According to a just-released Probe International report, technological advances in power generation combined with electric utility market reform in China has turned mega-projects such as the Three Gorges dam into modern-day dinosaurs.

“We’ve always known that the Three Gorges dam would be costly,” says Gráinne Ryder of Probe International, “but now that China’s largest power consumers have the right to choose their own suppliers based on price not politics, Three Gorges is doomed to bankruptcy before it is finished.”

Under the very best circumstances, electric power from the dam will cost at least two times more than power from the new high-efficiency gas turbines and cogeneration plants. More likely, technical problems and operating conflicts will make the dam’s power even more costly, encouraging the country’s larger power consumers to leave the state-run system for cheaper independent or self-generated power, thus raising electricity prices for remaining consumers.

China’s largest hydro dam, Ertan, ran into this predicament last year. Ertan’s largest prospective customer, Chongqing municipality, refused to buy power from Ertan, complaining that the price of Ertan power, about six US cents per kilowatt-hour, was too high, and that it could buy cheaper power locally.

In addition to Three Gorges’ huge construction costs, it will require a new $30-billion transmission grid to distribute its power. China’s State Power Commission has said that the new transmission system will not affect electricity rates. But according to China Daily, spreading the costs of transmission to consumers “has become a formidable challenge to the government” because rates are already excessively high in some provinces.

The report predicts an inevitable death spiral into bankruptcy if the Three Gorges corporation tries to recover all of the project’s costs from ratepayers. To avoid this, the central government will either have to force consumers to buy Three Gorges power by prohibiting competitors and imposing the dam’s excessive costs onto ratepayers. Or it will have to keep the price of Three Gorges power below-cost by, for example, off-loading a portion of its debts onto another state agency or financial corporation.

The government set a major precedent for this type of bail out earlier this year, when it established special “asset-management” companies to absorb the bad debts of the four biggest state banks, including the China Construction Bank and the Industrial and Commercial Bank of China, both major lenders to the Three Gorges project.

Three Gorges Probe, December 16, 1999

The report’s authors, Patricia Adams, an economist, and Gráinne Ryder, an engineer, conclude that no matter who pays for Three Gorges – whether electricity ratepayers or taxpayers – the Chinese economy will suffer.

For the full report see: The Three Gorges Dam: A Great Leap Backward for China’s Electricity Consumers and Economy

For more information, see Three Gorges Probe

Contact: PATRICIA ADAMS, Executive Director, Probe International, and Publisher of Three Gorges Probe Internet News Service, (416) 964 9223 ext. 227, or e-mail PatriciaAdams@nextcity.com

GRÁINNE RYDER, Policy Director, Probe International, (416) 964 9223 ext. 228, or email GrainneRyder@nextcity.com