Mekong Utility Watch

Pak Mool cost more than it’s worth

Grainne Ryder and Wayne White
The Nation
June 9, 2000

EARLIER this year, the World Commission on Dams (WCD) published its performance review of Thailand’s most controversial hydro scheme, the World Bank-financed Pak Mool dam, confirming what observers have long suspected: The project is an economic failure and a growing financial liability to Thailand’s electricity ratepayers.

A central question now, and one that the WCD sidesteps: Is it even worth operating the dam for electricity production? Or, would electricity ratepayers – not to mention the dam’s countless victims – be better off if the dam’s turbines were shut down and the gates opened so that fish could return to the Mool River?

As part of the commission’s global review of dams, the study found that the 136-megawatt Pak Mool dam is barely generating 40 megawatts in the high-demand months of April and May. Even in the rainy season, when water levels are very high, the dam’s owner, the Electricity Generating Authority of Thailand (Egat), has to shut the power plant down because there isn’t enough head to drive the turbines.

Completed in 1994, the dam cost US$233 million (Bt8.85 billion), almost twice as much as originally estimated. Today it isn’t generating enough electricity to recover its investment costs. The dam was supposed to have a return on investment of 12 per cent, but the actual return is closer to 4 per cent, WCD reports.

As for irrigation – Egat initially claimed that the dam’s reservoir could irrigate up to 25,000 hectares of farmland in the dry season – the WCD found that the dam is useless, its “actual benefits are zero”.

Meanwhile, the cost of maintenance, mitigating damage to fisheries, and compensation awarded to people suffering economic losses keeps going up.

The WCD study found that “the total annual income from fisheries over the long-term is worth more than the cash and credit compensation” provided to affected households by Egat. Efforts to mitigate damages to fisheries haven’t succeeded and, as a result, the government is “saddled with ever-increasing claims for compensation”.

Had Egat done an honest cost-benefit calculation, based on the dam’s actual benefits and costs, the WCD concludes “it is unlikely that the project would have been built”. The extent of the utility’s financial miscalculation is evident in the full report that was produced for the WCD by the Bangkok-based Thai Development Research Institute.

For example, if the Pak Mool dam’s dependable capacity is 16 MW, as cited by the institute, the dam earned an average of about $7 million in the last two years. This figure could be even lower still, depending on when the dam generates electricity.

As a rule, power produced during the daily four-hour peak demand period is worth more than power produced during the night, but the development institute couldn’t do this calculation for Pak Mool because Egat refused to disclose time-of-day production data.

Assuming the dam generates $7 million annually over its 25-year life, then its present worth is only $56 million. For Pak Mool to be a viable investment, it would have had to generate $28 million (12 per cent of $233 million) annually in electricity sales. As it is, Egat has lost $177 million on its investment. Put another way, Egat has spent roughly four times more on the Pak Mool dam than it can ever earn in electricity sales.

This “stranded cost” of $177 million will likely get passed on to electricity ratepayers in the form of a special charge on their electricity bill, regardless of whether the dam continues to operate or not.

If the dam is kept in operation, Egat will also have to pay the rising cost of maintenance and long-term compensation for damages.Thousands of uncompensated families would continue to face economic hardship, even hunger and malnutrition, having lost their daily source of food and income. Fish migrations would stay blocked and, with every passing year, the potential for recovering the river’s fish species and habitat would diminish.

A decision to shut down the turbines and open the gates, on the other hand, would spare ratepayers the dam’s future operating expenses as well as the cost of unpaid compensation provided that fisheries and fishing livelihoods are restored.

The idea isn’t as radical as some people might think. A growing number of uneconomic dams are successfully retired each year in North America, in order to restore once-productive fisheries and revitalise local economies. Now that the WDC has exposed Pak Mool as a money-losing and unreliable power provider, people harmed by the dam are owed a fair chance at economic recovery.

GRAINNE RYDER investigates the impact of aid-financed development projects with Canada’s Probe International.

Wayne White is a US-based power and infrastructure economist and is the author of Benefit Cost Analysis of Decommissioning the Pak Mun Dam, a report commissioned by Probe International.

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