Archive for January, 2013

January 28, 2013

Risk and Reward – Better communication between governments and investors

Protesters who fear the Xayaburi dam on the Mekong River in Laos will ruin the fishery demonstrate in Bangkok.

The developing Southeast Asian region has never been so attractive to investors. From the opening of Myanmar, to hydropower in Laos or the rise of Indonesia, compelling cases exist for pouring money into the region.

But where there are opportunities, there are also risks and uncertainties, particularly in developing countries. Billions of dollars can go for naught at the end of the day because of changes in government, changes in regulations or arbitrary decisions. Opaque legal systems and corruption are also major headaches for foreign investors.

For small and medium enterprises, a loss arising from an unforeseen risk event can be fatal, which may explain why most feel safer at home. But even large corporations with strong financing, connections and access to legal expertise are not immune when they go abroad.

Just ask the Thai coal miner Banpu Plc, which in 2011 had to divest all of its shares in the Daning mine in China for US$669 million, after the Beijing government decided it wanted coal mines to be operated and owned by Chinese companies.

The Daning coal mine was operated by Shanxi Asian American Daning Energy Co, in which the Banpu subsidiary AACI SAADEC (HK) held a 56% stake. The company has two coal mines, Gaohe and Herbi, left in China.

A Chinese company faced a similar fate when there was a change in policy in Myanmar. In 2011, the Myanmar government suspended the construction of the Myitsone hydropower dam on the Irrawaddy River for environmental impact reasons.

The project worth $3.6 billion was being built by China Power Investment Corporation (CPI) and had been touted as the 15th largest hydropower dam in the world.

Italian-Thai Development Plc (ITD), Thailand’s largest contractor, last year had to suspend plans to build a 4,000-megawatt coal-fired power plant in Dawei in Myanmar, also on environmental grounds.

The Myanmar government is likely to change the fuel source of the plant to natural gas, but a decision has not yet been made.

Environmental concerns also surround the Xayaburi hydropower dam on the Mekong River in Laos. Green activists, villagers living downstream on the Mekong, as well as the government of Vietnam, all believe the dam could do irreparable harm.

The project is still going ahead but operator CK Power, a subsidiary of SET-listed Ch. Karnchang, has faced delays and costs of billions of baht for additional construction. The work includes a fish ladder and special channels to help reduce environmental impact.

Contract enforcement is another risky area for businesses, as the German company Walter Bau found in Thailand. A shareholder in Don Muang Tollway Plc, it sued the Thai government for breaching the expressway operating contract after the government ordered the company to cut tolls to 20 baht and constructed a local road as an alternative to Vibhavadi Rangsit Road, resulting in reduced revenues. Walter Bau won the arbitration award and the Thai government has to pay around 30 million euros.

The long legal battle between the Laotian government and the Thai company Thai-Lao Lignite (TLL) is another case. The Laotian government terminated power plant development contracts with the Thai company in 2006, citing a lack of progress. The company contested the case and an arbitrator ruled in 2010 that the Laotian government had terminated the contract improperly. It ordered Vientiane to pay US$57 million in compensation to the Thai company.

The Laotian government appealed by submitting new evidence to the court in Kuala Lumpur (arbitration cases often are handled in neutral third countries). The Malaysian court ruled that the arbitrators had exceeded their jurisdiction. The case is likely to drag on for some time yet.

James Berger, the lawyer representing TLL, said the improper termination of concessions would hurt foreign investors’ confidence in Laos, which badly needs large sums from abroad to develop its resources.

When all is said and done, however, opportunities in this part of the world appear to outweigh the risks, if statistics are any guide.

Foreign direct investment (FDI) inflows in East and Southeast Asia in 2011 totalled $335.5 billion compared with $294.1 billion in 2010, according to the World Investment Report 2012 by the United Nations Conference on Trade and Development (Unctad). It has forecast FDI of between $440 billion and $520 billion in the region this year, and $460 billion to $570 billion next year.

Some observers believe risks and uncertainties are easing in Southeast Asia, though there will always be isolated cases.

Noppol Milintanggoon, president and CEO of Ratchaburi Electricity Generating Holding (RATCH), Thailand’s largest private power producer, says proper contracts are a key. “If we secure contracts and the details are clear enough, it is safer for both the public and private sectors,” he said.

However, he admitted that even when contracts with state entities exist, it is businesses that take the risks, so they need to think about solutions.

RATCH is a partner with ITD in the Dawei power plant and it is still waiting for the Myanmar government to clarify what kind of plant can be built and what kind of fuel it will use.

“I don’t see this as an uncertainty but as a challenge for us,” he said. “Myanmar has just opened up and is in the developing process. We have to wait for a clear policy and development direction of this country.”

