Attention: David Hales
Council for Sustainability Policy
Worldwatch Institute & Moderator
World Bank workshop on the proposed Nam Theun 2 hydroelectric project, Lao PDR
held in Washington DC, September 10, 2004

cc: Marcel Masse, Canada’s Executive Director
Stephen Free, Senior Advisor to Canada’s Executive Director

Re: Probe International’s Summary Remarks on World Bank Financing for the Nam Theun 2 Hydroelectric project in Lao PDR Probe International’s Interest

Probe International is a Canadian taxpayer-supported citizens’ group that opposes the use of Canada’s foreign aid for:

1) environmentally destructive and uneconomic development schemes;

2)subsidizing private profit at the expense of taxpayers, captive electricity ratepayers, or the environment; and,

3) unaccountable governments that do not respect the rule of law or the individual and community property rights of citizens. Based on our review of all available information, World Bank and Asian Development Bank funding or Nam Theun 2 would constitute all three categories of foreign aid abuse.

Specific criticisms of the Nam Theun 2 plans are found in Probe’s written submissions:

1) Ten Reasons Why the World Bank Should Not Finance the Nam Theun 2 Power Company in Lao PDR, (A Demand-Side Analysis), July 2004, 20 pp.

2) World Bank dam threatens Laotians: developers predict aquatic ecosystem collapse, (A review of the Nam Theun 2 Power Company’s downstream mitigation and compensation strategy), August 23, 2004, 3pp.

3) World Bank-backed hydro venture threatens poor Laotian farmers: developers admit high risk of failure, (A review of the Nam Theun 2 Power Company’s resettlement plan) September 1, 2004, 3pp.

4) Friends of the Earth? Western conservation groups back Indochina’s most environmentally destructive hydro scheme, (A review of the Nam Theun 2 Power Company’s watershed management plans), September 7, 2004.

Final Remarks

World Bank Denounces Critics Rather Than Prove Its Case

In parallel with the World Bank’s workshops on the proposed Nam Theun 2 hydro project in Laos, the Bank is running a media campaign that discredits the Bank’s alleged commitment to an honest and impartial assessment of the Nam Theun 2 project. Writing this week in the Business Times of Singapore, the Bank’s external affairs officer, Peter Stephens, argues that while the Bank has made no decision on financing Nam Theun 2, anyone opposed to the project is effectively denying Laotians their chance for a better life based on some irrational fear of large dams. What utter nonsense. Tying the fate of Laotians to construction of a single hydro export scheme is a political trick, one that would be promptly denounced as such by Laotians if Lao PDR was a free country. Nam Theun 2 critics, including Probe International, are not telling Laotians or the Lao government what it should or should not do; we have simply asked the World Bank to either live up to its own standards and follow through on its claim that Nam Theun 2 will be different from past hydro dam failures OR decline funding for the project. A decision to go ahead would have to include demonstrating to local people how they will not be victimized as they have been in the past, how the plans for “new livelihood options” will triple resettlers’ income in eight years, how much Laotians will have to borrow from the World Bank to pay for the dam’s externalized costs, how the Bank will penalize corruption and mismanagement, and how the project compares to other economic development strategies. We cannot emphasize enough that the World Bank’s Nam Theun 2 team of experts have failed to make their case. Perhaps that failure explains why the Bank’s external relations department has adopted a tone verging on hysteria, claiming that without Nam Theun 2 Laotians will be banished to “eternal poverty.” We reject outright the Bank’s notion that Laos has no other option but Nam Theun 2. Saying so does not make it true. The fact is that Laotians have been denied other options for development by the alliance forged by the World Bank, its client-government, and the Nam Theun 2 Power Company. By all accounts, Laos wasn’t a good place to do business or invest a decade ago and that remains true today because of policy choices made by the Lao government, not because NGOs have no confidence in Nam Theun 2. If the Lao government decided to open its doors to private investment, respect the rule of law, and recognize its citizens’ land and resource rights, investors and development would follow. Because the Lao government has adopted Nam Theun 2 as its political and economic lifeline, rather than reform, the country has remained an economic backwater mired in poverty.

