Nam Theun II
Encyclopedia
The Nam Theun 2 Hydropower Project, or simply NT2, is a hydroelectric dam located on the Nam Theun River
in Laos
. Commercial operation of the plant began in March 2010. The scheme diverts water from the Nam Theun, a tributary
of the Mekong River, to the Xe Bang Fai River
, enabling a generation capacity of , from a 350 m (1,148 ft) difference in elevation between the reservoir
and the power station
.
It is the largest hydroelectric project so far in Laos, exporting power to Thailand
and supplying the local area with electricity. At the time of signing in 2005, NT2 was the largest foreign investment in Laos, the world's largest private sector cross-border power project financing, the largest private sector hydroelectric project financing, and one of the largest internationally-financed IPP
projects in Southeast Asia. The dam also marked a return by the World Bank
to funding large-scale infrastructure, after a decade-long hiatus.
According to the government of Laos, "the project is an essential part of the country's development framework and the Project's implementation is likely to be the first real possibility for (Laos) to reduce gradually its dependence on Official Development Assistance
".
The project has environmental
and social impacts, and comprehensive measures have been designed to mitigate these. According to a group of social and environmental experts who advise on the project, these measures could become a global model. Although Newsweek magazine referred to it as a "kinder and gentler dam", the project also attracted criticism.
and the government of Laos was signed, followed by the signing of PPAs
between NTPC on the one hand and, EGAT
and the Laotian state-owned power company Electricite du Laos
on the other hand in November 2003. Financial closing was reached in June 2005. The Nam Theun river diversion was created in March 2006 and then closed in April 2008 following completion of the Nakai Dam wall. Impoundment of the Nakai Reservoir occurred over the 2008 wet season and the reservoir was close to full supply level by the end of 2008. Test hydropower generation began in mid-2009 and the Commercial Operation Date was achieved in April 2010.
. The project also uses of capacity to supply electricity for domestic use in Laos.
Nam Theun 2 is a trans-basin diversion power plant that uses water from the Nam Theun River and releases the water into the Xe Bang Fai River. The project site is in Khammouane and Bolikhamxay provinces in central Laos, about 250 kilometers east of Vientiane. It stretches from the Nakai Plateau to the lower Xe Bang Fai River confluence
with the Mekong
.
The main features of the project include: high gravity dam reservoir
project. It has 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 government free of charge.
The project was developed by NTPC
, which is owned by a consortium comprising EDF
(35%), EGO of Thailand (25%), the ITD of Thailand (15%) and the Government of Laos (25%). Governments and government-owned enterprises own a majority of NTPC. This situation is atypical for an IPP - normally the power generating company is privately owned.
Laos is a People's Democratic Republic with a one-party system under the Lao People's Revolutionary Party
. It is one of the few communist state
s in the world.
The government has multiple roles related to NT2, some of which may be conflicting: It partially owns NTPC and thus has an interest in the financial profitability of the project; it is supposed to monitor compliance with environmental and social safeguards under the concession contract; and it buys some of the electricity generated from the project through the state-owned power company EDL and thus has an interest in low electricity prices.
Some of the owners of NTPC are also contractors engaged in the construction of the dam. For example, EDF International is the head contractor for the entire project under a turnkey contract. It has engaged various sub-contractors for specific parts of the project.
. More recently construction costs have been given as US$ 1,3 billion.
The project base cost is funded through US$330m of equity
and US$920m of debt
. It is financed through equity, loan
s and guarantees from 26 financial institution
s, including
All financing in hard currencies is guaranteed through political risk insurance
provided by the above-mentioned three export credit agencies, the ADB (US$ 50m), the International Development Association
(IDA) of the World Bank Group (US$ 50m) and the Multilateral Investment Guarantee Agency
(MIGA) of the World Bank Group (US$ 91m). Specifically, MIGA has provided a US$86 million guarantee to Fortis Bank of Belgium against the risks of expropriation
, breach of contract
, war and civil disturbance, as well as transfer inconvertibility in both Laos and Thailand. According to MIGA, its guarantee "was key to lowering the project's risk profile, which in turn enabled the government and developers to attract commercial financing at better rates and gave the investor the assurance needed to go ahead with the deal".
The government's initial equity contribution of $83m (25%) was largely funded by donors, including a $20 million grant from the International Development Association
of the World Bank Group, the ADB (US$ 20m), France, and the EIB.
The project generates three forms of revenue to the government:
Government revenue is estimated at US$1.9bn to US$2bn in nominal terms over 25 years. It has been estimated that at a 10% discount rate the net present value of the revenues will be six times higher than the net present value from the debt service, if all government equity was funded through concessionary lending. Revenues are expected to increase progressively from approximately US$ 10 million in 2009 to US$ 110 to 150 million per year at the end of the concession period in 2033. Thereafter the government will receive all revenues accruing to the project.
The Power Purchase Agreement
(PPA) between EGAT and NTPC was designed as to stabilize the cash flow
despite hydrological variation and consequently variation in power output. Revenues will be partially in US$ and partially in Thai Baht. Power demand from Thailand is expected to be strong. In December 2007, Thailand and Laos signed an agreement increasing the total power to be supplied by Laos to Thailand from all sources in 2015 from 5,000 MW to 7,000 MW.
