Mekong Utility Watch

Probe Alert: World Bank considering guarantee for controversial dam in Laos

(April 1, 1997)

The World Bank is preparing to back a hydroelectric dam project in the Mekong region of southeast Asia that will decimate the fisheries, forests, economies, and water supplies of thousands of local people, and threaten endangered wildlife.

To finance the project, the World Bank is promoting a public-private partnership between itself, the companies who want to build the dam, and commercial banks. But, according to environmentalists in Thailand who have witnessed the destruction of their watersheds through World Bank-funded dams, the Nam Theun 2 hydroelectric project in the tiny country of Laos will be an environmental, social, and economic nightmare for local communities.

The developers of the 900-megawatt dam in Laos include the Australian construction company, Transfield, the French electric utility, Electricite de France, the Lao state power company, and a Thai consortium. The World Bank is working hard to make the developers feel at home in Laos by saying that it may guarantee a portion of their commercial loans for the $1.5-billion project. Commercial banks have made it clear that they won’t participate without the World Bank insuring them against the risks of the project.

For over a year, World Bank officials have been shuttling back and forth between Washington and Vientiane, the capital of Laos, advising the developers of the dam on public relations, forced resettlement, and logging of the Nam Theun watershed. In fact, the World Bank’s continued involvement in the project is the only thing keeping it alive. The main customer for the electricity, Thailand’s state utility, has said it’s no longer interested in Nam Theun 2’s power, realizing it can buy power more cheaply at home from independent power producers. The World Bank is still involved in the project, despite the Thai utility’s withdrawal, insisting it will not make a decision to finance the dam until the Lao government and the project’s private developers have completed environmental and resettle-ment studies.

Biologically Diverse Area Threatened

The Nam Theun 2 project will flood roughly 500 square kilometres of the Nakai plateau, an area international conservationists have ranked as globally significant. The plateau is home to at least 17 internationally threatened wildlife species, including the giant muntjac (barking deer), a species only recently discovered by international biologists. The plateau is unique for its pine forests, grasslands and swamps, which serve as important grazing areas for livestock and breeding grounds for fowl. The dam will wipe out one of the last habitats of the white-winged duck, of which only 250 are believed to remain in the world. With its large, shallow reservoir, Nam Theun 2 will reduce the flow of the river year round, and cut it off completely during the dry season.

Forced Resettlement of Thousands

The Lao military has already moved 50 families to make way for the project and has stepped up logging on the Nakai plateau in anticipation of the World Bank’s approval of the project. More than 5,000 people in 15 villages, including Makong and Thai Bo minority communities, are slated for eviction from their ancestral lands to make way for the reservoir and have watched their forests, once a rich source of food and medicine, disappear before their eyes. “If we had a choice we would stay and protect the forest,” said one villager who will be relocated for the dam. “We feel very sad to lose the forest. But what can we do?”

According to a survey conducted by CARE International, a non-governmental organization, villagers who have lived on the plateau for generations have been unable to find replacement land nearby that is suitable for rice cultivation.

Dam’s Power Not Needed

In 1993, Thailand’s state utility, the Electricity Generating Authority of Thailand (EGAT), signed an agreement with the government of Laos to buy power produced from Nam Theun 2. EGAT recently cancelled those plans because the World Bank was taking too long to make up its mind about the guarantee. In addition, since EGAT opened up its electricity grid to competition, it discovered it could purchase cheaper power at home (incidentally, the power is coming from cleaner alternatives like high-efficiency combined cycle gas turbines). Without a buyer for the electricity from Nam Theun 2, the developers of the project will be hard pressed to attract financing. “International banks will not be prepared to accept risk on that scale,” said one financial analyst familiar with the project.

But if the World Bank succeeds with its public-private partnership, commercial banks and private investors will not have to risk their own money –the World Bank will take on that risk by guaranteeing the investments, regardless of Nam Theun 2’s economic performance.

The World Bank’s Dam Legacy

In addition to the guarantee, the developers of the dam are counting on the World Bank to pick up the tab for compensating local communities that are adversely affected. But the World Bank routinely underestimates the environmental, social, and economic costs of its projects. Many of you may remember the Pak Mun dam in Thailand, where, in 1993, villagers occupied the construction site of that World Bank-funded dam in a desperate attempt to halt its construction. The villagers knew the dam was destroying their fisheries and their way of life but the World Bank paid little heed to the villagers. Now, four years later, the villagers’ fisheries have been wiped out and their livelihoods destroyed. EGAT, the operator of Pak Mun, has been forced to pay over $40 million in damages to people from nearly 50 villages, and demands for compensation keep growing. In Laos, the World Bank wants to protect the Nam Theun 2 developers from such costs, so it is offering interest-free loans to the government for dubious resettlement and environmental mitigation schemes.

The World Bank’s Role

Despite the project’s economic, social, and environmental problems, the World Bank believes Nam Theun 2 can be a model project. In the past, the World Bank would likely have financed the project directly, but today the World Bank is recreating itself as a guarantor of commercial loans to private developers and as a source of clean-up funds for destructive development projects. The World Bank’s executive directors will soon decide whether or not the bank can provide loan guarantees for projects like Nam Theun 2. A final decision about the project is expected in June.

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Categories: Mekong Utility Watch

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