The World Banks 24-member executive board Thursday gave the go-ahead to guarantee a controversial 1,2 billion US dollar hydro electric project in Laos which has been on the drawing board for the last decade, reports the World Bank press review.
It is the first major hydro power project to come before the Banks executive board in a decade and the first venture following a 2000 watershed report by the independent World Commission on Dams setting criteria for planning of large energy and water projects.
For the communist-ruled and cash-starved Lao government, a World Bank nod is crucial as the dam project has the potential of generating revenue of nearly 2 billion dollar – the current gross domestic product of the poor landlocked nation – over a 25-year period.
– It is a real opportunity for the poorest country in Asia to secure valuable revenue for health, education, environment and infrastructure programs, Peter Stephens, a World Bank spokesman, said.
World Bank approval comes at a critical time for the project. The consortium of companies building the dam have until May to secure financing for the project before a series of penalties kick in.
The project requires 855 million US dollar in loans, accompanied by 330 million of equity from shareholders including French and Thai companies and the government of Laos.
World Bank support for the project comes in the form of a 20 million dollar grant, a 50 million dollar loan partial risk guarantee, and a 200 million Multilateral Investment Guarantee Agency loan guarantee. Other multilateral organizations also are expected to assist the project.
In addition to the dam project, the Bank approved a 10 million dollar poverty reduction support credit, comprised of a 5,5 million grant and a 4,5 million long-term, low-interest loan. The money will go into the Laotian governments general fund, for use on a range of education, health and other poverty-related projects.
The Nam Theun 2 is expected to provide Laos with up to 150 million dollar in additional annual revenue. This will enable spending on basic health and education to rise by as much as 25 to 30 percent in the projects first year of operation.
The World Bank President, Mr. James D. Wolfensohn, said that Nam Theun 2 and the other initiatives were an effort to assist a country which has great needs and few options.
– Lao PDR has an average income level of less than a dollar a day, and in many rural areas, it is considerably less than that. Children still suffer malnutrition in many parts of the country, and too many young people receive little or no formal education, he said, adding:
– But to get out of this poverty trap, the country has few options to generate income. Essentially, it relies on mining, timber and hydroelectricity. 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.
– My colleagues and I have visited the project area and spoken to the villagers on many occasions over the past several years – in fact I was there just in February – to talk with them and hear directly from them about their hopes and concerns. 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, he stated.
Mr. Wolfensohn said that the project was quite complex and would pose some serious implementation challenges to the Government of Lao PDR, the private sector developers, and the other supporters, including the World Bank.
– We have spent the best part of a decade studying the project and evaluating the risks, Mr. Wolfensohn said. – In fact, we have been advised by some independent experts that we have studied it for too long, and been too focused on possible risks.
– But because it involves resettlement of people, because it impacts not one but two rivers, and because it is so vital for the future of the country, we believe these risks need the utmost attention. Our decision, after a lot of deliberation, is that the risks can be managed; in fact, one major reason we are involved is to help manage those risks, he concluded.
Some 153 nongovernmental organizations from 42 countries had sent a petition to World Bank President James Wolfensohn urging it not support the dam, which would flood part of a heavily degraded plateau and involve the relocation of at least 6.200 people.
Stephens said that an untouched forest reserve nine times the size of the area being flooded was being set aside as a biodiversity conservation area and those relocated would be provided improved housing and better incomes.
The project is a venture between the Laos government and the Nam Theun 2 Power Company, which comprises EDFI, the global arm of French state-owned Electricite de France, which holds a 35 percent key stake. The Lao government and Thailands Electricity Generating Public Co. Ltd. hold a 25 percent stake each while another 15 percent equity came from joint venture Italian-Thai Development Public Co. Ltd.
Laos considers the project particularly important for the nation. Laos is a pocket of poverty in fast growing Asia and has very few resources. Water is one of them. More than nine tenth of the 1.070 megawatts that would be produced by the dam would be exported to Thailand.
This would provide Laos with an annual average revenue of 80 million US dollar. Bangkok is also very keen on the project. Thailand’s electricity-producing capacities are nearly saturated, and the energy demand is growing very quickly within the country ( plus 6,1 percent in 2004).
In exchange for its support, the World Bank requires the Laotian authorities to commit to precise measures in the fields of social development, education, health and environmental protection.
NTPC, the consortium that wants to build the dam and exploit it for the next 25 years before transferring it to Laotian authorities, has planned to finance installations for the local communities. Ludovic Delplanque, spokesman for NTPC, says that under the pressure of NGOs, the budget that the consortium plans to devote to the populations living upstream of the site of the proposed dam has been multiplied by ten over the past few years.
The consortium plans to build wells and fishing reserves in villages and to double the revenue of all of the people who would be displaced by the dam. An expert on energy resources in the region says:
– It is better for the project that the World Bank lends it its support. If not, Laos will exploit its hydroelectric potential by itself, and without any monitoring, they will not need to provide rural populations with any guarantees. The World Banks support will also determine whether other investors commit to the project.
Piyasvasti Amranand, chairman of Thailands Energy for Environment Foundation, meanwhile commented, that while the people of Laos are likely to be the main beneficiaries of the project, Nam Theun 2 would also benefit Thailand.
Firstly, Nam Theun 2 will help Thailand meet its growing demand for electricity. The demand for power is expected to grow by 1,788 MW per year over the period 2005-11.
The second reason Thailand needs the Nam Theun 2 project is that Thailand is facing a power shortage. After the economic crisis in 1997, many power projects were postponed to prevent excess capacity of the power system, but when the economic recovery began, new investments faced a much longer lead time due to the process of obtaining public acceptance.
As a result, the reserve margin of the power system has fallen from 35,1 percent in 2003 to 26,8 percent in 2004, and is expected to fall to 13,7 percent in 2006 , which is lower than the minimum requirement of 15 percent for power system planning.
The third reason for supporting Nam Theun 2 is that it would help to increase Thailands fuel diversification and energy supply security.
Lastly, the levelized purchase price of power from the Nam Theun 2 project is less than the long run avoided cost of power generation in Thailand. This means the average cost of supplying power to Thai consumers will be lower as a result of the Nam Theun 2 project, Amranand argues.
Kilde: www.worldbank.org
