China’s Expansion of Activity in Peru Continues with CDB Hydroelectric Plant Financing Agreement

On November 30, China Development Bank (CDB) signed an agreement to fund construction of the San Gaban III hydroelectric power project in southern Peru.  The deal represents a continuation of 2017’s surge in Chinese activity in Peru.  On August 25, a consortium led by China Three Gorges Corporation bought the Chaglla hydroelectric plant in Northern Peru from scandal-plagued Brazilian builder Odebrecht SA for $1.39 billion, and, in July, Sinohydro was awarded a 20-year concession to finance, design, construct, operate, and maintain the Amazon Waterway (Hidrovia Amazonica) public-private partnership project with Construccion y Administracion SA.

Amid this near three-fold increase in Chinese economic activity in Peru, Peruvian officials have, in turn, supported China politically on a variety of issues.  Peruvian President Pedro Paulo Kuczynski has made clear that the fall of TPP will not inhibit regional trade promotion.  In November 2016, he said “It can be replaced with a similar deal, but without the United States…I think it’s best to have an Asia-Pacific deal that includes China.”  On the sidelines of the APEC summit in November 2017, Kuczynski and Chinese President Xi Jinping committed to further strengthening strategic mutual trust.  Whether this leads to further increases in bilateral economic activity remains to be seen.

Under the terms of the San Gaban agreement, CDB will provide $365 million in financing, while the payback period will cover a period of 19 years.  Hydro Global Peru, a locally-registered joint venture composed of China Three Gorges Corporation and Energias de Portugal, was awarded a contract to construct the facility in July 2017 and began construction in September 2017.