By Charles F Moreira, Editor
This is a continuation article, part 1 and 2 can be read here
According to an English-language Lao National Television News interview with former Lao Deputy-Prime Minister, Somsavath Lengsavad said that after the Lao People’s Revolutionary Party (LPRP) won power in 1975, the party’s politburo held many discussions on how to develop Laos and one one of of the main points mentioned was that Laos was land-locked and lacked access to the sea.
“Being land-locked is one of the most serious disadvantages we faced in national development. However, if we are land-locked but mainly flat land, it would not be so bad, but we are a mountainous region”, said Somsavath. “So the Politburo members agreed to approach the USSR at the time, and other fellow communist nations for help with a train.”
In April 1976, a Lao government delegation led by Kaysone Phomvihane (then Laos Prime Minister and Chairman of the Central Committee of the LPRP) travelled to the USSR, together with Somsavath, and the Laotian delegation proposed to the Soviets that they help Laos build a railway.
“However, the Soviet leader at that time said that it was not the right time, as the war (in Indochina) had just ended and that we needed to focus on rebuilding from the losses caused by the war and return to normalcy”, said Somsavath.
However Laos continued to hope for a railway but was delayed due to lack of financial resources, as well as limited demand for freight transport of no more than two million tonnes per year, and low demand for passenger services, so it was not economically viable back then.
After the death of President Kaysone Phomvihane (21 November 1992), President Khamtai Siphandon took over in 1993 and Somsavath who was Lao Minister of Foreign Affairs accompanied the president on a visit to China where they requested help from the Chinese leaders to construct a railway which would help Laos develop.
“After President Khamtai retired on 8 June 2006, his successor President Choummalay Sayasone continued to discuss Laos’ need for a railway again with China’s leaders, and the Politburo members all agreed to do what it takes to make it happen because the railway is necessary”, said Somsavath.
The LPRP and the Laos’ administration wanted to turn Laos into a logistics hub and in 2011, the 11th National Party Congress, Lao’s central decision-making meeting, reaffirmed its decision to transform Laos’ transport and telecommunications networks in order to spearhead economic development, with the railway as one of the ambitious projects.
Somsavath visited many countries as Foreign Minister, and in many of them he was asked about the availability and condition of transportation networks in Laos.
“So all I could say was that we only had roads, which made it difficult for them to do business or invest in Laos” said Somsavath. “So having a railway was seen as a strategic goal and pre-requisite for Laos to pursue economic development, expand international trade, cultural exchanges and international cooperation in the field of security, all aimed at bringing wealth and prosperity to the Lao people”, he added.
Enter the BRI
The breakthrough for Laos came when Somsavath met with China’s Minister of Railways and he was very pleased that both countries could work together, since China has the financial capability and technical knowledge, all that was needed was for both countries’ governments to agree to cooperate on the railway project.
“Thanks to the close relationship between Laos and China, as well as the launch of China’s Belt and Road Initiative (BRI) designed to expand trade between ASEAN and the rest of the world, Laos’ government seized the opportunity to construct the Lao – China railway from Vientiane to the border with China, as a section of the Asian Railway Network, which will create a land transport link between Laos, Thailand, Asia and Europe”, Somsavath said.
Laos and China signed the first memorandum of understanding (MoU) on cooperation on this railway project in 2011, which provided the basis for China to provide soft and special loans for the railway project, which would begin a new development era for Laos. Besides enabling Laos to to at last overcome its land-locked limitation and the inflow of tourists from China, the railway would enable Laos to become a base for trade with China.
However, there are still many challenges ahead for Laos to overcome in order to seize the opportunities created. These include Laos having to adjust itself to working within a new regional and global environment.
This requires the country to place a strong emphasis on human resource development to meet the growing need for a skilled workforce, and this includes the creation of an environment for a knowledge-based economy, without which Laos will remain trapped in least developed status.
“More recently, the World Bank and the IMF had mentioned that this railway project will contribute up to 21% of the economic growth of the nation”, said Somsavath. “That is according to those who know, whilst those who do not know make random comments. Pay no attention to those who don’t know what they are talking about.”
When it is operational, the railway will cut the cost of transport through north-western Laos by 30 to 40% compared to transport by road, according to LNTV.
