Laos’ government has longstanding plans to turn the landlocked country of 8 million people into “the battery of Southeast Asia” by exporting electricity generated by hydropower dams along the Mekong River. The plans are predicated on rising demand for renewable energy as the region shifts away from fossil fuels, with the logic being that future revenue will grow the country’s economy and ensure the legitimacy of the ruling Lao People’s Revolutionary Party, or LPRP, which has governed the one-party state since 1975.
To achieve this vision, the LPRP has built dozens of dams on smaller rivers and tributaries of the Mekong over the past 20 years, with two now operational on the main channel of the river. The Xayaburi Dam in the north, which opened in late 2019 at a cost of $3.8 billion, exports power to Thailand, while the Don Sahong Dam in the far south, which started operations in early 2020 after costing $720 million, supplies Cambodia. Another three dams—each costing more than $1 billion—are under construction along the Mekong’s mainstream and will start generating electricity by 2033.
Despite this progress, Laos faces serious obstacles that have come to a head in recent years, including a mounting debt crisis as the country struggles to repay loans used to pay for the dams’ construction. Amid broader economic headwinds and with decades to go until hydropower exports reach their full revenue potential, Laos’ development plans are at a critical juncture.
Most dam projects in Laos have been financed via high-interest loans from China and Thailand, with some additional credit from other sources, including Vietnam, Malaysia and multilateral development banks. Building so many dams has serious social and environmental side effects, including reduced fish stocks and declining water levels, placing subsistence livelihoods downstream at risk. But the Laotian government has been willing to put aside those concerns in its pursuit of rapid economic growth.
Currently, electricity accounts for 15 percent of Laos’ exports, having generated $980 million in 2024. The potential is vast, as projected revenue could surpass $12 billion by 2055. But for now, the money from hydropower dams is a drop in the bucket compared to the country’s debt burden, which reached $13.8 billion in 2023—the same as its GDP. Of that, 75 percent—or $10.5 billion—is owed to foreign countries, of which China accounts for around half. Though the details are opaque, some of the larger loans are known to have been obtained from the Export-Import Bank of China and the China Development Bank.
Laos struggled to pay its creditors after the economic hit from the COVID-19 pandemic: The Laotian kip plummeted in value, and foreign currency reserves dwindled. Inflation soared to 31 percent, and while it has since eased, elevated costs remain a burden on households. Laos’ government is now reliant on sizeable annual debt deferrals from Beijing to stay afloat, as it would be politically untenable for the country to default on its loans: For China, this would mean exposing the flaws in its financing of high-profile infrastructure projects overseas, while for Laos, it would signal a failure of the LPRP’s growth strategy.
A core problem in Laos’ infrastructure-centric development plan is the long time-lag between dam construction and the realization of significant electricity revenues. Laotian state-owned firms have only a minority stake in most of the country’s large dams, with the bulk of construction work undertaken by Chinese or Thai companies under a build-operate-transfer model. Following completion, the foreign firms run the hydropower plants for 20-25 year concession periods before they are turned over to Laotian firms. Until then, Laos only receives a limited portion of the revenues generated.
During the concession periods, purchase agreements are often already in place to export electricity abroad or in some cases to direct it to the national grid through the state-backed utility, Electricite du Laos, or EDL. Until these deals expire, Vientiane has little room to shift course. There is also concern about overcapacity, as Laos already has 76 hydropower dams in operation, with another 43 planned.
With potentially decades to go until hydropower dams reach their revenue-generating potential, infrastructure can no longer be the sole driver of Laos’ economy.
A more immediate concern is that despite electricity production increasing, Laos’ national grid continues to experience annual shortages during the dry season from November to April, when domestic demand is greatest. This has led to Laos routinely having to re-import electricity from Thailand at higher cost, particularly in areas where settlements lack connections to the national grid. In the short term, investment in grid infrastructure and higher-voltage transmission lines is needed to resolve the issue—but this is money that the cash-strapped EDL likely does not have.
