Grainne Ryder
October 1, 1999
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4. Setting the Rules for Hydropower Producers in Lao PDR
4.1 Strengthen property rights
Appendix: The Rules for Hydropower Producers in Norway
Since the late 1980s, environmental opposition and an electricity surplus has stopped construction of all but the smallest hydropower schemes in Norway and Sweden. The Swedish parliament has banned hydropower development on the country’s last four large free-flowing rivers. Norwegian politicians have banned new hydropower development on 70 large rivers and introduced tough new environmental regulations for hydropower producers.(37)
Nordic utilities have also faced economic challenges amidst environmental opposition. Statkraft’s last major hydrodam, completed in 1987, proved to be an economic failure, unnecessary and uncompetitive. Public financing for hydrodams is drying up. Private investors prefer gas-fired power plants that have lower capital costs and shorter lead times.(38) As a result, Nordic utilities are concentrating on upgrading and refurbishing existing power plants, to improve their efficiency, rather than building new dams.(39)
As the market for new hydropower schemes shrinks at home, Nordic utilities have shifted their investment strategy to new markets in developing countries. Within the Mekong region, Nordic hydro planners have focused on the vast untapped hydropower potential of the largest Mekong tributaries where cash-strapped governments are eager to exploit their countries’ water resources without due regard for the people who depend upon those resources for their livelihoods.
When accused of a double standard, Nordic hydropower proponents have argued that applying Nordic standards in countries such as Lao PDR would drive up the cost of hydropower development, scare off investors, and ultimately deprive governments of much-needed foreign exchange. But the experience in Norway suggests otherwise: tougher standards, effective since 1990, lead to improved investment decisions and discourage proposals for massive-scale hydrodams, which, history is revealing, are economically inefficient and environmentally destructive. Norwegians are protected in two essential ways: first, by laws that recognize the property rights of private landowners and resource “rights holders”; and second, by a regulatory framework that forces hydropower producers to be publicly accountable and financially responsible for their actions (See Appendix for more details).
Imposing standards on hydropower developers in Lao PDR, similar to what Nordic citizens have insisted upon at home, makes economic and environmental sense. In the past, the Lao government has allowed hydropower developers to take water and land away from people without their consent, to damage fisheries, and to disrupt water supplies without the users’ consent and compensation. The Theun-Hinboun Power Company has been allowed to inflate its profitability by externalizing environmental costs onto local communities who were already very poor. This is not economically efficient.
4. Setting the Rules for Hydropower Producers in Lao PDR
The Nordic double standard is perverse and should be eliminated. The Theun-Hinboun owners should not assume that foreign aid agencies will continue to subsidize their dubious investments and pay for costs the owners don’t wish to take responsibility for. Nor should the Lao government assume that its citizens will support future hydropower development along their rivers if proponents are not prepared to respect property rights, compensate fairly, and share revenues directly with local communities.
Instead of giving dam builders sweeping powers to decide what constitutes acceptable development, a better way to ensure that future hydropower development is fair and economically efficient would be to empower citizens with more rights and tools so they can distinguish between sustainable and unsustainable projects and have greater control over decisions affecting them.
4.1 Strengthen property rights
Citizens need effective laws that recognize private ownership (individual and community) and uphold property rights (i.e., customary rights to land, water, fisheries, and forests). Citizens also need equitable access to a judicial system that will uphold their property rights. If property rights were enforced, the onus would be on hydropower developers to win the approval of all potential victims rather than on potential victims to defend themselves against environmental aggressors. Only when citizens have their rights to water, land, fisheries, forests, and clean air protected by enforceable laws will hydropower developers be obliged to make fair deals for the resources they consume. Enforcing property rights would put the onus on hydropower proponents to properly internalize costs and win the approval of potential victims, or risk court action and higher costs later on. Ideally, property rights holders should have the right to stop a project (i.e., by getting an injunction from the court) before or after the project has been approved. They should also have the right to sue power producers (public or private) for damages to their health, property, resources, and livelihoods.