“In actuality, if we have more investment from abroad and the people living along the railway line focus on agricultural productivity, our economy will grow more”, Somsavath added.
According to Asia Times of 3 December 2021, the Laos – China Railway project was resurrected in 2015 by Somsavath as part of China’s Belt and Road Initiative (BRI)
Construction of the 422km long railway began in 2016 and would cost the equivalent of US$5.986 billion or almost US$6 billion..
The Laos part of the railway was built and will be operated on a build, operate and transfer basis by the Laos-China Railway Company Limited, a 30:70 joint venture between the state-owned Lao National Railway and three Chinese state-owned enterprises – Bo’Ten-Vientiane Railway, Beijing Investment Company, Yunnan Investment.
Under the terms of the deal, signed in 2016, both Lao and China sides had committed 40% of the total almost US$6 billion in cash (or $2.4 billion) to cover the initial construction costs, with Laos having committed US$720 million, of which the Lao government paid US$50 million per annum from the national budget or a total of US$250 million over the projects five-year construction period.
The remaining US$470 million was borrowed from the Export Import Bank of China at 2.3% interest with a 35-year maturity after a five-year grace period. According to Asia Times, this would be the Lao National Railway.
“In the end, we have found that the project funding was mostly on the Chinese side, or almost 96% of the project was funded by China”, Lattanamany Khounyvong, a former Deputy Minister of Public Works and the Transport Ministry told Asia Times. Lattanamany had worked on the project since serious discussions began in 2009. “We only funded 4% of the $5.9 billion project as our contribution was $250 million, so this is a good project for us.”
The railway will revert to the Lao government after 50 years, according to Asia Times, whilst Thai You Tuber Thai Lao Together who had posted a series of over 10 videos about the railway said that this period could be extended by a further 25 years.
Sceptics and Proponents
Especially the western media and some Laotians are sceptical about the commercial viability of the railway and the ability of Laos to pay its part for it, with the result that Laos could be caught in a debt trap and end up having to grant China concessions in the form of access to its resources, key infrastructure, facilities and industries in return for debt forgiveness.
However, proponents of the project such as Rithikone Phoummasack, Chairman and CEO of the AIF Group maintains that observers have exaggerated Laos’ debt commitment to the project, which can be blamed in part on the state secrecy that has shrouded the deal’s details and is typical of most contracts undertaken in Laos, which as been ruled by one party, the LPRP – communist party, since 1975, and this has got many people confused about the financial structure of the project.
The AIF Group is also conglomerate with activities in finance, telecoms, energy and logistics.
However according to Asia Times, it is unclear whether this debt has been guaranteed by the Lao government., with some arguing that the debts to Chinese banks are solely the responsibility of the joint venture company set up to carry out the project, which is a limited liability company.
“The entity that borrowed the money is the joint venture between the Lao and Chinese companies, and this is a limited liability company, so if the project fails it doesn’t mean that the Lao government has to pay $6 billion back to the Chinese government,” said AIF’s Rithikone.
“If the project fails the lenders just come and take over the project and manage the company or sell the project to whomever,” he said. “And after 50 years the assets have to be returned to Laos no matter if the debt has been paid off or not.”
Meanwhile, Thailand is taking a long time to complete even the first section of it Thailand to Laos high-speed train construction from Bangkok to Nakhorn Ratchasima Province, which is expected to be completed in 2026, whilst the high-speed train between Don Muang, Suvarnabhumi and U-Tapao airports is expected to be completed earlier in 2025, according to the Straits Times of Singapore.
However, construction of the important section from Nakhorn Ratchasima to Nong Khai on the border with Laos is reportedly still in the planning stage and is said to have faced delays.
However, Thailand has many more high-speed rail projects planned or under construction within Thailand than the one Laos has.
However, if this section takes a long time to be built or not at all, Nong Khai, which is just across the Mekong River from Vientiane is already being served by an existing 1 metre gauge regular-speed railway, so Laos will still have access for transport of goods by rail, especially to Thai sea ports and airports.
Construction of the Laos-China railway will be complete by the end of this year
$6 billion Laos-China railway on track to somewhere