Nam Theun 2, a hydropower project on a tributary of the Mekong River, involves building a dam and a power plant with a generating capacity of 1,070 megawatts, at a cost of $1.25 billion. The largest single foreign investment in Laos, the dam will also be the largest in Southeast Asia when it goes online – scheduled for 2009.

Electricity from the complex will mainly supply neighboring Thailand, which has agreed to buy 93 percent of the power. It is expected to contribute $2 billion to Laos’s cash-starved economy over its first 25 years of operation, when it will be owned and operated by a construction and financing consortium, the Nam Theun 2 Power Company,
and $240 million a year, at present electricity prices, after reverting to national ownership in 2034. Nam Theun’s 450-square-kilometer, or 175-square-mile, reservoir will
drown Sop Hia and neighboring hamlets along with 40 percent of the Nakai Plateau, where the dam is being built, displacing 6,000 indigenous villagers and affecting the livelihoods of 100,000 other people.

The power company – a consortium led by the French state-controlled Electricite de France and including two Thai companies and the Laotian government – says the plateau mainly consists of poor farmland and degraded forest that was bombed heavily during the Vietnam War.

Conservationists say it is home to endangered species, including tigers, Asian elephants and clouded leopards. Officials say that exhaustive attention is being paid to mitigating the project’s social and environmental impact. The concession agreement calls for the dam’s catchment area, 4,000 square kilometers of upland rain forest, to be set aside for a national biodiversity conservation area, with the consortium paying $1 million a year for its upkeep. The consortium has also agreed to double the annual income of affected villagers to $800 per year, in a country where the average per capita income, at $340, is among the lowest in the world.

Monitoring bodies have been assigned to assess progress and to make recommendations to the country’s Communist government and the consortium. An independent panel of experts, for instance, will check whether livelihood opportunities and housing relocation are in place before the dam is closed. In theory, electricity may not be generated or exported if they are not.

The panel, however, has no legal powers, and its recommendations will not be binding on the power company.

“Only the Laos government has the authority to enforce the concession agreement. And as a part-owner, the Laos government has no incentive to minimize revenue by accurately accounting for compensation and environmental mitigation needs,” said Grainne Ryder, a corporate accountability expert and the policy director at Probe International, an independent environmentalist organization. “Its main priority is to keep NT2 financially afloat and maximize profit.” The World Bank, which is providing $270 million in loans and risk guarantees, and which plays a critical role in attracting international investment to the project, could promote corporate accountability by freezing funding. But Bank officials are loath to say at what point it would do so.

“If there is a pattern that emerges of noncompliance and the government remains unresponsive, then obviously the Bank would shift to a higher gear,” said Patchamuthu Illangovan, the World Bank’s country manager for Laos, in Vientiane.

Critics say the World Bank’s role as a lender prevents it from flexing effective regulatory muscle. “The World Bank’s overriding interest as regulator is that the Laos government doesn’t default on its loans from commercial lenders,” said Sebastien Godinot of Les Amis de la Terre, a French environmentalist association linked to Friends of the Earth. “It
doesn’t have any incentive to manage environmental and social impact.”

In the mid-1990s, amid widespread criticism of its role, the Bank stopped funding large infrastructure projects. Nam Theun marks its return to the field, and Bank officials say they cannot afford to get it wrong.

“We need to demonstrate that we have the capacity to do these projects right,” said Mohinder Gulati, a senior energy specialist at the Bank. “If there are shortcomings in this project our ability to help not only Laos but also other developing countries would be affected.”

EDF, too, as majority shareholder with a 35 percent stake, “is on the front line, so we have an added incentive to take all measures to properly implement the project,” said Olivier Salignat, an environmental advisor on sustainable development issues at EDF.

Last year a complaint by nongovernmental organizations against EDF’s environmental and social impact assessments at Nam Theun was officially rejected.

The complaint, alleging a breach of internationally agreed guidelines for multinational enterprises was examined by a mediating body, which declared it to be unfounded. “In fact, socially, they found we were going a step further” than necessary, Salignat said.

Critics however are unimpressed, noting that the mediator was part of the French Finance Ministry – a government body judging the actions of a government-controlled company. Officials for the project concede that in Laos, where there is little transparency, legal recourse or free speech, people are vulnerable to abuse. “The nature of the government is well known here,” Illangovan said. “But on the NT2 project, very early on in the process we communicated to the government that there has to be a very strong
credible contribution from them.”

The government says that it has held over 200 public workshops to tell villagers about the project and their resettlement options. They say that most villagers welcome the changes.

In Sop Hai, a 49-year-old woman, who gave her name as Fong, said she hoped to be able send her six children to school after resettlement, and to grow vegetables on a plot promised by the government. Still, a government representative monitored and helped to translate all interviews, which yielded no statements of dissent.