The World Bank works with the Lao government to improve public financial management practices and increase transparency in order to increase the likelihood that revenues will be used to benefit the poor, including through investment in health and education. The Government has agreed with the World Bank to implement a Poverty Reduction Fund that is being initially sourced from International Development Association
funds, and then from the Government's taxes, royalties and dividend revenues once the project commences operation. Special administrative units are being established to deal with the effective management and allocation of the financial resources gained from the Project.
In 2007 Laos was ranked on the Corruption Perception Index by Transparency International
168 out of 179 countries assessed, making it one of the most corrupt countries on the index.
, resettlement
and reservoir sedimentation
. More details can be found in the Environmental and Social Impact assessment], and in the summary provided for the various impacts below.
Monitoring and Evaluation NT2 has a multi-layer environmental and social monitoring and evaluation mechanism consisting of the following elements:
Praise The comprehensive environmental and social measures designed to mitigate potential environmental and social impacts could become a "global model", according to a group of social and environmental experts who advise on the project.
Criticism According to the NGO International Rivers
, there have been substantial shortcomings in the mitigation of impacts. According to the organization, compensation payments and replacement land for villagers affected by construction activities have been "inadequate, unfair or non-existent". Poor resettlement planning has led to housing and infrastructure delays. Plans to restore the livelihoods of villagers on the Nakai Plateau and along the Xe Bang Fai have yet to be finalized. And the budget for the downstream program in particular is said to be woefully inadequate.
A good or a bad dam? According to data in the World Bank publication "Good dams, bad dams", the ratio of area flooded and people resettled per Megawatt of installed electricity generating capacity (flooded area of 41 hectare
per MW and 5 people resettled per MW) is neither very high, nor very low, compared to 48 other large dams analyzed. Using this specific analytical framework, Nam Theun 2 could neither be considered a "good" or a "bad" dam.
The exact number of people affected is disputed. While NTPC speaks of 40,000 affected people, the NGO Environmental Defense
speaks of up to 150,000 people. The impacts have been widely studied and have been discussed with local communities that will be affected. Possible negative impacts on the downstream population include the washing away of river-bank gardens, changes in water quality
, and impacts on fisheries. The impacts will only be exactly known once the project has been completed.
NTPC has promised to stop power production when floods occur on the XBF river. However, it is as yet unknown exactly how long this flooding period will last for each year. The length of the period will affect the project's profitability.
Water quality may be negatively impacted through fouling of biomass
in the reservoir. Because the impacts are unknown, monitoring systems will be included and a commitment has been made to "adaptive management".
Livelihood development programs are underway for the villagers living downstream on the XBF river, in districts such as Mahaxai. The programs are focused on agriculture
, fish pond
s and handicrafts to help them generate income beyond that derived from river fishing
. The objective is to help villagers generate money from a variety of different sources to compensate for any changes in fishing catches after the river diversion. Affected communities expect to receive irrigation
systems to allow for a second, dry season
rice
crop, drinking water
systems and access to electricity. The provision of this infrastructure would not be the responsibility of NTPC, but of the government. Details of the these programs are available on the operating company's website.
According to a joint progress report issued by the World Bank and the ADB in December 2007 implementation of the downstream program – particularly on implementing livelihood programs – remained a challenge. Lessons from the 20 villages where the programs have been piloted in a participatory manner are being applied as other villages were included. Micro-credit schemes that are being developed were not yet on a sustainable financial footing.
content. However, monitoring of the villages along the river conducted by NTPC has so far not detected any significant impacts to the fishery.
, the Hin Nam Nor and the Phou Hin Poun National Biodiversity Conservation Areas
), together nine times larger (4,106 km2) than the flooded area, are expected to be better managed through significant resources made available under the project - more than 60 times what the government has spent on its entire national park
s system so far. The flooded areas are not considered critical natural habitat. There used to be significant illegal logging
in the protected areas, which the government claims has now been largely brought under control. Detailed fish surveys showed that there are no fish species
living only in the stretch of the river that will be inundated. A management plan for the Asian elephant
s in the area has been drawn up. A Watershed Management Protection Authority (WMPA) has been established with the specific purpose of protecting the watershed
of the reservoir and the protected areas in it. WPMA will receive US$1 million annually from NTPC through the concession period.
Construction of the villages and major facilities (new roads, water pumps, toilets, schools, mills and electricity) was completed by mid-2008. Extensive consultations on house design, location and even construction materials were held and continue to ensure the outcomes reflect the wishes of the local people. According to a World Bank report, the health of villagers who have already been resettled has significantly improved due to better water and sanitation
, regular health check-ups and the provision of mosquito net
s, as documented by various assessments. Various experts are helping the resettled villagers to adopt improved practices to increase agricultural and income productivity
. However the report stresses that the pace of the development of the livelihood activities must be accelerated including engaging additional technical assistance to help villagers develop the most effective cropping systems possible.
occurred in the upstream basin, the lifetime would be accordingly reduced and could affect the financial and economic viability of the project. This would especially be the case if sediments remained in the active storage area in the upper part of the reservoir instead of being washed into the dead storage area closer to the dam in the lower part of the reservoir. The establishment of the relatively well-funded Watershed Management Protection Authority is expected to protect forest cover and thus limit erosion
in the watershed of the reservoir.
