Laos-China railway project breaks ground-
In December 2015, the Laos and Chinese governments held the groundbreaking ceremony to begin the construction of a mega high speed rail project to connect Vientiane, the capital of Laos, with Boten, a Laos-Chinese border checkpoint. The long-awaited project will take about five years to complete. The project was approved by Vientiane in 2012 but the launch was delayed on account of lengthy negotiations between the two countries on loan conditions offered by China. Once operational, the railway link will transform Laos from being landlocked to land-linked.
Coverage
The two countries will construct a 1.43 metre gauge, single-track line from the Laos-Chinese border at Boten in Laos’ Luang Namtha province to the Lao border with Thailand between Vientiane and Nong Khai. Electric locomotives will be run on the line, covering 417 km, at a speed of 160 km per hour for passenger trains and 120 km per hour for freighters.
The scope of work on the project involves construction of a single-track line consisting of 21 sidings, 11 passenger stations and a container freight station. About 170 bridges spanning a length of 69 km (16 per cent of the total length) and 72 tunnels covering 183 km (43 per cent of the total length) will be constructed as part of the project.
The Vientiane-Boten railway line is a part of four railway projects, which form a part of the 3,000 km regional Kunming-Singapore rail network. The entire railway line will link China’s Kunming all the way down to Singapore, passing through Laos, Thailand and Malaysia.
The Laos government expects 9.65 million passengers from Laos, China and other Association of Southeast Asian Nations (ASEAN) to initially use the railway link. The ridership is expected to go up to 11.98 million passengers in the medium term and 16.5 million passengers in the long term.
The cargo movement between China and four ASEAN member countries – Laos, Thailand, Malaysia and Singapore – is expected to touch the level of 2.59 million tonnes (mt) in the first year, 3.62 mt in the medium term and 5.46 mt in the long term. Through the planned railway, goods transported from Vientiane to the Chinese border will be charged only 269,750 kip per tonne, which is much cheaper than road freight charges currently pegged at 833,340 kip per tonne. Notably, rail transport offering cheaper costs with faster speed would enable Laos to enjoy a competitive edge in promoting trade and investment.
The project in numbers
In November 2015, the Laos and Chinese governments signed an agreement on the construction of the 40 billion yuan ($6.04 billion) railway project following talks on the joint venture (JV) project for years. China will be responsible for 70 per cent of the total investment, while Laos will be responsible for the remaining 30 per cent. The total investment includes the purchase of trains and other related facilities for the rail line.
Laos and China have reportedly reached an agreement on the interest rate for a $480 million loan to build the high speed Lao-China railway. The loan amount had been set at $500 million to finance the project, but was recently lowered to $480 million after the parties involved agreed to reduce the overall cost to $6.04 billion. Laos will not have to pay any principal on the 20-year loan during the first five years. The Chinese government had initially offered the loan at an interest rate of 3 per cent; however, the Lao government negotiated the terms of the loan and both the parties finally reached an agreement. The rate of interest was being regarded as too high as compared to the terms of other loans sanctioned by China. Earlier, China has offered other loans to developing countries in the region at an interest rate 2 per cent for railway, civil engineering and infrastructure projects. The Lao government plans to pay back the loan using the income derived from the excavation of potash mines.
This is undoubtedly a high-cost investment project. The investment return will be low because lessons drawn from other projects of a similar size show that railway development projects take about 30 years to earn back the capital invested. However, the creation of the asset will result in high economic efficiency and contribute towards economic growth.
The road forward
Given the high transportation costs being faced by commuters in Laos, commissioning of the rail link in 2020 is expected to provide significant economic returns for the country. High freight cost is also among the key deterrents to foreign investment in the country.
The big-ticket project is also expected to create substantial job opportunities for workers in Laos and contribute significantly in countrywide socio-economic development. According to reports, both Laos and China have agreed to hire Laos nationals as the main workforce during the five-year construction period of the Laos-China high speed railway. Under Laos regulations, the project’s contractors should choose Laos companies as subcontractors. To this end, several Laos construction companies have submitted proposals to the National Constructors’ Association, which will decide on the number of companies to be involved. The names of those companies will be sent for selection to the project steering committee for selection and forwarded to the Laos-China JV and the main contractor. It is expected that Laos companies will be taken on board to provide sand and stone supplies as well as undertake land clearance and excavation, while civil works entailing the construction of bridges and tunnels, and the railway track will be executed by foreign contractors.
The project’s viability has been widely questioned by various stakeholders. However, industry experts are of the view that the project can be effectively implemented if there is greater transparency between all the stakeholders involved and promotion of information sharing about best practices.
