WASHINGTON—The World Bank will back the controversial U.S. $1.2 billion Nam Theun 2 hydroelectric dam project in Laos but is vowing to pay "utmost attention" to fears about its social and environmental impact.
The World Bank's 24-member board approved the project despite warnings about risks associated with it. It's the first major hydroelectric power project approved by the bank in a decade.
We have spent the best part of a decade studying the project and evaluating the risks... 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.
"We have spent the best part of a decade studying the project and evaluating the risks," World Bank President James Wolfensohn said. "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."
"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," Wolfensohn said.
The Lao government itself has drafted a National Growth and Poverty Eradication Strategy, according to the bank's director for Laos and Thailand.
It targets five areas in which money from the dam are to be invested: basic education, basic health, rural roads, community-driven development projects, and environmental management.
Wolfensohn described the project as complex and said its risks required "utmost attention."
The Bank's support for the Nam Theun 2 dam includes a U.S.$50 million partial risk guarantee, a $20 million International Development Association grant, and up to U.S.$200 million in Multilateral Investment Guarantee Agency political risk guarantees.
The U.S. $1.2 billion Nam Theun 2 is the biggest single project undertaken in Laos and is projected to generate as much as U.S. $150 million in additional annual revenue that Vientiane says it needs badly.
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.
Some 153 nongovernmental organizations from 42 countries had sent a petition to Wolfensohn urging the bank not to support the dam, which would flood an area the size of Singapore and involve the relocation of at least 6,200 people.
"The negative track record of other dam projects in Laos and the government's failure to transparently manage revenues and respect the rights of its people provide a strong indication that the costs of Nam Theun 2 will dramatically outweigh any potential benefits," the petition said.
Apparently aiming to assuage those fears, the bank is requiring that an untouched forest reserve nine times the size of the area being flooded be set aside as a biodiversity conservation area and that those relocated be given better housing and income.
"It is reasonable to say that there is now a new direction for Laos," said Homi Kharas, the bank's chief economist for East Asia and the Pacific. Kharas said revenue from the dam was expected to begin flowing from 2010, after Laos begins exporting electricity to Thailand in 2009.
There's not much room for error.
Spending on basic health and education in Laos will jump by as much as 30 percent in the project's first year of operation, the bank said.
In an effort to allay fears about the Lao government diverting funds from the dam, Kharas cited legal safeguards to prevent that from occurring. All revenue is to be directed into a single revenue account, he said, and Laos will be required to publish its yearly and quarterly budgets.
The project is a joint venture between the Lao government and NTPC, spearheaded by EDFI, the global arm of French state-owned Electricite de France, which holds a 35 percent stake.
The Lao government and Thailand's 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.
Bolvong Tanovanh, an engineer in Portland, Oregon who was involved in early planning for the Nam Theun dam in the 1960s and 70s, said in an interview he had "high confidence" in the economic impact of NT2.
But he added that the Lao government lacks experience in handling such a large project. "There's not much room for error," he said.
In Laos, Foreign Ministry spokesman Yong Chanthalangsy told Radio Free Asia the dam was essential and his government welcomed its approval by the World Bank. The landlocked country is one of the poorest in the world.
The Lao government reiterates its commitment to implementing the project according to the conditions laid out by the World Bank. In particular [we will] take into consideration the participation of the community, consultation with society, and the environmental risks.
"The Nam Theun 2 project has been long regarded by the government as an essential component of the long-term development plans" for the country, he said in a statement.
"The Lao government reiterates its commitment to implementing the project according to the conditions laid out by the World Bank," Chanthalangsy told RFA's Lao service. "In particular [we will] take into consideration the participation of the community, consultation with society, and the environmental risks."
Ludovic Delplanque, spokesman for the Nam Theun 2 Power Co. (NTPC), said several other private and state financial partners were expected to follow the World Bank.
"Over 100 contracts are currently being signed," he said. "The bank's decision opens the door for the U.S. $1.25 billion necessary to build the dam to be available in the weeks to come."
In Bangkok, activists protested the Bank's decision, which they say will have a severe economic and environmental impact on the tiny Southeast Asian nation.
They have also protested the plan because it would funnel money to the Lao government, a highly secretive regime accused of corruption and human rights abuses.
David Hales of the nonprofit World Watch Institute, has said much of the U.S. $250 million in projected earnings are deferred, and that with any changes to the equation "then benefits to the poor become diminishingly small and risks intolerably large."
"The purported benefits of Nam Theun 2 are dwarfed by the massive costs that tens of thousands of Lao farmers and fishermen will bear," Shannon Lawrence, a representative of the activist group Environmental Defense, said in a statement.
Original reporting in English by Arin Basu in Washington. Additional reporting by RFA's Lao service, directed by Viengsay Luangkhot. Produced for the Web in English by Sarah Jackson-Han.