NONG KHAI (THAILAND), Nov 27 (The Straits TImes/ANN): The men arrived in dark jackets, and the women in fine woven silk skirts. They filed into the gleaming railway station under a red sign that said "Vientiane" in Lao and Chinese.
Then they set off. Laotian lawmakers took a test ride on their country's first railway network to the karst-ringed tourist town of Vang Vieng. What would have been a four-hour road trip from the capital took under one hour on Nov 17 on the Lane Xang, a bullet train named after an ancient Laotian kingdom.
The train sped past paddy fields and mountains.
On Dec 3, Prime Minister Phankham Viphavanh is expected to make the inaugural rail trip from Vientiane to the country's northern frontier at Boten, a distance of more than 400km.
Boten is now connected to the Chinese town of Mohan via a new tunnel, which is painted with the Chinese and Laotian flags.
This launch will be a triumph of sorts for Laos, a poor country of seven million with no direct access to the sea.
Burdened by a road network which in some areas is among the worst in South-East Asia, Laos struggles to get goods and passengers through its rugged mountains to the north.
The Beijing-backed US$6 billion (S$8.2 billion) high-speed railway to be launched next week could lift the country's fortunes. Run by a Laos-China joint venture, the line slices through the country from north to south - via 75 tunnels that make up nearly half its route - and ends at Thailand's doorstep.
It also completes an overland link which is expected to draw the economies of South-east Asia closer to the world's second largest economy, under China's Belt and Road Initiative.
Notably, in a world currently grappling with Covid-19 pandemic-related construction delays and cost overruns, the mega project will open on schedule, five years after work began. In contrast, the China-backed metro in Vietnam's capital, Hanoi, only started running earlier this month, eight years late and at double its original cost.
Reports in the Laotian press say the ride from Vientiane to Boten will cost about 140,000 kip (S$18). While it is unclear when passenger services will start, locals say they cannot wait to get on board.
"The first place I would like to go to is Luang Prabang," said Pathoumphone Phetsavong, deputy managing director of a Vientiane-based engineering firm, referring to the world heritage site which can take more than 10 hours to reach by bus. On the new high-speed train, it will take two hours.
"I travel a lot because we have projects all over the country. But it's difficult to travel in the north, and not comfortable. This train will save us both time and money."
Laos sees the railway as a much-needed conduit for tourists and investment but experts are less sanguine.
They say to realise the railway's potential, Laos needs to develop infrastructure along this transport corridor and clear the red tape that obstructs the passage of cross-border freight. It also needs to help entrepreneurs in what is still a largely agrarian economy develop products viable for export to China and beyond.
Finally, Laos will need to do all that while dodging a debt crisis.
Shaky finances
Prime Minister Phankham made clear the country's precarious financial situation shortly after assuming office in March. He declared a national agenda to raise revenue and control public debt, without which, he said, the country would not have enough funds to drive development.
As part of an austerity drive, he signed a decree in late September to slash the number of state vehicles and amount of petrol allotted to senior officials.
"The concern is really growing," Souknilanh Keola, a Laotian researcher at Japan's Institute of Developing Economies (IDE-Jetro) told ST.
"He used the word 'national agenda' but we should read it as 'national urgency'... that if we don't do this in time, the economy is going to collapse, and there is going to be an economic crisis. That is the understanding at the top levels of Laos leadership now."
World Bank figures show Laos' public and publicly guaranteed debt last year hit US$13.3 billion, or 72 per cent of its gross domestic product (GDP). The cost of servicing those debts this year is expected to reach more than 50 per cent of public sector revenues.
Laos' foreign reserves stood at US$1.2 billion in May, which covers just about two months' worth of imports - far below the four to six months buffer advised by the International Monetary Fund. Under such pressure, the kip depreciated 12.6 per cent against the US dollar in early July compared with the year before.
Laos ceded majority control of its electricity grid to a Chinese company in September last year, sparking concern that debt distress may force the country to turn even more state assets over to its powerful northern neighbour.
Experts say Laos' hydropower dam and high-speed railway projects are major reasons for its financial woes. But a senior Laotian official told ST the railway debt was a reasonable undertaking, given how it can halve the transport costs between Kunming, in China's Yunnan province, and Vientiane, which would amount to savings of US$30 per tonne of goods transported.
The Laos government took out a US$480 million long-term loan from the Export-Import Bank of China and pledged an additional US$250 million from its own budget for the rail project.
Disbursement of the latter sum in instalments will be complete this year, said Mr Soulivath Souvannachoumkham, director-general of the Finance Ministry's external finance and debt management department.
"Out of the US$6 billion investment in the railway, the government borrowed only less than US$500 million," he stressed during a Zoom interview with ST. "We think it's going to be a very effective investment."
Laos, he said, was on course to rein in its fiscal deficit before the Covid-19 pandemic struck. The health crisis and the tight lockdown it triggered caused the 2020 deficit to balloon beyond 5 per cent of GDP, a level not seen since 2017.
As part of an effort to maximise gains from the railway, the government has signed a memorandum of understanding with Thai developer Amata Corporation to develop a special economic zone (SEZ) in the north, he says.
Further south, near the terminus of the high-speed railway in Vientiane, a dry port and logistics park that has drawn regional interest is taking shape.
Soulivath projected that the number of Chinese tourists could jump by 50 per cent should the pandemic ease enough for Beijing and Vientiane to lift border restrictions. In 2019, they made up one million out of the 4.58 million foreign visitors to Laos.
Leap of faith
But the actual payoff for Laos from the railway remains to be seen. With its borders still closed to foreign tourists and Beijing pursuing a zero-Covid strategy, any gains from the line for now will be limited to the kind of freight it attracts and investor interest that generates.
On the one hand, the railway could link northern Laos' plantation timber sector to Chinese markets, suggested Dr Keith Barney from the Australian National University.
"On the other hand, there is a risk that Lao firms could be marginalised, that maybe the railway will become associated with a string of large special economic zones that are dominated by Chinese investors," he said.
As an example of what could go wrong, sceptics often cite the Golden Triangle SEZ, a sprawling casino hub in north-western Laos controlled by a Chinese mogul sanctioned by the United States for trafficking in drugs, wildlife and people.
In the short term, said experts, Laotian products will struggle against competition from Thai and Chinese goods, which will likely make up the bulk of commodities transported by the railway.
In Thailand, where construction of the country's first high-speed railway has faced multiple delays, officials are gearing up for a surge in Chinese imports arriving on Laotian trains near the border.
"The substantial long-term benefit from cargo trains would only be materialised if Laos can develop local industrial or high-value added products," said IDE-Jetro's Souknilanh.
Local entrepreneurs like Nidtaya Phetdavan are raring to go. The founder of a seed and agricultural machinery firm is planning to start farming livestock for export to China.
"When the railway is operational, I plan to import more modern agricultural machinery from China and also to export organic agriculture products from Laos to Chinese markets," she told ST. "My company is partnered with companies in Thailand and Vietnam. Together, we will use the railway to link up with other business partners in the region."
Brushing aside concerns over sovereign debt, Sakhone Philangam, the managing director of Thanaleng Dry Port, which will handle cargo arriving via the railway, is confident his country will experience a boom.
"Don't underestimate us. When we started building this railway, people were mocking us," he told ST. "It might take time to maximise its potential. But we are on the right path." - The Straits Times/ANN
Already a subscriber? Log in
Get 20% OFF The Star Digital Access
Cancel anytime. Ad-free. Unlimited access with perks.
