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Green light for Nam Theun 2

Kevin Rafferty
Business Day
February 28, 2005

The controversial Nam Theun scheme has been given the go-ahead by a World Bank advisory panel; critics that regard NT2 as the Laotian version of Thailand’s infamous Pak Mun Dam are girding for further protests.

The controversial $1.3 billion Nam Theun 2 project, in which companies from Thailand, France and Laos will join hands with the World Bank and financiers from Europe and Asia to build a massive dam in Laos on a tributary of the Mekong and supply electricity to Thailand, has just moved a step closer to reality.

A three-man World Bank advisory panel has given a green light in declaring that environmental, social and other safeguards had been more than met in planning for the project and implementation plans should start.

“The time has come to switch the emphasis from planning and safety net construction to implementation,” said the 24-page report of the panel. “That will switch the focus for action from Washington, Paris, Manila and Vientiane to Thakkek and Nakai. That is as it should now be.”

The Nam Theun scheme, nicknamed NT2, is controversial because of its size, the potential damage to traditional life and the ecology of Laos, the complicated international partnership, the need for World Bank guarantees on the financing and just because it involves building a large dam.

The clock is ticking away since the power purchase agreement signed on November 8 2003 between the Electricity Generating Authority of Thailand (Egat) and Nam Theun 2 Power Company commits the Nam Theun company to secure project financing within 18 months, that is, by May.

The Laotian government has asked the World Bank for a partial risk guarantee for the project from its soft-loan arm, the International Development Association. If the World Bank gives the go-ahead, including a $20 million IDA credit for social and environmental
mitigation activities, other funds would be provided by the Laotian government, the Asian Development Bank, the official French development agency and the European Investment Bank. Of the total cost, $855 million is supposed to come in loans and $330 million from
shareholders’ equity. The very size of the project is almost as big as the $1.6 billion economy of all of Laos.

The idea of the build-own-operate-transfer (BOOT) scheme is to allow a poor country to invest in a huge project in spite of its poverty and to benefit from the international expertise. Under the plan, NT2 will generate 1,070 megawatts of electricity starting from 2009. The bulk of it – 995MW – will go to Thailand under a 25-year agreement with Egat.
The rest of the electricity will go to Laos.

When on full stream, NT2 will province up to $150 million a year in earnings for Laos. The big Thai conglomerate Italian-Thai will be the main construction company and has a 15 percent stake in the NT2 power company. The biggest stake of 35 percent is held by Electricite de France, with 25 percent each being held by the Laotian electricity company and Electricity Generating Company of Thailand.

The justification for the scheme is that it offers the best help to pull Laos from its ingrained poverty. The World Bank last month noted that: “Despite more than a decade of strong growth and progress on poverty reduction, Laos remains one of the poorest countries in the world. Per capita income is $320 and many of its social indicators are the worst in East Asia. Laos has few options to earn the money it needs to invest in basic health, education and infrastructure.”

The three advisers to the World Bank – Dick de Zeeuw, Emil Salim and David McDowell – strongly back the project, saying that, “The NT2 proposals, taken as a whole, represent the most promising development package before Laos at this stage in its evolution for the net
environmental, economic and social benefits substantially outweigh the downside costs.”

They consider that the World Bank has more than gone the extra mile to ensure the quality of the project and declare confidently that, “The array of plans now on the table conforms broadly to the requirements of the World Bank’s safeguard policies and, in some respects, are an advance on them. Implemented with vigour and enthusiasm . . . they have
the potential to ensure that the poor of Laos are the final beneficiaries of the project.”

Given the storm of criticism that the scheme still has the potential to generate, the three men assert that “the endeavour which has most surely undermined the success of other large dam projects – resettling the displaced – is likely in this case to be the most problem-free aspect, complex though it may be.” Altogether, about 6,000 people will
be resettled.

In addition, the panel consider that the scheme offers a bonus chance actually to conserve and promote biodiversity rather than spoil the natural habitat, as such big schemes have been accused of doing. Their report actually looks forward to achieving World Heritage status for the Nakai Nam Theun conservation area. “Islands of biodiversity cannot
survive in a sea of poverty,” they note.

There is just one dark storm cloud that the World Bank report points to: “Overall project management and coordination is not fully effective,” the report says. “Too much of the cooperation and cross sectoral exchanges appear to happen in part as the result of chance
encounters or casual meetings.”

Even with this green light, and in spite of the best efforts of the World Bank – which included workshops last year in Bangkok, Tokyo, Paris, Washington and Vientiane – critics are girding for further protests. They regard NT2 as the Laotian version of Thailand’s infamous Pak Mun Dam.

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