By Focus | 2025-03-10

A legal battle over hydropower payments is a stark reminder of the economic burdens that have accompanied China's Belt and Road Initiative (BRI) in Laos.

Nam Ou Power, a subsidiary of Power Construction Corp. of China (PowerChina), has filed a case in Singapore against Electricite du Laos (EdL), Reuters reported March 5.

According to documents submitted in February to the Singapore International Arbitration Center, EdL owes PowerChina $486.3 million in overdue payments, plus an estimated $65.8 million in interest.

The claims are associated with monthly invoices made between January 2020 and December 2024.

The claim also includes an additional $3 million in damages because of payments made in the Lao kip currency rather than the agreed-upon 85% in US dollars.

The total is equivalent to about 4% of Laos' gross domestic product.

The dispute stems from the $2.7 billion Nam Ou River Cascade Hydropower project, one of the largest energy ventures in Laos.

This project consists of seven hydropower stations along a 350km stretch of the Nam Ou River and contributes 1.27GW to Laos' total hydropower capacity, or approximately 7% of the country's total capacity of 18GW.

The power plants have been operational since 2021, but Laos has struggled to meet its financial obligations.

Laos heavily invested in 80 hydropower dams on the Mekong River and its tributaries, as part of its ambition to become the "battery of Southeast Asia," exporting power to neighboring countries.

Unsustainable debt

Many of these projects, including Nam Ou, were financed by Chinese loans under the BRI.

However, these initiatives have left Laos saddled with unsustainable debt instead of delivering the expected economic benefits.

China holds roughly 76% of Laos' debt. Beyond hydropower, China has also financed Laos' infrastructure development, including a high-speed railroad linking the country to China.

These projects have exacerbated Laos' financial crisis, with total public debts amounting to nearly $14 billion, equivalent to 118.3% of its GDP this year, according to International Monetary Fund estimates.

About $10.5 billion of this is owed to China.

The financial strain has been compounded by hyperinflation and the sharp depreciation of the Lao kip, which has lost nearly three-fifths of its value over the past five years. In 2025, Laos' inflation rate is projected to be 23.7%.

As the debt burden escalated, Laos ceded control over significant parts of its energy infrastructure to China.

In 2020, EdL transferred majority control of its transmission division to China Southern Power Grid as part of a debt restructuring agreement. This move effectively placed Laos' national power grid under Chinese management, raising concerns about sovereignty and economic dependence.

The lawsuit against EdL marks the first instance of international arbitration by a Chinese state-run entity against a Lao government-controlled company.

While Laos has not yet publicly responded to the arbitration filing, the case underscores the financial vulnerability of the landlocked nation and the risks associated with China's extensive investments in its infrastructure.