Belt and Road, Development, Environment & energy, Trade and industry, International relations, Food & water | Asia, East Asia, Southeast Asia

30 August 2022

Aided by Chinese investment, Laos is rapidly expanding its hydropower production on the Mekong River, but both countries need to tread carefully, Phillip Guerreiro writes.

Over the last 15 years, Chinese state-owned enterprises (SOEs) have ramped up their involvement international hydropower development, particularly in the Mekong River basin, which flows south from China through Myanmar, Laos, Thailand, Cambodia, and Vietnam.

The Mekong River is crucial to the livelihood of those living near its banks, providing fresh water for irrigation, aquaculture, transportation, and fishing. While experts continue to analyse China’s development of dams on its portion of the Mekong, Chinese dam funding and construction in neighbouring countries in the lower Mekong basin (LMB) remain understudied.

The LMB encompasses five countries, but Laos contains over 80 per cent of the dams constructed by Chinese companies in the area.

Contrary to ‘debt trap’ arguments, Laos seems to be pursing these agreements with China with agency and freedom. While China is providing funding and know-how, these dam projects are being pursued of Laos’ own accord.

After all, these projects provide some big benefits. Between 2010 and 2011 alone, the total hydroelectric capacity in Laos from Chinese investments jumped from 200 megawatts (MW) to around 1,900 MW. As of 2019, it was estimated that Laotian hydroelectric capacity from dams with known Chinese involvement had reached 5,000 MW – enough electricity to power millions of homes.

However, these developments also have their have negative impacts. Officials view dams as a means of generating economic development, but many locals, experts, and non-government organisations contend that they are detrimental to the environment, especially fishing stocks, and that they exacerbate socio-economic issues.

Broadly, hydropower is viewed as a ‘green’ technology, but this is a reductive view. Researchers have shown that artificial bodies of water often contribute to decomposition in an area, accelerating the release of greenhouse gases like carbon dioxide, methane, and nitrous oxide from organic matter.

More on this: Provincial players in China’s Belt and Road Initiative

In all, greenhouse gases from dams and reservoirs account for between one and two per cent of global emissions caused by humans, and this should factor into the calculations of decision-makers developing hydropower policies.

Further, the upfront cost of dams are deceptive, since dams regularly experience cost blowouts, and engineering difficulties in dam development often require costly adjustments to construction.

Finally, sometimes dams break – including while they are being built.

In 2018, Laos suffered a catastrophic dam collapse in the southern province of Attepeu. The collapse resulted in 71 confirmed deaths, at least 1,000 people missing, and tens of thousands impacted by the floodwaters, which reached as far south as Cambodia.

This collapse was of a relatively small dam, and it must serve as a warning to the Laotian government, which is supporting the construction of much larger dams.

Moreover, environmental assessments are not optimistic about the health of the Mekong basin in Laos.

The Xayaburi dam on the main stem of the Mekong has already affected the quality of sediment for agriculture, access to migratory fish, and water levels. Further construction along the tributaries in the basin has only added to the pain.

Yet Laos isn’t slowing down. It’s now entering phase two of the Nam Ou River Cascade Hydropower Project in northern Laos, which consists of seven dams with a combined hydroelectric capacity of 1,270 MW. Although the development predates the Belt and Road Initiative (BRI), it has since been brought under the BRI umbrella.

This presents significant challenges to northern Laos, a region with low population density and high poverty levels. The dams will worsen water quality issues, disrupt transportation, impact agricultural production, and could reduce fish biodiversity by more than two thirds.

Laos also faces significant financial commitments on these projects. The country has a foreign debt crisis, and its difficulty paying down this debt has resulted in concessions to China for the use of its projects.

In September 2020, the state-owned China Southern Power Grid Company obtained majority control of Electricite du Laos, the Laotian SOE which maintains its electrical grid.

Then, in March 2021, the terms of this concession were finalised, with a 25-year agreement allowing China Southern Power Grid Company ‘to build and manage its power grid, including electricity exports to neighboring countries’ forming part of the deal.

More on this: China’s path to decarbonisation

Effectively, Laos handed over its control of its power to a Chinese SOE. This alarmed skeptics of China’s infrastructure investments and means Laos can’t challenge China if their electricity interests diverge.

From the Laotian government’s perspective, the opportunity to expand on its energy generation is seen as an avenue to generate economic productivity. Its objective is to become the centre of electrical generation and a major exporter of electricity to the region – or the ‘battery of Southeast Asia’.

This is also why Laos is upgrading its domestic grid to handle larger loads for export, which also aligns with regional ambitions for an upgraded Southeast Asian grid.

To understand China’s motivations, it is important to examine the role Yunnan province plays.

Bordering Laos and containing the Chinese portion of the Mekong, China’s Yunnan province has been a key advocate of downstream investment. China has constructed dams on its portion of the Mekong, but the availability of space in the province is limited for future dams.

To accelerate the development of China’s inner provinces, there have been calls to use infrastructure in Yunnan to connect Chinese firms to Southeast Asian markets and resources via a ‘bridgehead strategy’.

It would include projects such as roads, railways, and dams, which would in turn see electricity demand grow. With pre-existing ambitions for a regionally connected grid and Laos willing to host more dams, there is massive scope for Chinese enterprises to construct more dams. They could then use Laos’ grid concessions to import energy generated from these projects into China. Energy shortages in China make this a near certainty.

While these projects have potential and align with the region’s energy ambitions, policymakers in China need to carefully consider the environmental and social impacts of their dams. In Laos, leaders must ensure projects don’t develop beyond their means.

Ultimately, both countries must remember that the Mekong River continues to flow beyond their borders – if their projects aren’t carefully and responsibly executed, the whole of Southeast Asia will feel the pain.

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