Mekong Utility Watch

Theun Hinboun is no model for Mekong development

Grainne Ryder

December 31, 1999

Grainne Ryder argues that the Theun Hinboun model is a deception serving the interests of the dam building industry at the expense of local communities and the national economy of Laos.

Long before the Theun Hinboun dam in Lao PDR generated a single kilowatt of electricity, its international promoters had declared it a model for future development of hydroelectric dams in the six-country Mekong Region. Grainne Ryder argues that the Theun Hinboun 6 6model” is a deception serving the interests of the dam building industry at the expense of local communities and the national economy of Laos.

Proponents of dam building as economic development claim that the Theun Hinboun Power Company (THPC) is a model venture, selling electricity and earning revenues from a dam that did not cause resettlement or extensive flooding. In fact, the THPC and its Theun Hinboun hydroelectric project illustrate the self-serving and disgraceful conduct of the very proponents making such claims.

The THPC, owned by two of the world’s largest power utilities, Statkraft of Norway and Vattenfall of Sweden (as Nordic Hydropower), the Lao utility, Electricite du Laos, and Thai developers, GMS Power (formerly called MDX) has taken water and land away from people without their consent, and has damaged the fisheries and disrupted water supplies of local people, the users of these resources, without their consent and compensation. THPC has inflated the income from its project by extemalising the project’s environmental costs onto local communities whose economies were largely based on the natural environment. By any standards, this is neither fair nor economically efficient.

Theun Hinboun is a high-risk, low-retum export scheme. Compared with smaller-scale, gas-fired power plants in Thailand, Theun Hinboun is not competitive as a provider of electricity. The dam building industry’s journal, International Water Power & Dam Construction, calls this situation the “gas-fired threat to SE Asia hydro power,” and reports that, “the chief threat facing hydro in the region is that the increasing availability of low-cost natural gas will make hydro uncompetitive.”

The original economic justification for the Theun Hinboun dam project was based on a selling price ranging from 5.80 to 8.69 US cents per kilowatt-hour, but the price Thailand agreed to was only 4.30 US cents per kilowatt-hour. In the first year of operation, the Government of Laos (GoL) earned about US$16 million, or only two-thirds of the revenue the Asian Development Bank (ADB) predicted the government would receive from the project. This revenue is less than the amount of money the government must pay to service the annual interest payments on its foreign debt.

Commercial lenders (Thai banks) would not have invested in Theun Hinboun without the substantial subsidies contributed to the project by Nordic (Norway’s and Sweden’s) aid agencies and other forms of protection arranged by the ADB and the Electricity Generating Authority of Thailand (EGAT). As hydropower consultants Lahmeyer International (Germany) and Worley International (New Zealand) explained at a 1996 hydropower industry conference in England, large hydrodams are “not an intrinsically attractive proposition to financiers” due to their record of cost overruns, unreliable performance, and public opposition.

To convince banks to invest in Theun Hinboun, Nordic proponents and the ADB erected a facade of economic viability by shifting certain costs and risks of the project onto the public sector. This shifting of costs are subsidies, hidden from the people who must pay for them and thus allowing the owners of Theun Hinboun, the THPC, to profit at the expense of everyone else.

The ADB and other public institutions, the GoL, Nordic export credit agencies, the Norwegian aid agency, and EGAT gladly assisted the THPC, although each had their own motive for doing so. Nordic export credit and aid agencies are in the business of channeling grants and export credits to Nordic companies. EGAT wanted “cheap” hydroelectricity without the environmental opposition and growing compensation costs associated with hydroelectric dams in Thailand.

The GoL wanted (and was promised) foreign exchange to service its foreign debts – so, in return for a share of the revenue from the dam, the Nordic proponents and the ADB persuaded the government to assume responsibility for the project’s environmental costs; costs that Nordic consultants claimed would be insignificant.

The effect of this “extemalisation” is that taxpayers that support these institutions have been forced to take responsibility for risks that Nordic Hydropower, the prime beneficiary of the dam, refused to take. Taxpayers in Nordic countries are on the hook for about half the THPC’s debts. Furthermore, if there is no market or customers for Theun- Hinboun’s electricity in Thailand, for example, EGAT and therefore its customers are obliged to pay for it anyway.

Advised by the ADB, the GoL borrowed and invested three times the amount of capital that Nordic Hydropower and MDX were each willing to risk. Now, with the Theun I-linboun project operational for less than two years, the government may ha to borrow more money to pay for efforts to restore t damaged fisheries of the Theun and Hinboun rivers and p for project “benefits” (e.g., irrigation, road-building and oth infrastructure in the project area).

