News China’s US$7 billion railway link to Laos is almost half done, on schedule to begin service in 2021

[RISING SUN]

China’s US$7 billion railway link to Laos is almost half done, on schedule to begin service in 2021

• Laos is dependent on China to bankroll the US$7 billion project, raising concerns of being caught in a debt trap
• The Kunming-Vientiane link would eventually connect with a railway line to Bangkok, and southward along the Malay peninsula through to Singapore

A railway bridge under construction by Chinese engineers across the Mekong River in Luang Prabang. Photo: Xinhua

China’s railway line to Laos is almost half complete, putting it on schedule to begin service in December 2021, said the chief of Lao Railways.

Trains on the line can travel at up to 160 km/h (100mph) said Lao Railways’ director general Somsana Ratsaphong. Tickets will start from US$20 a trip.

The US$7 billion project is a showcase of Chinese President Xi Jinping’s “Belt and Road Initiative” for rebuilding infrastructure along the ancient Silk Road from China to Africa and Europe, which has garnered an estimated US$460 billion in investments

since its inception in 2013. The Kunming-Vientiane link would eventually connect with a railway line to Bangkok, and southward along the Malay peninsula through to Singapore.

The Chinese government will bankroll 70 per cent of the cost of the railway, while Laos – where subsistence agriculture makes up half of the economic output – pays for the remaining 30 per cent with loans from Chinese financial institutions. China was the biggest foreign investor in Laos as of 2016, having invested US$5.4 billion since 1989.

“For an economy like ours, with a population of only 6.8 million people, it is good for us to make use of the manpower and finance from China,” said Ratsaphong, during the Asia-Pacific Rail conference in Hong Kong.

Part of the loan’s tenure will be interest-free, with a 2 per cent annual rate charged over 30 years, according to Ratsaphong. The financing terms have raised concerns among developing nations of being pushed into a debt trap, as debtors may find themselves saddled with large borrowings that would take a long time to repay.

A poll of more than 1,000 Southeast Asian experts, analysts and business leaders laid bare the concerns of a region still trying to find its way amid the rise of China. SCMP Graphics

Malaysian Prime Minister Mahathir Mohamad has been the most vocal critic, instructing his government to scrap a US$20 billion rail link on the country’s east coast after balking at its construction cost and the terms of its loans from Chinese banks.

Sri Lanka handed over management of the Hambantota Port to China in a 99-year lease in 2017, after failing to repay loans on the US$1.5 billion project. “The debt trap is created not because of the money from China, [but] mainly because some countries did not do a good assessment” on the financial terms and repayment requirements, said the World Bank’s adviser Andrea Giuricin, also a visiting professor to the China Academy Railway Sciences.

A view of the Nam Khan river from Phou Si hill in Luang Prabang as of 2018. Photo: Alamy

China’s state-run construction companies have mastered some of the world’s most impressive engineering and building technology, but are still lacking in project management expertise, Giuricin said.

China “lacks a good track record in management,” he said. “Most of the high-speed railways in China are losing money, and the data is not transparent. For some places, you simply don’t need to build the fastest railway.”

For Ratsaphong, the new rail link promises closer connectivity, which will spur greater economic development in his nation, one of the poorest among the 10 economies among the Association of Southeast Asian Nations, or Asean.

Opinion: China’s pan-Asia railway is on a slow track, and that’s OK
“The railway will bring new developments including industrial parks, hotels and tourism business that generates income “way bigger than ticketing”, said Ratsaphong, noting journey costs would be cut by 40 per cent, compared to using roads on the same route.
China’s rail link to Laos is almost half done, on track to start in 2021

 

[RISING SUN]

EXCLUSIVE-Taking power: Chinese firm to run Laos electric grid amid default warnings
Sept 4 (Reuters) - The poor, small Southeast Asian country of Laos is set to cede majority control of its electric grid to a Chinese company, as it struggles to stave off a potential debt default, people with direct knowledge of the agreement said.

The deal comes at a time when critics accuse Beijing of "debt trap diplomacy" to gain strategic advantage in countries struggling to repay loans taken out under President Xi Jinping's global "Belt and Road" infrastructure initiative.

