The World Bank and the Asian Development Bank (ADB) have agreed to support the US$1.2B Nam Theun 2 scheme in Lao PDR – the biggest single project undertaken in the country.
Lao PDR is expected to earn up to US$150M in annual revenue from the 1070MW project, with about 95% of the electricity being sold to neighbouring Thailand. The project will export about 5354GWh of electricity annually to Thailand and provide revenue to Lao PDR through taxes, royalties, and dividends. An additional 200 to 300GWh of electricity will be supplied each year to consumers in the country.
The ADB will support the project through a US20M public sector loan, a private sector loan of up to US$50M, and a political risk guarantee of up to an aggregate maximum liability of US$50M.
‘The project will improve the living standards of one of the poorest countries in the region. We recognise there are risks involved and we have studied these very carefully with the other government and other development partners,’ said ADB president Haruhiko Kuroda. ‘That is why we are involved. We feel that the risks can be managed and that these will be better managed by our involvement.’
While progress has been made, seven out of every 10 people in Lao PDR still live on less than $2 a day. About 80% live in rural areas with little or no access to basic social services. According to Kuroda, the sustainable development of hydro is one of the few options the country has for long-term growth and for further reducing poverty.
ADB’s public sector loan will be provided to the Government to purchase equity shares in the Nam Theun 2 Power Company Ltd (NTPC), which will develop, construct, and operate a 1070MW trans-basin diversion power plant on the Nam Theun river, a tributary of the Mekong river, in central Lao PDR.
The private sector loan will be provided directly to NTPC, which is owned by a consortium comprising EDF International of France (35%), the Government of Lao PDR (25%), the Electricity Generating Public Company Ltd of Thailand (25%), and the Italian-Thai Development Public Company Ltd also of Thailand (15%).
The political risk guarantee, to be issued by ADB in favour of commercial lenders that will provide direct loans to NTPC, will cover both Lao and Thai political risks.
The World Bank’s measures to support the project include a US$50M partial risk guarantee, a US$20M IDA grant and up to US$200M in MGA political risk guarantees.
World Bank president James D Wolfensohn said that Nam Theun 2 and other initiatives were an effort to assist a country which has great needs and few options. ‘We believe that a sound approach to selling hydroelectricity, supported by improved government policies, is the best way for the country to increase the amount of money it can invest in health, education and basic infrastructure for the benefit of the poor,’ he explained.
‘My colleagues and I have visited the project area and spoken to villagers on many occasions over the past several years,’ he added. ‘We have also had many intensive discussions with the Lao Government, and the project developers, making it clear that we all share the responsibility for this project succeeding in the years ahead.’
Stakeholders have raised concerns about the Government’s experience with projects of this size and questioned the Government’s ability to effectively and transparently undertake the project. These concerns are recognised by the international financial institutions supporting the project as important and significant risks to the long-term project success.
With this in mind, the project has been designed with a number of mechanisms to minimise these risks, including
• Multidonor technical assistance to help the Government improve its overall public expenditure management programme
• Oversight through audits and public expenditure surveys to monitor the utilisation and effectiveness of the Government revenue from the project for agreed priority programs, as well as technical review by the international dam safety review panel
• Long-term funding, as well as technical assistance, for conservation programmes as part of the overall project cost
• Commitments from NTPC to providing funding and to share management and operational responsibility for the outcomes of environmental and social mitigation and compensation programs, including resettlement on the plateau and in the downstream areas
• Delineation of the roles, responsibilities, and authorities of the central, provincial, and district government agencies of the Government with regard to project-related activities and programmes
• A programme of transparent monitoring and evaluation of project performance including the publication of project performance evaluations, progress reports, and monitoring data.
News of the financial support has been criticised by environmental organisations as being ill-conceived. International Rivers Network Campaigns Director, Aviva Imhof, commented that the country could not afford a project like Nam Theun 2, and that it would bring more benefits to the government elite and foreign consultants than the poor. ‘We fear for the lives of tens of thousands of poor Laotian farmers who will lose land, fisheries and other resources as a result of the project,’ said Imhof.
The finance agreements have been labelled a blow for the environment by the WWF, which is concerned that the project will disrupt the farming and fishing activities of up to 130,000 people. The global conservation organisation also warns that the flooding of 40% of the Nakai Plateau in southern Laos will threaten the already endangered wild elephant populations.
‘We fear that this dam rather than reducing poverty will only increase human misery and environmental degradation,’ said Ute Collier of WWF’s Dams and Water Infrastructure Programme. ‘We challenge the authorities in Laos and the World Bank to prove that this is not the case.’
Related ArticlesEDF and Harza announce Nam Theun 2 partnership Laos signs Nam Theun dam deal Thai workshop begins Nam Theun 2 discussions Nam Theun 1 PDA signed World Bank begins appraisal of Nam Theun II