4.2 Empower citizens in decision making
To ensure hydropower development is sustainable, all potentially affected groups of people should have a deciding say in the hydropower development decision making process. At a minimum, hydropower proponents should respect the following rights:(40)
4.2.1 The right to fair and timely notification of a developer’s proposal
Citizens are entitled to know about a developer’s proposal to alter their resources and livelihoods, and to have adequate time to develop a response or course of action.
4.2.2 The right to information regarding a developer’s proposal
Citizens are entitled to be fully informed about proposals affecting their lives and resources. This should include, at a minimum, all engineering studies, technical feasibility studies, economic assessments, environmental assessments, social assessments, proposed terms and conditions of operation, and proposed mitigation and compensation measures.
4.2.3 The right to a public hearing process
Potential victims and other interested parties are entitled to know the real benefits, risks, and costs associated with a project and to have the opportunity to challenge the proponents’ claims and negotiate rules and conditions for a dam’s operation.
4.2.4 The right to an appeals process
This establishes citizens’ rights to hold government decision makers accountable for their actions and decisions, thus reducing the chance of political interference.
4.2.5 The right to fair compensation
Citizens are entitled to clear and enforceable procedures for negotiating fair compensation, which puts the burden of evaluating damages on the proponents and prohibits coercion, forced resettlement, and ad hoc deal making. Each affected group should be able to negotiate their own benefits package reflecting the severity of the risks faced. The most directly affected communities will insist on extensive mitigation and generous benefits. Other communities will have more modest demands. Where communities do not accept a compensation and mitigation package, this should signal to the proponents that the costs and risks of their proposal are unacceptably high and the proposal should be abandoned.(41)
4.2.6 The right to legal remedies, if damages occur
Citizens who have been adversely affected and inadequately compensated are entitled to have access to a special appeals process or the courts to obtain fair compensation or argue for revisions to the hydropower producers’ licence. Establishing this right gives proponents an incentive to work out fair compensation prior to project construction rather than risk higher compensation and legal costs later on.
4.3 Strengthen public regulation
Citizens need an independent regulatory body to license hydropower producers and enforce certain standards for transmission and distribution service, service quality, operating codes, and environmental performance. The regulator should be empowered by law to enforce a licensing procedure to ensure, for example, that licence applicants invite all potentially affected individuals and communities to voice their opinions and concerns to the regulator and the proponents. Proponents should have to demonstrate to the regulator that, for example, they have met with potentially affected individuals and communities to determine whether or not they were likely to achieve informed local consent or if there were insurmountable obstacles to the project (i.e., opposition from communities of interests, refusal from property rights holders to sell their land, bear other project risks, or negotiate compensation).
To ensure that all potential victims are able to obtain justice, the powers of the regulator and the licensing procedure itself must not override or extinguish citizens’ property rights. All rules pertaining to hydropower producers should, at a minimum, recognize that citizens retain their right to recover full damages in the event of harm to their resources, property, and livelihoods. With strong property rights, the licensing procedure is likely to proceed smoothly because citizens will know their interests are protected and that they have several avenues for protecting those interests. Once notified, they may let the proponents and the regulator know they do not want to sell their land or negotiate compensation for other losses and risks. Or they can decide to participate in the licensing procedure and negotiate a compensation package to their satisfaction.
Not all citizens will be protected by the regulatory procedures. There may be people who feel that, even after mitigation and compensation, the project imposes unacceptable risks on them. There may be people who are wrongly excluded from the decision-making process. There may also be people who voted for the project but experience unforeseen – and thus uncompensated – problems with it. Or, problems may arise, conditions in the watershed might change, or unexpected events might occur. The practice of the hydropower producer might deteriorate or the regulator might fail to enforce its own operating and environmental standards. As such, citizens must have the right to appeal to the courts for damages. Knowing that citizens are protected by law will give licence applicants the incentive they need to reach agreement with all affected citizens before proceeding to the more costly, environmental assessment stage or otherwise face the risk of costly delays, injunctions, and court-assessed damages later on.
