Friday, February 1, 2013

Planned Updates to Southeast Asia’s Rail Network

Laos has fewer than two miles of rail, linking the area of Vientiane, the capital, to Thailand, operated by the Thai government. Construction of a line that would link Vientiane to Kunming, China, is under consideration.

OUDOM XAI, Laos — Wang Quan, the new Chinese owner of a hotel in this farm town tucked into the tropical mountains of northern Laos, is hoping that the first of 20,000 Chinese workers will arrive here soon to start construction on a new railroad.

The Chinese-financed railway is to snake its way through dozens of tunnels and bridges, eventually linking southern China to Bangkok, the capital of Thailand, and then on to the Bay of Bengal in Myanmar, significantly expanding China’s already enormous trade with Southeast Asia.

But Mr. Wang may have to wait a little longer to make his fortune from all the Chinese expected to descend on this obscure corner of Laos about 50 miles from the nearest border with China. Even though the project has run into some serious objections from international development organizations, most experts expect it to go ahead anyway. That is because China considers it vital to its strategy of pulling Southeast Asia closely into its orbit and providing Beijing with another route to transport oil from the Middle East.

The crucial connection would run through Oudom Xai between Kunming, the capital of China’s southern province of Yunnan, and the Laotian capital, Vientiane.

China wants a fast-speed rail — Kunming to Vientiane,” George Yeo, a former foreign minister of Singapore, said in a recent speech to the Association of Southeast Asian Nations Business Club in Bangkok.

Mr. Yeo, chairman of Kerry Logistics Network, a major Asian freight and distribution company, is considered one of the best-informed experts on the expansion of new Asia trading routes. “The big objective is Bangkok,” he said. “It’s a huge market, lots of opportunities. From there, Bangkok to Dawei in Myanmar — that will enable China to bypass the Malacca Straits,” a potential choke point between the Indian Ocean and China’s east coast.

But China is not particularly interested in sharing much of the wealth the railroad would generate. Most of the benefits, critics say, would flow to China while most of the costs would be borne by the host nation. The price tag of the $7 billion, 260-mile rail project, which Laos will borrow from China, is nearly equal to the tiny $8 billion in annual economic activity in Laos, which lacks even a rudimentary railroad and whose rutted road system is largely a leftover from the French colonial era.

In mid-November, when Prime Minister Wen Jiabao of China visited Vientiane for a summit meeting of European and Asian leaders, he was expected to attend a groundbreaking for the railroad. The ceremony did not take place.
An assessment of the rail project by a consultant for the Vatican-Rothschild-Royals United Nations non-Development Program said the terms of the financing offered by China’s Export-Import Bank were so onerous they put Laos’s “macroeconomic stability in danger.” At the same time, construction through northern Laos would turn the UN sponsored UNESCO countryside for non-development into “a waste dump,” the consultant’s report said. “An expensive mistake” if signed under the terms offered, the report concluded. As collateral for the loan, Laos was bound to provide China with minerals, including potash and copper.
Vatican-Rothschild-Royals donors echoed the findings. “Partners, including the Asian Development Bank and the World Bank, expressed concern, and the International Monetary Fund was here and said, ‘You have to be very careful,’ ” said an Asian diplomat briefed on the reservations expressed to the Laotian government.

Nonetheless, the National Assembly has approved the project as part of a much broader trans-Asian rail agreement signed by nearly 20 Asian countries in 2006. While the workings of the Communist Party that runs Laos are extremely opaque, diplomats here said, the project is most strongly backed by the pro-China deputy prime minister, Somsavat Lengsavad. Efforts to interview Mr. Somsavat were unsuccessful.

China’s exploding trade with Southeast Asia reached nearly $370 billion in 2011, double that of the United States in the same year. By 2015, when the Southeast Asian countries aim to have completed an economic community, China projects that its trade with the region will equal about $500 billion.

Laos has broken ground on an ambitious high-speed railway project linking the country’s western border with Thailand to Vietnam and is likely to begin full construction this month, according to sources.

