The World Bank and the Asian Development Bank has released the latest semi annual update on the implementation of the 1070MW Nam Theun 2 project in Laos, with reports of overall satisfactory progress since the last update in March 2006.

The report, to the World Bank’s and Asian Development Bank’s Boards of Directors, notes that construction is moving forward with improved alignment with environmental and social mitigation measures, and points to additional improvements made in strengthening the International Advisory Group, strengthening the environmental management team and getting livelihood activities underway in the downstream areas. However, the report also stresses the importance of continued focus on the implementation of local livelihood programs and continued monitoring of environmental impacts.

In the Nakai Plateau, the area where the reservoir is being formed, nearly 600 households from eight villages have moved into their resettlement sites under an accelerated relocation programme endorsed by the Environmental and Social Panel of Experts. Among other things, the resettled villagers have been provided with pumped water supplies, schools, health programmes and rice and protein supplements, and are taking part in the construction of their new houses while participating in livelihood development programmes.

The livelihood programmes are designed to advance activities in areas such as forestry, fishery, livestock, non-farm employment, education and health, thereby raising the income of villagers living in the project area. The report urges closer monitoring of these programs in order to address issues early on and to quickly resolve any grievances.

The report also emphasises the importance of continuous monitoring of ongoing studies relating to downstream effects and wildlife management and the need to put in place a plan for environmentally sound biomass clearance in the future reservoir area.

Main highlights from the update include:

* Laos has maintained relatively stable macroeconomic conditions with growth expected to reach 7.5% in 2006. The Government of Laos is moving forward with poverty reduction goals and economic reforms.

* After a slow start, the implementation of the Public Expenditure Management Strengthening Programme is progressing well. Credible implementation arrangements and long-term capacity building services have been reinforced since the last update and a revised Budget Law is undergoing national consultations.

* Physical implementation of the project is on track and construction is better aligned, since the last update, with environment and social mitigation measures.

* The livelihood programme development is beginning to show progress but requires close monitoring and it will take time for results to be evident. Pilot programmes in 21 of the downstream villages are being implemented and they will be scaled up in the next few months. In response to compensation issues that have been raised in villages in the Project Lands, Nam Theun 2 Power Company (NTPC) and the Government are reviewing the payments.

* Reporting and oversight arrangements are stronger. The International Advisory Group has been strengthened and cooperation among international financial institutions has been described as ‘exemplary’. The Update benefited from recent visits from a World Bank and Asian Development Bank technical team, the Environmental and Social Panel of Experts and the Lender’s Engineer. However, there have been significant delays in establishing two of the three Independent Monitoring Agencies (resettlement and environment) and specialists will be contracted shortly.

* Capacity development is viewed as a priority and NTPC has mobilised additional expertise on rural and social development and environmental protection. The Government’s Watershed Protection Management Authority (WMPA) is performing well, and its continued efforts to strengthen capacity are recognised by all.

* Salvage logging has begun and the Government plans to complete it within the next two dry seasons. Options for additional biomass clearance in the future reservoir are being reviewed as a priority.

Nam Theun 2 is a US$1.45B hydro power project in Laos that aims to generate revenues for poverty reduction efforts and environmental protection. In March 2005, when World Bank and ADB support for the project was approved, management of the two Banks made a commitment to supervise the project closely and report regularly on its implementation.