In response, the Laotian government has pledged to finish projects that are crucial for national power supply—citing the Nam Ngum 3 dam, which is 80 percent complete and set to open by 2027—while diversifying its mix of renewables to smooth out the fluctuations associated with hydropower dams. Twelve major solar projects are under construction, with a 50-megawatt plant having opened in Khammouane province, in central Laos, earlier this year. The government is also backing small-scale solar projects of under 5 megawatts each to address local shortages.
In the meantime, public anger is rising over household energy bills, which have doubled since the start of 2025. The government has pledged to renegotiate purchase deals between EDL and hydropower companies, after EDL said higher bills were needed to fund upgrades to the grid in remote areas. EDL itself has debt of around $5.4 billion and was forced in 2020 to cede majority control to a Chinese firm, China Southern Power Grid, which secured sizeable influence over Laos’ energy sector through a 25-year concession agreement to manage transmission lines.
The China-backed deal with EDL has raised questions over whether Laos had been caught in a “debt trap” engineered by Beijing. Yet the narrative that China forcibly trapped its neighbor is oversimplified. Laos’ plan to become Southeast Asia’s “battery” pre-dates the launch of China’s Belt and Road infrastructure financing initiative. And Laos had already accepted loans for its early dam projects from Western-backed multilateral banks in the early 2000s. For Laos’ leaders, China’s outreach aligned with their growth plans.
Whether Laos remains beholden to China will depend as much on its neighbors in the Association of Southeast Asian Nations, especially when concession agreements on Chinese-built dams expire. The 10-member regional bloc has long envisioned developing an “ASEAN Power Grid”—an idea formulated in the late-1990s—with Laos playing a central role as a hub for electricity exports. Work has already been undertaken to connect Laos through Thailand and Malaysia to Singapore, to provide a reliable power source as the region shifts toward renewables. While 80 percent of Laos’ electricity is currently sold to Thailand and Vietnam, it began selling to Singapore in 2022, and work to upgrade this link is ongoing.
Vietnam in particular is well placed to become a bigger buyer of Laotian electricity, given its growing population of 101 million and the need to import more energy to meet the needs of its manufacturing industries. Hanoi may see both economic and strategic rationales for importing more power from its neighboring ally: In addition to boosting Vietnam’s own energy security, it would provide essential revenue to Laos that would ease its economic reliance on China, which Vietnam regards warily.
More broadly, Laos is betting on future demand across the region, with regional energy demand set to triple by 2050. Currently, 83 percent of Southeast Asia’s energy needs are met by coal, oil and gas, but ASEAN states are committed to transitioning toward cleaner sources.
Moreover, for the LPRP, securing future income from hydropower is essential not only to the state’s economic viability but also its legitimacy to govern. As memories of the communist victory by Pathet Lao forces in 1975 fade and a new generation of leaders emerges with few ties to the revolutionary struggle of the past, the LPRP is seeking to forge a new national narrative centered on state-led economic development.
Yet with potentially decades before hydropower dams reach their revenue-generating potential, other sectors will have to drive Laos’ economy in the meantime. While tourism remains a steady source of income, Laos must further develop local industries and boost its exports of apparel and agricultural products, as well as electrical and other manufactured goods, as part of broader efforts to diversify its economy.
Its neighbors to the east and west—Vietnam and Thailand, both sizeable economies in their own right—are likely to be the key markets, and plans for new rail and road connections with both countries also offer promise. While building these economic partnerships will take time, they are especially important given that the United States has retained its highest tariff rate of 40% on Laos, with the government in Vientiane so far failing to secure any significant reduction from Washington—a cause not helped by its close political and strategic relationship with China.
A single-minded focus on hydropower dams has led Laos’ leaders into a crisis of their own making. Now, they must find a way to navigate the economic fallout that risks unraveling their grand plan.
Michael Hart is a writer and researcher covering conflict and postwar issues in Southeast Asia. He has researched for the International Institute for Strategic Studies (IISS) and Action on Armed Violence (AOAV), and has contributed to publications including World Politics Review, The Diplomat, and Asia Sentinel. He is Editorial and Social Media Coordinator at The Pacific Review journal, based at the University of Warwick.
https://www.yahoo.com/news/articles/laos-bet-big-china-backed-133632534.html
