Hydroelectric Dam in Laos Generates Financial Support

MANILA, Philippines, April 4, 2005 (ENS) - Funding was assured today for a controversial project to dam a tributary of the Mekong River in Laos to provide power to Laos and Thailand. Development banks say the hydroelectric project will help lift Laos out of poverty and conserve a protected area, but environmental groups say it will displace indigenous people and ruin the area for fish, drinking water and agriculture.

The Asian Development Bank (ADB) approved funding today for the Nam Theun 2 Hydroelectric Dam Project, offering US$130 million in loans and risk guarantees. The ADB joins the World Bank in funding the dam project. The World Bank Thursday extended a US$270 million loan and risk guarantee package.

As part of its package, the ADB will provide US$20 million public sector loan to the government of the Lao People's Democratic Republic to purchase equity shares in the Nam Theun 2 Power Company Ltd, which will develop, construct, and operate a 1,070 megawatt trans-basin diversion power plant on the Nam Theun River, a tributary of the Mekong river, in central Laos.

river

The Nam Theun River in the area that will be flooded for the hydroelectric project (Photo courtesy Nam Theun 2 Power Company)
The Asian Development Bank says completion of the US$1.25 billion dam will help Laos achieve its poverty reduction and development goals.

"This project forms a critical element of the government of Lao PDR's long term development plan," says Rajat Nag, director general of ADB's Mekong Department. "The revenue it generates will help the government improve the lives of some of the poorest people in Asia."

"The Lao PDR is well positioned in terms of natural resources and physical location to develop hydroelectric energy as a major source of growth and to generate revenues to implement the government's poverty reduction and environment conservation initiatives," Nag said.

"The project will help preserve the Nakai Nam Theun-National Protected Area, one of Southeast Asia's few remaining intact tropical rainforests and wildlife habitats," said Nag.

The Nam Theun 2 Power Company Ltd is owned by a consortium including EDF International of France (35%), the Government of Lao PDR (25%), the Electricity Generating Public Company Ltd of Thailand (25%), and the Italian-Thai Development Public Company Ltd also of Thailand (15%).

"ADB's participation was actively sought to catalyze significant amounts of long-term US dollar debt from commercial lenders to support the power sectors of Thailand and Lao PDR," Robert Bestani, director general of the ADB's Private Sector Operations Department, said today.

The US$1.2 billion Nam Theun 2 is the biggest single project undertaken in Lao PDR, and is expected to provide the country with up to US$150 million in additional annual revenue. This will enable spending on basic health and education to rise by as much as 25 to 30 percent in the project’s first year of operation, the World Bank says.

World Bank President James Wolfensohn, said that Nam Theun 2 and the other initiatives were an effort to assist a country which has great needs and few options. “Lao PDR has an average income level of less than a dollar a day, and in many rural areas, it is considerably less than that,” he said.

“But to get out of this poverty trap, the country has few options to generate income," Wolfensohn said. "It relies on mining, timber and hydroelectricity. We believe that a sound approach to selling hydroelectricity, supported by improved government policies, is the best way for the country to increase the amount of money it can invest in health, education and basic infrastructure for the benefit of the poor."

children

Laotian children on the Nakai Plateau (Photo courtesy NTPC)
But the World Bank Project Information Document for the Nam Theun 2 Hydroelectric Project dated December 2004 states that, "Throughout the 25 year concession period ending in 2034, "revenues are expected to amount to around five percent of projected [Lao Government] revenues."

The International Rivers Network (IRN), an environmental group based in San Francisco opposes the project because it may bring more benefits to the Lao government elite and foreign consultants than Laos’ poor.

Aviva Imhof, IRN campaigns director says, "We fear for the lives of the tens of thousands of poor Laotian farmers who will lose land, fisheries and other resources as a result of the project."

A joint statement issued Thursday by IRN and Environmental Defense casts doubt on the ability of the Nam Theun 2 Hydroelectric project to relieve poverty in Laos and says the dam affected people will suffer, not prosper.

Nam Theun 2 will displace 6,200 indigenous people living on the Nakai Plateau and will affect another 100,000 people living downstream of the project along the Xe Bang Fai and Nam Theun who rely on these rivers for fish, drinking water and agriculture, the groups say.

"Experience from other hydropower projects in Laos shows that replacing subsistence livelihoods is extremely difficult," the environmental groups report." Independent reviews of the mitigation and compensation plans reveal that these plans are overly ambitious and have a high likelihood of failure."

On the Nakai Plateau, villagers will be given small plots of land with soil that is poorly suited to crop production as it is "heavily leached and infertile," according to project documents.

High inputs of organic and inorganic fertilizer will be required to grow anything, but the company plans to help pay for fertilizer for only five years, the environmental groups point out.

"There will not be sufficient land for grazing villagers’ livestock, particularly their prized herds of buffalo. Villagers are also supposed to derive some income from logging in a community forestry area. However, the profitability of this operation is not ensured as most of the high quality timber has already been logged," IRN and Environmental Defense warn.

village

Aerial view of the pilot village. The LTPC says that in the future reservoir waters will come close to the eastern side of the village, in the upper part of the photo, allowing access to fisheries and providing irrigation water to the fields. (Photo courtesy NTPC)
For downstream communities, the project plans to replace freshwater fisheries with aquaculture. But again, the groups rely on past experiences in Laos to warn that aquaculture is no substitute for freshwater fisheries, and that "the poorest people often lack the necessary land and capital resources" to make such as business profitable.

But World Bank President Wolfensohn says the Bank's decision to underwrite the development is based in part on his own first-hand observations.

“My colleagues and I have visited the project area and spoken to the villagers on many occasions over the past several years – in fact I was there just in February - to talk with them and hear directly from them about their hopes and concerns," Wolfensohn said. "We have also had many intensive discussions with the Lao Government and the project developers, making it clear that we all share the responsibility for this project succeeding in the years ahead.”

The Asia Development Bank acknowledged in its statement today that stakeholders have raised concerns about the Lao PDR Government's experience with projects of this size and questioned the government's ability to effectively and transparently undertake the project and said the concerns are "important and significant risks to the long-term project success."

ADB believes these risks are "manageable with substantial and careful oversight." Included in the project design are mechanisms to minimize these risks, including:

"A project of this size and impact will affect many people and many parts of an economy like that in the Lao PDR," Nag of the Asian Development Bank said today. "The government, the project developers, and the international development partners participating have rigorously researched and studied the project and its potential impacts. We are convinced that if managed properly, it has great potential to bring large and lasting benefits to the people of the Lao PDR."

The European Investment Bank has yet to weigh in with its funding decision. Construction on the project has already begun but will be speeded up once funding is complete.

The Nam Theun 2 hydroelectric plant is scheduled to start generating power by 2009.