Earlier this week, the government of Laos and a majority Chinese-owned company signed a 25-year concession agreement that allows the company to build and manage a large part of the country’s power grid.
According to a report by Radio Free Asia’s Lao service, the company, Electricite du Laos Transmission Company Ltd. (EDLT), will invest $2 billion in the Lao power grid and will manage large parts of it for a period of 25 years, after which they will be ceded to the Lao government.
EDLT was created last September as a joint venture between the state power company Electricite du Laos (EDL) and the China Southern Power Grid Company, in which China Southern held a majority of shares. The company was formed after the Lao government found itself swamped by rising debt levels amid the economic downturn of the COVID-19 pandemic.
While Laos has been largely untouched by the coronavirus – the country has so far recorded just 48 cases and no deaths from the disease – the pandemic has wiped out the country’s tourism industry and choked off the flow of remittances from abroad, putting the nation on the brink of sovereign default.
According to reports from the time, the government’s reserves had dwindled to $864 million as of June last year, an amount insufficient to meet debt obligations totaling more than $1 billion annually until the end of 2024. According to a separate report, in addition to Laos’s own sovereign debt of $12.6 billion (equivalent to around 65 percent of gross domestic product), EDL holds an additional estimated $8 billion of debt.
An official of the Lao Ministry of Energy and Mines told Radio Free Asia that EDLT would take control of only the high-voltage power line network while the Lao utility EDL will retain control of local powerlines of less than 230 kilovolts. This would give the Chinese-majority firm effective control of electricity exports to neighboring countries.
“Given the current economic downturn and the enormous debt,” the ministry official said, “the Lao government does not have the ability to manage and operate a network of powerlines, so they decided to allow the Chinese, who have the finances, technological aptitude and manpower to take over.”
Even before the COVID-19 pandemic, many observers were expressing concerns about Laos’s ballooning debt to China. In a 2018 report, the Washington-based Center for Global Development concluded that Laos was the one Southeast Asian country risking significant debt distress as a result of loans from China. A study published in 2019 by the Sydney-based Lowy Institute estimated Laos’s debt to China at 45 percent of GDP.
The signing of this new power grid concession is set bind the mountainous country of seven million people ever closer to its giant neighbor. Specifically, it will deepen China’s involvement in the Lao government’s longstanding plan to transform itself into the “battery of Southeast Asia” through intensive development of hydropower on its many fast-flowing rivers, including the Mekong, and the export of energy to neighboring countries. Chinese firms are already involved in the financing and construction of dams in Laos.
The deal comes as China and Laos are both weathering increasing criticisms for their hydropower Mekong River developments. China’s cascade of upstream dams have been linked both to record-low water levels on the lower Mekong, and erratic surges and drops in the river’s flow, while officials in Vietnam, Cambodia, and Thailand are expressing increased concerns that more hydropower projects in Laos will further strain the river’s capacity. Thai officials have even gone so far as to suggest that they might refuse to purchase power from a newly announced Mekong dam project.
The Radio Free Asia report raised concerns that China now stands to profit off of Laos’ risky hydropower gamble. Given the Chinese government’s heedless advance with hydropower, its closer involvement with the Lao government’s electricity export scheme makes it more likely that Vientiane will see through its damaging hydropower plans, whatever the cost.