As a power producer, RATCH is always looking at new power projects in the Greater Mekong Subregion (GMS), particularly in Laos and Myanmar. Mr Noppol said the risk factors include laws and regulations, investment incentives and promotion, tax treatment, government understanding, and acceptance from local residents.

“The risks and uncertainties do exist. We have to evaluate these and find ways to mitigate the risks that might affect the projects,” he said.

Mr Noppol said his company spent a lot of time communicating with government officials to ensure that everyone understands its plans. The Asian Development Bank agrees that this is one of the best ways to reduce risk.

The more both sides collaborate and commit to completing investment projects, the fewer risks and uncertainties the projects will face, said Arjun Goswami, director for the Regional Cooperation and Operations Coordination Division in Southeast Asia for the ADB.

“Collaboration and commitment are the key words to mitigate risks and uncertainties in investment elsewhere,” he said. “The public-private partnership scheme can be used to complete development projects. I do believe that the situation is better than in the past.”

In his view, the GMS countries need investment from outside to develop energy and infrastructure, so their governments should support and smooth the way for private companies.

At the same time, private companies have to evaluate their risks and factor them into their investment budgets.

Mr Goswami said the involvement of international organisations such as the ADB and the World Bank, sometimes with financing aid, could help secure investments  in some cases.

He cites the successful example of the Nam Theun 2 hydroelectric dam, in which the main players were the Laotian government, a Thai contractor, the ADB and the World Bank. The two international organisations guaranteed the project, citing development needs. The 1,070-MW plant costing $1.4 billion began supplying electricity to Laos and Thailand in 2010.

A region-wide commitment is also crucial to safeguard the projects. At an ADB-sponsored conference in Nanning, China last month, GMS ministers agreed to establish a Regional Power Coordination Centre. The agreement will lead to investments that will strengthen the regional power grid, providing backing for any projects that meet this goal, added Mr Goswami.

PTTEP keeps close eye on conditions in Algeria

The violent end to a hostage taking this month at a gas plant in Algeria is a stark reminder of the risk that terrorism poses, with energy and resource companies often seen as targets.

Thailand’s PTT Exploration and Production Plc is among the energy companies with operations in Algeria, though they are far from In Amenas, the scene of this month’s deadly events.

PTTEP will not invest in any high-risk areas unless it is satisfied that it can deal with all eventualities, says president and CEO Tevin Vongvanich.

“Having a risk management solution is the key factor for us. … If we can’t have measures to cope with extraordinary situations such as terrorism in risky areas, we will not risk our human resources and our money,” he said.

Islamist militants on Jan 16 seized hundreds of hostages at the Tigantourine gas field, operated by Statoil of Norway, BP and the Algerian state oil company Sonatrach at In Amenas, 1,300 kilometres south of Algiers. By the time the Algerian military routed the militants four days later, at least 38 foreign hostages were dead along with 29 extremists.

Mr Tevin says that before PTTEP starts any new projects, it assesses the risks not only to its own personnel and investment, but also the country, community and environmental risk.

All of the risks are evaluated to determine whether there is a management solution. If it is confident that it can manage risk, only then will it begin an economic value assessment.

PTTEP he says, purchases security information from two or three sources and uses it to rate the security levels in the area where it operations.

It divides security risk into two parts: risk in the country and in the project area. The latter has four levels: green if the area is considered safe; yellow for possible risk; orange if there is danger but not directly affecting PTTEP’s project site; and red if there is direct danger to the site.

“The security levels are assessed routinely and can be adjusted depending on the current situation,” he said.

PTTEP has two onshore exploration and production blocks, 433 and 416b covering 5,378 square kilometres, in the Hassi Bir Rekaiz Permits in eastern Algeria. PTTEP and Sonatrach hold 24.5% each and China National Offshore Oil Corporation holds 51%.

Mr Tevin said the company’s operations were currently rated orange as the area where the hostage crisis took place was 500 kilometres away. Its security measures meet international standards, he said.

He could not elaborate on the measures, citing security reasons.

“Some of our jobs are in dangerous zones,” he said of the company’s worldwide operations generally. “Our staff know this well. It is our duty to do whatever we can do to safeguard our people and make them confident to work in such areas.”

January 25, 2013

Laos misses rice production target (Lao PDR blames farmers do not understand)

Laos misses rice production target

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Natural disasters and a shortage of seeds have caused rice production in Laos to miss government targets for the second consecutive year – dealing a blow to its hopes of becoming a rice-exporting nation.

Laos produced 2.7 million tons of rice in 2012, 10,000 tons short of the official target set, according to official figures.

