HERE I am in what the guidebooks describe as Asia’s ‘most laid-back’ city. And certainly compared to the hectic, frenetic urban centres in other parts of Southeast Asia, Vientiane, the capital of Laos, is small (less than one million people), less prosperous and, perhaps as a result, more modest.

Scooters and motorbikes still compete for space with huge sedans and monster SUVs on the city’s clogged roads. Luxury hotels are still few and far between. The restaurants appear welcoming but not ostentatious.

Don’t be fooled, however. It may be small, landlocked and poorer than other countries in the region, but like neighbouring Myanmar, Vietnam and Cambodia, Laos is on a roll. Investments are flowing in, with everyone — China, America, Europe, Australia, India — seeking a piece of the cake.

As it prepares to host the ninth Asia-Europe Meeting (Asem) in early November, Laos is also gearing up for more international scrutiny of its policies.

And with Vientiane situated on the bend of one of the world’s largest and most legendary rivers — the Mekong — world attention is focused on how Southeast Asia’s smallest and poorest nation is going to deal with increasingly shrill world demands that it stop plans to build a hydroelectric dam on the mythical river.

Laos is not alone in having to deal with controversy and potential confrontation over the sharing of the world’s water resources. Almost all majestic rivers — the kind that songs are written about and which have become part of our global heritage — are the source of tension among neighbouring nations. Think about the Indus, the Ganges, the Amazon and the Nile.

It’s not just about sharing the world’s rivers. Water security is in fact a defining global challenge of the 21st century. The global demand for fresh water is soaring as supply becomes more uncertain. Today, one out of six people — more than a billion — do not have adequate access to safe water.

The situation is set to go from bad to worse. The United Nations forecasts that by 2025, half of the countries worldwide will face water stress or outright shortages. By 2050, as many as three out of four people around the globe could be affected by water scarcity.

As population growth and urbanisation rates rise, the stress on global water resources is intensifying. Climate change is expected to worsen the situation significantly. The stakes are high. Experts agree that reduced access to fresh water will lead to a cascading set of consequences, including impaired food production, loss of livelihood security, large-scale migration within and across borders, and increased economic and geopolitical tensions and instability. Over time, these developments will have a profound impact on global security.

The situation is especially worrying for developing nations. Achieving growth and sustainable development requires that countries hammer out rational water-development and efficient water-management policies.

Countries can either opt for competition and protectionism over water or decide to work together to ensure the equitable, efficient and sustainable management of water resources. Interestingly — and at least for the moment — Laos appears to have opted for the second track. After a spate of criticism from its neighbours over plans to build a huge, multi-billion-dollar dam on the Mekong, officials in Vientiane say work on the dam has been suspended in order to undertake further studies on the impact of the project.

Laos has made no secret of its plans to use the Mekong to expand its generating capacity and sell electricity to its neighbours. But according to reports, Foreign Minister Thongloun Sisoulith admitted recently at a regional meeting in Cambodia that the Lao government had decided to postpone the construction of the dam because “We have to do further studies”.

More recent reports say another $100m will be spent to revamp the Xayaburi dam project to take account of critics who say the scheme will have huge environmental consequences, including in neighbouring nations. Recently, the Lao government has gone out of its way to invite delegates from Cambodia, Thailand and Vietnam as well as representatives from the Mekong River Commission to tour and inspect the dam and judge for themselves if the project is ‘sustainable’.

Laos, Thailand, Vietnam and Cambodia share the lower stretches of the 4,900km Mekong. Analysts say that Laos’s changed attitude follows the recent visit of US Secretary of State Hillary Clinton, the first high-ranking US official to visit the tiny country in almost 60 years. While in Vientiane, Ms Clinton invited the Lao government to do more studies on the impact of the Xayaburi dam.

Critics say the dam could kill the Mekong ecosystem with 50 per cent of fish species threatened to disappear. It would then be an ecological and economic catastrophe for villagers living from fishing and other resources provided by the river. About 60 million people along the Mekong depend on the river and its tributaries for food, water and transportation.

Reports that the dam could be redesigned have been welcomed by Laos’ neighbours, including Vietnam, which has opposed the project. Interestingly the project, which would bring the first dam across the lower Mekong, is being led by Thai builders, power firms and banks. Thailand would take about 95 per cent of the electricity generated.

In talks with Ms Clinton, Lao prime minister Thongsing Thammavong said reassuringly that the Xayaburi power project wouldn’t proceed without approval from neighbouring countries and an international conference about the project may even be held to ease concerns. The dam’s approval may pave the way for seven others that Laos plans to build on the Mekong. But construction on the river itself won’t start “in the absence of the sign-off from our neighbours,” according to the Lao premier.

Vietnam has recommended a 10-year delay for all hydropower projects on the river over environmental concerns. The jury is still out on whether Laos will manage to ease the concerns of its neighbours and of environmentalists worldwide. But for the moment at least this tiny country is showing a sense of responsibility where water security is concerned, which could be a lesson for other nations in Asia and elsewhere.

The writer is Dawn’s correspondent in Brussels.