Vientiane — Laos will need to borrow an estimated 4.5 trillion kip ($566 million) this fiscal year to address its ballooning budget deficit, a state media report said on Friday.
Over the year to Sept 30, Laos plans to spend 29.7 trillion kip but projects only 25.2 trillion in revenues, forcing it to borrow from foreign and domestic sources, the Vientiane Times reported.
During the first six months of fiscal 2013-14 the government collected only 9.2 trillion kip, significantly lower than forecast, the government mouthpiece said.
“The three major reasons for the large fiscal deficit have been overly optimistic revenue projections, large wage increases and allowances awarded without due regard for their impact on the country’s fiscal and external positions, and development projects financed off budget,” the Asian Development Bank (ADB) said in its latest report on Laos.
The Lao government hiked base wages for the civil service by 37% last year and plans further wage hikes this year, despite problems with making payments, the ADB said.
“A number of government officials, in particular those in the countryside, have received only February’s salary so far this year,” the Vientiane Times said.
Last year, Laos’ fiscal deficit was the equivalent of 5.8 per cent of its gross domestic product, the bank said.
The proposed railway hasn’t got everyone in Laos excited. LUONG THAI LINH/EPA
Despite impressive economic growth rates over the last decade, a third of Laos’s population still lives below the extreme poverty line of US$1.25 per day. Most of the extreme poor Laos are ethnic minorities living in rural and upland districts, who depend on local ecological resources for cash income and food.
Expanding transport infrastructure can no doubt be very important for effective poverty reduction – but it would be a stretch to argue that the country’s most urgent human and social development need is a high-speed rail connection between its capital, Vientiane, and its northern neighbour China.
Yet, the Lao government has reiterated its intention to integrate into an emerging ASEAN-China high-speed railway grid. At times, the country’s quest for rail takes on an almost fetishistic quality, with officials simply repeating the mantra that the Laos must move “from land-locked to land-linked”. But for all their zeal, the economic case for high speed rail in Laos remains weak.
Laos actually has two high-speed railway projects under consideration. The first and more expensive one, costing about US$7 billion, would form part of an integrated Kunming-Bangkok-Singapore railway. Extending 420km north from Vientiane, it must cross mountainous terrain and numerous river valleys in northern Laos.
This is a gargantuan undertaking for a country that’s GDP was US$9.4 billion in 2012. Nevertheless, the Laos National Assembly approved the Laos-China rail project in October 2012, proposing a US$6.8 billion loan from China’s Exim Bank to cover its cost. According to a 22-page document submitted to the National Assembly, the loan would be guaranteed by all of the income and assets of the railway, and two unspecified mining areas.
There is also a geopolitical angle. The potential for strategic and military applications of high-speed rail projects has been noted, and some argue that China is working to push an Asian rail network to extend its power and influence throughout the region.
Laos’s second line would run 220km east-west through central Savannakhet province. It is still quite unclear how this line would be connected to any supporting rail infrastructure in either Thailand or Vietnam. At present, it represents a rather ambitious commercial venture to link the languid provincial town of Savannakhet with the small border village of Lao Bao, at a proposed cost to the previously unknown Malaysian firm Giant Consolidated Ltd of some US$5 billion.
The financier of the Savannakhet railway project is reported to be an entity named “Rich Ban-Corp Ltd”, initially reported as “Rich Banco” and based in New Zealand, but now apparently registered in Hong Kong. In the UK, Rich Ban-Corp has been listed as an “unauthorised firm”, and investors are warned not to do business with it.
These expensive new railway project proposals have drawn the attention of Laos’ development partners. In October 2013 the IMF warned that the Lao-China railway would result in Laos’ total external debt leaping from its current level of 32.5% of GDP to as high as 125% of GDP.
According to the IMF, this would exceed Laos’ threshold debt levels. The country could suddenly be very vulnerable if, for example, China experienced a credit crisis, or if prices for Laos’ key export commodities such as copper took a sustained downturn.
Given the high stakes – the price tags, the resource-based loan guarantees, the implications for national sovereignty – one might expect the case for the railways to be spelled out. However it is not at all clear what sort of analysis is guiding Lao decision makers.
The pros and cons of rail projects should be assessed through detailed economic calculations. This could mean examining the potential to actually promote resource exports, the boost to economic productivity through measures such as the “value of time travel saved”, or the effect on the labour market of integrating second tier cities with the main urban centers. Estimated benefits for tourism revenue could be quantified.
In Laos, this sort of analysis is, so far, completely missing. Instead, a significant part of the Lao railway megaproject game seems to involve efforts by “megaproject entrepreneurs” to convince powerful decision makers and state institutions that their investment plan has momentum, with deep pocketed (yet conveniently obscure) financial backers waiting in the wings.
