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News Release from: Chartered Institute of Building [CIOB] | Subject: Nam Theun hydro-electric power project
Edited by the Buildingtalk Editorial
Team on 21 April 2005
Nam Theun hydro-electric power project
Development banks promise 'careful oversight' of Nam Theun hydro-electric power project.
Few major construction projects have attracted so much adverse comment as the $1 billion-plus Nam Theun 2 hydro-electric power plant on which work is due to start following World Bank assent to funding and bank guarantees to promote development in the Lao People's Democratic Republic The project is being actively supported by the Asian Development Bank based in Manila which in recent years has formed a close association with the Lao PDR
This article was originally published on Buildingtalk on 12 Mar 2004 at 8.00am (UK)
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The bank is currently running a two year $72 million program of national growth and poverty reduction in the country which includes start-up of the Nam Theun construction contract.
Lao PDR does not have the best of international reputations for fiscal integrity and care for human rights, but after a few years of working with the government the Asian Development Bank regards the country as one of the region's best performers in portfolio management.
The majority of projects undertaken so far have been recognised as satisfactory.
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None of them has been classified as unsuccessful in the past five years.
This performance record has undoubtedly built confidence to the point where the Asian Development Bank felt able to recommend a $20 million public sector loan to enable the Lao Government to purchase a 25 per cent equity holding in the Nam Theun 2 Power Company (NTPC).
This consortium with the Lao Government as a partner will undertake engineering, procurement, construction and management for the hydro-electric plant.
Italian-Thai Development PCL based in Bangkok holding a 15 per cent share is the head contractor.
The consortium will however be dominated by Electricite de France International at 35 per cent, completed by the Electricity Generating PCL of Thailand at 25 per cent.
The Nam Theun venture is in fact a public private partnership, one of the first of its kind in Asia.
It is structured as a build-own-operate-transfer project with a concession period of 31 years, of which the operating period is 25 years.
At the end of the concession period the project facilities will be transferred to the Lao Government free of charge.
Meanwhile the government is expected to benefit from around $2 billion revenue from sales of electrical power over a period of 25 years and a substantial contribution to the country's power supply which at present reaches no more than 10 per cent of the population.
One of the most often-quoted facts about the Laotian economy is that its people have an average income level of less than a dollar a day - according to the outgoing President of the World Bank, James Wolfensohn.
As portrayed by the Asian Development Bank President Haruhiko Kuroda, the picture is a little more optimistic: on this view, seven out of ten people in Lao PDR live on less than $2 a day.
The Nam Theun dam will by no means transform this situation, but as long as the Laotian Government sticks to its agreements over the use of the revenue, it should make a difference.
But the Friends of the Earth contend that the risks of the Nam Theun 2 dam are huge and the benefits uncertain.
"The World Bank's regulation, already tarnished by dam projects in the past, is at stake.
More importantly, the livelihoods of more than 100,000 local farmers are at risk.
" The International Rivers Network based in California asserts that there are no guarantees that the revenue from the power plant will be used for poverty alleviation, nor that significant impacts on local communities and the environment can be successfully managed.
America's Environmental Defense group accuses the World Bank of supporting a high-risk project despite the Lao Government's record of corruption, secrecy and human rights violations.
Safeguard agreements to ensure compliance.
The Asian Development Bank turns out to be well aware of these downside risks.
The President's report on the project admits that inadequate governance has hindered effectiveness and sustainability in the power sector.
In the case of Electricite de France, he says, dividends from investments in the power sector have remained with EdL to subsidise tariffs instead of supporting poverty reduction programs.
The risk assessment summary presented with the final recommendations accepts that a project of this magnitude and complexity is bound to be fraught with risk.
One obvious one is that the social and environmental mitigation measures might not be implemented effectively by the project proponents.
"To ensure compliance with the project commitments, NTPC has entered into a legal contract with the [Lao] Government through the concession agreement for the mitigation, compensation and rehabilitation of project affected people.
"In the event of breaches of environmental and social obligations, or of unanticipated or unintended project impacts, the concession agreement obligates NTPC to provide financial and technical support to take mitigation measures.
The panel of experts will assess the breach(es) and recommend that the NTPC and the Government undertake mitigation measures within a specified time.
The panel's recommendations will be final and binding on the Government and NTPC.
"Ineffective use of the Government's revenues from the project for priority poverty reduction programs is another risk.
The Government has however agreed to implement a public expenditure management strengthening program.
It will ensure that all capacity building and reform initiatives such as the World Bank's poverty reduction support credit and ADB's technical assistance support to strengthen the State's audit organisation and public accounting system are integrated into a comprehensive reform strategy.
The Government has also agreed to implement specific revenue management arrangements to enhance transparency and accountability in the use of revenue generated from the project.
"The risk of inadequate water flows and/or flooding from the Xe Bang Fai may result in the loss of electricity output and revenues.
The extensive hydrological studies and investigations covering the last 50 years, and the hydrological modelling of the project, including future power projects in the region, indicate that.this risk is minimal." The two multilateral development banks - the World Bank and ADB - say they recognise stakeholders' concerns, presumably among the Thai element in the consortium and the commercial banks, over the Lao Government's ability effectively and transparently to undertake the project.
Speaking for ADB, Mr Kuroda said he believes these risks are manageable with substantial and careful oversight.
"Approval of this project marks a milestone in the Government of Lao PDR's development planning.
We are convinced that if managed properly and implemented effectively, it has great potential to bring large and lasting benefits to the people of Laos." Many in the non-governmental organisations who are committed to a close watch on the Nam Theun project will think there are some fairly big 'ifs' in that statement.
Friends of the Earth among others have promised to monitor the project closely.
The World Bank's contribution is a $50 million partial risk guarantee in support of the project, and up to $200 million in political risk guarantees.
This is being supplemented by the offer of an Asian Development Bank loan of up to $50 million for the power consortium and a political risk guarantee up to a maximum liability of $50 million.
There is also a $20 million grant to come from the International Development Association in view of the rehousing demand for the 6,200 being resettled, and the robust mitigation and compensation program to assist communities downstream to prepare for changes to their livelihoods well in advance of the actual impacts.
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