China is Laos's biggest creditor, and the deal will bind the landlocked, mountainous country of seven million people closer to its giant neighbour.

The power grid shareholding deal was signed on Tuesday between state-owned Electricite du Laos (EdL) and China Southern Power Grid Co., according to Chinese state news agency Xinhua, which did not give details of the new ownership.

Three people with knowledge of the matter said it would give majority control of the new Electricite du Laos Transmission Company Limited (EDLT) to the Chinese company.

Power exports are central to Laos's development plans.

"It will give the Laos state grid better bargaining power with regional countries and start to make a profit," said one of the people with direct knowledge of the discussions.

China's embassy in Laos said on its website that Laos would operate the transmission assets. It did not give shareholding details but said "Laos can also gradually repurchase shares during the operation."

Neither EdL nor China Southern responded to Reuters requests for comment on the deal. The Laos and Chinese governments did not respond to requests for comment either.

Reporting from the Laos capital Vientiane, Xinhua quoted Laos energy and mines minister Khammany Inthirath as calling it a key project which would benefit from the Chinese company's "advantages in experience, technology and human resources."

The new company will operate under Laos government regulation, Xinhua reported, but would take advantage of China Southern's "financial strength and mature experiences in power grid construction, operation and management."

The state-run Vientiane Times said after the deal that EDLT would in future invest about $2 billion in the local grid and international connections.

Laos has spent heavily on hydroelectric schemes, many financed by China, with the aim of becoming "The Battery of Southeast Asia". But those projects, along with a new Chinese high speed railway, are at the centre of a debt crunch.

DEFAULT WARNING
The World Bank estimated in June that debt levels would reach up to 68 percent of GDP in 2020, from 59 percent last year. Rating agency Moody's warned last month of "a material probability of default in the near term."

While Laos has recorded only 22 coronavirus cases and no deaths, the epidemic has hit tourism and overseas remittances hard.

Laos debt service obligations in 2020 are around $1.2 billion with loans from commercial banks and Thai bonds maturing in September and October, Moody's said, but foreign reserves were just $864 million in June, according to the central bank.

Among companies suffering delayed payments already are the Chinese firms behind hydroelectric projects that were not paying back as expected, the people with knowledge of the China Southern agreement said.

China was also considering postponing part of Laos' total debt service payments, two people with direct knowledge said. China's government did not immediately respond to a question on the discussions.

"Economically Laos is going to depend more on China and this is inevitable," said Toshiro Nishizawa, a Japanese professor who has advised the Laos government on fiscal stability.

Laos could be eligible for help by the International Monetary Fund under its COVID-19 Financial Assistance and Debt Service Relief response, from which 80 countries are benefiting, two Western diplomats said.

But they said it had made clear it would rather try to find a solution with China, they said. An IMF deal would require greater financial transparency.

Total Chinese investment in power, transport, a border economic zone and other projects already totals over $10 billion, according to Xinhua citing figures from Laos. That is more than double investment by Thailand, the next biggest.

A study published in 2019 by the Australia-based Lowy Institute put Laos debt to China at 45 percent of GDP.

The economic relationship with Beijing has also strengthened political ties, with Laos a reliable backer of China's position on matters such as the South China Sea in the regional Association of Southeast Asian Nations.

Laos was the first country to endorse Chinese leader Xi’s political message of “building of community of common destiny”.

"Giving China a major stake in the 'Battery of Southeast Asia Plan' puts Laos fast on the track of becoming a pseudo-province of China," said Brian Eyler, Southeast Asia programme director of the Stimson Center think-tank in Washington.

EXCLUSIVE-Taking power: Chinese firm to run Laos electric grid amid default warnings

The poor, small Southeast Asian country of Laos is set to cede majority control of its electric grid to a Chinese company, as it struggles to stave off a potential debt default, people with direct knowledge of the agreement said.

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EXCLUSIVE-Taking power: Chinese firm to run Laos electric grid amid default warnings
Sept 4 (Reuters) - The poor, small Southeast Asian country of Laos is set to cede majority control of its electric grid to a Chinese company, as it struggles to stave off a potential debt default, people with direct knowledge of the agreement said.

