Vientiane will have to pay massive interest on Chinese loans for an ambitious rail project.
RFA 02 Dec 2012
The proposed railway will connect China's Yunnan province to the Lao capital Vientiane.
Laos may have to pay a whopping U.S. $3 billion in interest payment for a U.S. $7 billion loan it will obtain from China to build an ambitious Laos-China high-speed railway project, according to an official of the Lao Ministry of Finance.
The interest fee of nearly half the principal sum could result in Laos having to divert its precious share of revenue from Chinese-owned gold and bauxite mining operations to repay the massive loan, the official said, speaking on condition of anonymity.
He calculated the interest payment to be around U.S. $3.33 billion, basing it on a two percent compounded interest rate to be imposed on the 30-year loan from Exim Bank of China.
At least nine legislators in one party communist state Laos have expressed opposition to the project, concerned that the Chinese loans could saddle the resource-starved country with financial problems and tighten Beijing grip on Laos, sources have said.
The Lao parliament gave the go-ahead for the estimated 420 kilometer (261 mile) rail project in October. Laos has decided to assume sole ownership of the project after a Chinese construction company pulled out of the venture.
The rail project will connect the Lao capital Vientiane to the country's Luang Namtha province along the border with China, with the network linked further to a line from Kunming, the capital of China's Yunnan province.
'Break-even point'
According to the finance ministry official, a study undertaken by China showed that it should take Laos 38 years to reach a "break-even point" for the project—a point when it can begin expecting to make money from the venture provided there are no hitches.
The official said that since Laos must pay back the entire loan with interest within 30 years, it is very likely that it will have to use proceeds from the Chinese-owned Sepone gold mine, and the Champassak bauxite mine, believed to be the largest in Asia, to make the repayments.
Laos and China are currently discussing the terms of the loan and officials say that the two sides still have considerable number of issues to be addressed.
Laos has also inked an agreement to build a U.S.$5 billion railway connecting Thailand and Vietnam. A Malaysian company, Giant Consolidated Ltd., was in early November awarded a contract to construct and operate the 220 kilometer (140 mile) railway from Savannakhet, on Laos’s southwestern border with Thailand, to the Lao Bao border gate with Vietnam in the east.
Approval for the Laos-China rail project was made after the Lao National Assembly concluded that it is essential for "national development at a time when economic integration is viewed as the future of the region," the Vientiane Times reported last month.
The Chinese construction company had pulled out of the project "because they felt it would not be profitable enough," it said. "The railway is now set to go ahead without any other direct stakeholders."
More foreign investment
Lao Deputy Prime Minister Somsavat Lengsavad had said the project would attract more foreign investment and boost economic growth.
Considering the mountainous nature of northern Laos, the railway will require 76 tunnels and 154 bridges, including two bridges across the Mekong River, according to the Vientiane Times report.
The rail project will likely use more workers from China than those from Laos, an official from the Lao Labor Ministry said.
“That’s the way it’s going to be as there’s not enough Lao labor. But details will have to be ironed out,” the official said.
He said that the exact number of workers needed for the project is not yet known, and the building contractor has not yet been selected either.
Before the project starts, according to the official, the government will have Lao workers trained to work with their Chinese counterparts.
“We already have a plan for training laborers and technicians right here in Laos,” he said.
That's just a first official number. It could become higher over time. The Chinese are real master-minded people, especailly in business. No Lao engineers, a few Lao labors but tons of Chinese engineers and labors who will come to Laos. It's so crazy! It's so insane! Laos will ruin itself to pay back the loan. I can understand that Laos may need the Sayabouly dam, but not this damned train. The government should take a pause and rethink a bit longer before committing.
all the railway around the world are heavily subsidy by government for maintenance and operating cost . keep that in mind will not just only be construction cost alone .
I would love to have 2% interest on my mortgage. Would love to see the actual number calculation in the original article but here is what I have when I put the number in from an online calculator.
Loan Repayment Calculator
This free loan calculator allows you to calculate and break down monthly repayment figures for a secured or unsecured loan. Choose the loan amount, the annual interest rate (percentage), the number of years and any initial deposits or end-of-term balloon payments.
Enter your loan repayment details...
Currency: Dollar ($) Euro (€) Pound (£) Other Loan amount: Interest rate (APR):% Months: Initial deposit? Balloon payment at end?
Calculation Results
The calculation results for the loan calculator appear below. Please note that interest is calculated on a monthly basis.
Initial deposit:
$0.00
Loan payments:
$9,314,410,711.76
Balloon payment at end:
$0.00
Total payable:
$9,314,410,711.76
360 monthly payments of:
$25,873,363.09
Total interest:
$2,314,410,711.76
Loan amount: $7,000,000,000.00 Interest Rate: 2%
Lao government should put revenue projection and other benefit out there so Lao people can see true benefit. If Laos can manage to pay $26M per month then they are ok because the technological transfer benefit is highly valueable and extremely hard to calculate. This is very high tech stuff were are taking about and building 420 km for under $10B is still pretty cheap considering the track has to go over so many rivers and through so many mountains.
You know why Lao government put Lao people in this no winning situation because some interest and profit will be kicked back to some corrupted high ranking officers who had been bribery by the Chinese to sign the stupid contract with the Chinese. Well, those corrupted government officers got their millions ( US dollars) from the Chinese . Lao people has been sold out. It is sad again that young Lao people will pay the debt for many generation to come God , wood and other natural resource will be accepted to pay back the loan by the Chinese and Vietnamese and the Russian. No free lunch ,If Lao government don't have money to pay back , the Chinese government will immigrant 5 or 10 million Chinese to settle in Laos . The Vietnamese government will do the same thing perhaps 2or 4 millions Vietnamese to immigrant legally to settle in Laos as well. Soon La people will be the minority of our country and also be second class citizen in order to get job Laotian must speak Chinese and Vietnamese. That is the fact.
noting lost only win, if you build the country. let go for it, made laos look beautiful as china.
Laos beautiful like China???????????? hahahahahahaha, you look too much at the pics of the Chinese cities' propaganda. China is one of the most crowded and polluted countries on the planet. NO, Laos should NOT become like China. China has NO respect for ecosystems nor for human right of the Tibet people.
