Laos has deferred a decision on whether it will pursue the 1.26 gigawatt (GW) Xayaburi Hydropower Plant, the first dam project on the lower Mekong River. The decision was announced in Vientiane on April 19 at a meeting of the Mekong River Commission (MRC), a group comprising representatives from four countries the Mekong River traverses: Laos, Vietnam, Cambodia and Thailand. The decision follows strong opposition from environmental groups and Laos' fellow MRC members, particularly from its longtime patron, Vietnam. The final decision on whether to proceed rests with Laos, however, and evidence suggests construction has already begun. Laos' ambitious dam-expansion plans, aimed at fueling its economic development, could well create an impasse with Vietnam. And this could create an opportunity for other regional players, particularly China, to expand their regional influence.

Laos' Hydropower Ambitions

The Xayaburi hydropower project is on the main stream of the 4,900-kilometer (about 3,000 mile) Mekong River at the Kaeng Luang rapids. It is the first of 11 hydropower projects being planned along the lower Mekong River, the largest river and resource hub for Southeast Asian countries. Nine are planned for Laos and two for Cambodia. The Laotian government and Thailand's second-largest construction firm, Ch. Karnchang Public Co., agreed to pursue the project in 2007. In June 2010, Thailand's electricity utility, EGAT, signed an initial agreement with Ch. Karnchang to purchase 95 percent of produced electricity generated from the project, power that would reach markets along a planned 200-kilometer transmission line. Satellite image taken Feb. 17, 2011 of the Xayaburi construction site (click here to enlarge image) For Laos, Xayaburi represents a major opportunity for economic and social development. The landlocked country remains one of the poorest and least-developed in Asia, with a per capita gross domestic product (GDP) of no more than $1,000 for its 6.3 million population. The country is mountainous and rich in water resources, however, and Laos is thought to have an exploitable hydropower potential of about 18 GW. Of this, about 12.5 GW is in the Mekong basin. For Vientiane, the development of hydropower represents an opportunity for prosperity. Close-up of the Xayaburi construction camp Feb. 17, 2011 (click here to enlarge image) In a bid to tap this resource, the government announced a plan in 2010 to build 20 hydropower plants over the next decade (in addition to Laos' existing 14 projects). It expects to bring total hydropower capacity to 8.04 GW by 2020 from the current capacity of 2.54 GW. Aside from satisfying growing domestic demand, Vientiane hopes a large hydropower capacity will draw in extensive foreign money via exporting power to neighboring countries and introducing foreign investment on its projects. Officials are going so far as to envision Laos as the "battery of Southeast Asia." Since the 1990s, Thailand and Vietnam have been the primary importers of Laos' electricity; the revenue generated from power exports has accounted for nearly 30 percent of Laos' total exports, and exports account for about 30 percent of Laos' total GDP. But even in the early stages, Laos' ambitions for hydropower dams encountered intense opposition. Environmental groups and downstream countries have raised considerable concerns over the economic and environmental impact of the Xayaburi Dam. Critics argue the dam would disrupt fish migrations, block nutrients for downstream farming and allow saltwater to creep into the Mekong River Delta by slowing the river's flow. They also believe the dam would jeopardize the livelihood of 60 million people who reside in the lower basin. Massive public opposition and pressure from Vietnam and other countries caused Laos to appeal to the MRC for approval for its project. In September 2010, the Xayaburi Dam became the first mainstream project to be submitted for approval by the region's governments through a regional decision-making process facilitated by the MRC; the approval process is ongoing. Even without official clearance from MRC, however, evidence has emerged that construction of the Xayaburi project already has began. Meanwhile, prior to the MRC meeting, Laotian state media signaled that Vientiane has the final say in whether to approve the project, indicating Laos' determination to defy external pressure and proceed with the dam. In any case, the MRC is incapable of forging binding agreements — rather, it is a means for regional states to coordinate their plans.

The Vietnam-China Geopolitical Balance

Vientiane's hydropower ambitions run the risk of straining ties with its patron, Vietnam. In a rare move, Vietnamese government officials voiced strong criticism of the plan, saying it will "greatly affect Vietnam's agriculture production and aquaculture." Vietnam's opposition also stems from fears that the Xayaburi project will set a precedent for the other 10 dams planned for the lower Mekong River — which could have a much greater impact on Vietnam, as its economy is largely agricultural. (About one-fifth of its economy and more than half of its workers are employed in the sector, and it plans to promote its aquaculture in the next few years.) Vietnam's criticism goes against a 1977 treaty of friendship and cooperation that enshrined a "special relationship" between Vietnam and Laos. Decades have since passed from the revolutionary period, when Laos aligned itself with Vietnam and the Soviet bloc. But Vietnam still maintains the greatest geopolitical influence over Laos of any country. Hanoi provides Laos an alternative route to the sea through the Red River corridor, and has long been the country's top investor and benefactor. Vietnam has cultivated ties with Laos at the political and military levels, providing training to Laos' government and military leaders. This has enabled Vietnam to secure its dominance over its fellow communist country and to expand its influence over the region. As Vientiane opened up its economy and accelerated integration with regional markets, especially with Thailand and China. However, a rebalancing of Vietnam's strategic influence appears to be under way. After a period of hostility toward Beijing from 1979 to 1988, Laos is gradually embracing China, due in part to the latter's wealth and outward investment ambitions. Laos offers Beijing abundant natural resources and investment opportunities, along with an opportunity to expand Chinese geopolitical influence at the expense of Vietnam. Over the past five years, China has been gradually replacing Thailand and Vietnam as the country's largest investor. Most of China's investment is in mining and hydropower, Laos' two most important sectors. Meanwhile, following Vietnam's example, China is cultivating Laos' current generation of leaders in the hopes of giving rise to a pro-China government in the future. China has welcomed Laos' expanding cooperation with Thailand, which it sees as helpful in setting a precedent on hydropower and further loosening Laos' bond with Vietnam. As Laos is determined to push forward with its dam projects, a further split from Vietnam can be expected. Though Vietnam retains strong influence over Laos — and could use its investment and aid as a bargaining chip to influence the hydropower projects — it can do so only at the risk of expanding China's growing influence in Laos.