Lao Officials Balk at China’s Loan Terms For Railway Project

Construction News Laos Vietnam

Laos hopes a railway between Vietnam and Thailand and another connecting Thailand and China will help drive socio-economic development in the impoverished country.

Lao government officials have expressed concern about the interest rate on a U.S. $500 million loan from China to build a multibillion-dollar, high-speed railway through the Southeast Asian nation, and have asked political leaders to negotiate a lower rate, a high-ranking Lao official said.

At a three-day biannual cabinet meeting of the Lao government with the mayor of the capital Vientiane and provincial governors on Sept. 23-25, transportation officials said the loan’s three-percent interest rate was too high compared to that of other loans that China has issued to the country. The meeting’s second-day agenda included a briefing on the Lao-Chinese railway project.

“I was at the meeting, and some officials commented the government should review Laos’ legislation on loans and take into account the interests of the Lao people,” a high-ranking government official, who declined to be name, told RFA’s Lao Service on Tuesday.

Other officials asked government leaders to reconsider the U.S. $500 million with a three-percent interest rate because they believe it is too high and want China to reduce it, he said.

China previously has offered loans to developing countries in the region with a two-percent interest rate for railway, civil engineering and infrastructure projects.

“It was an open meeting and many officials raised many questions and expressed concerns about the positive and negative prospects for the project,” the official said. “But it is unlikely that Deputy Prime Minister Somsavat Lengsavad will do anything [because] he just wants to build it [the railway].”

The Lao government has set the start date for construction of the U.S. $7-billion, 420- kilometer (261-mile) railway from China’s border to Vientiane for November, Bounchanh Sinthavong, minister of public works and transport, said Friday during a press briefing following the cabinet meeting, according to the Vientiane Times.

The Lao government is responsible for providing a total of U.S. $840 million for the project, U.S. $500 million of which will come from the 20-year loan from China to be secured by revenue from bauxite and potash mines in Laos.

Under the loan terms, Laos would not have to pay any principle for the first five years, the article said.

Chinese and Lao state enterprises are teaming up to form a joint venture to finance, develop, manage and operate the railway. Once established, the company will apply for the rest of funding for the railway project, using Laos’ mines as a bank guarantee.

The railway forms part of a larger 3,000-kilometer regional rail link that will run from Kunming in southern China’s Yunnan province through Laos, Thailand and Malaysia to Singapore.

The Lao parliament approved the high-speed railway project in 2012 amid hopes that it would lower the cost of exports and consumer goods while boosting investment in the poverty-stricken nation, but the project has faced numerous setbacks.