October 7, 1999
Even if the Electricity Generating Authority of Thailand (Egat) needed the power, the massive Nam Theun 2 hydro dam can’t compete with Thailand’s new private power producers, writes PI’s Grainne Ryder.
Even if the Electricity Generating Authority of Thailand (Egat) needed the power, the massive Nam Theun 2 hydro dam can’t compete with Thailand’s new private power producers. The dam developers’ only hope is that Egat will defy its customers and the nation’s taxpayers, and take one last monopoly splurge on Nam Theun 2 before Thailand’s electricity market is opened for competition.
From an economic perspective, the arguments against Egat buying Nam Theun 2 power are compelling.
A Nam Theun 2 power purchase deal would impose financial risk on Thai consumers and taxpayers, locking the utility into a fixed price, 25-year contract, regardless of electricity demand. If Egat can’t sell the power or if its customers opt to generate their own power, or buy from cheaper local producers, Egat would still have to pay for the Nam Theun 2 power.
Ultimately, Egat’s ratepayers and the nation’s taxpayers would be on the hook for billions of dollars worth of electricity.
Egat has no customers or market for Nam Theun 2 power. By its own admission, Thailand’s central utility has a huge glut of generating capacity, more than enough to meet the country’s electricity demand for at least the next five years. In Egat’s worst-case scenario, as much as half the country’s generating capacity could be idle by 2001. In a study commissioned by Thailand’s National Energy Policy Office (Nepo), PricewaterhouseCoopers found that about 60 per cent of Egat’s investments planned to 2006 may be unnecessary — and that doesn’t include 681 MW from Nam Theun 2.
Egat cannot afford another long-term power purchase obligation. The utility can barely afford to pay its domestic suppliers and is having difficulty servicing its debts. According to Nepo, international financiers fear that Egat will be unable to honour its existing power purchase agreements. To improve the utility’s financial performance, the government and its international creditors have ordered Egat to slash its investment budget, delay a number of planned private power purchases, and sell its more profitable power plants, beginning with the unfinished Ratchaburi plant. Adding Nam Theun 2 to Egat’s liabilities would be economic madness.
Who knows how much power, and from what source, Thai consumers will want five, 10 or 20 years from now? Egat has been wrong about electricity demand for the last four years. Its Ratchaburi plant was a huge investment mistake and the utility is under public pressure to scrap its planned power purchases from coal-fired producers. Advances in generating technology now make it economical to generate power on a small-scale. Egat has already licensed 33 small power producers (5 to 100 MW) and another 25 schemes are expected to come on-line within the next few years. If these schemes prove successful, more and more consumers will want their electricity generated locally instead of relying on Egat. Without Egat to force consumers to buy Nam Theun 2 power, in other words, the Nam Theun 2 dam may never have a buyer or market.
As it is, the price of Nam Theun 2 power is both too high and too low. Too low, because no negotiated price will reflect the project’s real costs to Laos in terms of lost resources and livelihoods. Too high, because Thai consumers have far better and cheaper generating options available at home. According to World Bank consultants, Louis Berger International, the dam’s developers need at least 5.7 US cents per kilowatt-hour to attract commercial investors. Egat has offered to pay 4.178 US cents per kilowatt-hour, starting in 2006, but the dam’s developers rejected this, saying the price was too low to make the scheme economically viable.
Meanwhile in Thailand, Egat pays small power producers an average price of 4.28 US cents (Bt1.59) per kilowatt-hour, and the country’s first Independent Power Producer (a 700-MW combined cycle plant owned by Independent Power Thailand) 3.18 US cents (Bt1.18) per kilowatt-hour.
Clearly, Nam Theun 2 is no bargain for Thai consumers. But then the only prospective buyer in the region, Egat, is a public monopoly, accustomed to making decisions based more on politics and central planning than consumer demand. The National Energy Policy Office, recognising this problem, wants new rules that would put consumers’ needs before power producers. If Egat agrees to buy Nam Theun 2 power before that happens, consumers and taxpayers have their government to blame for not pulling the plug on Egat’s monopoly soon enough.
Grainne Ryder is a researcher with the Toronto-based Probe International, a critic of Canada’s aid and trade policies. She can be reached at GrainneRyder@nextcity.com
Categories: Mekong Utility Watch, Nam Theun
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