Palang Thai – Empowerment for Green Self-reliance
April 5, 2005

On March 31, the World Bank executive directors approved a $50 million partial risk guarantee, a $20 million grant, and up to $200 million in political risk guarantees for the controversial Nam Theun 2 hydroelectricity project in Laos, despite a World Bank
economic project analysis with very questionable assumptions.

The economic appraisal of Nam Theun 2 hinges on a comparison of the economic cost of electricity from the dam versus electricity from natural gas. Comparing tables in the draft and final versions of the report reveals remarkable changes in key assumptions about natural gas.

Faced with a 17% increase in Nam Theun 2 economic capital costs between the draft and final versions of the report (caused by increased project development costs), the final report matches Nam Theun 2 cost increases with a 61% jump in the assumed real economic costs of natural gas starting six years after Nam Theun 2’s 2010 commissioning date, a 10-to 12-fold increase in variable operations and maintenance costs for
natural gas, and a 13-24% increase in assumed cost of gas turbines.

Comparing the draft and final versions, these new assumed values appear crucial in increasing the present value of “post-2015” costs in a non-Nam Theun 2 scenario by 14% – sufficient for positive economic assessment of Nam Theun 2 compared to natural gas. Remarkably, no explanation for any of the increases in the value of crucial natural
gas cost assumptions is offered in the final report. Conspicuously, no details of the calculations after 2014 are available in the appendices.

Also, the final report relies on key assumptions that contradict both official Thai government plans for the power sector and the findings of other World Bank-commissioned reports on Nam Theun 2.

These assumptions were discussed in a three-letter dialogue with Ian Porter, World Bank country director for Laos and Thailand. The letters were all sent to 47 executive directors of the World Bank. The dialogue in its entirety has been posted at  <www.palangthai.org/docs/RemarkableAssumptions.pdf [PIver PDF here] >.

We think the dialogue provides a fascinating perspective on the transparency, accountability and consistency of the World Bank Nam Theun 2 economic appraisal process. We encourage readers interested in good governance to download and read the dialogue and the reports themselves to form their own opinions.

CHRISTOPHER E. GREACEN

Director, Palang Thai

DECHARUT SUKKAMNOED
Kasetsart University

CHALOTORN KANSUNTISUKMONGKOL
Thammasat University