January 1, 2001

Letter from the ADB responding to concerns expressed in Bruce Shoemaker’s December 2000 Theun-Hinboun Report.

Subject: “Theun-Hinboun Update: A Review of the Theun-Hinboun Power Company’s Mitigation and Compensation Program”, December 2000

[Link to “A Review of the Theun-Hinboun Power Company’s Mitigation and Compensation Program” by B. Shoemaker]

1. Thank you for sending to us the report prepared by B. Shoemaker. Pursuant to our earlier correspondence of 26 December 2000, staff have returned from holiday leave. We now offer this response to the concerns expressed in the report, as highlighted
in its executive summary.

A. Theun-Hinboun Power Company and the Asian Development Bank initially refused to acknowledge Impacts after Closure of the Dam

2. Upon completion of the Project in April 1998, the International Rivers Network (IRN) published a report by Mr. B. Shoemaker, entitled “Trouble on the Theun-Hinboun, etc.,” which raised numerous issues and gave the impression that an emergency situation
existed requiring immediate remedial actions on an emergency basis. The Asian Development Bank (ADB) reacted promptly by fielding a Special Loan Review Mission and invited the author of the report, Mr. Shoemaker, to participate in this Mission. Unfortunately, Mr. Shoemaker, before accepting to participate, requested that numerous
issues would have to be clarified before he would be ready to join the Mission. As clarification of precisely these issues was the purpose of that Mission, Mr. Shoemaker did not join the Mission.

3. The Mission, at that time, found that while there were various Project-related impacts that had to be mitigated, there was no emergency situation. It was agreed with Theun-Hinboun Power Company (THPC) that THPC, in coordination with the Environmental
Management Committee Office (EMCO) will continue to evaluate any social or environmental damage and undertake necessary remedial measures in a systematic manner. Upon completion of the Mission, ADB submitted various recommendations to THPC concerning the implementation of mitigation measures and strengthening of EMCO such that it would function in a more effective manner. THPC thereupon undertook to
implement these measures.

4. We therefore do not agree with your allegation, that ADB initially refused to acknowledge Project-related environmental and social impacts, and only by late 1998 acknowledged for the first time such impacts. In fact, it was always known that
Theun-Hinboun, as any other project of this nature, will have environmental and social impacts, which will have to be mitigated.

B. Lack of Accountability to Local Citizens

5. The thrust of the assertions here would seem to be that the Theun-Hinboun Mitigation and Compensation Program (THMCP) is not participatory. The report states that “villagers do not appear to have had sufficient opportunity to give input into proposed
… measures or to formally approve of the MCP plan.” Other statements claim that the villagers are dissatisfied and unclear about compensation arrangements. Unfortunately, the report does not indicate when the project area was last visited (it would appear to be in July 2000 before the THMCP was finalized), the amount of time spent in the project area, the number and location of villages visited, and whether government or THPC staff were consulted during the visit.

6. Our reading of the THMCP indicates that it is in essence a process document. The THMCP was undertaken in consultation with a representative segment of affected villagers, but not all affected villagers. It is therefore the first step in a longer process
of consultation, investigation, detailed design, and implementation. It has been prepared in such a way that priority recommendations can be implemented immediately. Other plan elements can be modified as more village-specific information is obtained and as villagers become increasingly familiar with options available to them, and thereby develop more confidence in suggesting specific changes. It provides a framework for ensuring that the project impacts are adequately mitigated over the long term. It also goes beyond this by suggesting ways in which the THMCP can assist the villages in embarking on a sustainable development path not only in light of the impacts produced by the project but also of the development opportunities that arise from the project.

7. The report’s assertion that no allowance is made for independent verification of the THMCP is wrong. The plan clearly calls for independent monitoring and has allocated a budget for this purpose. In summary, while not disputing that this effort has come
late (as pointed out in the findings of past ADB review missions), we believe that the process approach advocated in the plan is appropriate and is in line with the recent recommendations of the World Commission on Dams.

C. Failure to Establish Criteria for Evaluating Project Impacts

8. We do not dispute the possibility that project impacts may still be underestimated. According to our understanding of the THMCP, this is the very reason why a number of follow-up field studies and a comprehensive monitoring program with intensive villager
participation will be supported under the plan. It also is the reason why a comparatively large contingency has been included in the budget.