Nam Theun 2 Costs Still Not Counted, Ten Years Later

The World Bank claims it will only support the billion-dollar Nam Theun 2 hydro venture if it can ensure that the benefits to Laotians outweigh its costs to Laotians. Yet the developers have not completed this analysis. Based on Probe International’s review of the developers’ plans, the World Bank’s recent policy statements, and the Bank’s responses to questions posed at the Nam Theun 2 workshop in Washington on September 10, we have no confidence that the proponents can deliver the promised benefits from this project. Costs not counted include: the cost of downstream livelihood, resource, and property damages; the cost of providing replacement livelihood income for all project victims over the project life (including those resettled, the 5,800 people now living in the Theun watershed, the more than 40,000 people affected downstream), the opportunity cost of flooding more than 600 square kilometres of the Nakai Plateau in central Laos and destroying fisheries in two river systems. The Bank’s assurances that it has studied the project exhaustively is simply false. The fact is, major costs to Laotians remain uncounted, even after a decade of support from the World Bank. The number of people affected has still not been properly assessed, no detailed compensation plans have been worked out for people living in the Theun watershed and downstream of the dam. Proponents say this is “a work in progress” – we believe these “gaps” in the plans and cost assessment signify a lack of respect for the rights of those affected to know precisely how they will be affected and what compensation the company is prepared to provide before final decisions are taken and irrevocable damage is inflicted upon local people’s resources and livelihoods. Conducting a rigorous assessment and availing local people of the facts about how their river, land and livelihoods will be affected by a large hydro dam is not rocket science, though the Bank certainly gives that impression. The proponents’ assurances that further cost assessment will be done after the project financing is approved is not acceptable or credible. Costs not properly assessed and internalized by the power company now are unlikely to get attention later after financing is approved given the Lao government’s conflict of interest as a part-owner of the Nam Theun 2 power company with a clear interest in maximizing its profits, not assessing costs to local people. This conflict of interest should be recognized by the Bank as the single biggest obstacle to delivering fair compensation and benefits to affected people, not the lack of capacity, as so often cited by the Bank as the rationale for more Bank funding.

World Bank Oversight

The Bank is putting a great deal of emphasis on its own ability to enforce and police the project, without acknowledging that the Bank has no track record for the kind of intensive oversight it now claims it is ready to provide. Nor does it have any real authority or capacity to act as an enforcer or uphold the rights of Laotians when they conflict with the interests of its client-government. The Bank claims one of its antidotes for corruption and illegal logging is a new watershed management authority free from all illegal logging interests in central Laos, and one that will subject all contracting and equipment procurement decisions to strict approval and auditing procedures. Similar claims were made by the Bank in the case of the Lesotho Highlands Water Authority and yet the Lesotho courts found a Canadian firm, Acres International, guilty of bribery in connection with a World Bank contract. The Bank’s claims that it can keep Nam Theun 2 corruption-free are not persuasive given its track record and the lack of government accountability and democratic oversight in Laos.

Nam Theun 2 is No Model Infrastructure Project

Contrary to the Bank’s claims, World Bank funding for Nam Theun 2 would send the wrong signal to private investors and power companies in the region – that electricity investment deals remain ultra risky, ultra secretive, take years to negotiate, and are still driven by foreign aid subsidies and monopoly deal-making rather than the best available technologies, customer needs, and an open and competitive biddingprocess based on respect for the rights of consumers and citizens, not just the rights of investors. Nam Theun 2 is no model for infrastructure investment and the Bank’s own power sector experts know it. In the desire to cajole private investment into Nam Theun 2, the Bank has imprudently established a framework that relieves the Nam Theun 2 Power Company of the project’s real risks, and guarantees revenue over a 25-year period. Laotians, meanwhile, would be forced to bear the burden of resettlement failure and irreparable damages to their ecosystems without guaranteed recourse to the power company for damages, without being fully informed about the expected damages and risk of failure, without the right to opt for, let alone debate, alternative development strategies, and without guaranteed compensation, in any event. With this framework for private profit, public risk, the Bank is victimizing Laotians. It is not unreasonable therefore to predict conflict will result – this in a country that has already suffered a decade of economic deprivation thanks to the Bank’s fixation on a single unbankable and environmentally devastating power project.

Conclusion

After participating in the September 10 workshop, Probe International remains concerned that the Nam Theun 2 project will lead to more unnecessary poverty and environmental degradation in Laos, and that the World Bank simply cannot guarantee successful implementation. Therefore, we urge the Canadian government and the World Bank to decline funding. (The question of whether and how much the World Bank owes Laotians for 10 years of economic stagnation on the Nakai Plateau while the Bank “considered” Nam Theun 2 is a separate issue beyond the scope of this memo.) If you have any questions or require clarification about any of the points raised in this memo, please do not hesitate to contact me directly at (416) 964-9223, ext. 228.

Sincerely,
Gráinne Ryder
Policy Director
Probe International
225 Brunswick Ave.
Toronto, Ontario
M5S 2M6