As the lead financier and project finance coordinator, t Asian Development Bank’s main job was to protect priva investors from as many costs and risks as possible. But eve before that, the ADB helped build the project’s econom facade: it approved the project’s first loan based on t proponents’ exaggerated benefits, underestimated risks t revenue, and accepted an environmental assessment th concluded that Theun Hinboun would result in “significa beneficial environmental impacts”.

Prior to the ADB’s loan approval in 1994, environment advisors to the Norwegian aid agency, NORAD, had wame that the proponents’ environmental assessment wa inadequate and misleading. The Norwegian Water Resource and Energy Directorate, the country’s hydropower regulato body, warned of “far-reaching environmental and soci disturbances” if environmental matters were not seriousi considered. The Ministry of Environment found nine of th positive effects claimed by project proponents to be “high] questionable”. The Norwegian state pollution contro authority found the assessment “far from satisfactory” an concluded that it “cannot recommend implementing thi project on the basis of the existing data”. Despite these warnings, NORAD approved another gran for the project’s final design and construction began.

Nordic Hydropower, MDX and other potential investor were nervous about the absence of any legal or regulator framework for hydropower producers in Lao PDR. So th ADB stepped in as the de facto regulator of the new THPC making sure that nothing jeopardized or interfered with th THPC’s cashflow and profitability, and that the governme took responsibility forenvironmental matters. Since 1994, th ADB has acted as spokesperson for both of its clients, THP and the GoL, when citizens’ groups protested the company’ actions and demanded compensation for affected villag people.

Last year, the ADB admitted that the 2 1 0-megawatt dam has caused extensive damage to fisheries and water supplies, affecting an estimated 53 villages and thousands of people livin- along the Theun and Hinboun rivers. At the same time, the ADB issued a warning to international nongovernmental organisations that efforts to force the power company to pay additional costs would damage the confidence of foreign lenders and investors in Lao PDR. It is up to the GoL or aid agencies, the ADB insisted, to pay for the dam’s long-term environmental costs. Because the THPC wouldn’t exist without foreign aid, public pressure in aid-donor countries has had some effect on its otherwise unregulated behaviour. In 1996, the company announced a new environmental mitigation and com- pensation budget after a “supplemental” environmental study found that about 6,000 people in 25 villages were “especially vulnerable” to project impacts and that the initial environmental budget was inadequate. But then THPC spent wo- ir s o i s new u get on construction of a “re- regulating pond” to regulate releases from the powerhouse, and US$380,000 on design modifications and site cleanup all standard features that should have been included in the initial project cost. Another US$300,000 went to an environmental impact monitoring programme; US$250,000 went to consultants for rural development, fisheries, and irrigation studies; and a paltry sum of US$50,000 was allocated for compensation, most of which paid for farmland expropriated for the transmission-line towers between the project and the border with Thailand.

Unaccountable to local communities, the GoL and the THPC have neither the incentive nor the attention span for dealing with dam-related grievances. According to the ADB’s assessment last December, damages had still not been assessed, compensation for lost income and resources had still not been paid, and even the most basic data had not been collected. The Theun-Hinboun Environmental Management Comniittee, which was supposed to be monitoring the project’s impacts, was found to be understaffed, underfunded (despite an earlier grant of US$300,000), and operating without any clear lines of authority. There was no funding for the rural development plan, while the promised fisheries management programme had yet to appear.

The problem, according to the ADB, is lack of funding and proper studies, even though the dam owners have already spent millions of dollars in aid money on impact studies and mitigation plans. THPC has promised another environmental management plan, this one more comprehensive than the last, to “avoid the ad hoc and more expensive approach to mitigation/monitoring now occurring, and [to] ensure that Project impacts are addressed in a timely, adequate and equitable fashion.”

Citizens’ groups outside Lao PDR argue that the real problem is lack of accountability. Local communities have been excluded from decision making about the Theun Hinboun project from the very beginning. None of the proponents are accountable to affected communities, leaving it to the proponents’ discretion to decide what constitutes “timely, adequate, and equitable” mitigation, leaving definitions infinitely malleable, ever-changing and ineffectual. The 1994 ADB loan documents, for example, state only that each party should “carry out the Project with due diligence and efficiency, and in conformity with sound administrative, financial, engineering, environmental and public utility practices”. Even if the ADB could define “sound practice” and “due diligence” for its clients in Lao PDR, the bank has no means of enforcing its standards or punishing wrongdoers.