D. Misallocation of Resources to Consultants and Officials Instead of Villagers

9. As pointed out in your report, THPC’s previous efforts to adequately deal with mitigation and compensation issues fell short of expectations. ADB’s assessment was that much of the work was being done by people with insufficient skills, time, and experience.
Getting the right people, with adequate professional skills and experience, to implement the THMCP will be crucial to the plan’s success. At the same time, we have no reason at this point to believe that the estimated budget as presented in the THMCP is unreasonable.
The rather large contingency amount in the THMCP budget indicates to us THPC’s commitment to ensuring that additional costs that might arise due to new findings and changing conditions in this process-oriented approach will be covered.

E. Failure to Recognize Citizen’s Rights to Direct Compensation for Fishery Losses

10. We agree that compensation must consider impacts from the project’s beginning. We also agree that compensation (commensurate with the level of impacts) should continue through the life of the project unless it is shown that the THMCP’s sustainable development program has succeeded to the point that further input from THPC is not required. In keeping with international standards and ADB policy, we also agree that the villagers should be no worse off after the project than before, and preferably better off.

11. Where we disagree with your report is how this relates to fisheries losses. This issue has been intensely discussed between ADB and THPC, and we expect that the upcoming
monitoring reports on the results of THPC efforts will indicate whether this standard is being adhered to. At the same time, we generally agree with the strong caution in the THMCP about designing a fisheries compensation program that could become a source of permanent dependency on the part of the villagers and of opportunities for future
misappropriation by agents involved in administering it. We believe that your review should have taken this into account. Additionally, we understand from THPC that during village consultations none of the villagers have specified a preference for compensation for lost fish production over the alternative, proposed by them, of production system
improvements.

F. Reliance on Risky Development Initiatives Without Substantiating Claims of Future Benefits

12. This comment also deals mainly with fisheries losses. The THMCP does not, in our opinion, present recommendations for aquaculture support to the villages as the only possible alternative to the decrease in natural fisheries production. It takes a much more
holistic approach that involves research and consultation with villagers to devise programs that are appropriate to village conditions. Some of these recommendations involve aquaculture, while others involve the introduction or intensification of other income and
food sources.

G. MCP Proposes to Cutoff Downstream Flow

13. Your assertion that “THPC wants to renege on its commitment to allow a minimum of 5 cumecs of water to flow downstream into the Nam Kading” is not compatible with the presentation in the THMCP. We also initially questioned the inclusion of such a recommendation in the draft THMCP. After subsequent discussions with THPC and their consultants, we now support a careful reassessment of downstream flows and an independent verification of the findings of this reassessment. We support this because past recommendations, including the current 5 m³/s release, had very little if any basis in fact, and so may not be the optimal approach to mitigating project impacts. We welcome this reassessment to see if a more effective mitigation program can be justified and implemented.

14. We believe, therefore, that the recommendations presented at the conclusion of the Executive Summary are, for the most part, already envisaged under the THMCP. Our
understanding is that (i) the THMCP requires negotiated agreements with affected villagers and accountability through independent monitoring and assessment of mitigation and compensation programs; (ii) the study on downstream flows will be independently assessed, and changes to the current rate of release will not be made until the independent
assessment is released and supportive of any such changes; (iii) full funding of mitigation and compensation will be provided; and (iv) there is provision for a regular, comprehensive, and participatory evaluation of the effectiveness of the THMCP programs. However, as indicated above, we believe that relying solely on direct compensation for
fisheries losses may not be the most appropriate response for ensuring the long-term welfare of the affected villagers.

15. In summary, our assessment of the THMCP appears to be significantly at odds with the assertions presented in your report. We believe that the THMCP offers a reasonable framework to ensure that affected villagers are adequately compensated for losses
through a mitigation and compensation program based on field verification, participation, and monitoring and evaluation.

16. Our primary concern is that THPC implements the THMCP in a timely and effective manner, including the recruitment of highly qualified staff and consultants. To this end, we continue to monitor progress. We note that an evaluation of river garden losses and
preparation of a compensation program is underway, that shortlisting for the position of Manager, Environmental Management Division has been completed, and that other measures are being taken. While these initiatives are very welcome, we do believe that implementation of the THMCP is proceeding slower than expected, and have communicated this concern to THPC. We intend to maintain this dialogue with THPC to
ensure that the plan is implemented expeditiously and to high standards.