Laos, a small Southeast Asian nation wedged between Thailand, Vietnam and China, has lost control of its energy grid due to debt problems with the Chinese Government.
Control of Laos’ energy grid has been ceded to China Southern Power Grid Co., one of the two major operators of China’s national grid. According to Reuters, the company has gained control of Laos’ grid to stave off a potential debt default as part of China’s flagship ‘Belt and Road’ initiative.
The Belt and Road initiative is a form of diplomacy that funds projects abroad in exchange for debt repayments. However, many critics of the scheme argue that it is a debt trap, with many of the countries Beijing targeting as part of the initiative unlikely to pay back the costly loans. That means they have to make other concessions.
Laos has been a major receiver of funds from China as part of the Belt and Road initiative, despite the nation being amongst the poorest in the region. That’s what reportedly led the country to concede control of its energy grid.
Power exports are central to the Laos economy
The reason for the flow of funds into Laos from China was because the Laotian Government put power exports at the centre of its economy. It wanted to become the “Battery of Southeast Asia”, with hydroelectric power stations popping up all over the nation. Unfortunately, profits from exporting power abroad hasn’t quite covered the cost of the loans that were used to build the power stations in the first place.
Chinese state media has naturally defended the deal, noting that Laos would benefit from the Chinese company’s advantages in “experience, technology and human resources.” Xinhua also noted that Laos will be able to buy back shares in its national grid in the future, although with the nation’s debt pile rising, it’s unlikely it will have the money to be able to do so anytime soon.
In fact, Laos debt to China is estimated at 45% of the nation’s GDP, according to the Australia-based Lowy Institute.
Focus on China
China has long been criticised for its Belt and Road initiative trapping countries into unfair agreements in exchange for vital infrastructure. However, many nations around the world have praised the scheme. Former UK Chancellor Philip Hammond once called the scheme a “vision,” and vowed to help with its realisation.
Since the Covid-19 pandemic, however, China’s relations with the rest of the world have become frostier. The initiative is already under threat from the financial realities of the pandemic, but many nations are now more distrusting of the Chinese Government, meaning we may see fewer debt defaults as a result of the initiative.
As for the UK, there have been no Belt and Road projects agreed.