The recent decision by the government of Laos to green light the long delayed construction of the massive Xayaburi Dam made headlines across the world. Most analysts and commentators agree the move is controversial, as the dam will likely have significant negative environmental effects within Laos as well as in Cambodia and Vietnam, which lie further down the Mekong.
It is believed that the small Southeast Asian country is planning to build up to seventy hydroelectric dams along the Mekong River and its tributaries, an increase from the previous but already significant estimate of 55. This construction boom will have wider repercussions than extensive environmental damage. It has the potential to alter the geopolitical balance in Southeast Asia.
Even though the Laotian economy has been growing steadily over recent years, the country remains one of the most underdeveloped in Asia. Its gross domestic product per capita (at purchasing power parity) in 2011 was $2,700 and according to World Bank data only 71 percent of the country’s population had access to electricity in 2010.
In many ways this small, landlocked country of 6.5 million has long resided in the shadow of its larger and more powerful neighbors, such as China, Thailand and Vietnam. If the country achieves its ambitious goal of becoming “the battery of Southeast Asia,” however, all that may change.
The government in Vientiane intends to generate substantial revenue from electricity exports once the dams are operational. Apart from aiding the Laotian economy these exports will greatly increase the country’s regional importance, as well as establish it as one of the largest energy hubs in the region and perhaps in Asia as a whole.
The significant hydroelectric potential of Laos — around 26,000 megawatts, the majority of which will be available for export rather than domestic consumption — has already attracted considerable attention from countries both in Asia and further afield. Companies from China, France, Japan, Norway, Russia, South Korea, Thailand, the United States and Vietnam are involved in the planning or construction of several hydroelectric dams. The construction projects are given ample funding from sources such as China’s policy banks, the World Bank and the Asian Development Bank. Although it may be premature to speak of “a scramble for Laos,” the surge in international interest in the country is undeniable.
Although profit is likely the main motivator of private companies hoping to join in the construction boom, some of the states in the region have more long-term objectives in mind.
China in particular has been cultivating close ties with Laos in recent years and Chinese companies, many of which are state owned, have invested close to $2.8 billion in the country over the last decade. Significantly, around 32 percent of this amount was invested in hydropower. This sizable percentage may be an indication of Beijing’s priorities in Laos. Although revised downward, China’s economic growth forecast for the next several years hovers around a still impressive 7 percent and the emerging superpower’s appetite for energy will continue to be voracious.
With the fate of its continued hydropower investment in rapidly reforming Burma uncertain, China appears ready to position itself as a major player in the Laotian hydropower sector, a position which could directly contribute to its energy security in the coming years and decades. Supported by China’s policy banks, its state-owned enterprises (such as the world’s biggest dam builder, Sinohydro) are currently involved in at least thirteen hydropower projects in Laos in various stages of planning or construction.
Of the other international actors in Laos mentioned earlier, two are specially eager to get a piece of the country’s hydroelectric pie.
Thailand has already established a firm foothold in the hydropower sector of Laos and much of the future Laotian hydroelectric exports are slated for its western neighbor. The fact that the largest currently envisioned dam in the country, the $3.5 billion Xayaburi, is being entirely financed by Thai banks testifies to the significance that Laos holds for Thailand and its energy security.
Vietnam, the third major player in Laotian hydropower, has invested about $3.45 billion in the economy of its western neighbor, with much of that sum going into hydropower projects. Vietnamese companies are involved in the planning and construction of several hydroelectric dams in Laos, with most of the electricity that will be generated by these projects already earmarked for export to Vietnam.
Laos is certainly strengthening its position within Southeast Asia with each passing year and is well on its way to becoming an important regional actor. Although Vientiane’s plan for transformation into an energy hub is ambitious, much can still go wrong. Few of the proposed hydroelectric dams will be without an accompanying negative environmental impact and they have already come under fierce criticism from nongovernmental organizations as well as other Southeast Asian states that would need to deal with some of the consequences. The decision to green light Xayaburi Dam also drew criticism from the United States and there is no definitive consensus on the vision of Laos as the “battery of Southeast Asia” even within the country itself.
Even so, if these issues are eventually overcome — and given the tremendous geopolitical interests the dam construction boom has attracted, this is a distinct possibility — Laos is set to emerge out of the shadow of its neighbors and finally establish itself as an important regional actor in its own right.
This article was published as the winning entry in an internship competition at Wikistrat, the world’s first massively multiplayer online consultancy.