Appendix: The Rules For Hydropower Producers in Norway
Today’s rules for hydropower producers in Norway are based on the country’s legal framework for private ownership and property rights, as well as on a system of public regulation that has been shaped by citizens’ demands for tougher environmental protection and open decision making.(42)
1 Private Ownership
Most of the country’s rivers, waterfalls, and surrounding land are privately owned, usually by a group of land owners. Where rivers run through state-owned land, or where they are partly privately owned, associations of fishermen that organize fisheries rights along the river, or other groups with an economic interest in the river (such as those using communal pasture or hunting grounds) are considered “rights holders” before the law.
Only about 30 percent of the country’s installed hydropower capacity is owned and operated by the state utility, Statkraft. The rest is owned by more than 130 hydropower producers, including local municipalities, private land owners, rural cooperatives, industries, and private companies. Hydrodams were traditionally small-scale, built and paid for by private landowners, designed to meet the needs of their village and surrounding area. From the 1950s to the 1980s, however, the government promoted expansion of large-scale hydropower schemes in order to encourage industrial development in sparsely inhabited areas. This provoked bitter environmental conflicts particularly since the 1970s.
2 Expropriation
Until the 1980s, the state routinely gave permission to hydropower developers to expropriate resources (rarely were people forced to move). Under today’s licensing procedures, a hydropower developer cannot apply to the government for permission to expropriate land and waterfall rights without first approaching private owners and rights holders directly to try and buy the rights. If a deal is negotiated to the satisfaction of both the buyer and the seller of the waterfall rights, the developer can then notify the government of its intent to submit a formal licence application. If the private owners/rights holders do not accept the developer’s proposal, the developer can apply to the ministry of petroleum and energy for permission to expropriate. The ministry reviews the developer’s proposal and makes a recommendation to cabinet, then a final decision is taken by the cabinet. The private owners/rights holders have the right to argue against the developer’s application but, in practice, the rights holders have no legal power to stop expropriation if the cabinet approves the developer’s application.
3 Private Compensation
Under Norwegian law governing private ownership, all rights holders are automatically entitled to cash compensation whenever hydropower developers are empowered to expropriate or damage their resources, property, or livelihoods. The amount of “private” compensation awarded is decided by the courts, separate from any other compensation or mitigation arrangements between the dam owners and affected parties. The courts instruct the dam owner to compensate rights holders following a complete appraisal of the changes to the river – values that are reduced or lost, such as changes in the fishery, local climate, ground water levels, crop productivity, changes in access to resources such as hunting grounds, and flooding patterns. Because it can take years before the environmental costs can be quantified and evaluated, the courts may defer their decision for five to 10 years after a hydrodam has been operating.
Landowners and rights holders have often appealed decisions on compensation, claiming that hydropower development has caused more serious damage than anticipated in the proponents’ initial environmental assessment. In the case of Statkraft’s last major hydropower project, the Alta dam, the court announced its decision on compensation 10 years after the dam’s completion in 1987, which was subsequently appealed by the fisheries rights holders, represented by the Alta Salmon Fisheries Organization.(43)
4 Public Regulation
Hydropower producers are also governed by licensing procedures and standards that explicitly recognize the public interests vested in Norwegian watercourses (such as cultural heritage, biodiversity, tourism, and recreation), which are not necessarily represented by rights holders but which may conflict with a proposed hydropower development and may warrant special mitigation and compensation.
