BAN NONG BOUA, Laos — As head of this poor village in central Laos, Sombon Sisavang says he dreams of a better future if a group of international investors and the Laotian government go ahead with a plan to build a big hydroelectric power project near where he lives, at an estimated cost of $1.2 billion.

 

It will mean that he and 5,000 other highland minority people have to move to nearby resettlement sites as water from the reservoir that will be formed behind the proposed dam on the Nam Theun River floods 20 or so villages.

“We have been promised a health clinic, a school, new houses with gardens and training in agriculture, raising livestock or fishing,” Sombon said as he sat cross-legged on the floor of his wooden house, one of his five children in his lap. “A new livelihood will improve our living conditions and reduce the poverty in this area.”

The project, which has been in the planning stage for more than a decade, promises not just a better life for local people on the Nakai Plateau, 250 kilometers (150 miles) east of the capital, Vientiane. The plateau lies between the lowland areas near Southeast Asia’s largest river, the Mekong, and the mountainous border region with Vietnam.

The government and the foreign investors in the Nam Theun 2 Electricity Consortium, NTEC, say that the project holds the key to the future progress of Laos, which is ranked as one of the poorest and least developed countries in the world.

“With this hydropower project, we can kick-start development so that we can compete with other countries,” said Maydom Chanthanasinh, an official with the prime minister’s office who is responsible for overseeing the project.

He and other officials said that the large injection of revenue from the project would also enable the government to reduce poverty, spend more on education and health and curb illegal logging and the cutting and burning of forests by highland villagers like Sombon who use the clearings to grow rice.

In Laos, some 40 percent of the estimated 5.2 million population live below the poverty line. “The core of the problem is this,” Maydom said. “Poverty destroys the forests. To reduce poverty, the government needs money.

“You can never stop illegal logging entirely. But the best way is to provide an alternative livelihood.”

Because Laos is underdeveloped, the investors want the World Bank to provide a partial risk guarantee to cover more than $100 million dollars of the project’s cost in case anything goes wrong. Companies often consider World Bank involvement vital to securing investor confidence in poor or politically unstable countries. When the bank agrees, it helps them get loans on better terms.

The consortium investors include the French state-owned utility Electricité de France, several companies from Hong Kong and Thailand, and Montgomery Watson Harza of the United States. Montgomery Watson Harza is a privately held group formed by the merger of the water management firm Montgomery Watson and the Harza Engineering Co. Harza has engineered, constructed, financed and managed some of the largest dams and hydroelectric plants in the world. Nam Theun executives have warned that without World Bank support, the project in Laos will not go ahead. They have said they need a firm signal of approval from the bank by June when a preliminary power purchase agreement, signed recently with Thailand, is due to be made final.

Thailand needs to import electricity to meet rising industrial and consumer demand. Strong local opposition on environmental grounds both to dams and coal-fired plants has prompted the Electricity Generating Authority of Thailand to look to the largely untapped hydropower potential of neighboring Laos for its needs.

The Thai authority has agreed to buy nearly all of the electricity from the Nam Theun plant, which will have a generating capacity of 995 megawatts and is scheduled to start sending electricity into the Thai national grid in 2008.

Laos, which has many rivers and mountainous regions suitable for using the power of water to generate electricity, already has several smaller plants in operation that sell electricity both in Laos and to Thailand.

Laotian officials say that if the Nam Theun project goes ahead, it will open the way for other big hydropower projects that could sell much of their output not just to Thailand but to Cambodia, Vietnam and possibly even China. This would give Laos a sustainable source of foreign exchange earnings and government revenue. Houmphone Bulyaphol, head of Laos’ electricity department, said that the country has the potential to generate as much as 20,000 megawatts of hydropower for its neighbors. This, he added, would turn Laos into “the battery” of East Asia.

Some foreign environmental groups are strongly opposed to such plans. They say that large numbers of people will be displaced, fish migration and breeding disrupted and water flows changed with shortages in some rivers and flooding in others. The dam project will divert large volumes of water from the Nam Theun river to the Xe Bang Fai river, both of which flow into the Mekong.

“More than 50,000 people living along the Xe Bang Fai will be affected by increased water flow in the river,” said Aviva Imhof, an analyst for the International Rivers Network in Berkeley, California. “Most of these people have not even been consulted about the project, let alone given their consent to it.” The project, in which the Laotian government initially will have a 25 percent stake, will provide revenue to the state worth an average of over $100 million a year for the 25-year life of the contract until ownership of the whole operation is handed to the government. This revenue stream amounts to close to 10 percent of the country’s estimated annual gross domestic product of $1.3 billion.

Officials said that the World Bank wanted to be sure there had been adequate local consultation about the dam project and that it would be accompanied by effective measures to protect the forests and the wildlife in the more than 4,000 square kilometers (1,600 square miles) of watershed catchment for the proposed reservoir that lies between the Nakai Plateau and the border with Vietnam.

Analysts said it was doubtful whether government could control continued illegal logging near the long and mountainous border between Laos and Vietnam, especially since influential elements from the militaries of both countries were reported to be benefiting financially from the business. Vietnam, like Thailand, is a major importer of logs both from Laos and Cambodia.

The World Bank also wants to be sure that revenues earned by the Laotian government from the dam project are spent to reduce poverty and protect the environment.

The bank said in an aide-mémoire to the government in August that it is “prepared to consider support to the project only if it is strongly embedded in a development framework, characterized by concrete performance, that aims at poverty reduction and environmental protection.”

The bank has reason to be wary, diplomats said. Since the end of the Vietnam War in 1975, Laos has been ruled by a Communist regime that in the view of some analysts is as secretive, corrupt and resistant to real economic and political reform as the military junta in Burma.

The Laotian government is “pretty good at starting then stopping” its promised reforms, and passing but not implementing regulations to get more foreign aid, said one diplomat based in Vientiane.

Laos has received more aid per head than many other poor countries.

According to the Economist World in Figures 2002 edition, Laos is the twentieth largest per capita recipient of bilateral and multilateral aid in the world, at $58 per person. Yet aid officials say that much of the aid has been wasted. This has prompted some countries, including Australia and Sweden, to reduce their assistance programs in Laos until there is better governance.

“The perception is that corruption is getting worse, not better,” the diplomat said. “The Lao leadership has no knowledge about economic and business issues.”

The government, under pressure from the International Monetary Fund and other aid donors, only recently agreed to publish a sector-by-sector annual budget. But transparency and accountability still fall well below acceptable international standards, analysts said.