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Hydropower in Laos: An Alternative Approach

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It’s time to take another look at the future of energy in Southeast Asia.

A report published in September by the Stimson Center, a D.C.-based think tank, challenges prevailing notions about the future of hydropower in the Mekong subregion, an area including Vietnam, Cambodia, Laos, Thailand, Myanmar, and southwestern China.

The report focuses on Laos, which in years past has proclaimed itself the future “Battery of Southeast Asia,” by aggressively developing hydropower dams on the Mekong. Laos has already built 29 large dams along the river’s mainstream and tributaries, with plans for over 100 in total. The land-locked country remains the poorest in Southeast Asia, and has planned to raise cash by exporting electricity to consumers in neighboring countries.

But project developers of these dams – who are typically Thai and Chinese companies – have faced criticism from civil society groups and international observers for the myriad social and environmental consequences brought on by dam construction. The Mekong is home to an estimated 1,000 species of fish, many of which migrate along the river and replenish the region’s fisheries. By changing the hydrology of the river, these dams threaten the biodiversity of the Mekong and the livelihoods of fishermen and farmers throughout the region. In times of drought – as has been experienced this year – the dams can cause regional insecurity by contributing to water scarcity problems downriver.

While dam construction has continued apace despite these dangers, the Stimson report argues that new markets and technologies are creating an opportunity to change course.

Challenges for Lao Hydro

The report highlights new developments that could steer Laos away from further damming on the Mekong. First, following a period of economic and political liberalization, Myanmar is emerging as a competitor for energy infrastructure finance. Myanmar boasts nearly 100 gigawatts of potential hydropower capacity, far exceeding what is possible in Laos. Such a glut of potential projects in the region is likely to siphon away financing that might otherwise go towards hydropower development in Laos.

At the same time, China’s economic slowdown could signal the end for cheap and easy hydropower finance in the region. In previous years, Chinese state planners encouraged outbound investment in strategic sectors such as hydropower projects in Southeast Asia. However, the report notes that government concerns about non-performing loans on the books of Chinese banks seem to have reduced the funding available for some projects in Laos. Rising local awareness about the social and environmental costs of these dams also adds a layer of risk that financiers may find discouraging.

Perhaps most critically, it appears as if planned generation in Southeast Asia is outpacing the region’s appetite for energy. China, once envisioned as a potential market for Laos power, is already experiencing serious overcapacity in its domestic power market. Thailand, while still a major investor in Laos hydro projects, has consistently overestimated its own consumption levels – and has lots of room to cut demand through energy efficiency measures. Both Cambodia and Vietnam have planned to reduce their reliance on imported energy, with the latter investing heavily in coal-fired power plants.

A New Vision for Laos

Taken together, these signals make a compelling case for a new energy strategy in Laos and in the region as a whole.

First, the report suggests that Lao planners should invest in a backbone transmission network to connect its patchwork regional grids. This is a good idea for a variety of reasons. A nationwide transmission system would help open up markets for Lao electricity both domestically and internationally by creating a more flexible grid. It would help planners integrate renewable energy resources like solar and wind. It would also be a great step towards electrifying the remaining 20% of the country still without power.

Secondly, planners should consider ways to diversify the country’s energy mix with wind and solar. With too much reliance on hydro, the region risks facing shortages during drought conditions, which will become increasingly likely due to the effects of climate change.

It also makes good economic sense. Utility-scale solar is now nearly cost-competitive with hydro in Laos. Solar avoids the social and environmental challenges associated with hydro that have led to disruptive public protests and cost overruns, making it a safer bet.

In fact, solar already plays an important role in electrifying Laos’ rural communities. Companies like Sunlabob have pioneered low-cost solar home systems to provide basic electricity services like lighting and device charging to remote communities. A new energy outlook from Lao energy planners would also be a great opportunity to optimize plans to fully electrify the country, whether by grid connection, solar home systems, or village-level microgrids.

Lastly, greater international cooperation in energy planning is needed. The construction of a national power grid will require technical assistance from international experts. The Asian Development Bank is leading this effort, and plans to invest $400 million in a national transmission network by 2020. The US has already begun providing power planning and optimization assistance through the Department of Energy and its national laboratories.

The US is also supporting renewables in Laos. In advance of President Obama’s visit to Laos in September 2016, the US Trade and Development Agency committed to funding a feasibility study for a 20 megawatt solar farm in the country.

China, as a regional power with an abiding interest in Laos’ energy sector, can also benefit from this shift. The world’s largest solar module manufacturers are Chinese, and government support for emerging solar markets is one way to bolster domestic manufacturers while also rebranding China as a responsible stakeholder in the region.

Laos’ energy future is still uncertain. Energy planners remain convinced that prioritizing dam construction is Laos’ ticket to prosperity, despite the risks. But as the challenges for Lao hydro become ever more apparent, a new way forward could be in the making.

Read the Stimson Center’s full report here.

This article was first published here on the Pacific Observer website.

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What’s Old is New Again: Predictions for Southeast Asia 2016

Will there be more skirmishes in the South China Sea in 2016? Photo: Getty Images

Will there be more skirmishes in the South China Sea in 2016? Photo: Getty Images

Much can change in a year’s time. In January 2015, Singapore’s Lee Kuan Yew was still alive, Aung San Suu Kyi’s future as leader of Myanmar was quite uncertain and East by Southeast was not making any predictions about international affairs in Southeast Asia. But again, much can change in a year’s time.

