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Theun-Hinboun: An assessment of early project performance Prepared
for March 1, 2001 Contents Abbreviations and conversion
About Probe
International Probe
International educates
Canadians about the environmental, social, and economic effects of
Canada's aid and trade abroad. Together with citizens groups around the
world,
we monitor and expose the effects of projects financed by Canadian tax
dollars through international financial institutions such as the World
Bank and the Asian Development Bank. For more information see http://www.probeinternational.org Probe
International is a
division of Canada's Energy Probe Research Foundation, a leading
energy and environmental think-tank which has argued for breaking up
Canada's electricity monopolies since the early 1980s and is helping
develop new rules for Ontario's electricity market. For more information
see http://www.energyprobe.org Probe International's Power Sector Reform Series ' Aid agencies should get out of dam building, Gráinne Ryder in Development Today, May 12/2000 ' 2000, Benefit Cost Analysis of Decommissioning the Pak Mun Dam (in Thailand), Wayne White, Foresight Associates. ' Peddling yesterday's technology: aid for large hydro dams must be stopped, Gráinne Ryder, Speech to the World Commission on Dams, February 2000. ' 1999, What Thai Citizens Should Know About Canada's Nuclear Power Program, briefing by Probe International in association with Energy Probe for Alternative Energy Project for Sustainability of Thailand. ' 1999, The Three Gorges Dam: A Great Leap Backward for China's Electricity Consumers and Economy, Patricia Adams and Gráinne Ryder, Probe International. ' 1999, Thailand's Flawed Electricity Privatization: The Case for Citizen-Oriented Reform, Gráinne Ryder, Probe International. ' 1999, The Theun-Hinboun Public-Private Partnership: A Critique of the Asian Development Bank's Model Hydropower Venture in Lao PDR, Gráinne Ryder, Probe International. ' 1997, The Advantages of Combined Cycle Plants: A "New Generation" Technology, Gráinne Ryder, Probe International. ' 1997, Reforming Thailand's Power Sector: Towards a Sustainable Electricity Future, Gráinne Ryder, Probe International. Other publications by Dr. Wayne C. White ' A Review of the Se San 3 Hydropower Project Feasibility Study, October 2000. ' Infrastructure Development in the Mekong Basin, for Oxfam America, July 2000. ' Benefit Cost Analysis of Decommissioning the Pak Mun Dam, June 2000. ' A review of the Power Purchase Agreement between the Republic of the Philippines National Power Corporation and a consortium constituting the San Roque Power Corporation concerning the construction and operation of the San Roque Multipurpose Project, March 2000. ' Economic viability of Mekong Region Dam projects, delivered at World Commission on Dams Regional Consultation for East and Southeast Asia, Hanoi, Vietnam, 27 February 2000. ' Structuring Finance for Dam Project Sustainability, for World Commission on Dams, thematic review on International Trends in Project Financing, July 8, 1999. ' Making environmental and social assessment relevant for dams, submitted to World Commission on Dams, Web-Conference on EIAs and SIAs for Large Dams, June 3, 1999. ' Review of Economic Impact Study: Nam Theun 2 Hydroelectric Project, for International Rivers Network, September 1997. ' Review of Greater Mekong Task Force Strategies, for International Rivers Network, August 1997. ' Nam Theun 2 project economics, for International Rivers Network, July 1996. Appendix The 210 MW Theun-Hinboun
hydropower
project in the Lao PDR came online in 1998. It was built and is operated
by a new entity named the Theun Hinboun Power Company. A loan from
the Asian Development Bank (ADB) was the formative component of project
finance. Its economic purpose is given as earning money for the Lao
government, through export power sales to Thailand, to use in national
development. Power sales records from
two
years of project operation have become available at the time of this
writing. The objective of this report is to use the power output and
revenue history to independently assess the project's performance and
implications. Applying the
compensation terms
published by the ADB to the available data, and projecting production
assumptions from the two year history,
we calculate that the Lao government will take in an average of US$
25.9 million per year in the first 25 years of project life. Any
decrease in project serviceability would progressively reduce or curtail
this cash flow. If the project remains fully serviceable an additional
fifteen years, the likelihood of which we cannot rate at this time,
then in years 26 through 40 we calculate the Lao government will
take in an average of US$44.9 million annually. These earnings
compare favorably with Lao obligations to repay the original loan to
the ADB. We calculate that the original $60 million loan can be