Nam Theun
Nam Theun, also known as Khading, is a river in Laos, in Khammouane and Bolikhamsai Provinces. Together with its tributaries Nam One, Nam Noy, and Nam Theun it has total length of and drain an area of ....
in Laos
Laos
Laos Lao: ສາທາລະນະລັດ ປະຊາທິປະໄຕ ປະຊາຊົນລາວ Sathalanalat Paxathipatai Paxaxon Lao, officially the Lao People's Democratic Republic, is a landlocked country in Southeast Asia, bordered by Burma and China to the northwest, Vietnam to the east, Cambodia to the south and Thailand to the west...
. Commercial operation of the plant began in March 2010. The scheme diverts water from the Nam Theun, a tributary
Tributary
A tributary or affluent is a stream or river that flows into a main stem river or a lake. A tributary does not flow directly into a sea or ocean...
of the Mekong River, to the Xe Bang Fai River
Xe Bang Fai River
The Xe Bang Fai River or Nam Xebangfai is a river of Laos. It flows through Khammouane Province and Savannakhet Province. Nam Theun 2 Dam released water from Nam Theun river into it, thereby increasing its flow and producing hydroelectricity in the process....
, enabling a generation capacity of , from a 350 m (1,148 ft) difference in elevation between the reservoir
Reservoir
A reservoir , artificial lake or dam is used to store water.Reservoirs may be created in river valleys by the construction of a dam or may be built by excavation in the ground or by conventional construction techniques such as brickwork or cast concrete.The term reservoir may also be used to...
and the power station
Power station
A power station is an industrial facility for the generation of electric energy....
.
It is the largest hydroelectric project so far in Laos, exporting power to Thailand
Thailand
Thailand , officially the Kingdom of Thailand , formerly known as Siam , is a country located at the centre of the Indochina peninsula and Southeast Asia. It is bordered to the north by Burma and Laos, to the east by Laos and Cambodia, to the south by the Gulf of Thailand and Malaysia, and to the...
and supplying the local area with electricity. At the time of signing in 2005, NT2 was the largest foreign investment in Laos, the world's largest private sector cross-border power project financing, the largest private sector hydroelectric project financing, and one of the largest internationally-financed IPP
Independent Power Producer
An Independent Power Producer is an entity, which is not a public utility, but which owns facilities to generate electric power for sale to utilities and end users...
projects in Southeast Asia. The dam also marked a return by the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
to funding large-scale infrastructure, after a decade-long hiatus.
According to the government of Laos, "the project is an essential part of the country's development framework and the Project's implementation is likely to be the first real possibility for (Laos) to reduce gradually its dependence on Official Development Assistance
Official development assistance
Official development assistance is a term compiled by the Development Assistance Committee of the Organisation for Economic Co-operation and Development to measure aid. The DAC first compiled the term in 1969. It is widely used by academics and journalists as a convenient indicator of...
".
The project has environmental
Environment (biophysical)
The biophysical environment is the combined modeling of the physical environment and the biological life forms within the environment, and includes all variables, parameters as well as conditions and modes inside the Earth's biosphere. The biophysical environment can be divided into two categories:...
and social impacts, and comprehensive measures have been designed to mitigate these. According to a group of social and environmental experts who advise on the project, these measures could become a global model. Although Newsweek magazine referred to it as a "kinder and gentler dam", the project also attracted criticism.
History and current status
The Nam Theun 2 project was identified in the 1980s and a concession was awarded in 1993. It was subjected to a long anti-dam campaign. The project was frozen after the 1997 Asian financial crisis, but preparation resumed in 1999. In October 2002 a concession contract between the NTPCNam Theun 2 Power Company
The Nam Theun 2 Power Company Limited is a company set up to build and operate the Nam Theun 2 Multi-Purpose Project in Khammuan Province in Laos...
and the government of Laos was signed, followed by the signing of PPAs
Power Purchase Agreement
Power Purchase Agreements are contracts between two parties, one who generates electricity for the purpose of sale and one who is looking to purchase electricity . There are various forms of Power Purchase Agreements; these are differentiated by the source of energy harnessed...
between NTPC on the one hand and, EGAT
Electricity Generating Authority of Thailand
The Electricity Generating Authority of Thailand , , is a state enterprise that owns and manages the majority of Thailand's electricity generation capacity, as well as the nation's transmission network.EGAT is managed by the Ministry of Energy....
and the Laotian state-owned power company Electricite du Laos
Electricite du Laos
Electricite du Laos is the state corporation of Laos that owns and operates the country's electricity generation, electricity transmission and electricity distribution assets. The company also manages the import and export of electricity from the national electricity grid of the country. EDL was...
on the other hand in November 2003. Financial closing was reached in June 2005. The Nam Theun river diversion was created in March 2006 and then closed in April 2008 following completion of the Nakai Dam wall. Impoundment of the Nakai Reservoir occurred over the 2008 wet season and the reservoir was close to full supply level by the end of 2008. Test hydropower generation began in mid-2009 and the Commercial Operation Date was achieved in April 2010.
