Mekong Utility Watch

Lao dam argument doesn’t hold water

Grainne Ryder
The Nation
March 22, 1999

Laos has pinned its economic future on the Nam Theun 2 dam, but there is no buyer for its power and no commercial lenders in sight, writes Grainne Ryder.

The World Bank is urging cash-strapped governments in Southeast Asia to take a plunge on large hydro schemes, even though there is no market for the power, and the region’s only prospective buyer, Thailand, has cheaper options for generating electricity. Advised by the World Bank, Laos has pinned the country’s economic future on a 900-megawatt hydro dam, Nam Theun 2, which has no buyer for its power and no commercial lenders in sight.

The US$1.2 billion dam is one of the largest and most environmentally destructive dams planned in Southeast Asia, requiring an investment almost equivalent to Laos’ annual GDP. If built, the dam would displace about 5,000 people and flood 470 sq km of the Nakai Plateau, an area internationally acclaimed for its unique biodiversity and endangered wildlife.

The Lao government expects Nam Theun 2 would generate $250 million annually — roughly half of which would go to the government — based on the World Bank’s assumption that Thailand would buy the dam’s output for at least 25 years. But the bank’s assumptions about Thailand’s electricity demand are no longer valid. As The Nation pointed out in 1997, conditions in Thailand’s electricity market have made it ”clearly suicidal for Laos to press ahead with Nam Theun 2”.

The Electricity Generating Authority of Thailand (Egat) has a glut of generating capacity, which is expected to last until at least 2006. And Thai consumers have far better and cheaper generating options that don’t require flooding forests and destroying communities.

Large hydro schemes, such as Nam Theun 2, are not only environmentally destructive, they are uncompetitive with cheaper gas-fired producers.

“The chief threat to large hydro in the region is … the increasing availability of low-cost natural gas,” according to International Water Power and Dam Construction, the hydro industry’s leading journal. In his article, “The gas-fired threat to Southeast Asian hydro power”, Tim Sharp presents the World Bank’s own data to show that gas is more economical than large hydro, oil, coal, and nuclear schemes.

Sharp writes that Thailand’s new private power producers prefer gas because it is cheap, abundant, easy to transport, and well-suited to generating electricity close to customers. So threatened is large hydro, concludes Sharp, that it “must either sell itself as environmentally benign or be considered as no more commercially and socially viable than nuclear energy.”

The World Bank and the Lao government know that Nam Theun 2 is uncompetitive as a power project. That is why the World Bank has championed Nam Theun 2 as a model development project, worthy of special assistance. That is why the Lao government makes political appeals to Egat to buy Nam Theun 2 power, announcing that it is the Lao government’s “sole priority” and therefore “all efforts should be concentrated on its timely implementation.”

Over the last four years, the World Bank has packaged Nam Theun 2 as a golden opportunity to save wildlife and fight poverty in Lao PDR — a dam worthy of special assistance from the World Bank. With World Bank guidance and funding, the Nam Theun 2 Electricity Company — which includes Electricity de France, Australia’s Transfield, and the Lao government — has conducted a string of public consultations and completed a $60 million plan for conservation and resettlement, including a lavish budget of more than $20,000 per resettled household.

Lao government officials are confident that the World Bank will support Nam Theun 2, if only because the bank has spent so much time and money packaging it as an ”environmentally and socially sustainable” project. As Khamleuang Sayarath, the Lao government’s project director for Nam Theun 2, recently put it, ”The bank has been with us every step of the way and we are positive it will come through for us.”

A better step, critics argue, would have the Lao government abandon Nam Theun 2 and concentrate on modernising its debt-ridden and inefficient electricity sector.

 

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