corporate bond market. Thailand has close ties with its landlocked neighbour and the major offtaker of the hydropower plant is state-owned utility Electricity Generating Authority of Thailand.

Xayaburi Power operates a run-of-river hydropower plant with total installed capacity of 1,285MW. The plant, which started commercial operations in late 2019, is the first large-scale project on the main Mekong River in Laos and the lower Mekong basin. It reported 15% year-on-year growth in total revenues to Bt13.975bn for 2021, while net profit surged 290% to Bt3.78bn.

The green bond will raise funds to refinance the bulk of bank and shareholder loans that were used to develop and build the power plant. A group of six Thai banks – Bangkok Bank, Kasikornbank, Krungthai Bank, Tisco Bank, Siam Commercial Bank and Export-Import Bank of Thailand – extended loan facilities totalling Bt80bn while CK Power granted a Bt13.5bn shareholder loan to the project.

Bangkok Bank, Kiatnakin Phatra Securities, Krungthai Bank, Krungthai XSpring Securities and Siam Commercial Bank are joint lead managers for the bond. The issuer and its lead banks are hosting roadshows for institutional and high-net-worth investors. The launch is slated for July.

Xayaburi Power had to contend with controversies when the project was first announced over a decade ago. Its original design drew criticisms that the proposed measures were inadequate to offset the negative effects of the dam on existing ecosystems. In 2011, the Mekong River Commission, formed by the governments of Thailand, Laos, Cambodia and Vietnam, released a scientific study that suggested that the original design would hurt fishery numbers, trap sediment upstream and have an impact on the seasonal fluctuation of the water levels of the river, which serves as a vital lifeline through the four countries.

Xayaburi Power said that as a result of the study it developed a more comprehensive design to address the issues. The revised design allows upstream sediment to flow downstream without obstruction, and enables both upstream and downstream migration of fish. Its resettlement programme improved housing, health and other aspects of the livelihood of the affected villagers, including setting benchmarks to ensure that income per resettled resident hits certain living standards measures, it said.

“To date, the project is already achieving and exceeding the benchmarks,” said the spokesman, adding that, despite rumours, no legal suit has ever been filed against the company or the project.

There remains scepticism in the industry however that a hydropower project can conform to stringent green standards, given that it often results in forest clearance and human resettlement with an adverse impact on fisheries downstream of a dam.

In early 2021, the Climate Bonds Initiative released its standards for certain categories of hydropower facilities, including run-of-river projects, enabling such projects to use CBI-certified climate and/or green bonds to finance or refinance debt.

“Hydropower with a substantial net positive carbon footprint is a key part of the energy transition,” said Tom Mills, the managing director of Two Oceans Strategy, a UK-based sustainability consultancy.

“We are in an environment of increasing green litigation with green bonds both a substantial opportunity to access capital, but also a substantial risk if 'ESG' claims made by asset owners and operators are not met. Compliance as a minimum is a good place to start and the fact CBI has included a run-of-river under its compliance standards shows good intentions to operate its projects in a way that does not negatively impact people and the planet.”

The CK Power spokesman underlined the Xayaburi plant's credentials. “The power plant does not alter the natural flow of the river and requires relatively low height difference between upstream and downstream water levels and therefore cause minimal impact to the environment along the riverbank beyond natural flow during high water flow season.”

It also has a greenhouse gas emission intensity of less than 100 grams of carbon dioxide equivalent per kilowatt hour, in line with the CBI standards, among others. Since operations began in late 2019, the Xayaburi plant has produced about 14.44 million MWh of clean, low-emission energy, which the company said translated into the prevention of about eight million tonnes of carbon dioxide being produced.

DNV has provided a second-party opinion on Xayaburi Power’s green bond framework and activities, certifying that they are aligned with the green bond and green loan principles of the International Capital Market Association, Loan Market Association, Loan Syndications and Trading Association, Asia Pacific Loan Market Association and the ASEAN Capital Markets Forum.