repaid with annual transfers of US$2.6 million in years 11 through 40
of project life. Based on these
calculations,
although project returns are so far an average 23 percent below projected,
the financial performance of this project from the Lao government
perspective
is quite good. The proposed Nam
Theun 2
dam project will, if built, undermine Theun Hinboun's productivity,
which, in addition to concerns about its own economic viability, should
be a strong caution against its construction. The proposed Nam
Theun 2 project's location is upstream on the same river which powers
Theun Hinboun. It will impound the water of the Theun River, and divert
it to a different river basin. They are not compatible projects, and
the Nam Theun 2 project would undercut the function of Theun Hinboun
by denying it water. This is in addition to previous findings which
raise the possibility that Nam Theun 2 will be a money losing and
uneconomic
project, with a large impact on persons, aquatic species, and the upland
ecosystem. The Theun-Hinboun
project
has created as yet unmitigated social and environmental damages.
The THPC has calculated that over 10,000 households are enduring
socioeconomic
impact, and that there are a number of unresolved environmental impacts
too. As a result, they are adopting a "Mitigation and Compensation
Program." An alternative review by Bruce Shoemaker suggests that
the THPC report significantly understates the project's negative impacts,
and critiques the proposed mitigation and compensation measures as
unresponsive
to those directly affected. Financial analysis informs one aspect of
this debate about how best to achieve adequate mitigation and compensation
of the Theun-Hinboun project's negative effects.
There is enough money from project returns to provide remedies to
all negatively affected stakeholders. It is not possible to
generalize
from Theun-Hinboun's positive financial performance that other hydropower
projects in the region are viable. Of the major hydrodam projects
built or proposed in the Mekong Basin, Theun Hinboun is unique in the
physical features which result in its positive financial returns. Its
structural scale, therefore capital cost, is low in relation to its
dependable capacity. The source river has sufficient flow to maintain
year-round production, although not at installed capacity in all months,
and only at the cost of diverting all water during the dry season, leaving
no flow in the downstream river. If Theun-Hinboun was required to
maintain
minimal releases to the source river downstream, a common international
standard, its financial feasibility would also be in
doubt. A constraint to viewing Theun Hinboun as an acceptable model for replication of contractual arrangements is that it was implemented without prior informed consent of affected persons, and failed to assign responsibility or funds for full mitigation of social and environmental effects. Any future project should be structured in conformance with the guidelines articulated by the World Commission on Dams (WCD), including consideration of affects on all stakeholders, their inclusion in a "negotiated decision-making process," their "free, prior, and informed consent" before a project begins, and project benefits being shared to fairly compensate people for lost or damaged property, resources, and livelihoods. In October 1994 the
President
of the Asian Development Bank submitted a report to his Board of Directors
recommending the approval of a loan for the 210 MW Theun-Hinboun
Hydropower
Project in the Lao PDR. The loan was subsequently approved, the project
was constructed at a cost of US$ 280 million, and power from Theun-Hinboun
came online in 1998. The ADB President's
report gave
Lao economic growth as justification for the project. Power was intended
to
be exported to Thailand, and the resulting revenues were projected to be
well
in excess of costs, mainly consisting of construction cost repayment.
Earnings
from the project would accrue to the Lao national budget, seen as the
"main
vehicle for the Government to deliver social services and redistribute
income."1 Power sales records from two years of project operation have become available at the time of this writing. The objective of this report is to use the power output and revenue history to independently assess the project's performance, particularly with respect to the following: ' What are the net financial flows (revenues) from this project to the Lao government? ' Are all affected parties (stakeholders) benefitting from this project? ' Are there physical factors to which the performance of this project can be attributed? ' What
implications does
this project have for other planned hydropower developments in the
region? This section examines
financing
arrangements, costs, and earnings to derive the net earnings to the
Lao government. The ADB President's
report on
Theun Hinboun projected a total project cost of US$270 million.
