Nam Theun 2: Decision pending serious problems remain

21 September 2004

The deadline for the Bank’s decision to finance the controversial Nam Theun 2 hydroelectric power project in Lao PDR is fast approaching. However, long-term opponents of the project predict that its environmental and social outcomes will be disastrous, and criticize the current consultation process as fundamentally flawed.

Whilst the Bank has yet to make its decision public, it been engaged in a massive public relations effort over the past few weeks to trumpet the project’s supposed benefits and downplay its impacts. In contrast international NGOs fear that the project would impoverish tens of thousands of Laotian farmers, saddle the Lao government with more debt and devastate two tropical river ecosystems upon which many depend for their livelihoods.

The $1.3 billion project would be situated on the Theun River, a major tributary of the Mekong in central Lao PDR, just 50 km upstream from the Nam Theun-Hinboun hydropower project (Nam Theun 1), completed in 1998. This has had a severe impact on the livelihoods of more than 25,000 people living in the area, including significant declines in fish catches, and the destruction of vegetable gardens and dry-season drinking water sources. It is feared that the impacts of the much larger Nam Theun 2 will be similar, but on a much grander scale, affecting up to five times as many people.

the project would impoverish tens of thousands of Laotian farmers

In November 2003, the Nam Theun 2 Power Company NTPC – set up especially for the project – and the Electricity Generating Authority of Thailand (EGAT) signed a power purchase agreement, which committed NTPC to secure project financing by May 2005. Major shareholders in NTPC include Electricité de France, two Thai companies and the government of Laos. In addition to the World Bank, other funders include the Asian Development Bank (ADB), the Agence Française de Développement and the European Investment Bank.

In September, the World Bank organized a series of ‘technical workshops’ in Bangkok, Tokyo, Paris and Washington DC, to gather input into the voluminous documents examining project impacts. These workshops will be concluded at the end of September with a Lao government sponsored consultation in Vientiane, Laos. The project’s future hinges on the World Bank’s decision to approve a risk guarantee. While stating that it is not bound by any specific timeline, international civil society organizations fear that the Bank is rushing to approve the project in time for the deadline for financial close in May 2005.

About turn for the Bank

Despite having hesitated over the Lao government’s political and economic competencies in the past, the Bank now speaks favourably of the project which it says will provide a means of generating income in “one of the poorest countries in the world”. It claims that the foreign exchange it would generate for Lao could be used for poverty alleviation activities. Christian Delvoie, infrastructure director at the World Bank states that income from the dam would constitute about 5% of the government’s revenues in the first 10 years of the project and reduce the country’s heavy dependence on ODA. The Bank currently claims to be working with the Lao government and NTPC on the remaining preparatory work required to comply with the Bank’s safeguard policies and due-diligence requirements.

Lost land and livelihoods

However, critics remain highly doubtful of such claims, maintaining that any benefits would be outweighed by the highly detrimental affects of local livelihoods, the environment and human rights.

In an open letter to the World Bank on 9 September 2004, 27 NGOs from 18 different countries raised concerns including: the displacement of 6,000 indigenous peoples from the flood plain; a collapse in the aquatic food chain along the tributary rivers upon which thousands of farmers and fishers are dependent; and the high possibility of resettlement failure given the poor quality of the proposed alternative land, and its unsuitability for rice production.

The Bank has tried to allay fears relating to the environmental and social impacts. Ludovic Delplanque, public representative of the Dam’s consortium stated that “We will first make sure all displaced people are relocated: 60 out of the 1100 families facing displacement are already living in villages we have created”.

The strength of World Bank mechanisms to monitor the compliance of social and environmental safeguards, in light of past experience of dams in the country were also questionned, as well as the ability of a government guilty of gross human rights violations to manage either an open consultation process or a just resettlement.

Stakeholder participation and the consultation process

The World Bank claims that Nam Theun 2 gained public acceptance in Laos through public participation programs in 1997 and this year. However, a recent report by Guttal and Shoemaker claims that the public consultation process has failed to meet standards of either the World Bank or the more rigorous World Commission on Dams, on issues of ensuring the free, prior and informed consent of indigenous peoples and effective participation of all affected communities. In this single party state there are no independent local civil society organizations in Laos. The consequent lack of substantive criticism of the project within Laos has been interpreted by the World Bank and other external donors as consensus.

NGOs have also strongly criticized the international workshops for their failure to address fundamental questions such as whether the project is appropriate for World Bank support or not, and the strong support for Nam Theun 2 shown by World Bank staff present at the workshops.

Despite repeated requests from NGOs, a number of essential project documents, such as the complete power purchase agreement and concession agreement, and comprehensive economic analyses of the project, were not made available for public review prior to the workshops