Laos is particularly susceptible to these sort of opaque dealings through personalised networks. Its state institutions are still a work in progress, and are unable or unwilling to foster a culture of transparency in decision making. The authoritarian nature of the party-state in Laos discourages critical debate or an open competition of ideas.
Perhaps there are defensible economic justifications for high-speed rail in Laos. The boost to regional integration and Laos’ agricultural and mineral exports such as potash, copper, and gold could be significant, although it is not clear why expensive high speed infrastructure would be required for exporting these resources. Moody’s rating agency seems to accept the positive arguments anyway, indicating the Lao-China railway project will be “credit positive” for the country.
But what of the opportunity cost? Even if there were a solid business case for high speed rail, it would still need to be considered alongside the potential national economic benefits of investing that US$7 billion across a range of key development sectors, from highway upgrades, to child malnutrition, maternal health, agricultural extension, and youth education and training programmes.
It is time for Laos’s government to open up and provided some transparency on how these key decisions around high speed rail are going to being made, through what information and data. The country may be about to commit a significant portion of its wealth to these projects; its citizens deserve to know they are getting a good deal, and aren’t being used as a pawn by other nations and their corporate interests.
Moving away from back room wheeling-dealing and towards fuller transparency and the rule of law could help build confidence in Laos’ institutions and governance standards. It would also help future, quality investment projects achieve their full potential for promoting equitable economic growth and reducing poverty.
Protesters take to the Mekong River in Stung Treng province on Saturday to demand a halt to Laos’Don Sahong dam project, which they say will impact the livelihoods of people living along the river. (Lyda Ngin)
Leading conservation groups on Sunday issued a joint declaration opposing the construction of Laos’ controversial Xayaburi hydropower dam as communities in northeastern Cambodia staged protests on Saturday against the project, which experts say could harm millions of people living downstream.
The joint declaration, signed by 39 environmental groups, comes ahead of this week’s Mekong River Commission (MRC) summit in Ho Chi Minh City during which high-level delegations from Cambodia, Vietnam, Laos and Thailand will address the impact of dam development on the Lower Mekong region.
The Xayaburi dam is the first of 10 proposed dams on the mainstream Lower Mekong River and the Lao government, despite fierce resistance from Cambodia and Vietnam, has pushed ahead with its development, making it a test case for the MRC’s goal of achieving regional consensus before dam-building goes ahead.
“[T]he Xayaburi hydropower project in Lao PDR is one of the potentially most damaging dams currently under construction anywhere in the world” and “constitutes the greatest trans-boundary threat to date to food security, sustainable development and regional cooperation in the Lower Mekong River basin,” the declaration says.
Amid mounting evidence that the dam will cause irreversible damage to biodiversity, fish stocks and human livelihoods, the signatories have set a one-year deadline to achieve a halt on construction so that the MRC’s study on the potential long-term effects of large-scale dams can be completed.
“The Mekong Summit is the critical moment for Cambodia and Vietnam to take a strong stance and make their concerns heard loud and clear before it is too late,” Kraisak Choonhavan, former chairman of Thailand’s Senate Foreign Affairs Committee, said in the statement.
The groups are also calling on Thailand to pressure Laos by pulling out of its agreement to purchase most of the electricity generated by the Xayaburi dam, and asking the consortium of six Thai banks financing its construction to reconsider the effect on their reputations of bankrolling a potentially devastating project.
Laos has also announced that a second mainstream dam, the 256-MW Don Sahong dam—just 1.5 km from the Cambodian border —will also go ahead without regional consultation, despite the fact that studies have shown it threatens the entire ecosystem of the Lower Mainstream Mekong by blocking the only channel in southern Laos that allows year-round fish migration.
Communities Take to the River
On Saturday, more than 200 protesters in Stung Treng province took to the Mekong River in boats to draw attention to the danger the Don Sahong dam presents to local communities and wildlife, such as the critically endangered Mekong River dolphin.
Villagers—including students and local officials—gathered at Preah Romkil pagoda in Thal Borivat district at 8 a.m. and traveled by boat to an area of the river inhabited by the dolphins, according to Vong Kosal, a legal officer for NGO Forum, which last week drafted a petition calling for the immediate halt of the dam.
“We are collecting thumbprints from all participants and will send them to the [Cambodian] government to convey our concerns with the other heads of states at [MRC] summit in Vietnam,” Mr. Kosal said.
A separate protest on Saturday in Kratie province saw another 200 people board 42 boats in Sambor district for a seven-hour journey to raise alarm among communities living along the Mekong River.
“We have prepared an open letter and will send our message to the four countries attending the summit to stop construction of the [Don Sahong] project,” said Sam Sovann, executive director of the Northeastern Rural Development Organization.