Documents posted
by the ADB after completion state that the total actual project cost was
US$280
million.2 A new legal entity, The
Theun
Hinboun Power Company Limited (THPC), was created to build the project,
and
to own it for thirty, possibly forty, years. The ADB President's report
on Theun
Hinboun lists sources for the THPC to raise the project budget,
anticipated
to be US$ 270 million. These are listed in the following table with one
amendment,
as follows. Post completion reports by the ADB indicate that the budget
increased
by US$10 million, and that a corresponding increase in the level of
export credits
provided for this.3 The sources of finance, therefore,
are:
The Lao government financed its loan and equity investment in the THPC by borrowing US$60 million from the Asian Development Bank. Of that amount, the Lao central government disbursed $51.5 million to Electricity du Laos (EdL) in the form of a loan, and EdL used that money to purchase its equity share in THPC. The Lao central government also loaned $8.5 million to THPC. The THPC is responsible
for
repaying all loan portions of the project's finance package. Of course,
the THPC's shareholders would also like to recover their equity
investment,
with additional returns, but this must come from project earnings they
accrue. Debt repayment has a senior claim on THPC's
revenues. The ADB President's
report on
Theun Hinboun does not describe the detailed terms of the commercial
loans or
export credit to be repaid by THPC.a For the region, and the
time
period involved, it is reasonable to assume a loan rate of ten percent,
for
both commercial credit and export credit.4 This assumption is
compatible
with the overall weighted cost of capital given in the President's
report,band
with the interest rate being charged by the Lao government for its loan
to the
THPC. We further assume a 25 year loan period. The $8.5 million loaned
to THPC
by the Lao government is to be repaid at an interest rate of ten percent
"and
a repayment period of 16 years including a grace period of 4
years."5
This debt has the same level of seniority as the commercial loans and
export
credit. The $51.5 million loaned
to
EdL by the Lao central government is to be repaid at an interest rate of
6.21
percent, "and a repayment period of 25 years including a grace
period of
5 years."6 The $60 million loaned
to the
Lao government by the ADB will have a repayment period of 40 years, with
a grace
period of 10 years. The only interest will be a 'service charge' of 1
percent.7 Earnings to the project
derive
from sale of power to the Electricity Generating Authority of Thailand
(EGAT). The rate, according to
the
ADB President's report, is set by a power sales agreement between THPC
and EGAT. As described, EGAT commits to pay "a base rate of $.043
per kWh in 1994 prices, to be increased by 3 per cent per annum commencing
on 1 January 1994 during the four-year construction period and at 1 per
cent per annum for an initial ten-year operating period....The currency
of payment will be 50 per cent Thai baht and 50 per cent US
dollars...."8 The President's report
projected
the following income stream from Theun-Hinboun:
In fiscal 1999 EGAT paid
an
average tariff of US$.040 per kwh, and in fiscal 2000 paid an average
of US$.041. These rates, although lower than $.043, do not necessarily
indicate deviation from the power sales agreement, but may reflect
depreciation
of the baht portion of the tariff against the
dollar. The earnings from sale
of power
produced by the Theun Hinboun project to EGAT in fiscal 1999 and 2000
are given in the following table.
The revenue, in dollar
equivalent,
earned in fiscal 1999 was US$56.469 million, compared to US$77.432 million
projected in the ADB's report. In other words, actual was 73 percent
of projected. Available data shows that sales were thirteen percent
higher in fiscal 2000, which would correspond to an annual total for
fiscal 2000 of $63.895 million, or 82 percent of projected
sales. E. Financial returns to Lao PDR In order to assess the
financial
performance of the Theun-Hinboun project, this report includes a
calculation
of the total annual monetary returns to the Lao PDR. The complete
calculation
can be found in the Appendix. This section describes the parameters
and assumptions of the calculation before presenting the results.
