(September 29, 2011) A look at China’s costly and chaotic dam-building spree, and the legal and economic reasons behind the bad investments.

Probe International

Despite fatal mudslides, disappearing fish stocks and parched riverbeds, China’s headlong dam-building rush shows no signs of slowing. Liu Zhi, of the Beijing-based Transition Institute, examines why. He argues that government control of rivers, rewards for ‘growth’ and bribes from dam-builders give local governments incentives to approve dams willy-nilly.  Since the losses are borne by the public, while the profits go to local officials, they get built anyway. The situation won’t change, Liu writes, until Chinese governments face the rule of law.

The Hydropower Chaos in China

Liu Zhi, Transition Institute

Beijing

Last month, China Central Television 2 reported that many hydropower dams are being built in Zhouqu county, Gansu province where a serious mud-rock flow killed 1,471 people and injured more than 2,500 just one year ago. Among these stations, only one has passed the safety assessment which was carried out by the local earthquake administration. Yet it is puzzling that even one dam could pass the assessment given that it is built in an earthquake prone area. More than 1,000 hydropower stations (including those still under construction) are on the Bailong River[1] which is 600 kilometers long and flows through Zhouqu. The owners of most of these stations have not applied for the safety and environmental impact assessments and approval.

In order to maximize hydropower revenues, these dam operators greedily exploit water resources without legal constraint. They interrupt the flow of water by trapping it behind their dams in the reservoir, and from there divert water to their turbines to generate power and profit. Meanwhile, downstream, river flows are dramatically altered, even to the extent of drying up.

The negative environmental damage caused by the interruption of water flows is obvious, and the impacts are unprecedented. Fish stocks in the river have greatly declined or vanished altogether. In order to construct the penstock and tunnel, vegetation on the surrounding mountains has been damaged, causing a dangerous increase in mud rock landslides. Indeed, some experts argue that last year’s mud-rock flow was caused by a decline in vegetation. Meanwhile, many homes in the valley have developed cracks because, with reservoir water levels rising and falling, the water table has fluctuated and the land underneath their homes shifted. Furthermore, drinking water supplies in some areas have been threatened.

In fact, the damage and danger unfolding along the Bailong River is not unusual. There are many more rivers like the Bailong River, and chaos reigns in China’s river valleys.

According to press reports, 16 hydropower stations on the 100 KM-long Lan River in Shaanxi province are causing the same serious problems: the riverflow has been interrupted, and fish have disappeared. Downriver residents are suffering from shortages of water to drink and for irrigation.

Elsewhere, the same dire problems are occurring. In Fujian province, sections of the Jiulong River, known as the mother river of southern Fujian, have dried up, exposing bare stone. Fishing villages have lost their fish and, as a result, their livelihoods. Why? Because more than 1,000 hydropower stations have dammed the river in order to produce electricity, interrupting the natural flow of water needed to sustain life. The same disaster is playing out on the Sichuan’s Min River where the precious water is exploited for hydropower. There, sections of the riverbed are bare and exposed.

The situation has become so dire that environmentalists and local residents have begun to appeal to demolish the dams.

Why is this destructive phenomenon so pervasive? Because the right to exploit China’s water resources is owned by the state and the state has allowed hydropower companies to exploit these rivers to make money. In 2002, five state-owned power generation enterprises were established under China’s electricity sector reform. Though the right to generate power was opened to all power companies, the country’s largest rivers, crossing provinces, were given to the five state enterprises[2]and other state-owned ones. For instance, exploitation rights for the Yangtze were given to the China Three Gorges Corporation. Meanwhile, smaller rivers which do not cross provincial borders generally could be auctioned off by local governments to favoured enterprises, including private ones.

Whether state-owned enterprises or private companies, local governments are eager to enlist whoever wants to develop their region’s water resources: dams and more dams promise to raise GDP levels, government revenues, and brownie points for local officials whose performance is measured by “growth,” economic or otherwise. And power companies are a rich source of bribes and private benefits for local government officials – not to be overlooked in a country where corruption is rampant. Consequently, many hydropower stations that are bereft of safety and environmental impact assessments are being given the green light by local governments. They have access to free water and are able to externalize the environmental and social costs of their investments onto uncompensated Chinese citizens, so it is unsurprising that the average profit margin of these hydropower plants is more than 35%.

In Zhouqu, one official revealed that the average increase in state revenues from hydropower is 20 million yuan every year. Last year, after the mud-rock flow disaster, the central government allocated 5 billion yuan to a reconstruction fund, of which 190 million yuan was allocated to environmental protection and improvement. Though the county suffered enormous economic losses as a result of the landslide – far outweighing the gain from power revenues – for local officials, hydropower construction has been pure gravy.

Experts suggest that China should learn from foreign experience.  In Norway, for example, though water is used to generate electricity, a minimum water flow is mandatory, in order to maintain ecological stability as much as possible. At the moment, China has no provision for this. Even if such a requirement existed, it would probably be ineffective. The events in Zhouqu explain why. If the government does not obey the law, and there is no independent judiciary to enforce it, chaos will continue to reign on China’s rivers.

Liu Zhi is a researcher with the Transition Institute, focusing on China’s energy sector. He advocates deregulation and market-oriented reform, the internalization of environmental costs, and elimination of state subsidies to the energy sector.