The licensing procedures are enshrined in law so that compliance is legally enforceable. The procedures are divided into the following stages: notification and licence application; environmental impact assessment and public hearings; regulator’s evaluation and recommendations; ministry and parliamentary review; licence approval; monitoring and enforcement; and appeals process.(44)
The Norwegian water resources and energy directorate (NVE) – a regulatory body under the ministry of petroleum and energy – and the directorate for nature management (DN) under the ministry of environment are responsible for enforcing the licensing procedures and conditions. NVE has the authority to grant licences, monitor and enforce compliance with regulations and procedures, and in the event of violations, impose fines or revoke licences. DN is mainly responsible for the biological aspects of the licence agreement and has the authority to enforce certain environmental standards.
To reduce the state’s conflict of interest as an investor-owner and regulator, NVE was separated from Statkraft in 1986 – a move that has allowed NVE and DN to concentrate on becoming more effective regulators of hydropower producers. Today, NVE is responsible for setting and enforcing standards for “public” compensation and mitigation, such as minimum flow requirements, water flows, and reservoir levels. Its main task, however, is economic regulation, ensuring that electricity is produced and transmitted efficiently, at a minimum cost to Norwegian society as a whole.(45)
4.1 Notification and licence application
To ensure early public scrutiny, the developer is required to give public notification of their intent to apply for a hydropower licence. The notification must contain a description of the project plans, including alternatives, a general description of the area, and conclusions of any existing environmental reports related to the project. The notification is sent to central and local authorities and is made available at the local post office, library, or town hall. The developer is also responsible for advertising in the local newspaper when and where the plans will be available for public review. Following notification, the developers then submit an application for a licence to NVE, which must include a proposal for rules of operation for the reservoir and power plant. At this point, citizens have a minimum of three months to submit opinions on the application to NVE.
4.2 Environmental impact assessment and public hearings
Following submission of an application to NVE, the licence applicant is required to propose a program for identifying and assessing environmental impacts, for addressing environmental and community issues, and for recommending environmental mitigation measures (i.e., minimum downstream flows). The developer is required to pay for this program subject to approval by NVE and the ministry of environment. After the period for public comment on the application has lapsed, the applicant can then proceed to conduct and finance an environmental impact assessment.
During this stage, NVE and the licence applicant are obliged to each hold at least one public hearing in the project area to solicit comments on possible conflicts related to the project, particularly on special rights and uses of water and areas that would be affected by the project. During the public hearings, the licence applicant is obliged to respond to public opinions and submissions made by interested parties.
According to Knut Gakkestad, chief of NVE’s licensing division, public input is a crucial aspect of the new licensing procedures, for helping the government decide whether or not to grant a licence, for developing compensation and mitigation programs or developing lower-cost, less damaging alternatives, and for stipulating the conditions and rules for a dam’s operation.
4.3 The regulator’s evaluation and recommendations
Once the licence applicant has completed its environmental impact assessment, the regulator (NVE) checks it to make sure the developer has complied with the environmental impact assessment regulations set out by the ministry of environment. At this point, the licence applicant should have an accurate picture of the project’s social and environmental costs and can decide to proceed or abandon the proposal. If the developer decides to go ahead with its licence application, NVE calls a second public hearing involving local citizens, local organizations, environmental groups, and government institutions. Participants have the opportunity to review the environmental impact assessment and the developers’application for a licence in detail. They also have the right to propose standards for operation and environmental mitigation measures, such as minimum flow releases.
Following a second public hearing, if no further environmental impact assessment work is required, NVE conducts a final review of the environmental impact assessment report together with the opinions submitted by other agencies and the public, with comments from the applicant. Before NVE makes its final decision, its directors and staff meet with local people, landowners, environmental groups, and politicians to hear their opinions and make a final local survey. NVE is obliged to respond to all questions during this survey and, based on the results, may make changes to the proposed rules for operation based on consideration of the different user interests and values. For example, NVE may impose restrictions on the dam’s operating schedule to minimize seasonal variations in flow and to provide minimum water flows to key points in the river system. NVE might also choose alternatives, scale down the project, and even reject the licence application altogether.