This report uses the
first
two years of Theun-Hinboun's operational history as a basis for assessing
its long-term financial performance. On average, Theun-Hinboun earned
77 percent of the revenue in fiscal 1999 and 2000 projected in the report
of the ADB President. This report will apply that finding by assuming
that revenue for each year over the project's life will similarly be
77 percent of projected.c The total earnings to the Lao PDR from this project derive from the following sources: ' Royalties. THPC pays the Lao government "an annual royalty fee of 5 per cent of gross revenues...."11 ' Taxes. THPC pays taxes to the Lao government at a rate of 15 percent of taxable income.12 ' Dividend. The example calculated in the President's report uses dividends "at 80% of Net Income after Tax."13 d The precise contractual formula defining the rate of dividends over various levels of project revenue is not given. ' Loan
repayment. THPC
makes repayments on the $8.5 million loan. Calculation of the
annual royalty
is simply achieved by taking 5 percent of the total payments for
electricity
received from EGAT. For calculation of
taxes, THPC's
net (or taxable) income is shown by example in the Presidents' report
to be gross revenues minus: operating and maintenance expense (O&M)
(projected to be 2 percent of the capital cost annually),
royalty payments, depreciation, and interest expenses. Depreciation
is projected to be straight-line depreciation over 25 years, so the annual
amount is one 25th of the capital cost. The annual dividend to
EdL
is described in the President's report as a percentage of net income
after tax. Without knowing the full provisions of the contract documents,
however, it is not possible to rule out the existence of further
conditions
that might affect the dividend calculation. For example, if THPC spends
a portion of its revenue making accelerated debt repayments, will that
reduce the dividend? Also, it is not known to us whether the other
equity partners are protected by any type of minimal dividend payment
provision in the event of low overall project revenue, in which case
EdL might receive less than 80 percent of net income after tax as their
dividend. Our calculation of
taxable
income varies in the following way, with implications for the values
of tax and dividend. The example in the President's report considers
depreciation and interest expense, with interest varying from a high
amount in the early years based on the total amount of debt, gradually
declining to zero at the end of 25 years. We consider a debt service
payment encompassing repayment of principal and payment of interest,
that is constant each year for 25 years. With those parameters
and
assumptions,
and especially assuming that the dividend will be at the rate of 80
percent, we calculate that the Lao government will take in an average
of US$ 25.933 million per year in the first 25 years of project life.
Any decrease in project serviceability would progressively reduce, or
possibly curtail this cash flow. The project company is
scheduled
to repay its loans within 25 years. After that time, THPC's income
would not be burdened with any debt service payments (unless it incurs
further debt), which would benefit the government's dividend, drawn
from THPC's net income. If the project remains fully serviceable an
additional fifteen years, the likelihood of which we cannot rate at
this time, then in years 26 through 40 we calculate the Lao government
will take in an average of US$44.914 million annually.