The deal comes at a time when critics accuse Beijing of "debt trap diplomacy" to gain strategic advantage in countries struggling to repay loans taken out under President Xi Jinping's global "Belt and Road" infrastructure initiative.

China is Laos's biggest creditor, and the deal will bind the landlocked, mountainous country of seven million people closer to its giant neighbour.

The power grid shareholding deal was signed on Tuesday between state-owned Electricite du Laos (EdL) and China Southern Power Grid Co., according to Chinese state news agency Xinhua, which did not give details of the new ownership.

Three people with knowledge of the matter said it would give majority control of the new Electricite du Laos Transmission Company Limited (EDLT) to the Chinese company.

Power exports are central to Laos's development plans.

"It will give the Laos state grid better bargaining power with regional countries and start to make a profit," said one of the people with direct knowledge of the discussions.

China's embassy in Laos said on its website that Laos would operate the transmission assets. It did not give shareholding details but said "Laos can also gradually repurchase shares during the operation."

Neither EdL nor China Southern responded to Reuters requests for comment on the deal. The Laos and Chinese governments did not respond to requests for comment either.

Reporting from the Laos capital Vientiane, Xinhua quoted Laos energy and mines minister Khammany Inthirath as calling it a key project which would benefit from the Chinese company's "advantages in experience, technology and human resources."

The new company will operate under Laos government regulation, Xinhua reported, but would take advantage of China Southern's "financial strength and mature experiences in power grid construction, operation and management."

The state-run Vientiane Times said after the deal that EDLT would in future invest about $2 billion in the local grid and international connections.

Laos has spent heavily on hydroelectric schemes, many financed by China, with the aim of becoming "The Battery of Southeast Asia". But those projects, along with a new Chinese high speed railway, are at the centre of a debt crunch.

DEFAULT WARNING
The World Bank estimated in June that debt levels would reach up to 68 percent of GDP in 2020, from 59 percent last year. Rating agency Moody's warned last month of "a material probability of default in the near term."

While Laos has recorded only 22 coronavirus cases and no deaths, the epidemic has hit tourism and overseas remittances hard.

Laos debt service obligations in 2020 are around $1.2 billion with loans from commercial banks and Thai bonds maturing in September and October, Moody's said, but foreign reserves were just $864 million in June, according to the central bank.

Among companies suffering delayed payments already are the Chinese firms behind hydroelectric projects that were not paying back as expected, the people with knowledge of the China Southern agreement said.

China was also considering postponing part of Laos' total debt service payments, two people with direct knowledge said. China's government did not immediately respond to a question on the discussions.

"Economically Laos is going to depend more on China and this is inevitable," said Toshiro Nishizawa, a Japanese professor who has advised the Laos government on fiscal stability.

Laos could be eligible for help by the International Monetary Fund under its COVID-19 Financial Assistance and Debt Service Relief response, from which 80 countries are benefiting, two Western diplomats said.

But they said it had made clear it would rather try to find a solution with China, they said. An IMF deal would require greater financial transparency.

Total Chinese investment in power, transport, a border economic zone and other projects already totals over $10 billion, according to Xinhua citing figures from Laos. That is more than double investment by Thailand, the next biggest.

A study published in 2019 by the Australia-based Lowy Institute put Laos debt to China at 45 percent of GDP.

The economic relationship with Beijing has also strengthened political ties, with Laos a reliable backer of China's position on matters such as the South China Sea in the regional Association of Southeast Asian Nations.

Laos was the first country to endorse Chinese leader Xi’s political message of “building of community of common destiny”.

"Giving China a major stake in the 'Battery of Southeast Asia Plan' puts Laos fast on the track of becoming a pseudo-province of China," said Brian Eyler, Southeast Asia programme director of the Stimson Center think-tank in Washington.

EXCLUSIVE-Taking power: Chinese firm to run Laos electric grid amid default warnings

The poor, small Southeast Asian country of Laos is set to cede majority control of its electric grid to a Chinese company, as it struggles to stave off a potential debt default, people with direct knowledge of the agreement said.

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