“Laos was not able to produce enough rice to meet the target because of a lack of seed, and in particular because farmers do not understand how to use the seed correctly, which reduces the quality of the rice yield,” an agriculture official told Radio Free Asia’s Lao Service, speaking on condition of anonymity.

“Floods were another factor, mostly in the low-lying areas along the Mekong River,” he added.

Laos aims to produce 4.2 million tons of rice by 2015 to become a rice-exporter like its neighbours.

Last year it announced plans to join Thailand, Vietnam, Myanmar and Cambodia in setting up a rice exporting cooperative to gain leverage on the international market.

Lao Rice Yield Falls Short

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A rice field in Laos, Sept. 22, 2011.

Production of the paddy crop misses official targets.

Laos’s rice production has fallen short of government targets for the second year running due to natural disasters and a seed shortage, dealing a potential blow to the Southeast Asian nation’s ambition of becoming a rice exporter.

It produced 2.70 million tons of rice in 2012, 10,000 tons short of the official goal, according to official figures.

The figure marks a decline in total rice production for the second year in a row.

An agriculture official said Laos had missed the 2012 target because the country lacks seed to distribute to farmers and farmers are uninformed about the best cultivation methods.

“Laos was not able to produce enough rice to meet the target because of a lack of seed, and in particular because farmers do not understand how to use the seed correctly, which reduces the quality of the rice yield,” he told RFA’s Lao Service, speaking on condition of anonymity.

“Floods were another factor, mostly in the low-lying areas along Mekong River,” he said.

Most of the country’s rice comes from the lowland areas, which can support cultivation during both the wet and dry seasons, while upland areas rely on irrigation.

Export plans

Laos is aiming to produce 4.2 million tons of rice by 2015 and turn itself into a rice exporter alongside its neighbors.

Population growth has triggered greater demand in recent years for the staple grain in Southeast Asian and world markets, creating the possibility for Laos to export rice within the region.

Last year, it announced plans to join neighboring Vietnam, Cambodia, Burma, and Thailand in establishing a rice exporting cooperative aimed at gaining leverage on the international rice market.

A report by the Asian Development Bank predicted Laos will be able to shift its status from rice importer to a minor rice exporter over the next decade if it can maintain current grain production and consumption growth rates.

But the U.S. Department of Agriculture has warned that Laos faces considerable constraints for future rice production, including limited arable land suitable for rice cultivation, a vastly underdeveloped irrigation capacity, and extreme underfunding for agricultural crop extension programs.

Paddy land

In order to raise the growth, Laos has plans to devote more land to rice cultivation, raising the current 821,000 hectares to over 1 million hectares.

A majority of Laos’s agricultural land is devoted to the crop, with an average rice production capacity of 1.76 tons per hectare.

But large swathes of rice paddy land are also being turned over to property development, sparking concern that better management of agricultural land is needed to protect the country’s food security, the Vientiane Times newspaper reported Thursday.

Although last year’s 2.7 million tons of rice produced fell short of target, it came closer to the mark than the year before.

In 2011, which saw severe floods and droughts, Laos produced 2.9 million tons of rice out of a targeted 3.64 million, according to official figures.

In 2010, it produced 3.26 million tons out of a targeted 3.3 million.

Reported by RFA’s Lao Service. Translated by Somnet Inthapannha. Written in English by Rachel Vandenbrink.

Copyright © 1998-2011 Radio Free Asia.

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January 24, 2013

Laos under international spotlight in search for land rights activist

Laos under international spotlight in search for land rights activist

Sombath Somphone disappeared a month ago after stopping at a police checkpoint, yet officials deny knowing his whereabouts

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Activist Sombath Somphone

Activist Sombath Somphone disappeared in Vientiane in December 2012. Photograph: Somphone Family/AFP/Getty Images

Though it rarely makes international headlines, Laos has been in the spotlight for the past month. One of its most well-respected activists has gone missing after stopping at a police checkpoint. His disappearance has prompted the Laos government to suggest he was “kidnapped”, but rights groups suspect he may have been abducted after campaigning against land grabs.

Sombath Somphone, 60, disappeared on the night of 15 December in the capital, Vientiane, and was last seen by his wife, Ng Shui Meng, who was driving ahead of him as the couple returned home in separate cars. CCTV footage shows the activist stopping at a police post, leaving his vehicle, and his Jeep being driven away by someone else. Later, a pickup truck with its lights flashing arrives, Sombath gets in, and he and two other men drive off.

Although Sombath has not been seen or heard from since the checkpoint stop, the government insists it has nothing to do with his disappearance.