These earnings compare
favorably
with Lao obligations to repay the original loan to the ADB. We calculate
that the original $60 million loan can be repaid with annual transfers
of US$2.568 million in years 11 through 40 of project
life. Based on these calculations, although project returns are so far an average 23 percent below projected, the financial performance of this project from the Lao government perspective is quite good. If an infrastructure
project,
such as Theun Hinboun, built as an instrument of national development,
is beneficial, it should be so for all affected parties. That is, project
returns should not only exceed full economic costs, they should be
mobilized
for mitigation and/or compensation that leaves no stakeholder worse
off than before. For that reason, this
review
of Theun Hinboun's performance, having examined financial returns, now
considers other project effects. As the World Commission on Dams has
noted, "Social and environmental issues have historically been
among the least addressed concerns in dam-related decision-making....they
are two of the key issues that determine whether a dam proves to be
an effective development project that enjoys general acceptance by the
public."14 A. THPC's tally of unmitigated project effects According to the
Theun-Hinboun
Power Company, there exist an array of unmitigated, negative project
effects. The THPC's mitigation and compensation15
program report cites the following:
It is in response to
these
and other recorded social and environmental damages that the THPC is
adopting a "Mitigation and Compensation Program." The planned
program would take place over 10.5 years, and its total cost is budgeted
to be US$4.7 million.18 B. Alternative view of impact scope A somewhat different
view of
the situation is presented in a review of the THPC's plan by Bruce
Shoemaker,
commissioned by the International Rivers Network and released in December
2000.19 It suggests that the THPC report significantly
understates
the project's negative impacts, and critiques the proposed mitigation
and compensation measures. Shoemaker indicates that
the
suggested program lacks accountability to local citizens, presents unclear
criteria for evaluating project impacts, allocates funds in ways that
may not reach the affected villagers, fails to recognize that citizens
have a right to direct and immediate compensation for fisheries losses,
and relies on development investments that are not certain to result
in benefits to the affected persons. He also notes that the THPC report's
recommendations would endorse and make permanent a policy of no longer
striving to maintain dry season releases downstream, whereas the THPC
formerly made a commitment to maintain a minimum flow of 5 cumecs (cubic
meters of water per second). C. Funds for mitigation There is debate about
how best
to achieve adequate mitigation and compensation of the Theun-Hinboun
project's negative effects, and the issues have depths that this report
will not go into. From this brief survey, however, it is possible to
make a conclusion about the level of spending. Whereas the total planned spending on mitigation and compensation is not more than $4.7 million over project life, if we include revenue accruing to the Lao government as a source, a greater spending level, even by multiples of that amount, would still leave the project with positive financial returns if project performance continues at near present levels. This report is not in a position to recommend any given spending level as optimal, and indeed, the amount of money spent does not necessarily correspond to the amount of good achieved. There is enough money from project returns to provide remedies to all negatively affected stakeholders. While we cannot overlook
its
unresolved social and environmental impacts, Theun Hinboun is notable
for having positive financial returns to the host government, while
other hydrodam projects in the Mekong Basin Region, in Lao PDR, Thailand,
and Vietnam, do not. This section discusses the physical factors which
favor Theun Hinboun, and considers the degree to which they are unique
in the region. A. Theun Hinboun's physical features Theun Hinboun's
efficiency
derives from two defining features: its structural scale, therefore
capital cost, is low in relation to its dependable capacity, and its
installed capacity, that is the size of turbines and associated
structures,
is matched with dry season flow constraints of its source
river. The project's type is
described
as a run-of-the-river, inter-basin transfer. It is not purely
run-of-the-river
because there is a dam, but it is relatively modest in size. The water
retention area behind it is referred to as a headpond rather than a
reservoir because of its smaller volume. Water from the headpond flows
through a tunnel, powers the turbines, and is released in the valley
of a different river, that is, a different river basin. The outflow
river valley is at a substantially lower elevation than the source,
which is why the project is able to harness a relatively large height
differential with a relatively low structural
investment. Like the rest of the
region,
the source river, the Theun, is subject to flow volume variations as
a result of highly seasonal rainfall patterns. The Theun Hinboun project
is sized with consideration of minimal yearly flow rates, and the project
is feasible at this scale. In its first two years of operation, Theun
Hinboun's production levels have fallen below forecasted generation
during the annual dry season, but the minimum flows in the source river
are sufficient to produce substantial percentages of the production
goals. This is in contrast, for example, to some high dams, wherein
a drop in reservoir levels during a dry season can result in stream
flow through the turbines dropping to zero. Theun Hinboun's ability
to
produce power during the dry season does come at a cost to the downstream
river. The project's operators have found that in order to maintain
even a majority of rated production during the dry season, they require
all of the river's water. With 100 percent of the river's flow being
diverted, that leaves the downstream reaches of the river dry, with
consequences for all of the river's aquatic life as well as for riverside
residents. Nordic Hydropower, a partner in THPC and key project
developer,
would not have been allowed to divert all of the river's flow if this
project were located in its home country of Norway, as has been pointed
out by Grainne Ryder in her 1999 article.20
B. Project reliance on complete diversion According to the THPC's
Mitigation
and Compensation Program report:
The report goes on to
reject
such decrease in revenue, and instead call for giving up on any dry
season minimal release. While losing the 8
million
dollar a year revenue decrease cited in the report would be a blow to
the THPC's finances, it does not describe the full financial risk.
