Mekong Utility Watch

Aid agencies should get out of dam building

Grainne Ryder
Development Today
May 12, 2000

Grainne Ryder attended the final consultation of the World Commission on Dams in Vietnam earlier this year. She argued there that donors should not subsidise dam building and that WCD is part of the problem.

The World Commission on Dams (WCD), set up by the World Bank and the World Conservation Union, is completing its two-year mandate to review the effectiveness of large dams and develop “internationally acceptable” guidelines for future dam projects. Missing from the two-day consultation in Hanoi, however, were dam-affected communities
and the state-owned utilities that operate hydro dams in the Mekong region. Also conspicuously absent were the Nordic aid-financed hydro consultants working on a Hydro Master Plan for Vietnam. Instead, government planners and aid bureaucrats focused mainly on technocratic “how to” questions for future dam projects, as if dam builders simply need better planning tools and more funding to avoid past mistakes.

In fact, large hydro dams don’t make economic sense. Technological advances have made possible electricity generation on a smaller scale at lower costs. Hydro dams are out-of-date, uncompetitive and unreliable power providers. Around the world, big hydro dams, along with nuclear power stations, and big coal plants, are being replaced by
smaller, high-efficiency combined cycle gas turbines and cogeneration schemes. Wherever competition and private power production is introduced, combined cycle plants are the investment of choice.

In Hanoi, Mike Bristol, an engineer with the Asian Development Bank, reported that the Bank’s vision of giant hydro schemes connected by a six-country regional grid to serve Thailand’s electricity market no longer makes economic sense. The recent introduction of combined cycle plants in Thailand, and the growing availability of low-cost natural
gas in the Mekong region, is driving electricity prices down, leaving hydro schemes less competitive and a regional grid unnecessary, he said. The WCD debate over costs and benefits of future hydro dams is redundant. In the real world of electricity generation, big hydro dams are yesterday’s technology. The WCD commissioners who sit in the
boardrooms of the world’s largest utilities and dam-building companies know it. That’s why dam proponents prefer to give vague assurances about future dam projects rather than taking an honest look at the economics of existing dams or the scandalous treatment of dam victims.

The world in which big hydro dams once thrived is unravelling. State monopolies are being dismantled, the private sector is rejecting big dams in favour of less risky investments in decentralised generating technologies, and dam-affected citizens are demanding that dam builders intemalise their costs; that is, take financial responsibility for their actions. Public funding for hydro dams is increasingly difficult to justify.

Ask any private investor or lender if they are willing to risk their capital on big hydro dams and their answer is a resounding “No”. Even multilateral lending institutions are getting out of the dam building business. The Inter-American Development Bank stopped lending for hydro dams in Latin America in 1995. In Vietnam, the World Bank has no plans to finance hydro dams. According to Nisha Agrawal, a World Bank economist in Hanoi: “We don’t regard this as the best use of IDA funds in Vietnam for reducing poverty”.

The Nam Theun 2 dam project in Laos is another sign of the times. The World Bank tried for over a decade to have this 900-megawatt hydro dam built with promises of lavish subsidies and loan guarantees for investors. But the USD 1.5 billion dam has no customers for its power and no commercial investors in sight. The only prospective buyer, Thailand’s state utility, EGAT, doesn’t need and can’t afford to buy the dam’s output. And even if Thai consumers did need the power, there is a line-up of small power companies at home that can deliver cleaner, cheaper, and more reliable electricity to customers than the Nam Theun 2 dam can.

But knowing that large hydro schemes are uncompetitive won’t eliminate the aid-for-dams business overnight. The ADB is still prepared to finance hydro schemes in Vietnam, as long as the government wants to build them. The Swedish and Norwegian aid agencies continue to finance the planning and construction of hydro dams in the Mekong region. International conservation organisations are prepared to turn a blind eye to the environmental  destruction caused by dams if they and aid donors can work with dam-building  governments to set aside other areas for conservation. As Hans Friederich of the World Conservation Union told WCD: “dams may be good for biodiversity conservation and
local livelihoods” in the Mekong region provided that funds from dams and other institutions, such as the World Bank and the UN Environment Programme (UNEP), can be channelled to management of areas of “truly exceptional significance to international biodiversity conservation”.

At first glance, such deal making among aid agencies, dam builders, and conservationists might seem a reasonable approach. But it is unnecessary because there are far better ways to generate electricity.

In any case, such deal making won’t save the forests and wetlands that conservationists especially covet because it ignores the rights of citizens who are ultimately responsible for those resources, and who have, in many cases, preserved them until now.

The best way to decide whether a hydro dam, or any other development scheme, is good for local communities, the environment, and economies is to empower those who have to live with the decisions’ consequences.

This will force hydro developers to internalise costs and negotiate fair deals for the resources they wish to consume. But this won’t happen until aid agencies get out of the dam-building business.

Categories: Mekong Utility Watch

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