LAOS: Massive Dam Project Could Backfire

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A new dam funded by the World Bank and the Asian
Development Bank (ADB) and hailed as a windfall for Laos may end up
doing more harm than good to one of the world's poorest nations and its
vulnerable farmers, several independent development groups say.

The World Bank, whose
approval often signals a green light for other public and commercial
banks to get involved, formally approved funding for the
1.25-billion-dollar Nam Theun 2 hydroelectric dam project on Apr. 1
after 12 years of studies and deliberations.

The ADB said Monday that it will give Laos, Asia's poorest
nation, a total of 120 million dollars in loans and political risk
guarantees. The European Investment Bank (EIB) will make a funding
decision shortly.

The involvement of the World Bank, the ADB and the EIB
catalyses significant amounts of long-term U.S. dollar debt from
commercial lenders to support the power sectors of Thailand and Laos.

The project is run by the Nam Theun 2 Power Company Limited
(NTPC), which is owned by a consortium comprising EDF International of
France (35 percent), the government of Laos (25 percent), the
Electricity Generating Public Company Ltd of Thailand (25 percent), and
the Italian-Thai Development Public Company Ltd (15 percent).

Many analysts, however, have assailed the banks' support and
say it shows that international financial institutions, spearheaded by
the Washington-based World Bank, are ignoring their own policy
guidelines and paying little regard to indigenous people, the
environment or the long-term welfare of the poor nation.

"I think this project is the poster child of the kind of
projects that the Bank should not approve. It is poorly prepared. It's
in the wrong place. It's for the wrong reasons," said David F. Hales, a
lawyer and sustainable development expert at the Washington-based
Worldwatch Institute.

"This is exactly the kind of project proposal that the safeguard
procedures of the World Bank and the Asian Development Bank are
designed to prevent," he said. "The risk of further impoverishment of
the people, of corruption and mismanagement, and of financial failure
of the project is just too high."

Hales, who chaired the World Bank's U.S. public workshop on
Nam Theun 2 in September 2004, also warned that now that Nam Theun has
been approved, it opens the door for similarly dubious initiatives.

"The World Bank will have written a brand new definition of 'blank cheque'," he said.

The World Bank is providing up to 270 million dollars in loans and risk
guarantees for the project, due to be completed in 2009. At 1,070
megawatts, it would divert 93 percent of the Nam Theun River's flow
into the adjacent Xe Bang Fai River basin, generating power for
Thailand's electrical grid.

It would also submerge nearly 40 percent of the Nakai Plateau beneath a 450-square-kilometre reservoir.

Many say this will drastically alter the character of two important
rivers, displace thousands of desperately poor residents, and disrupt
the livelihoods of tens of thousands more, among the other
transformations typical of such hydropower projects.

The public lenders respond that Nam Theun 2 is the biggest
single infrastructure project ever undertaken in Laos, and is expected
to earn the country up to 150 million dollars a year in taxes,
royalties, and dividends.

The World Bank says those revenues will boost spending on
basic health and education by as much as 30 percent in the project's
first year of operation, and that part of the money will help fight
poverty and protect the environment.

Backers also claim that the project will generate about 4,000
job opportunities in this country of 5.8 million people during the
construction period.

But those promises have not eased the concerns of independent
development groups, many of which have monitored similar huge water
projects in other developing nations.

In March, more than 150 non-governmental organisations from 42
countries sent a letter to World Bank President James Wolfensohn
calling on him not to support the dam and detailing a number of their

Last month, dozens of local villagers protested the new
project. The Berkeley-based International Rivers Network warns that the
Nam Theun 2 dam would displace more than 6,000 villagers and affect the
livelihoods of another 100,000 people living downstream along Xe Bang
Fai, another large Mekong tributary.

The group says that feasible plans for compensating affected communities still do not exist.

Among the many other complaints hanging over the project is that it
would create an "intractable debt burden" for Laotians in years to

"It is projects like Nam Theun 2 that eventually need debt forgiveness
because they are not economically viable and they don't generate the
wealth needed to repay the loans," said Patricia Adams, executive
director of Probe International, a Canadian group..

She pointed to the fact that just last week, on Mar. 28, Japan
announced it was canceling debt owed by Laos for construction of the
Nam Ngum dam, the country's largest hydro export scheme built in the

"The experience is that big dams lead to bad debt," agreed Gráinne
Ryder, a hydro expert and Probe International's policy director.

Opponents say that large dams financed by the multilateral development
banks, including the World Bank, have traditionally proven to be money
pits, and that costs have been unrecoverable from ratepayers.

In Washington, Treasury Department officials have also raised
questions about the World Bank's capacity to ensure that the project's
revenues are spent on poverty reduction, given the Lao government's
record of financial mismanagement.

Another problem with such projects in general is that
electricity output is often less than projected and not very reliable
because hydro reservoirs are extremely vulnerable to drought. The
environmental impacts of large dams have led to major agricultural and
fisheries productivity losses.

"By supporting Nam Theun 2, the World Bank has shown it will repeat the
same mistakes until it is shut down once and for all," said Ryder.

The financial backers of the project respond that they are aware of all
these risks and say they have mechanisms in place to manage them.

These include multi-donor technical assistance to help the
government improve its oversight through audits and public expenditure

"We recognise there are risks involved and we have studied these very
carefully with the government and other development partners," said ADB
President Haruhiko Kuroda in a statement on Monday.

"This project will improve the living standards of one of the
poorest countries in the region. That is why we are involved. We feel
that the risks can be managed and that these will be better managed by
our involvement," he said. (END/2005)

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