Laos is setting up a joint company with China to oversee the construction and financing of a multibillion-dollar, high-speed railway project that will link the two neighboring countries and extend to Thailand, according to a transport ministry official.
“The process is ongoing, and we need the contract to be signed as soon as possible,” said the official, who declined to be identified because he is not authorized to speak about it. He added that the ministry was gearing up to start marking the railway’s 420-kilometer (261-mile) route through the country.
“The joint company that will be established will be responsible for the project management, land concession, construction [and] fare collections. It means the Lao government must borrow money, so the company will borrow money, but the cost of project is lower than U.S. $7 billion.”
Previously, Lao and China said the project would cost about U.S. $7.2 billion.
The ministry official said he did not who would guarantee the bank loan for the project if the joint company had to borrow a huge sum of money.
Koung Souk-Aloun, a senior Lao official in charge of the railway project, said he had no further details on the project and did not have permission to say anything publicly about it.
“It is still in the consultation process…that is…we do not know it. The process is the same as it was before,” he told RFA.
A notice issued by the Lao government on April 24 indicated that it was holding talks with Chinese counterparts to hammer out details about their cooperation on the project, and that officials in charge of the project were planning to purchase vehicles to conduct the survey work.
The notice also said that the Lao Ministry of Public Works and Transport and its Thai counterpart were surveying an appropriate location for the construction of a bridge to accommodate the railway link between their two countries.
Sonesay Siphandone, Minister to Government’ Office, had issued a notice on April 1 to the ministries of planning and investment, and natural resources and environment, to preserve the mines that would be used to back a loan from China, but the types of mines and their locations were not made public.
Special financing terms needed
Keith Barney, a lecturer at the Crawford School of Public Policy at Australia National University in Canberra and an expert on Laos, said officials would need to negotiate some sort of special financing terms or a benefit sharing arrangement with China, and perhaps Thailand, to be able to take part in the railway’s construction.
“China and Thailand would be the major beneficiaries of the railway, so these governments should pay for most of the cost of the rails running through Laos,” he said.
“An example can be drawn of the financing arrangements for the Northern Economic Corridor and the construction of National Road 3 through Bokeo and Luang Namtha provinces in northwestern Laos, where the financing was split three ways—between bilateral funding provided by Thailand and China, and a third share through a special funds loan from the Asian Development Bank (ADB)," Barney added. "With the Lao-China railway, the new Asian Infrastructure Investment Bank (AIIB) might play a similar role to the ADB in that previous road construction arrangement."
In addition, Laos would need to undertake a feasibility study to understand the type of railway project that would be the most beneficial, such as one that could transport minerals or agricultural goods, he said.
The country also would need to undertake studies to understand the logistics, costs and economic returns of the project, as well as require assistance with the manpower needed to operate the railway and maintenance costs.
Furthermore, Barney said the Lao government would have a better idea about how the country would fit into the larger project plans only if it had an assurance that Thailand and China were coordinating on actually building a new high-speed or double-track line to Nong Khai or Chiang Khong.
In light of this, he said construction of the Laos-China railway was probably still many years away from a realistic construction start date, and noted a lack of serious progress in undertaking the required studies and research.
"As it stands, I don’t think that a railway would be affordable for the government of Laos, and there should be other more important priorities, for example, education, health, basic road infrastructure and food security,” Barney said.
Heavy borrowing necessary
A nongovernmental worker who used to work on development projects in Laos for five years, but declined to be named said, the China-Lao railway project should be viewed in terms of China’s overall investments in Laos.
“China is now the leading investor with projects in mining, hydro-power and agribusiness,” he said. “For China, this railway project is part of its ‘One Belt, One Road’ plan of rail links across Central Asia and Southeast Asia.”
But, he added that Lao officials should consider how much bargaining power the country has in negotiating this railway project with its dominant neighbor, to what extent Laos can afford such a costly project, and who will really pay for it if the country has to go into such heavy debt to cover its building cost.
“The borrowing is said to represent almost 90 percent of the country’s annual economic output,” the NGO worker said. “Laos’ response to those concerned by such a risky deal is to use the country’s natural resources as collateral, and in particular its untapped minerals.”
He added that the project would take a heavy toll on those who rely on farmland and forests for their livelihoods.
“But with this railway, isn’t the Lao regime taking a long-term mortgage on the resources a majority of its own people depend on to survive?” he said.
“And they will be the first to pay the price of this project which is highly unlikely to soon translate into any direct benefit for them,” he said.
During a May 28 meeting with the Chinese about cooperation in economy, trade and technical matters, Somsavat Lengsavad, the country’s deputy prime minister, asked China to support Laos’ proposal to start construction of the planned Vientiane-Boten railway by the end of this year, according to the Vientiane Times.
Another railway planned
Landlocked Laos expects the Laos-China railway project and another high-speed line to lower the cost of exports and consumer goods while boosting investment in the impoverished nation of nearly 7 million people.
Construction work has yet to start on the second U.S. $5 billion railway, which will stretch 220 kilometers (140 miles) between Savannakhet on Laos’s southwestern border with Thailand, to the Lao Bao border gate with Vietnam in the east.
“Despite many announcements and an apparent ground breaking ceremony, no construction has been started, and I have have seen no evidence that the Malaysian investors have the organizational capabilities or the access to finance to actually undertake this project," Barney said.
He further questioned the practicality of spending U.S. $22.5 million per kilometer to build the railway over flat ground in rural Savannakhet province and stopping at the dusty border village of Lao Bao/Densavanh with no railway plan from Thailand or Vietnam.
Barney also speculated that the investors who had secured a project concession from the Lao government for this railway could sell it to another investor at a profit.
“Laos should reevaluate which companies it is signing these agreements with and whether they have any expertise with financial backing to actually be undertaking such a venture,” Barney said. “This matches with the need to focus on what United Nations Development Programme [UNDP] has called ‘quality investment’ that can actually benefit the people of Laos.”
Reported by RFA’s Laos Service. Translated by Ounkeo Souksavanh. Written in English by Roseanne Gerin.