Under the license agreement which governs THPC's operation of the project
and sale of power, it is to operate the project at "a guaranteed
availability of 85 percent."22 For a 30 day month,
operating
the turbines at full capacity this often would produce ((210 MW
capacity)(85%)(30
days)(24hours/day)) equals 128.5 thousand megawatt hours per month
(128.5MWh).e
Yet already the output in the dry months is far less than this. In
February, March, and April of 1999, Theun Hinboun produced and sold
53.9, 50.9, and 66.3 MWh per month,
respectively.f Let's assume that 1999
was
the "1:20 dry year" referred to in the THPC report; the actual
driest year in 20 may have even less water. Providing half of the dry
season flow for riparian release, instead of the one sixteenth referenced
in the THPC report, would have left water enough to have produced 27.1
MWh in the month of March. This production is only 21 percent of the
desired 128.5 MwH per month. In other words, it corresponds to a project
of only 44 MW capacity that has 'a guaranteed availability of 85 percent'
(per the license agreement terms). The low monthly
production
that would arise from maintaining minimal releases in the dry months
would invite a reaction by the Thai purchaser of the Theun Hinboun's
power output. The ADB President's report gives one example of the lower
tariff Thailand pays for less reliable power:
Application of the rate
to
Theun Hinboun, for which the base rate for power purchases is presently
$.043 per kWh, would represent a 33 percent decrease. The total impact
under this scenario includes not only a decrease in the total amount
of power produced (the $8 million cited in the THPC study corresponds
to about 195 MWh per year) but also a 33 percent decrease in the tariff
paid for all power produced. This level of decrease to revenue would
threaten the financial feasibility of the project and the project
company. C. Comparison with other
regional projects The proposed Nam Theun 2
project
is also intended to utilize inter-basin transfer, but the differences
between it and Theun Hinboun are profound. Where Theun Hinboun is
nominally
run-of-the-river, Nam Theun 2 utilizes large, reservoir storage. The
design
of Nam Theun 2 CENTERs around flooding a broad upland valley, with water
being drawn off for power generation at a point distant from the dam.
The project cannot, therefore, be scaled down beyond a certain size
because the dam has to be high enough to back water up to the diversion
point. The turbines to be installed will have a combined capacity of
630 MW (or greater by some design variants), or at least three times
that of Theun Hinboun. This greater installed capacity is called for
despite the source river flow being less; in fact the source river is
the same one (more on this below) before the entry of a major tributary.
The cost of Nam Theun 2 is to be 1.3 billion US dollars according to
the World Bank (some estimates run higher), more than four times the
cost of Theun Hinboun. The Pak Mun dam in
Thailand
is also a so called run-of-the-river type, and, as such, was intended to
be the first of many similar dams on the Mekong and/or on the mouths
of its tributaries. Although not a "high dam," it relies
on water pressure from impounded backwater to drive a turbine mounted
in or near the dam, in this case within the dam structure itself. In
distinction to the great vertical differential utilized by Theun Hinboun
as an inter-basin diversion dam, Pak Mun only has a vertical drop to
utilize of less than the dam's height of about ten meters. Pak Mun
has proven to vulnerable to both the dry and the wet seasons. During
the dry season, there is a scarcity of water to turn the turbines.