None of the owners of the project have any clear standards to which they are committed, and by which Lao citizens could udge THPC’s performance and hold it accountable for damages. Such failure to insist upon enforceable standards suggests that none of the project proponents believe fair compensation can, or should, be included in hydroelectric rojects in Laos, or even that citizens affected by impacts ave the right to claim compensation.

This failure, particularly on the part of Nordic dam builders, o insist upon basic standards and procedures for public accountability, demonstrates that a perverse double standard is at play. If Nordic Hydropower had built the Theun Hinboun dam in Norway they would be required by law to behave quite differently towards the people and river systems they threaten.

Under Norwegian law, if Nordic Hydropower refused to pay compensation or environmental mitigation costs, it could have its license revoked, be fined by the government, or sued by affected people or communities. Electricity consumers could also choose to reject Nordic Hydropower as a provider of electricity if they feel that the company does not respect the rights of local communities.

People living along dam-threatened watercourses in Norway are automatically entitled to cash compensation whenever hydropower developers expropriate or damage their resources, property, or livelihoods. The amount of compensation awarded is not decided by the proponents but by the courts, and it is separate from any other compensation or mitigation arrangements agreed between the dam owners and affected parties as part of the project costs and benefits.

In addition to cash com- pensation for private indi- viduals and families, the dam’s licence-holder must provide compensation to affected communities, which is usually stipulated in the licence agree- ment. The licence agreement is a public document drafted in consultation with all affected parties; affected communities have the right to demand changes to the agreement at any time since conditions along the watercourse and the dam’s operation may change over time. In addition to income and property taxes, the regulator can instruct the dam owners to share revenues with affected municipalities and water users in the form of annual cash payments proportional to the extent of damages. Elected representatives of the affected municipalities would then decide how these payments are used.

Licence holders are also required to deliver a portion of their electricity output to the affected municipalities at a price equal to the cost of generating the electricity. Recent restructuring of the electricity market has given municipalities the option of using the electricity locally or of selling it on the electricity market. Why have Theun Hinboun residents been deprived of such rights and economic benefits?

Essentially, people in Norway are protected by two sets of laws that do not exist in Lao PDR. First, people are protected by laws that recognise widespread ownership of resources. Those with formal and infon-nal economic interests and rights vested in the watercourse are recognised before the law. Second, people are protected by a regulatory framework that gives an independent regulatory body the legal authority to force hydroelectricity producers to declare all project costs and risks openly and to receive public approval before any final decisions are made. The regulator’s main task is to ensure that electricity is produced and transmitted efficiently, at a cost considered acceptable and equitable by all members of society.

Only when local communities in Lao PDR have their rights to water, land, fisheries, forests, and clean air protected by enforceable laws will developers of hydroelectric dams be obliged to make fair deals for the resources they consume. Enforcing local people’s rights would put the responsibility on dam proponents to properly internalise costs and win the approval of potential victims, or risk penalties and higher costs later. Ideally, local communities and individuals should have the right to say “no” to any developer’s proposal and the right to sue power producers (public or private) for damages to their health, property, resources, and livelihoods, independent of any compensation package they might have agreed to initialIy.

Instead of giving dam builders sweeping powers to decide what constitutes acceptable development for Lao PDR, a better way to ensure that future development is fair and economically efficient would be to empower the people of Lao PDR with more rights and tools so they can decide for themselves what is sustainable and unsustainable and have greater control over decisions affecting them. The result would be improved investment decisions in the electricity sector and economy as a whole and it would allow ordinary people to participate in economic decision-making and prosper by their resources.

Foreign aid is another part of the problem. Lavish foreign aid has allowed hydroelectric dam developers to use Lao PDR as a platform for exports to Thailand, instead of making economic investments that serve local needs and the interests of the country as a whole. Foreign aid has allowed the government to be less than responsive to local people’s problems because it does not need the approval of it citizens, such as those living along the Theun and Hinboun rivers, about how it spends aid money and to what purpose. Aid also provides a shield of anonymity for the consultants and companies whose actions or inaction has harmed local communities and deprived them of future economic opportunities.

At its worst, the THPC is more than an economic facade, it is a conspiracy against the people of Lao PDR. The Manila Declaration on People’s Participation and Sustainable Development, signed by citizens’ groups from every continent, declared that international development institutions like the ADB and their financial transfers have been damaging to the cause of democracy. Where governments and their foreign financiers do not recognise that “people must control their own resources, have. access to relevant information, and have the means to hold officials of government accountable, [development] often becomes a conspiracy between the donor or the lender and government against the people.”

Watershed Vol. 5 No. 2 November 1999 – February 2000


Categories: Mekong Utility Watch

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