Technical features
NT2 enables Laos to export of electrical energy to the EGATElectricity Generating Authority of Thailand
The Electricity Generating Authority of Thailand , , is a state enterprise that owns and manages the majority of Thailand's electricity generation capacity, as well as the nation's transmission network.EGAT is managed by the Ministry of Energy....
. The project also uses of capacity to supply electricity for domestic use in Laos.
Nam Theun 2 is a trans-basin diversion power plant that uses water from the Nam Theun River and releases the water into the Xe Bang Fai River. The project site is in Khammouane and Bolikhamxay provinces in central Laos, about 250 kilometers east of Vientiane. It stretches from the Nakai Plateau to the lower Xe Bang Fai River confluence
Confluence
Confluence, in geography, describes the meeting of two or more bodies of water.Confluence may also refer to:* Confluence , a property of term rewriting systems...
with the Mekong
Mekong
The Mekong is a river that runs through China, Burma, Laos, Thailand, Cambodia and Vietnam. It is the world's 10th-longest river and the 7th-longest in Asia. Its estimated length is , and it drains an area of , discharging of water annually....
.
The main features of the project include: high gravity dam reservoir
- Pressure shaft, pressure tunnel and a powerhousePower stationA power station is an industrial facility for the generation of electric energy....
artificial regulating pond, and a 27 km (17 mi) artificial downstream channel leading to the Xe Bang Fai RiverXe Bang Fai RiverThe Xe Bang Fai River or Nam Xebangfai is a river of Laos. It flows through Khammouane Province and Savannakhet Province. Nam Theun 2 Dam released water from Nam Theun river into it, thereby increasing its flow and producing hydroelectricity in the process....
long, double-circuit transmission lineTransmission lineIn communications and electronic engineering, a transmission line is a specialized cable designed to carry alternating current of radio frequency, that is, currents with a frequency high enough that its wave nature must be taken into account...
to the Thai grid long, single-circuit transmission line to Laos' domestic grid.
Institutional arrangements
The Project is structured as a BOTBuild-Operate-Transfer
Build-own-operate-transfer or build-operate-transfer is a form of project financing, wherein a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract...
project. It has 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 government free of charge.
The project was developed by NTPC
Nam Theun 2 Power Company
The Nam Theun 2 Power Company Limited is a company set up to build and operate the Nam Theun 2 Multi-Purpose Project in Khammuan Province in Laos...
, which is owned by a consortium comprising EDF
Électricité de France
Électricité de France S.A. is the second largest French utility company. Headquartered in Paris, France, with €65.2 billion in revenues in 2010, EDF operates a diverse portfolio of 120,000+ megawatts of generation capacity in Europe, Latin America, Asia, the Middle East and Africa.EDF is one of...
(35%), EGO of Thailand (25%), the ITD of Thailand (15%) and the Government of Laos (25%). Governments and government-owned enterprises own a majority of NTPC. This situation is atypical for an IPP - normally the power generating company is privately owned.
Laos is a People's Democratic Republic with a one-party system under the Lao People's Revolutionary Party
Lao People's Revolutionary Party
The Lao People's Revolutionary Party is a communist political party that has governed Laos since 1975. The policy-making organs are the politburo and the central committee. A party congress, which elects members to the politburo and central committee, is held every five years...
. It is one of the few communist state
Communist state
A communist state is a state with a form of government characterized by single-party rule or dominant-party rule of a communist party and a professed allegiance to a Leninist or Marxist-Leninist communist ideology as the guiding principle of the state...
s in the world.
The government has multiple roles related to NT2, some of which may be conflicting: It partially owns NTPC and thus has an interest in the financial profitability of the project; it is supposed to monitor compliance with environmental and social safeguards under the concession contract; and it buys some of the electricity generated from the project through the state-owned power company EDL and thus has an interest in low electricity prices.
Some of the owners of NTPC are also contractors engaged in the construction of the dam. For example, EDF International is the head contractor for the entire project under a turnkey contract. It has engaged various sub-contractors for specific parts of the project.
Project costs and financing
Construction costs were initially estimated at US$1,250 million plus US$331.5 million for contingenciesCost contingency
When estimating the cost for a project, product or other item or investment, there is always uncertainty as to the precise content of all items in the estimate, how work will be performed, what work conditions will be like when the project is executed and so on. These uncertainties are risks to the...
. More recently construction costs have been given as US$ 1,3 billion.
The project base cost is funded through US$330m of equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
and US$920m of debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
. It is financed through equity, loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
s and guarantees from 26 financial institution
Financial institution
In financial economics, a financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries...
s, including
- four multilateral development bankMultilateral Development BankA multilateral development bank is an institution, created by a group of countries, that provides financing and professional advising for the purpose of development. MDBs have large memberships including both developed donor countries and developing borrower countries...
s (the World Bank GroupWorld Bank GroupThe World Bank Group is a family of five international organizations that makes leveraged loans, generally to poor countries.The Bank came into formal existence on 27 December 1945 following international ratification of the Bretton Woods agreements, which emerged from the United Nations Monetary...