In an official statement carried by the state news agency KPL soon after Sombath went missing, a government spokesman said he may have been “kidnapped perhaps because of a personal conflict or a conflict in business”, and that the pickup truck in question was driven by two men “not possible to identify”. Their vehicle, the statement added, “went away to an unknown destination”.

Sombath’s family and friends say he had no such conflicts and that no ransom has been demanded.

As founder and former director of Laos’s Participatory Development Training Centre, an NGO working with civil society and government in community development and poverty reduction, Sombath has campaigned for land rights for subsistence farmers at a time when land grabbing is becoming increasingly common. According to the Lao Movement for Human Rights, vast concessions have been granted to national and foreign companies. Most is for mining, and activists are warning that the concessions are leading to increasing levels of poverty and environmental degradation.

One week before Sombath disappeared, fellow land rights campaigner Anne-Sophie Gindroz, the former country director of the Swiss agricultural development charity Helvetas, was expelled from the country. After organising the civil society Asia-Europe People’s Forum in October with Sombath, Gindroz wrote a personal letter to international donors in which she criticised the Laos government for the “little space for meaningful democratic debate” and the “repercussions [that] follow” when debate is pursued. The government deemed her actions a “prejudicial anti-Laos government campaign” and gave her 48 hours to leave the country.

Laos’s neighbours, as well as the EU, UN and US, have all pressed the single-party communist government to investigate Sombath’s whereabouts.

The US secretary of state, Hillary Clinton, last week said Washington was “deeply concerned about [Sombath’s] wellbeing” and appealed to the Laos government “to pursue a transparent investigation of this incident and to do everything in its power to bring about his immediate and safe return home”.

Her statement was preceded by a high-profile delegation of lawmakers from the Association of South-East Asian Nations visiting Vientiane to step up regional pressure on the government’s efforts to find the activist. After three days of meetings with local officials, however, the delegation was left with “more questions than answers”, according to one of its members.

“We noted discrepancies in our hosts’ accounts of the circumstances of the abduction,” said Philippines congressman Walden Bello. “Most of the officials we met said there was no evidence that Sombath got into the pickup truck that appeared in the CCTV footage after his Jeep was stopped. Yet Mr Sakayane Sisouvong, the permanent secretary of the ministry of foreign affairs, said Sombath voluntarily boarded that vehicle.”

The lawmakers noted “the possibility that Mr Sombath may have been abducted by elements, possibly rogue elements, within the government itself”.

Although Laos is on its way to joining the World Trade Organisation and was recorded last year as the fastest growing economy in south-east Asia, its neighbours have warned the country against playing by the “old rules”. An editorial in Thailand’s English-language daily the Nation recently described Sombath’s disappearance as “a blatant display of political arrogance and central control”, and called Laos’s government “an authoritarian system [which] is no longer acceptable … in the new regional landscape”.

The international rights group Global Witness also condemned the government’s seeming ignorance of Sombath’s whereabouts. It said: “Sombath’s disappearance marks a worrying rise in repression by the Laos government that has left civil society petrified and seriously undermines the country’s recent progress as a global player.”

January 24, 2013

Laos in danger of losing jobs and culture as Chinese pour in

Laos in danger of losing jobs and culture as Chinese pour in

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Global Times | 2013-1-24 0:33:02
By Ken Quimbach

Illustration: Liu Rui

A friend living in Vientiane recently complained of incessant noise next to her house where a Chinese gang was busy constructing a new feeder road.

None of the residents had been consulted. The residents are afraid that asphalt will bring speed and accidents.  To the slower paced Laotians, the Chinese are unwelcome. “Why can’t Laotians do that work? Who asked if we wanted this road?” one onlooker asked. Good questions.

Across Laos, Chinese laborers are building huge malls, dams, factories, golf courses and airports, taking jobs that could easily done by Laotians. Tiny Laos with its population of over 6 million is being made to look increasingly like China. Many Chinese projects dispossess Laotians of their land. The Laotians need the work.

There is no question that the Chinese have always been in Laos, but it is the massive increase in numbers, influence and visibility that are causing concern.

A few weeks ago, the New York Times drew approbation over a story they did on what was to be the joint China-Laos railway project. Hidden in the story is the threat that Laotians are increasingly naming; colonization by stealth, and with that, a commodification of Lao culture.

In the story, the Chinese hotel owner was waiting for the floods of his countrymen into Laos to complete the circle of purchase and profit. The Laotians are increasingly left with nowhere to go.

Hidden below the grandiose plans are the subtle corrosion of what it means to be Laotian. China, which guards its own heritage and ancestry, is seemingly happy to destroy that belonging to others.

