June 14, 1998
The Australian construction firm, Transfield, is confronting a dilemma familiar to many companies operating in Asia: should it weather the current economic crisis, or get out. The “out” option must be looking highly preferable for Transfield as it views the massive dam project it is involved with in central Laos. The $1.5 billion Nam Theun 2, a 680MW hydropower scheme, backed by the World Bank, was to be a pot of gold for the companies involved and the Government of Lao PDR. But after nine years planning the rainbow has faded and the pot is looking very empty.
Transfield has reportedly spent $30 million on the project, which is being developed as a Build-Own-Operate-Transfer scheme to sell power to Thailand. But doubts about the project’s viability emerged prior to the Thai economic meltdown. The developers predicted annual revenue of $176 million was shown to be considerably over-estimated by the consultants Louis Berger International. Their Economic Impact Study brought the annual returns down to $52 million.
Despite these revised predictions the former head of Transfield operations in Laos, David Iverach, continued to talk up the Nam Theun 2 project around Vientiane. However, when the Thai economic meltdown hit in September last year the positive facade was suddenly much harder to maintain. The arguments shifted from an optimistic forecast to the hard reality of a contracting Thai economy that clearly would not require the enormous amounts of extra power that Transfield and many other corporations argued would deliver the pot of gold for them and the Government of Laos.
When the World Bank’s Director for Laos, Mr Ngozi Okonjo-Iweala, announced a 11-12 percent reduction in demand for power in Thailand many consultants and company operatives associated with the dam building industry started to look for a way out. Transfield showed the first signs of scaling back their dam building operations in south east Asia at the end of last year when they stepped down as the head of the consortium that hopes to build the Nam Theun 2 dam.
Jean-Christophe Delvallet from Electricite de France is now in Vientiane as head of Nam Theun Engineering Corporation, NTEC, the consortium for this project, a position previously occupied by Transfield’s David Iverach.
This change in personnel appears to have restored some confidence in NTEC at this testing time as Electricite de France holds 30% equity in the project. But for Transfield, which holds 10% equity, the uncertainty continues. Rumours abound in Vientiane business circles that Transfield have been looking for a buyer so that they could withdraw totally from this hydroproject. But there is an obvious problem: who wants to have financial links with large scale infrastructure projects in Asia at the moment?
Nam Theun 2 has been kept alive for so many years by consistent support from the World Bank. However, a recent attempt by Mr Okonjo-Iweala to allay fears about Nam Theun 2’s future, could have been the kiss of death for Transfield’s plans to sell out. The Bank’s Lao Director has stated that “the most likely risk in Thailand’s current circumstances is not that the dam project will be scrapped altogether but that there will be a delay of as much as two years before it is launched”. This undermined Transfield’s attempts to talk up its project as now all potential buyers have been made very much aware that they will have a long wait for any returns on this project.
If some of the companies feel hard done by they might spare a thought for Laos. This south east Asian country, categorised by the World Bank as one of the poorest nations in the world, was presented with the lure of billions of dollars in foreign currency earnings from the sale of hydropower from dozens of dams. It is now generally accepted that Laos will not be inundated with hydro dollars courtesy of Nam Theun 2. Ironically the current economic uncertainty in Thailand has probably saved the Government of Laos from being lumbered with a massive debt burden.
If this project had received the go-ahead from the World Bank companies such as Transfield would have been shielded from any loss by guarantees provided by the Bank, while leaving the Government of Laos ultimately responsible if the dam collapsed financially.
But for the moment it is Transfield that it is out of pocket; and while the Government of Laos has forked out millions of dollars in consultants fees it has been, at least temporarily, saved from another multi-million dollar debt.
Lee Rhiannon is a researcher with AID/WATCH. She has recently returned from south east Asia.
Categories: Mekong Utility Watch