The economic growth in East and Southeast Asia is accompanied by the development of a hunger that spread throughout all nation-states in the region: A hunger for energy. Between 2000 and 2020, the energy demand in Southeast Asia grew on average 3,0% annually, featuring a growing percentage of renewable energy sources (IRENA, 2023 p. 8). Answering this demand, the Lao PDR aims to become “the battery of Asia”, by supplying electricity to its neighbouring countries (Jumlongnark, 2024 p. 70), a strategy that was presented in 2006. The country uses its favourable geographic position with mountains and rivers for projects like the Xayaburi Dam, a hydropower project in the Mekong River with construction beginning in 2012. Only a few years earlier, the Southeast Asian economies faced a major challenge in the global financial crisis (GFC) in 2007/2008. Its economic and political impacts resulted in a change in economic priorities for Laos. The Xayaburi Dam is an excellent post- Global Financial Crisis case that simultaneously embodies the result and the cause of economic adaptation under the umbrella of sustainable growth in Southeast Asia. Therefore, this essay poses the question How did the allocation of energy change Laos’ institutions and economic priorities in the post-2008 era in the case of the Xayaburi Dam?

The first section will briefly outline the post-GFC economic priorities in Laos and link them to the case of the Xayaburi Dam. Subsequently, the Laotian institutional changes will be analyzed in regard to the allocation of energy to conclude with an illumination of the challenges and advantages of economic growth through hydropower in the case of the dam.

As one can see in figure I, Foreign Direct Investment (FDI) in Laos surged after the announcement of the “battery of Asia” strategy and, because of the GFC (Kyophilavong, 2012, p. 13), plummeted in the years after. Therefore, the post-GFC economic climate in Laos was characterized by measures to attract quality FDI (OECD, 2017, p. 53) by pushing the “battery of Asia” strategy. As one can see, the number of FDIs rose again before constructing the Xayaburi Dam. 

The GFC also led to decreasing investments and demand from the Western countries, as seen in Figure II, and Laos’ economic priorities shifted from more inward-looking development policies to export-oriented strategies in the mining and hydropower sector to outbalance the loss of this revenue (OECD, 2017 p. 60). Especially Thailand and Cambodia played a crucial role in becoming the biggest export targets for energy (Electricity in Laos|the Observatory of Economic Complexity, n.d.). This orientation came accompanied by increasing regional integration with Laos’ surrounding neighbours, e.g., through developing the ASEAN power grid. Another development that gained momentum in Southeast Asia was setting national goals for renewable energies and prioritizing sustainability under the rapid growth of populations and energy demands (Mamat et al. 2019). 

To sum it up, the Xayaburi Dam is a case that fits the post-GFC economic priorities by attracting FDI in the hydroenergy sector, generating electricity for export, fostering regionalism and fitting the Southeast Asian agenda of sustainable growth.

The Xayaburi Dam is related to various changes on the four levels of institutions. It is the first hydropower project in the lower Mekong and therefore serves as a compass for Laos and other Southeast Asian nations in managing hydro-economic affairs. On the market level, the Xayaburi Dam exemplifies a complexification of the economic networks in a globalizing market involving Laos because of emerging new donor countries and actors. Investors from the Global North are no longer dominant and have been joined by the FDI of emerging Mekong economies of China, Vietnam, Thailand and Malaysia (Hesengerth, 2015 p. 914). Water has transformed into a strategic resource and the generated electricity from the dams has turned into a commodity of trade and a tool to form regional market transactions (Chattranond, 2018, p. 26). The institution that plays the biggest role on the governance level, is the Mekong River Commission (MRC). As an intergovernmental organization, it is the only transboundary water governance framework in the Lower Mekong (LM) region. Its responsibilities are information sharing and capacity-building in water and environmental affairs (ibid., p. 99). However, the building and coordinating of hydropower projects had equipped the LM governments with more capital and capacity to conduct their own assessments and policy work. Therefore, the division of the MRC that is responsible for governance-related work, went from ten staff members to two in two years (ibid., p. 106), after it had implemented studies, policies and technical tools concerning dam projects in the region. The MRC holds no regulatory power and through the increased capacity of LM governments from hydroenergy projects, the intergovernmental work of the MRC became more complicated (ibid. p. 107). New actors and increasing complexity require adapted formal institutions for effective management. In 2012, the same year as the construction of the Xayaburi Dam began, the organizational structures of Laos’ energy and electricity industry were fundamentally reformed, as seen in Figure III. 