Elsewhere, Some 200 ethnic Chong villagers in Koh Kong province’s Areng Valley will today submit a petition to the provincial government office as part of an ongoing protest against the imminent construction of the Stung Chhay Areng dam.
Development of the dam by Chinese company Sinohydro (Cambodia) United Ltd., local environmental groups argue, will lead to hundreds of evictions and require the flooding of thousands of hectares of land, including areas of the Cardamom Protected Forest considered sacred to the Chong.
“The villagers want the general public to know that their ancestral land is threatened by the development of this dam,” said Ing Kongcheth, provincial coordinator for rights group Licadho.
“They want the dam project canceled—the damage it will cause if it goes ahead is huge.”
Yin Vuth, one of hundreds of Cambodians who protested against the Don Sahong dam over the weekend, said that if construction on the project in Laos goes ahead, the fish will disappear, and once the fish disappear, the dolphins will be next. “All we will …
Nevertheless, Laos is marching ahead with construction without agreement among its neighbors,” said Kraisak Choonhavan, leading environmental activist and former chairman of Thailand’s Senate Foreign Affairs Committee. “The Xayaburi project severely …
BANGKOK, THAILAND — This week officials from Cambodia, Vietnam, Laos and Thailand will meet to discuss the impact of planned hydropower dams on the lower Mekong region. But several environmental groups have already concluded the main …
LAOS, Southeast Asia – Laos has invited private investment in national road construction for the first time, media reports said on Monday, as it faces mounting budget problems.
The Communist government has chosen two road projects — from the capital to Vang Vieng and to Pakxan, in Bolikhamxay province — to launch a public-private partnership, the Vientiane Times reported.
“It is seen as a way to source finance for infrastructure development amid the financial difficulty the government is currently facing,” the state-run newspaper said.
Laos, a landlocked nation ranked among the world’s least developed countries, has been expanding its national road network about 7% per year. Earlier this month, the government sacked former Finance Minister Pouphet Khamphounvong for failing to meet revenue collection targets and for excessive expenditures this year.
According to the World Bank’s latest economic outlook report, the country’s fiscal deficit widened last year “due to a combination of a large increase in public sector wages and benefits, and a decline in grants and mining revenues.
“In addition to revenue measures, there is a need for more prudent medium-term expenditure planning and execution by the government going forward,” the bank
In its race to cash in on hydropower without first addressing its downstream implications, Laos could pitch the region into a water crisis and jeopardise millions of Cambodian’s food security, conservation groups and Cambodian government officials said yesterday.
“Lao PDR is exploiting the Mekong River to develop its country though hydropower dams,” Tea Chhup, deputy secretary of state at the Ministry of Environment, said yesterday during a workshop on Laos’ Don Sahong Hydropower Project.
Surrounded by rapidly growing, energy hungry neighbours, Laos has made no secret of intentions to become the “battery of Southeast Asia,” proposing nine of the 11 planned Lower Mekong mainstream dams. But environmental groups are claiming that Laos has been anything but transparent in responding to mounting concerns about its use of the shared waters.
In January, Cambodia, Vietnam and Thailand’s Mekong committees requested Laos halt plans for the 260-megawatt Don Sahong until studies assessing transboundary impacts assured little or reversible effects. Despite the demand, Laos announced last month that it would move forward with dam construction in December, according to Ame Trandem, Southeast Asia coordinator for International Rivers.
“Under international law, it’s Laos’ duty to do these studies before building,” Trandem said. “The Mekong should never be a testing ground for new technology.”
Last September, the Don Sahong’s developers published environmental and cumulative impact studies considering localised effects of the project, and in doing so, raised more red flags than assuaged fears.
“The scope of their study is only two kilometres, but we can assume the impact of their dam will extend beyond that and across the border to Cambodia,” said Danh Serey, a Ministry of Environment representative.
The studies also came under fire for alleged inconsistencies, a lack of baseline information about fish numbers and migration patterns and unsubstantiated claims about mitigation measures.
“The impact assessment questions the ‘viability’ of the [nearby] Irrawaddy Dolphin population; what they mean is, let’s not worry about endangered dolphins, let’s just build a dam,” said Gerry Ryan, a technical officer at WWF-Greater Mekong.
For its part, the Lao government maintained no short-cuts on dam construction or study were being taken.
“Mindful of potential environmental and social impacts, the government of Laos accepts that the process of hydropower development must be thoughtful, careful and practical,” said Viraphonh Viravong, vice minister at Laos’ Ministry of Energy and Mines. “Modifications to a project design can be made, and will be made, to ensure sustainability and environmental safeguards not just for years, but for decades.”