4.4 Ministry and parliamentary review
NVE then makes its final recommendation – including a review of the application, environmental impact assessment conclusions, other opinions, comments from the applicant and NVE’s evaluation, conclusions and recommendations – to the ministry of petroleum and energy. If a licence is to be granted, NVE’s recommendations will include an approval of detailed construction plans and deadlines, instructions regarding cultural heritage, pollution, and environmental mitigation (i.e., constructing weirs, fish ladders, and modifications to the river channel). NVE’s recommendations to the ministry of petroleum and energy are subjected to a final hearing including various government ministries and the affected municipalities. If the project is large-scale, the ministry is obliged to prepare a report for discussion and review by parliamentary representatives.
4.5 Licence approval
The outcome of the licensing procedure is a licence agreement – a public document, that sets out the licence holder’s obligations to electricity consumers, citizens, and the environment over the life of the project, including instructions for revenue sharing, compensation, environmental mitigation, and minimum downstream flows.
4.5.1 Public compensation
In addition to private compensation decided by the courts, the licence holder must provide public compensation, which is usually stipulated in the licence agreement. In addition to income and property taxes, the regulator (NVE) can instruct the dam owners to share revenues with affected municipalities and water users associations, in the form of annual cash payments, proportional to the extent of damages. Elected representatives of the affected municipalities would then decide how the payments are spent. Also, licence holders are typically required to deliver 10 percent of their electricity output to the affected municipalities at cost. The recent restructuring of the electricity market has given municipalities the option of using the electricity locally or of selling it on the electricity market.
4.5.2 Environmental mitigation
DN is responsible for setting out detailed standards for environmental mitigation. For example, DN may ask local authorities to suggest appropriate actions or measures, such as habitat improvements, fish passage facilities, fish hatching and stocking, and post-construction investigations, to be paid for by the licence holder. Where fisheries have been damaged, the licence holder is obliged to involve local communities and fishing associations in efforts to restore fisheries habitat using funds provided by the licence holder and the ministry of environment.
4.5.3 Minimum downstream flow
The failure of dam operators to release adequate and timely supplies of water to downstream areas has been a major source of conflict between dam operators and downstream water users in Norway. Downstream riverbeds were often dried out for much of the year due to diversion of water out of the river for hydropower production, damaging plants, wildlife, fish, and the livelihoods of other water users. Under today’s regulations, resource users and citizens have the right to propose a minimum flow standard during a project’s first public hearing, which may differ from the developer’s proposal. NVE makes the final decision on which minimum flow standard will be stipulated in the licence agreement.
4.6 Monitoring and enforcement
NVE is responsible for monitoring the project’s effects on the river system, in terms of water quantity and quality, while the DN is responsible for monitoring biological conditions. If the project causes more damage than originally estimated, NVE has the authority to revise the licence holder’s obligations to affected residents and municipalities. If a licence holder fails to uphold or violates the terms and conditions of the licence agreement, NVE has the authority to revoke the licence.
4.7 The appeals process
Citizens are entitled to an appeals process because not all people will be adequately protected or satisfied by the regulatory procedures and standards. There may be people who feel that, even after mitigation and compensation, the project imposes unacceptable risks on them. There may be people who are wrongly excluded from the decision-making process. There may also be people who voted for the project but experience unforeseen – and thus uncompensated – problems with it. Or, problems may arise, conditions in the watershed might change, or unexpected events might occur. The practice of the hydropower producer might deteriorate or the regulator might fail to enforce its own operating and environmental standards.
Citizens and the ministry of environment have the right to report licence violations directly to the courts, and if the licence holder is found guilty of violating its licence terms, the court can suspend its licence and order the licence holder to pay fines to the affected parties.
Hydropower producers have the right to appeal decisions made by the government regulators if, for example, the dam operator wants to change its regulation of flows or minimum flow standard. Because effects of hydrodams are often uncertain or change over time, related terms and conditions in the licence agreement are kept provisional, subject to change over time as follow-up investigations are conducted.
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