The state-owned electricity enterprise Electricité du Laos (responsible for electricity transmission and distribution, and energy exports) separated from the company EdL-Gen – Laos’ first publicly-held enterprise (Ministry of Energy and Mines, 2012, p. 21). EdL-Gen is responsible for power generation. Also, the Department of Energy was reorganized and diversified. The result is an improved bureaucratic infrastructure that facilitates government policies directed towards private investors since public resources to fund the hydroenergy sector are too limited, and hydroenergy policies are being increasingly oriented to the regional market instead of only following domestic demand (Chattranond, 2018, p. 123). At the informal level, the dam changed the perception of governments in the LM region towards believing that large-scale hydroenergy developments in the Mekong lead to improved preconditions for economic development (Grumbine, 2012, p. 94). This has led to a change in economic and political values towards more water nationalism, “the belief in the state’s ability to control and confirm national sovereignty over water“ (Chattranond, 2018, p. 25). Dams have become a source of national pride, depicted in the national emblem of Laos, videos of the national anthem, banknotes, and a frequent destination of foreign state visits (ibid. p. 114).

Dams are a vital factor in Laos’s economic development because they enhance the country’s national creditworthiness by functioning as collateral. Furthermore, they diversify and intensify regional relations, and they increase the willingness of private financiers to provide capital (Grumbine et al., 2012, p. 94). However, since the hydroenergy sector is so heavily dependent on foreign investments, the commitment of these private investors to the environmental and social consequences of the Xayaburi Dam is limited (ibid.). This circumstance can cause problems that Laos has to be prepared to manage since the impacts of large-scale hydro energy projects on waterbeds, water-connected ecosystems and the displacement of people are extensive (Chattranond, 2018, p. 54). The Mekong is classified as the second most biodiverse river in the world, with 65 million people living in mostly rural areas, who are dependent on fishery and rice to maintain food security (Alastair, 2015, p. 144). Also, despite hydropower projects portraying an opportunity for stronger regional connections in the LM, it holds great potential for conflicts. Alastair (2015, pp. 145) points out that the dam and the involved bureaucratic institutions have failed to reconcile the competing interests of the states impacted by the dam, and that the consultation process of the MRC should be improved to lower the level of regional disagreement on dams. The portrayed challenges demonstrate “[the allocation of] water–energy […] [as something that] describes competition between different goods: energy production versus environmental and social protection. This materializes as competition between bureaucracies in charge of producing these goods: the environment and energy bureaucracies (Hesengerth, 2018, p. 912). 

The allocation of energy as a scarce resource in growing demand has presented Laos with promising opportunities for economic development and regional energy networking. After the GFC, its economic priorities have shifted even more concentratedly to using natural resources as a foundation for economic growth and changing institutions with the same motivation. The process of hydroenergy adaptation resulted in various changes to institutions in Laos. The country became more incorporated into the global and regional markets with increasingly diversified actors. The Xayaburi Dam also changed the manner transboundary water governance was conducted. The field of water governance requires further development and adaptation for more effective challenge-tackling endeavors, visible in the case of transnational disagreements and the clashes of different bureaucracies. The dam also caused changes in the formal structures of the Laotian government by influencing bureaucratic adaptation to cater to the economic priorities of generating FDI attractiveness and regional connectivity. Finally, the increase in hydropower energy and the resulting economic success of the finished projects have led to an increase and intensification in values of water nationalism in Laos, as well as other LM governments, increasing the potential risk for transnational tensions.

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