During monsoon season, the downstream water backs up against the dam,
eliminating the pressure differential needed to turn the turbines since
the water pressure below the dam is as great or nearly so as that above
the dam. Many of the dams built
in the
region, such as the Yali Falls and Hoa Binh Dams in Vietnam, or proposed,
such as the Se San 3, also in Vietnam, are "high dams." They
have a capital cost corresponding to the scale of dam structure. High
dams with their large reservoirs are generally intended to regulate
flows throughout the year, but in each of the examples cited, they have
been unable to cope with the seasonality of rainfall in the Mekong
region.24
This has left them with them with insufficient flows in the dry season
to produce power at the supposed dependable capacity levels. In some
cases, reservoir levels have fallen below inlet levels, placing power
production levels at
zero. D. Theun Hinboun
unique We cannot rule out that another site may someday be identified in the region, amenable to a similar interbasin transfer, but until then, the following statement holds sway. Of the major hydrodam projects built or proposed in the Mekong Basin,g Theun Hinboun is unique in the physical features which result in its positive financial returns. If the Theun Hinboun
project
is a financial success, what are the broader implications for Lao PDR
and the region? Should it encourage the construction of more hydro-dams?
Does it say anything about the desirability of this sort of big
infrastructure
project as a national development strategy? Does it have implications
for particular proposed projects? This section examines these regional
implications. A. Is Theun Hinboun replicable? The success of Theun
Hinboun
cannot be taken as a broadly applicable indicator that hydropower projects
are beneficial in the region. The physical parameters of every project
are different, and they must be evaluated on an individual basis. As
demonstrated in section IV of this report, the physical features which
determined Theun Hinboun's viability are so far unique among major
projects
built or proposed for the region. B. Should the financing model be replicated? This study has not
examined
the contractual documents nor detailed cash flows and cannot answer
this question fully, but project performance is clear regarding
shareholder
inclusion and financial return to the government. The contract documents,
which
this study maintains are inseparably linked with the issue of finance
arrangements, were implemented without the prior informed consent of
affected persons, and failed to assign responsibility or funds for full
mitigation of social and environmental effects. This shortcoming has
come back on the project, as unmitigated impacts are only now being
addressed, and any future transaction that uses this project as a model
would do well to amend these deficiencies. Any future project
should be
structured in conformance with the guidelines articulated by the World
Commission on Dams (WCD).25 The first three WCD guidelines
make it clear that not only should the impacts on all stakeholders
(including
affected persons) be fully considered, those persons should be involved
in a "negotiated decision-making process," with any commitment
to undergo a project that will affect them being made with their
"free,
prior, and informed consent."26 Guidelines 17 through
20 fall under the general principle of "recognizing entitlements
and sharing benefits," and the last of these specifically addresses
"project benefit-sharing mechanisms." Thus any future project
attempting to use the finance structure of Theun Hinboun as a model
will have to make substantial improvements on it, as Theun Hinboun does
not incorporate these principles, which have been recently re-articulated
as WCD guidelines. This financial model has
provided
a desirable degree of revenue to the host government, through its
combination
of revenue mechanisms. It is notable for generating revenue for the
government from early stages of project life. It protects the government
by having a portion of revenue that is generated from gross receipts,
while including the government as an equity partner
also. C. Bearing on the proposed Nam Theun 2 project Nam Theun 2 would be
built
upstream on the same river which powers Theun Hinboun. It will impound
the water of the Theun River, and divert it to a different river basin.
