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.
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
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."
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]
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.
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
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
Multidonor technical assistance to help the government
improve its overall public expenditure management program
Oversight through audits and public expenditure surveys
to monitor the utilization and effectiveness of the
government revenue from the project for agreed priority
Technical review by the international dam safety review
Long-term funding and technical assistance for conservation
programs as part of the overall project cost
Commitments from the Nam Theun 2 Power Company to providing
funding and to share management and operational responsibility
for the outcomes of environmental and social mitigation
and compensation programs, including resettlement on
the plateau and in the downstream areas
Delineation of the roles, responsibilities, and authorities
of the central, provincial, and district government
agencies of the government with regard to project activities
A program of transparent monitoring and evaluation
of project performance including the publication of
project performance evaluations, progress reports, and
"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
The Nam Theun 2 hydroelectric plant is scheduled to
start generating power by 2009.
Copyright Environment News Service (ENS) 2005. All