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.
The Asian Development Bank says completion of the US$1.25 billion
dam will help Laos achieve its poverty reduction and development
"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,"
"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
"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,
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’
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 profitable.
But World Bank President Wolfensohn says the Bank's decision to
underwrite the development is based in part on his own first-hand
“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
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:
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 programs,
Technical review by the international dam safety review panel
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 and programs
A program of transparent monitoring and evaluation of project performance
including the publication of project performance evaluations, progress
reports, and monitoring data.
"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.
Copyright Environment News Service (ENS) 2005. All Rights Reserved.