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Nakai Plateau, Laos — In a clearing at the foot of a limestone cliff, the Laotian government and its French business partner hope to lay the foundation for prosperity in one of the world’s poorest countries. If all goes according to plan, four electricity-generating turbines will be set up in the clearing and become the heart of a massive hydroelectric dam on the Nam Theun River, a tributary of the Mekong.

The power generated in the wilderness of southern Laos would be exported to neighbouring Thailand, earning billions of dollars that the government says could prove crucial to reducing the landlocked country’s chronic poverty and gradually reducing its dependence on foreign aid.

“We need this to eradicate poverty. This is the only way out,” said Loy Chansavat, a Laotian adviser to Nam Theun 2 Electricity Consortium, which is undertaking the US$1.3 billion project.

But there is a long way to go before the dream can turn into reality.

The main hurdle is a power purchase agreement that the consortium must sign with the Thai government, which is expected to decide this month whether to give approval. No date has been set for the decision.

“That’s the first key. Without a power purchase agreement there is no project,” said Ludovic Delplanque, spokesman for Nam Theun 2 Electricity Consortium, whose principal shareholder is Electricite de France, one of the world’s biggest power utility companies. The other shareholders are the Laotian government and two Thai companies.

If the power purchase agreement is approved, a state-run Thai company will be obliged to buy more than 90 per cent of the power for the next 25 years, providing US$200 million annual revenues, about half of which would go to the Laotian government.

However, a bigger hurdle is obtaining a World Bank guarantee protecting international investors – who would provide 70 per cent of funding – against the political risk of investing money in a communist country notorious for its woefully weak legal system and corruption.

The World Bank has been treating the project with extreme caution, partly because of pressure from environmentalists and activists such as the Canadian lobby group Probe International and the US-based International Rivers Network.

The groups warn that the project – adjacent to one of the largest remaining tropical forests in South-east Asia – would cause severe environmental degradation, destroy fish habitats, lead to uncontrolled logging and displace thousands of people.

Pitfalls

They also fear that the revenue will never reach the poor, and will instead end up lining the pockets of the communist party bosses.

“Laos is an unknown quantity. In recent years, the World Bank hasn’t been able to get the Laotian government to reform,” said Grainne Ryder of Probe International, who has been tracking the project for years.

Critics also claim Thailand has 44 per cent surplus power and might not be able to honour its purchase agreement commitment.

If the project takes off, it would be the biggest ever investment in a country mired in grinding poverty and abysmal standards of living. Life expectancy is only 53.7 years and adult illiteracy is as high as 34 per cent among men and 65 per cent among women. The annual per capital income is US$290.

Ian Porter, the World Bank country director for Laos, said the Nam Theun project “is potentially an important opportunity for Laos to obtain revenues to reduce poverty.”

“However, the project entails a number of risks,” he told The Associated Press. He said “comprehensive reforms” are needed in Laos, and the World Bank has asked the government to show “real progress in a number of critical areas” such as public expenditure management, power sector reform and forestry.

Decades of communist rule have calcified Laos’ economy and recent attempts at free market reforms have yet to attract big foreign investors – foreign direct investment in 2000 was a mere US$72 million. A small population of 5 million people means labour-intensive industries aren’t viable, and exports are virtually nil.

The only natural resources Laos has are timber and an abundance of rivers, which makes hydroelectricity its only viable export.

The Nam Theun 2 project envisages building a 48 metre-high dam across the Nam Theun River, which flows atop the Nakai Plateau, a massive flat-topped mountain. The reservoir created by the dam would inundate a 450 square-kilometre forest area that is home to about 4,500 indigenous people and about 60 species of birds and mammals.

The water in the reservoir would be channeled through a 4km-long tunnel to the edge of the plateau. From there the water would cascade down a 348 metre-high vertical shaft bored through the side of the mountain so that it falls on turbines at the bottom.

The Nam Theun 2 Electricity Consortium says it has done extensive studies and prepared safeguards to protect the environment, and is prepared to generously compensate the people affected by the project.

Most of the people expected to be displaced by the reservoir are subsistence farmers who are poor even by Laotian standards, and are living in thatched huts with no running water or electricity. There are no roads on the plateau and most transport is by foot. Even bicycles are a luxury.

People survive on seasonal rice farming, vegetables grown in riverbank gardens, forest products and fishing. They would be moved to new wooden homes built by the consortium and would be taught better ways of farming, as well as how to raise pigs and poultry and grow different kinds of vegetables, said Loy, the Laotian adviser.

The consortium would guarantee that the average annual household income rises from US$460 to US$1,200 through improved farming techniques, said Loy. He said the farmers would also have water for irrigation year-round, unlike now when there is no farming during the dry season.

The consortium has set up an experimental farm on the plateau to show that new forms of farming can be successful. Three families have been invited to live on the farm in brand new houses.

But critics say the poor, illiterate people living on the plateau have not been consulted and that the project is being thrust upon them without warning them of the risks.

Several villagers interviewed last week seemed satisfied by the government’s assurances that their lives will improve with the dam.

“If I had a choice I would stay here, but I am happy to move because the government says it is good for us,” said Thouan, a 53-year-old farmer who lives in a thatched hut with his wife. – AP