, the Asian Development BankAsian Development BankThe Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
(ADB), the European Investment BankEuropean Investment BankThe European Investment Bank is the European Union's long-term lending institution established in 1958 under the Treaty of Rome. A policy-driven bank, the EIB supports the EU’s priority objectives, especially European integration and the development of economically weak regions...
(EIB) and the Nordic Investment BankNordic Investment BankThe Nordic Investment Bank is an international financial institution founded in the mid-1970s by the five Nordic countries: Denmark, Finland, Iceland, Norway and Sweden. In 2005, Estonia, Latvia and Lithuania became members of the Bank. NIB’s headquarters are located in Helsinki, Finland...
), - three Export Credit Agencies (Coface of France, EKN of Sweden and GIEK of Norway),
- three bilateral financing agencies (French Development AgencyFrench Development AgencyFrench Development Agency is the French international development agency.The Agence Française de Développement is a public institution providing development financing...
, PROPARCO and the Export-Import Bank of Thailand), - nine international commercial banks providing finance in hard currencies (grouped together in a "lead arrangers group" including BNP ParibasBNP ParibasBNP Paribas S.A. is a global banking group, headquartered in Paris, with its second global headquarters in London. In October 2010 BNP Paribas was ranked by Bloomberg and Forbes as the largest bank and largest company in the world by assets with over $3.1 trillion. It was formed through the merger...
, Crédit Agricole Indosuez, ANZ from Australia, Société GénéraleSociété GénéraleSociété Générale S.A. is a large European Bank and a major Financial Services company that has a substantial global presence. Its registered office is on Boulevard Haussmann in the 9th arrondissement of Paris, while its head office is in the Tours Société Générale in the business district of La...
, Fortis Bank and Bank of Tokyo-Mitsubishi), and - seven Thai commercial banks providing finance in Thai BahtThai bahtThe baht is the currency of Thailand. It is subdivided into 100 satang . The issuance of currency is the responsibility of the Bank of Thailand.-History:The baht, like the pound, originated from a traditional unit of mass...
.
All financing in hard currencies is guaranteed through political risk insurance
Political risk insurance
Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss....
provided by the above-mentioned three export credit agencies, the ADB (US$ 50m), the International Development Association
International Development Association
The International Development Association , is the part of the World Bank that helps the world’s poorest countries. It complements the World Bank's other lending arm — the International Bank for Reconstruction and Development — which serves middle-income countries with capital investment and...
(IDA) of the World Bank Group (US$ 50m) and the Multilateral Investment Guarantee Agency
Multilateral Investment Guarantee Agency
The Multilateral Investment Guarantee Agency is a member organization of the World Bank Group that offers political risk insurance. It was established to promote foreign direct investment into developing countries. MIGA was founded in 1988 with a capital base of $1 billion and is headquartered in...
(MIGA) of the World Bank Group (US$ 91m). Specifically, MIGA has provided a US$86 million guarantee to Fortis Bank of Belgium against the risks of expropriation
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
, breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
, war and civil disturbance, as well as transfer inconvertibility in both Laos and Thailand. According to MIGA, its guarantee "was key to lowering the project's risk profile, which in turn enabled the government and developers to attract commercial financing at better rates and gave the investor the assurance needed to go ahead with the deal".
The government's initial equity contribution of $83m (25%) was largely funded by donors, including a $20 million grant from the International Development Association
International Development Association
The International Development Association , is the part of the World Bank that helps the world’s poorest countries. It complements the World Bank's other lending arm — the International Bank for Reconstruction and Development — which serves middle-income countries with capital investment and...
of the World Bank Group, the ADB (US$ 20m), France, and the EIB.
Increase in government revenue and contribution to poverty alleviation
According to the government "the Project is an essential part of the country's development framework and the Project's implementation is likely to be the first real possibility for (Laos) to reduce gradually its dependence on Official Development Assistance." In the same vein, the then Managing Director of the World Bank, Shengman Zhang, said in 2003 "We see Nam Theun 2 not as a project per se, but as a vehicle through which to make a considerable progress in the effort of poverty reduction."The project generates three forms of revenue to the government:
- dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s, - taxTaxTo tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es; and - royaltiesRoyaltiesRoyalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
, i.e. concession fees.
Government revenue is estimated at US$1.9bn to US$2bn in nominal terms over 25 years. It has been estimated that at a 10% discount rate the net present value of the revenues will be six times higher than the net present value from the debt service, if all government equity was funded through concessionary lending. Revenues are expected to increase progressively from approximately US$ 10 million in 2009 to US$ 110 to 150 million per year at the end of the concession period in 2033. Thereafter the government will receive all revenues accruing to the project.