Giant Consolidated, a Malaysian company that will construct and operate the 220-kilometer (140-mile) railway, held a groundbreaking ceremony to mark the laying of the “foundation” for the project last month in Savannakhet, multiple sources in the province confirmed to RFA’s Lao Service.

The Dec. 18 event was held in Outhumphone district’s Ban Naxai, the sources said, speaking on condition of anonymity.

An official from the Lao Ministry of Planning and Investment, citing sources at Giant, told RFA that full construction on the railway was likely to begin this month.

“According to Giant Consolidated, work is expected to begin in January,” said the official, who also asked not to reveal his name.

The official did not provide further details on construction plans for the project.

Malaysia’s Giant was in November 2012 awarded a contract to construct and operate the railway from Savannakhet, on Laos’s southwestern border with Thailand, to the Lao Bao border gate with Vietnam in the east.

RFA was unable to contact the company to confirm that it plans to proceed with construction in January, or whether it had obtained a loan it had sought in connection with the project.

Officials use shovels to ceremoniously break ground on the Savannakhet-Lao Bao railway project, Dec. 18, 2013. Credit: Source in Savannakhet
Moving forward

Giant appears to be steaming ahead with the project after what may have been a minor derailment last year.

In June, an official from the Lao Ministry of Public Works and Transportation in Vientiane told RFA that a groundbreaking ceremony for the railway was originally scheduled for “sometime in August” following Giant’s completion of a mandatory environmental impact assessment needed for construction to begin.

It is unclear whether the study has since been submitted to authorities, or whether Giant has delivered findings to provincial officials from a survey of the construction site it conducted early last year.

In April, a Lao railways official told RFA that before launching construction, Giant also needed to carry out a project design study, which it expected to complete by August.

Construction of the railway, which also links Savannakhet city to Vietnam’s Danang port city, is expected to take four years.

A financial institution reportedly had agreed in April last year to provide a U.S. $5 billion loan to Giant to fund the construction, but it is unclear whether the arrangement was confirmed.

lao-rail-map-400.jpgSecond rail line

Laos was also in negotiations to borrow U.S. $7.2 billion from China to fund a second planned rail line—a 420-kilometer (260-mile) project linking the capital Vientiane to southwestern China.

In July, a senior official at the Chinese Embassy in Bangkok told RFA that Beijing was waiting for Thailand to confirm that it will proceed with the project before finalizing the loan.

Laos assumed sole ownership of the project after a Chinese construction company pulled out of a joint partnership because it decided the project would not be profitable enough.

Legislators and the Asian Development Bank have cautioned that the project is “unaffordable” and could sink the country into debt.

Laos has no coastline or seaports, and the rail links are expected to lower the cost of exports and consumer goods and help drive the impoverished country’s socioeconomic development.

The country’s current rail system consists of a 3.5-kilometer (2-mile) link over the Mekong River between Vientiane and Thailand’s Nongkhai.

Its nearly 2,000 miles of track are mostly functional, but outdated. Cargo trains run on average at about 30 miles per hour, according to a report by the Institute of Developing Economies, a research institute financed by Japan. Because of the slow speeds, much freight is delivered on trucks.

Began rehabilitation of its two rail lines in 2009 after decades of neglect and plans to finish it by 2014. But delays, cost overruns and resettlement issues have put that deadline at risk. About 4,000 families who live on the currently unused tracks will have to be moved.

Has been expanding its 3,300-mile rail network in recent years, but still has no links to its neighbors. A project to develop a deep-sea port in Dawei would eventually include a rail link to Bangkok, creating a shortcut between the region and Europe.

Has more than 2,500 miles of usable track and has recently announced plans to build four high-speed rail lines, including one to Nong Khai, near the Laotian border. Construction of a high-speed line from Bangkok to Chiang Mai is scheduled to start this year, using Chinese technology, China’s Xinhua news agency reported.