The traditional Lao skirts are being replaced by cheap mass-produced synthetic skirts made by machines in China, marginalizing both the weavers – whose work makes significant contributions to village incomes – and the fabric’s cultural meaning.

Some of Vientiane’s best loved colonial buildings are slated for demolition. The National Museum is, perhaps ironically, to be replaced by a 20-story five-star hotel.

Chinese projects are operated under a Godfather model. There is no competitive bidding or tendering process.  Instead, concessions are given by political insiders for various favors.

The Yunnan-derived Northern Plan perhaps best sums up the insensitivity to non-Chinese culture. The famously successful but intimate World Heritage city of Luang Prabang has become a tourist megalopolis of 30 square kilometers; ethnic minorities can be shown off in what could be described as human zoos, to be gawped at and photographed by Chinese tourists.

But more ominously, it reveals how easily and cheaply Laos can be bought. Laos has been described as a vassal state, and the Northern Plan makes it obvious that this descriptor is apt.

Recently, the Global Times published two opinion pieces, which talked about the Chinese presence in Laos. Their pieces presented the middle class critique. They talked about roads, infrastructure; all the stuff of the urban elite.

Laotians are still largely poor and rural. They do not have access to health services, or decent education, much less Range Rovers for comfortable cross border travel.

Chinese road projects provide lessons in how not to proceed. A recent trip up the Nam Ou River showed how appallingly managed some Chinese infrastructure is.

The road built to maintain the cascade of Chinese hydropower dams had already caused massive landslips and loss of river bank farmlands. When I asked the boatmen who ply the river and upon whose skills thousands of people, including a burgeoning tourist industry, depend, if they had been consulted or compensated, they all said no. A small group of highly skilled men will become occupationally extinct.

The signs of urban economic growth have given the government of Laos legitimacy, while the Chinese have gradually inched out the traditional protectors, the Vietnamese.

The recent abduction of Laos’ national Sombath Somphone underscored that the transfer of telecommunications from Thai to Chinese oversight has had consequences for Laotian civil society. Phones and the Internet are under surveillance.

But more seriously, Chinese incursions into Laos’ economics, commerce planning, and resource management are now so pervasive and entrenched, that they can never be reversed, even if a more dignified government comes into power.

The author is a freelance writer based in Bangkok. He spent eight years in Laos.

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January 23, 2013

Thai firm says work at controversial Laos dam on schedule

Reuters - US Edition

Thai firm says work at controversial Laos dam on schedule

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BANGKOK | Wed Jan 23, 2013 12:10am EST

(Reuters) – Thailand’s second-largest building contractor, Ch Karnchang Pcl (CK), said construction work at the controversial $3.5 billion Xayaburi dam in Laos was pushing ahead and it was on schedule to be completed in 2020.

Executive Vice-President Prasert Marittanaporn told reporters late on Tuesday that the hydropower dam on the Mekong River was about 10 percent completed.

Ch Karnchang has been criticized along with the Laotian government for racing ahead with construction of the dam in defiance of calls by Vietnam, Cambodia and activist groups for work to be suspended pending further studies into its environmental impact.

The company’s estimate of 10 percent completion lends weight to activists’ claims that Laos had never really halted work on the dam, despite repeated promises to its neighbors that it would wait until experts had carried out proper studies.

Construction of the Xayaburi dam officially started on November 7 last year. Prior to that, Ch Karnchang had insisted it had only worked on areas around the dam site, not on the river itself.

Vietnam and Cambodia are along the lower stretches of the 4,000-km (2,500-mile) Mekong. Environmentalist say the dam could wipe out fish species and block the movement of fertile silt, leading to a food crisis that would affect tens of millions of people in the region.

Ch Karnchang is the main contractor on the project. Its 50 percent owned subsidiary, Xayaburi Power Co, has received a 29-year concession from the government of Laos to operate the dam’s power plant.

Thailand, Vietnam and Cambodia and Laos are bound by a treaty to hold inter-governmental consultations before building dams, although none has a veto.

Vietnam has for decades been Laos’ most influential political ally, but it has failed to convince the authorities there to stop the dam. Activists said on Friday that Vietnam and Cambodia had repeated their calls for construction to be stopped during heated talks last week.

Separately, Ch Karnchang Vice-President Prasert said the company expected to book revenue of 25 to 28 billion baht ($840-940 million) this year, up 20-30 percent from last year.

It has construction jobs in hand worth about 163 billion baht, which should contribute revenue for the next six or seven years, he added. ($1 = 29.74 baht)

(Reporting by Pisit Changplayngam; Writing by Khettiya Jittapong; Editing by Martin Petty and Michael Perry)

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