The Power Purchase Agreement
Power Purchase Agreement
Power Purchase Agreements are contracts between two parties, one who generates electricity for the purpose of sale and one who is looking to purchase electricity . There are various forms of Power Purchase Agreements; these are differentiated by the source of energy harnessed...
(PPA) between EGAT and NTPC was designed as to stabilize the cash flow
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
despite hydrological variation and consequently variation in power output. Revenues will be partially in US$ and partially in Thai Baht. Power demand from Thailand is expected to be strong. In December 2007, Thailand and Laos signed an agreement increasing the total power to be supplied by Laos to Thailand from all sources in 2015 from 5,000 MW to 7,000 MW.
The World Bank works with the Lao government to improve public financial management practices and increase transparency in order to increase the likelihood that revenues will be used to benefit the poor, including through investment in health and education. The Government has agreed with the World Bank to implement a Poverty Reduction Fund that is being initially sourced from International Development Association
International Development Association
The International Development Association , is the part of the World Bank that helps the world’s poorest countries. It complements the World Bank's other lending arm — the International Bank for Reconstruction and Development — which serves middle-income countries with capital investment and...
funds, and then from the Government's taxes, royalties and dividend revenues once the project commences operation. Special administrative units are being established to deal with the effective management and allocation of the financial resources gained from the Project.
In 2007 Laos was ranked on the Corruption Perception Index by Transparency International
Transparency International
Transparency International is a non-governmental organization that monitors and publicizes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide...
168 out of 179 countries assessed, making it one of the most corrupt countries on the index.
Environmental and social impacts
Environmental and social impacts of the project include downstream impacts, impacts on biodiversityBiodiversity
Biodiversity is the degree of variation of life forms within a given ecosystem, biome, or an entire planet. Biodiversity is a measure of the health of ecosystems. Biodiversity is in part a function of climate. In terrestrial habitats, tropical regions are typically rich whereas polar regions...
, resettlement
Resettlement
Resettlement:*can refer to voluntary or involuntary human migration*can be a euphemism for forced migration*can be a euphemism for population transfer...
and reservoir sedimentation
Sedimentation
Sedimentation is the tendency for particles in suspension to settle out of the fluid in which they are entrained, and come to rest against a barrier. This is due to their motion through the fluid in response to the forces acting on them: these forces can be due to gravity, centrifugal acceleration...
. More details can be found in the Environmental and Social Impact assessment], and in the summary provided for the various impacts below.
Monitoring and Evaluation NT2 has a multi-layer environmental and social monitoring and evaluation mechanism consisting of the following elements:
- A Panel of Environmental and Social Experts (POE), reporting to the government. The POE normally visits Laos at least once per year.
- An International Advisory Group(IAG), advising the World Bank. The IAG normally visits Lao PDR at least once per year.
- Independent Monitoring Agencies, reporting to the Government. The Independent Monitoring Agencies was in the process of being contracted in December 2006.
- The Lenders’ Engineer
Praise The comprehensive environmental and social measures designed to mitigate potential environmental and social impacts could become a "global model", according to a group of social and environmental experts who advise on the project.
Criticism According to the NGO International Rivers
International Rivers
International Rivers is a non-profit, non-governmental, environmental and human rights organization based in Berkeley, California, United States...
, there have been substantial shortcomings in the mitigation of impacts. According to the organization, compensation payments and replacement land for villagers affected by construction activities have been "inadequate, unfair or non-existent". Poor resettlement planning has led to housing and infrastructure delays. Plans to restore the livelihoods of villagers on the Nakai Plateau and along the Xe Bang Fai have yet to be finalized. And the budget for the downstream program in particular is said to be woefully inadequate.
A good or a bad dam? According to data in the World Bank publication "Good dams, bad dams", the ratio of area flooded and people resettled per Megawatt of installed electricity generating capacity (flooded area of 41 hectare
Hectare
The hectare is a metric unit of area defined as 10,000 square metres , and primarily used in the measurement of land. In 1795, when the metric system was introduced, the are was defined as being 100 square metres and the hectare was thus 100 ares or 1/100 km2...
per MW and 5 people resettled per MW) is neither very high, nor very low, compared to 48 other large dams analyzed. Using this specific analytical framework, Nam Theun 2 could neither be considered a "good" or a "bad" dam.
Downstream impacts in Xe Bang Fai
The flow of water in the Xe Bang Fai (XBF), which will receive the water diverted through NT2, will increase significantly, thus affecting the population living downstream of the release point.The exact number of people affected is disputed. While NTPC speaks of 40,000 affected people, the NGO Environmental Defense
Environmental Defense
Environmental Defense Fund or EDF is a United States–based nonprofit environmental advocacy group. The group is known for its work on issues including global warming, ecosystem restoration, oceans, and human health...
speaks of up to 150,000 people. The impacts have been widely studied and have been discussed with local communities that will be affected. Possible negative impacts on the downstream population include the washing away of river-bank gardens, changes in water quality
Water quality
Water quality is the physical, chemical and biological characteristics of water. It is a measure of the condition of water relative to the requirements of one or more biotic species and or to any human need or purpose. It is most frequently used by reference to a set of standards against which...