Theun Hinboun was originally proposed as an alternative to Nam Theun
2, and should be viewed that way. They are not compatible projects,
and the Nam Theun 2 project would undercut the function of Theun Hinboun
by denying it water. Our previous work
indicates
that Nam Theun 2 has a significant probability of being a money losing
and uneconomic project, while definitely having with a large impact
on persons, aquatic species, and the upland ecosystem.27
Economic analysis of the project using realistic values for construction
cost, power production, and pricing of power sales determined that the
Lao government, far from earning revenue, could lose US$ 95 million
or more on Nam Theun 2 if it is built. Combining that with the knowledge
it will undermine the income stream from Theun Hinboun should be a strong
caution against its construction. A study was done by
Norplan
for the Lao government at the behest of the ADB, that ostensibly should
have treated this subject of Nam Theun 2 and Theun Hinboun's mutual
exclusivity; it has not. The Water management Plan for the Nam Theun/
Nam Hinboun28 avoids any direct treatment of the
obvious question of whether Nam Theun 2's diversion of water will leave
Theun Hinboun as a non-functional, money losing project. The closest
it comes are statements such as:
It goes on to say that
Nam
Theun 3 could be operated to benefit electrical generation by Theun
Hinboun by seasonal regulation of water to be re-released into the Theun
River channel from upstream. It stops short in the Executive Summary
of making the equally obvious observation that Nam Theun 2 would divert
water from the Theun (whether the Nam Theun 3 is built further upstream
or not) before it reaches the Theun Hinboun facility. One reason for
the omission of any warning against the advisability of building Nam
Theun 2 is the inevitability the Water management plan
attributes to the construction of Nam Theun 1, 2, and 3 in addition
to Theun Hinboun; it maintains that planning "must be based on
at least 4 advanced project studies, all carried out by separate groups
of developers...."30 In fact, it is not inevitable
that uncoordinated groups be allowed to build mutually injurious projects,
with the resulting wastage of public resources. D. Infrastructure as a development mechanism The ADB President's report on Theun Hinboun, as referenced above, cited earnings accrual to the Lao national budget, which would be the "main vehicle for the Government to deliver social services and redistribute income."31 An in-depth assessment would be required to establish the effectiveness with which Theun Hinboun earnings are being put to use for national development. Certainly uncompensated affected persons would question the social benefit. If "deliver[y of] social services" and income redistribution are the standards, it is too soon to say whether Theun Hinboun is successful. 1. Asian Development Bank, Report and Recommendation of the President to the Board of Directors on a proposed loan to the Lao People's Democratic Republic for the Theun-Hinboun Hydropower Project, October 1994, Section K, Para 78, p 24 2.Theun Hinboun Hydropower Project in Lao PDR (Loan No. 1329), http://www.adb.org/gms/loan-1329. 3.Ibid. 4. Telephone conversation with Professor David Dapice, Macro-economist, Research Fellow, The Vietnam Program at Harvard University, December 11, 2000. 5.Asian Development Bank, Report and Recommendation..., p ii. 6.ibid. 7.ibid, p 14. 8.ibid, p 11. 9.Asian Development Bank, Report and Recommendation..., Appendix 7, p 2. 10.Electricity Generating Authority of Thailand, EGAT Electricity Purchase from Laos and Malaysia, for fiscal years 1999 and 2000. 11.ibid, p 10. 12.ibid. 13.ibid, p 37. 14.World Commission on Dams, Dams and Development: A New Framework for Decision-Making, Earthscan Publications Limited, London and Sterling, VA, November 2000, p 182. 15.The Theun-Hinboun Power Company's Mitigation and Compensation Program, submitted for approval September 2000. 17.Ibid, Tables A through F. 18.Ibid, p 18. 20.Ryder, Grainne The Theun-Hinboun public-private partnership, October 1999. 21.The Theun-Hinboun Power Company's Mitigation and Compensation Program, p 3. 22.Asian Development Bank, Report and Recommendation..., p 11. 23.Ibid, p 4. 24.White, Wayne C., A Review of the Se San 3 Hydropower Project Feasibility Study, October 16, 2000. 25.World Commission on Dams. 26.Ibid, p. 278. 27.White, Wayne C. Nam Theun 2 project economics, July 1996. Also, White, Review of Economic Impact Study: Nam Theun 2 Hydroelectric Project, September 1997. 28.Norplan A.S. Ministry of Industry and Handicrafts, Hydropower Office, Water Management Plan for the Nam Theun / Nam Hinboun, Lao PDR, Final Report, April 1997. 29.Ibid, p 7. 30.Ibid, p 6-1. 31. Asian Development Bank, Report and Recommendation, p 24. |
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