2016 will be a critical period for geopolitics in the region, as new strategic relationships are formed and existing ones strengthened. Many experts talk of a growing polarization of the region as countries position themselves between the US and China, a trend due in large part to rising tensions in the South China Sea. The conflict will take center stage in 2016. Look for the the Netherlands-based Permanent Court of Arbitration to publish its initial findings on the Philippines’ case against China in the first half of 2016. Despite not ruling on sovereignty issues, the outcome of this case will likely anger China and lead to a more aggressive stance towards the Philippines and other claimants. As the Philippines and Vietnam rely more heavily on the US for security guarantees in the South China Sea, more US flyovers and naval patrols in the contested waters are to be expected. Look for the US Navy to begin to use Vietnam’s Cam Ranh Bay for “maintenance” purposes and to park its ships on a somewhat permanent basis  in the Philippines’ Subic Bay after joint military exercises finish in April 2016.

Conversely, look for the emerging Sino-Thai regional axis to be solidified in 2016. This relationship, despite not bringing much to the languishing Thai economy, will tighten the ruling junta’s grip on power. Thailand’s long drift towards authoritarianism will add further strains on ties with the US, its long-term external security power. Of course, the permanent white elephant in the room in Thailand is the king’s health. With his majesty in poor health, lese majeste cases will continue to multiply as the junta’s concern grows.  His death and the subsequent succession struggle would likely send the country into chaos, even with the army in control. Such a collapse of the Thai political structure would have major repercussions for the region’s stability.

Laos is also in for a tough year ahead. Its chairing of ASEAN will do more to highlight its shortcomings than celebrate its successes. With the opening of Xayaburi Dam, Don Sahong Dam scheduled to break ground in 2016 and preliminary studies beginning on a third Mekong dam at Pak Beng, there will be renewed calls from the international community for Laos to reconsider its hydropower plans for the Mekong River. The landlocked country’s lack of finesse in dealing with the South China Sea conflict will also draw criticism, all punctuated by continuing questions about the kidnapping of Lao activist Sombath Somphone.

In Cambodia, the political impasse between the ruling Cambodia People’s Party and the Cambodia National Rescue Party will continue through the first half of 2016. Expect strongman Hun Sen to find an 11th hour solution paving the way for opposition leader Sam Rainsy to return from self-imposed exile to begin preparing for the 2017 parliamentary elections.

Barring another major fracture in Thai politics, Vietnam’s National Party Congress will mark the region’s most significant political transition in 2016. Nguyen Tan Dung is likely to be selected as Vietnamese Communist Party chairman, with Truong Tan Sang staying on as president or similar role to balance Dung’s reformist tendencies. Dung’s leadership will be key as Vietnam implements the Trans-Pacific Partnership, a painful process that will force Vietnam to learn to run and walk at the same time. Dung’s princeling son, Nguyen Thanh Nhgi, will also be elevated to the Central Committee and has a bright path ahead if his father can lead the country into a new era of high economic growth and balanced relations between the US, China and Russia.

Corruption scandals will continue to keep a stranglehold on Indonesian and Malaysian politics. In Indonesia, President Joko Widodo’s efforts to prop up a sagging economy will be hampered by an unstable cabinet and nagging questions relating to 2015’s Freeport corruption scandal. In Malaysia, Prime Minister Najib Razak will continue to face intense public scrutiny over the 1MDB scandal. It is possible that Najib will use a new national security law to muffle Malaysian civil society’s calls for his resignation.

After refreshingly open elections in 2015, 2016 will be a year of political posturing for Myanmar. As Aung San Suu Kyi and her victorious National League for Democracy take power in early 2016, the military will position itself to retain many of its past privileges. Look for Than Shwe and the other generals to create a formal post in the government for Aung San Suu Kyi, who is legally barred from the presidency, in a bid to define and contain her power as head of the NLD. Those expecting radical change from the NLD government will be disappointed – there will be little structural political reform, the NLD’s foreign policy will be largely similar to Thein Sein’s, and the ethnic reconciliation process will still muddle along. However, look for the new ruling party to permanently shut down the Myitsone hydropower project and consider suspending the Salween river’s cascade of dams in order to push along the ethnic peace process.

Like 2015, this year will see a further intensification of the Rohingya refugee crisis. However, with the world’s eyes adjusted to seeing the plight of refugees, there will be more attention paid to the issue and Aung San Suu Kyi will receive pressure from both Western and Muslim-majority countries to solve the problem of Rohingya persecution in Myanmar. Another ethnic group that came to the forefront last year, China’s Uighur population will also stay in the news in 2016. Increased crackdowns in their home Xinjiang province will force more refugees into Southeast Asia, and lead to a handful of Uighur-related terrorist attacks, both foiled and executed, in Thailand and Indonesia.

The regional economy will see decreased growth in 2016 as a result of slowing growth and structural issues in the Chinese economy. Chinese money will still flow south as the One Belt One Road strategy is rolled out and the Asian Infrastructure Investment Bank officially opens for business. Contrary to some expectations, the AIIB’s first loan recipient will not be Myanmar, but either Laos or Cambodia.

On the other side of the coin, the US-led Trans-Pacific Partnership will begin the ratification process in a number of regional countries this year. Our bets on order of approval are Singapore first, followed by Brunei, Malaysia and Vietnam. Indonesia will likely commit to the TPP by the end of the year while Thailand’s economic struggles under the military junta will push it closer to joining. Much of the US-ASEAN Sunnylands conference in February will be centered on TPP ratification, along with South China Sea issues and counter-terrorism cooperation, and will serve to solidify relations between the US and the bloc. ASEAN leaders will be looking for assurances of American commitment to the region during the next administration and they will likely receive them. Of course the future of the TPP and the US Rebalance to Asia lies in the fate of the US Presidential elections and our prediction is that America’s first woman president will keep the Rebalance at the forefront of her foreign policy – after all it was her idea.

Last but not least, the Asian Economic Community will be the same on January 1, 2017 as it was at the head of this year – a half-baked dream with little hope of success.

To all of the East by Southeast readers and their families, we wish a you happy new year and much joy and success in 2016!

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