, and impacts on fisheries. The impacts will only be exactly known once the project has been completed.
NTPC has promised to stop power production when floods occur on the XBF river. However, it is as yet unknown exactly how long this flooding period will last for each year. The length of the period will affect the project's profitability.
Water quality may be negatively impacted through fouling of biomass
Biomass
Biomass, as a renewable energy source, is biological material from living, or recently living organisms. As an energy source, biomass can either be used directly, or converted into other energy products such as biofuel....
in the reservoir. Because the impacts are unknown, monitoring systems will be included and a commitment has been made to "adaptive management".
Livelihood development programs are underway for the villagers living downstream on the XBF river, in districts such as Mahaxai. The programs are focused on agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
, fish pond
Fish pond
A fish pond, or fishpond, is a controlled pond, artificial lake, or reservoir that is stocked with fish and is used in aquaculture for fish farming, or is used for recreational fishing or for ornamental purposes...
s and handicrafts to help them generate income beyond that derived from river fishing
Fishing
Fishing is the activity of trying to catch wild fish. Fish are normally caught in the wild. Techniques for catching fish include hand gathering, spearing, netting, angling and trapping....
. The objective is to help villagers generate money from a variety of different sources to compensate for any changes in fishing catches after the river diversion. Affected communities expect to receive irrigation
Irrigation
Irrigation may be defined as the science of artificial application of water to the land or soil. It is used to assist in the growing of agricultural crops, maintenance of landscapes, and revegetation of disturbed soils in dry areas and during periods of inadequate rainfall...
systems to allow for a second, dry season
Dry season
The dry season is a term commonly used when describing the weather in the tropics. The weather in the tropics is dominated by the tropical rain belt, which oscillates from the northern to the southern tropics over the course of the year...
rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
crop, drinking water
Drinking water
Drinking water or potable water is water pure enough to be consumed or used with low risk of immediate or long term harm. In most developed countries, the water supplied to households, commerce and industry is all of drinking water standard, even though only a very small proportion is actually...
systems and access to electricity. The provision of this infrastructure would not be the responsibility of NTPC, but of the government. Details of the these programs are available on the operating company's website.
According to a joint progress report issued by the World Bank and the ADB in December 2007 implementation of the downstream program – particularly on implementing livelihood programs – remained a challenge. Lessons from the 20 villages where the programs have been piloted in a participatory manner are being applied as other villages were included. Micro-credit schemes that are being developed were not yet on a sustainable financial footing.
Downstream impacts on the Nam Theun River
There is relatively little information on downstream impacts on the Nam Theun River, where water flows will be significantly reduced. No permanent villages lie along the Nam Theun some 50 km downstream below the dam. Fishermen and hunters, however, do use this stretch of the river. Fish diversity and abundance is expected to be affected by reduced water flows and sedimentSediment
Sediment is naturally occurring material that is broken down by processes of weathering and erosion, and is subsequently transported by the action of fluids such as wind, water, or ice, and/or by the force of gravity acting on the particle itself....
content. However, monitoring of the villages along the river conducted by NTPC has so far not detected any significant impacts to the fishery.
Biodiversity and forests
Three existing protected areas on the Nakai plateau (the Nakai-Nam TheunNakai-Nam Theun Biodiversity Conservation Area
The Nakai-Nam Theun National Biodiversity Conservation Area comprises one of the most pristine wildernesses remaining in South-East Asia. Nakai-Nam Theun NBCA covers approximately 3,445 km2 of the Annamite mountains and the adjacent Nakai Plateau in the provinces of Khammouane and...
, the Hin Nam Nor and the Phou Hin Poun National Biodiversity Conservation Areas
National Biodiversity Conservation Areas
A National Biodiversity Conservation Area is an environmentally protected area in Laos. There are all together 21 different NBCAs in Laos, protecting 29,775 square kilometers...
), together nine times larger (4,106 km2) than the flooded area, are expected to be better managed through significant resources made available under the project - more than 60 times what the government has spent on its entire national park
National park
A national park is a reserve of natural, semi-natural, or developed land that a sovereign state declares or owns. Although individual nations designate their own national parks differently A national park is a reserve of natural, semi-natural, or developed land that a sovereign state declares or...
s system so far. The flooded areas are not considered critical natural habitat. There used to be significant illegal logging
Illegal logging
Illegal logging is the harvest, transportation, purchase or sale of timber in violation of laws. The harvesting procedure itself may be illegal, including using corrupt means to gain access to forests; extraction without permission or from a protected area; the cutting of protected species; or the...
in the protected areas, which the government claims has now been largely brought under control. Detailed fish surveys showed that there are no fish species
Species
In biology, a species is one of the basic units of biological classification and a taxonomic rank. A species is often defined as a group of organisms capable of interbreeding and producing fertile offspring. While in many cases this definition is adequate, more precise or differing measures are...
living only in the stretch of the river that will be inundated. A management plan for the Asian elephant
Asian Elephant
The Asian or Asiatic elephant is the only living species of the genus Elephas and distributed in Southeast Asia from India in the west to Borneo in the east. Three subspecies are recognized — Elephas maximus maximus from Sri Lanka, the Indian elephant or E. m. indicus from mainland Asia, and E. m....
s in the area has been drawn up. A Watershed Management Protection Authority (WMPA) has been established with the specific purpose of protecting the watershed
Drainage basin
A drainage basin is an extent or an area of land where surface water from rain and melting snow or ice converges to a single point, usually the exit of the basin, where the waters join another waterbody, such as a river, lake, reservoir, estuary, wetland, sea, or ocean...
of the reservoir and the protected areas in it. WPMA will receive US$1 million annually from NTPC through the concession period.
