Mekong Utility Watch

Laos hopes World Bank will bless dam

Asia Times
June 14, 1997

Lao officials fear yet more delays in its Nam Theun 2 dam project in what they say is a move by the World Bank to develop a greener image for itself.

Government authorities in Laos were hoping last week’s national public workshop on the dam – the third such meeting – would finally be enough to clinch the political risk guarantee it needs from the World Bank. ┬áThe bank, however, in keeping with its tough new line on the environment, is expected to ask Lao authorities for yet more studies.

Billed by its promoters as a savior for Laos’ economy and slammed by critics as an ecological disaster, the US$1.2 billion hydroelectric power project, already more than two years behind schedule, seems to be a dam doomed to eternal delay.

The dam reservoir is expected to flood more than 450 square kilometers in the Nakai Plateau in the highlands near Laos’ border with Vietnam, which environmentalists have said is an irreplaceable ecological habitat.

Lao government officials, however, have said the World Bank is simply looking for cheap publicity. As a small nation with little influence, the officials have said Laos is an easy target for the bank, which is trying to develop a more eco-friendly image after years of criticism for promoting big dams all over the world.

“They can’t do such arm twisting to bigger countries like China and India which are working on much larger and ecologically more damaging hydropower projects,” said a senior Lao minister negotiating with the World Bank. He said the Nam Theun 2 dam was essential for the Lao economy.

Also playing the environment card, he said if the project fell through the government might be forced to turn to logging to earn foreign exchange.

The project’s developers and the Lao government, which signed an agreement with Thailand to sell electricity generated by the dam, hope to earn up to US$250 million a year over 25 years after the project’s completion, now scheduled for the year 2002. Commercial bankers are hesitant, however, to lend money in a small, socialist country for a long-term project with only one customer – Thailand.

The World Bank, whose guarantees against political risk are crucial confidence-builders for lenders, has withheld its approval and demanded a series of studies on the social, economic and environmental impact of the project.

Environmental groups in the region are skeptical, however, about the sincerity of the bank’s surprisingly hard-line approach on protecting the environment.

“The World Bank’s record of supporting controversial dam projects all over the world is not inspiring,” said a Bangkok-based environmental activist. He predicted that the bank, after making sufficient public noise, would finally approve the project. The studies about the dam commissioned by the Lao government and carried out by so-called independent consultants, he said, were likely to only endorse mainstream concepts about the benefits of big dams and use technical jargon to justify the project.

A study on alternatives to the Nam Theun 2 project, for example, tackled such questions as whether the project could viably sell electricity to Thailand, how it ranked among other potential power export schemes from Laos and whether the configuration of the project was the best in terms of its technical, environmental and social risks. Although a draft of the study, conducted jointly by consultancies from Germany and New Zealand, does not reach any major conclusions, it allays fears about the economic viability of the project.

Thailand’s demand for power, growing at more than 12 percent a year, is more than enough to accommodate the dam’s power-generating capacity, according to the study.

Power exports to Thailand currently represent 25 percent of Laos’ total exports and Lao authorities have so far approved 24 hydropower projects which together would have a total capacity of 6,59 megawatts.

Preliminary findings of a study on economic impact of the project are even more upbeat. According to the study, “the project would yield substantial net benefits to Laos, while at the same time providing the resources that would be required over the medium term to mitigate the project’s social and environmental impact”.

The Nam Theun 2 dam is the largest project currently under consideration in Laos, representing a total investment about >three-quarters as large as the country’s total annual gross domestic product.

The study of the project’s economic impact does, however, raise questions about the competence of various Lao state bodies to use the revenue from the project effectively in attempts to alleviate poverty and to relocated the nearly 1,000 families that will be displaced by the dam. Weak government institutions, lack of trained personnel and potential conflicts of interest between various state bodies, it said, could hamper plans to mitigate the social and environmental consequences of the dam.

Of greatest worry to many environmental groups is the fate of a 3,500sq km area around the dam site, along the Laos-Vietnam border, where there are unique ecological habitats. While proponents of the dam argue that revenue from the project would help protect the area by providing an alternative to logging, environmentalists contend that development around the area will only increase chances of logging. While construction of the dam has yet to begin, logging of the Nakai Plateau is already in full swing.

A draft of the study on the dam’s impact on the Nakai Plateau suggests that the entire area be declared a World Heritage Site by the United Nations. The study, which recommends a five-year plan costing US$13.5 million to protect the area, also advises against construction of new roads or of commercial logging in the area.

As a means of providing alternative livelihoods to people living within the ecologically sensitive zone, the study recommends a range of village handicraft industries.

Categories: Mekong Utility Watch

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