Starting this month in Bangkok, the World Bank will be showcasing plans for the billion-dollar Nam Theun 2 hydro dam in Laos, which is expected to start selling power to Thailand in 2010.⁽¹⁾ The French-Thai consortium behind Nam Theun 2 says its careful planning ensures that local communities will not be disadvantaged by the project – unlike other large dams in the region.⁽²⁾ But a review of the developers’ plans suggests that tens of thousands of people living downstream are at risk.

If Nam Theun 2 is built, the developers themselves predict “a collapse in the aquatic food chain,” along the Xe Bangfai, a large Mekong tributary in central Laos.⁽³⁾ This would affect more than 40,000 people (the developers’ estimate) who depend upon Xe Bangfai for food and income.⁽⁴⁾ Fish catches would drop by 40 to 60 percent.⁽⁵⁾ Aquatic plants, snails, mussels, and shrimp traditionally collected for food or sale at local markets would disappear.⁽⁶⁾ And riverside land used for high-value crops in the dry season would be permanently flooded by the dam’s discharges.⁽⁷⁾

The developers – led by French utility giant, Electricit√© de France, and Thailand’s Electricity Generating Company – say they are committed to compensating for “all and any negative impacts on [Xe Bangfai] villagers’ socio-economy – mainly in fisheries and riverbank gardens.”⁽⁸⁾ Their stated objective is “to compensate for any assets or livelihoods lost or impacted upon, by fair replacement or in alternative income (imputed and cash), at least equal to the value lost.”⁽⁹⁾ But in fact, no such plan has been worked out.

The developers call for further studies and more consultations with affected communities before working out the exact method and budget for compensation. Cash payment for damages has been ruled out.⁽¹⁰⁾ Instead, the developers will consider provision of fish ponds, irrigated gardens, irrigated rice fields, and animal-raising programs, depending on what’s feasible.⁽¹¹⁾ In other words, the developers don’t know exactly how or when or how much or in what form compensation will be dispensed to the project’s 40,000-plus downstream victims.

In principle, all affected people can file a grievance if they are unhappy with the company’s compensation plans or if compensation fails to materialize. But the procedure is complex and could take years. In any case, the proposed grievance committee would have no legal authority to award compensation beyond what the Nam Theun 2 Power Company has already agreed to provide.⁽¹²⁾

Nam Theun 2 proponents have had more than ten years to develop a fair compensation plan for Xe Bangfai villagers.⁽¹³⁾ Failure to do so suggests the company and the World Bank had something else in mind. Sure enough, this July the World Bank announced a $50 million loan to the Lao government for the “Nam Theun 2 Rural Livelihoods” program, which would effectively transfer the company’s liability for downstream livelihood damages onto Laotians.⁽¹⁴⁾ Now instead of the company paying livelihood compensation to downstream victims out of its revenues, the Minister of Agriculture and Forestry will “enhance opportunities for rural villagers in the Xe Bangfai Basin.”⁽¹⁵⁾ What that means exactly for affected villagers is anyone’s guess. For the Nam Theun 2 Power Company, certainly, it’s a hefty subsidy that inflates the company’s profitability.

Laotians should not be fooled by the World Bank’s maneuvering. Government spending on “rural livelihood improvement” projects comes with no guaranteed benefits for rural people whatsoever. Such programs should not preempt a proper assessment of damages caused by the Nam Theun 2 Power Company nor does it cancel out the company’s debt to Xe Bangfai villagers. The company owes them at the very least the replacement value of food and income that they can no longer get from the Xe Bangfai ecosystem, for as long as the project is operating. If the company won’t pay, then the project should be abandoned in favour of less risky investments that guarantee more benefits for Laotians.

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Grainne Ryder is Policy Director of Probe International, a Canadian citizens’ group investigating the economic and environmental impact of Western aid and companies in the Mekong region. She can be reached at GrainneRyder@nextcity.com

[This is the first in a series of comments on the World Bank-led Nam Theun 2 hydro venture in Laos. The Nam Theun 2 Power Company’s plans are now available online at http://www.namtheun2.com NEXT: Nam Theun 2 developers admit there’s a very high risk of resettlement failure.]

¹ World Bank, “International Stakeholder Workshops for Nam Theun 2 Launched,” World Bank press release, July 30, 2004; Vientiane Times, “Investors confident of World Bank guarantee,” Somsack Pongkhao, July 29, 2004.

² Vientiane Times, “Nam Theun 2 powers ahead,” Somsack Pongkhao, June 14, 2004; and Nam Theun 2 Hydroelectric Project, Social Development Plan (July 2004), Volume 3, Xe Bang Fai EMDP and Resettlement Framework, Chapter 41, Monitoring and Evaluation and Grievance Procedures, p.9.

³ Nam Theun 2 Hydroelectric Project, Social Development Plan (July 2004), Volume 3, Xe Bang Fai EMDP and Resettlement Framework, Chapter 32, Description of Livelihood Impacts, p.9.

⁴ Ibid., Chapter 32, Description of Livelihood Impacts, p.1. The report says 89 villages (40,600 people) living along the Xe Bangfai mainstream and Xe Noy tributary will be affected by the Nam Theun 2 project. In addition, 69 villages located elsewhere in the Xe Bangfai basin will be negatively affected by the project because they rely on the Xe Bangfai mainstream to varying degrees for fish and other aquatic products.

⁵ Ibid., Chapter 32, Description of Livelihood Impacts, p.6.

⁶ Ibid., p.9.

⁷ Ibid., p.1.

⁸ Ibid., Chapter 40, Mitigation and Compensation Strategy, p.1.

⁹ Ibid., Chapter 8, Risk Management Framework, Monitoring and Evaluation, p.1.

¹⁰ Ibid., Chapter 41, Monitoring and Evaluation and Grievance Procedures, p.1. Direct compensation to affected households was ruled out in the Concession Agreement (Schedule 4, Part 1, Article 9.3) between the Government of Lao PDR and the Nam Theun 2 Electricity Consortium (now the Nam Theun 2 Power Company) signed on 3/10/03.

¹¹ Ibid., Chapter 40, Mitigation and Compensation Strategy, p.7.

¹² Ibid., Chapter 41, Monitoring and Evaluation and Grievance Procedures, p.9.

¹³ For a history of the Nam Theun 2 project and the World Bank’s involvement see, for example, presentation by Dr. Somboune Manolom, Chief Cabinet, Ministry of Industry and Handicrafts, Government of Lao PDR, in Report on Symposium “Nam Theun 2 – Window to the Future,” Vientiane, July 3, 2002, pp.40-53.

¹⁴ World Bank Monthly Operational Summary, East Asia and Pacific Region, Lao PDR, Rural Development, Nam Theun 2 Rural Livelihood, July 2004.

¹⁵ Ibid.