Resettlement
6,300 people from 17 villages moved from the area that became the NT2 reservoir on the Nakai Plateau to custom-built villages built in consultation with the resettled communities. NTPC and the Lao Government have committed to doubling the income of resettled villagers, through livelihood programs, five years after they have been relocated. This means that people who used to make US$410 per household a year in 2005 should make at least US$820 per household a year by 2012.Construction of the villages and major facilities (new roads, water pumps, toilets, schools, mills and electricity) was completed by mid-2008. Extensive consultations on house design, location and even construction materials were held and continue to ensure the outcomes reflect the wishes of the local people. According to a World Bank report, the health of villagers who have already been resettled has significantly improved due to better water and sanitation
Sanitation
Sanitation is the hygienic means of promoting health through prevention of human contact with the hazards of wastes. Hazards can be either physical, microbiological, biological or chemical agents of disease. Wastes that can cause health problems are human and animal feces, solid wastes, domestic...
, regular health check-ups and the provision of mosquito net
Mosquito net
A mosquito net offers protection against mosquitos, flies, and other insects, and thus against diseases such as malaria, dengue fever, yellow fever, and various forms of encephalitis, including the West Nile virus, if used properly and especially if treated with an insecticide, which can double...
s, as documented by various assessments. Various experts are helping the resettled villagers to adopt improved practices to increase agricultural and income productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
. However the report stresses that the pace of the development of the livelihood activities must be accelerated including engaging additional technical assistance to help villagers develop the most effective cropping systems possible.
Reservoir sedimentation
At current sedimentation rates, the reservoir has a lifetime of more than five centuries. If substantial loggingLogging
Logging is the cutting, skidding, on-site processing, and loading of trees or logs onto trucks.In forestry, the term logging is sometimes used in a narrow sense concerning the logistics of moving wood from the stump to somewhere outside the forest, usually a sawmill or a lumber yard...
occurred in the upstream basin, the lifetime would be accordingly reduced and could affect the financial and economic viability of the project. This would especially be the case if sediments remained in the active storage area in the upper part of the reservoir instead of being washed into the dead storage area closer to the dam in the lower part of the reservoir. The establishment of the relatively well-funded Watershed Management Protection Authority is expected to protect forest cover and thus limit erosion
Erosion
Erosion is when materials are removed from the surface and changed into something else. It only works by hydraulic actions and transport of solids in the natural environment, and leads to the deposition of these materials elsewhere...
in the watershed of the reservoir.
See also
- Environmental impacts of damsEnvironmental impacts of damsThe environmental impact of reservoirs is coming under ever increasing scrutiny as the world demand for water and energy increases and the number and size of reservoirs increases....
- Energy Industry Liberalization and Privatization (Thailand)Energy Industry Liberalization and Privatization (Thailand)The management of energy in Thailand has been in a process of liberalization and privatization which was initiated by the government of Anand Panyarachun.- Electricity generation and transmission :...
- Wildlife of LaosWildlife of LaosAn incomplete list of flora and fauna of Laos.-Fauna:*Agile gibbon *Amida ladybird beetles *Asian elephant *Banteng *Bengal monitor...
- Economy of LaosEconomy of LaosThe economy of Laos is rapidly growing, as it began to decentralise control and encouraged private enterprise in 1986. It opened a stock exchange in 2011, and has become a rising regional player in its role as a hydroelectric power supplier to neighbors such as China, Vietnam and Thailand. Although...
Further reading
- The World Bank (2006) Update on the Lao PDR Nam Theun 2 (NT2) Hydroelectric Project. The World Bank in Lao P.D.R., October 2006
- Ryder, G. (2004) Ten Reasons Why the World Bank Should Not Finance the Nam Theun 2 Power Company in Lao PDR. Probe International, Toronto
External links
- Nam Theun 2 official website
- Laos:Ministry of Energy and Mines, Department of Energy Promotion and Development
- Eléctricité du Laos
- World BankWorld BankThe World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
:The Nam Theun 2 Hydroelectric Project (NT2) - Asian Development BankAsian Development BankThe Asian Development Bank is a regional development bank established on 22 August 1966 to facilitate economic development of countries in Asia...
:Nam Theun 2 Hydroelectric Project - International RiversInternational RiversInternational Rivers is a non-profit, non-governmental, environmental and human rights organization based in Berkeley, California, United States...
:Nam Theun 2 - Environmental Defense Fund:Laos: Nam Theun 2 Project, 15 March 2006
- Power Technology.com:Nam Theun 2 Hydropower Project, Laos