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dam-l Lao dam a test for World Bank (fwd)
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From owner-irn-mekong@igc.org Fri Oct 3 05:51:55 1997
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Date: Fri, 3 Oct 1997 18:34:42 +1000
From: aviva@irn.org (Aviva Imhof)
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Subject: Lao dam a test for World Bank
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The following opinion piece was published in The Australian Financial
Review on Tuesday Sept 30 1997.
Lao dam a test for World Bank
The controversial $1.5 billion Nam Theun 2 dam will show if the World Bank
can avoid being embroiled in yet another unenviable, unsound project,
writes Aviva Imhof
Plans by Australian construction firm Transfield to build a giant dam in
Laos with guarantees from the World Bank are proving an embarrassment to Mr
James Wolfensohn, President of the World Bank, who has been trying to
reform the battered and much-criticised institution.
Australian-born Mr Wolfensohn is stopping over in Australia this week after
the recent World Bank/IMF Annual Meeting in Hong Kong. At that meeting,
bankers, financiers and government ministers debated strategies for
increasing World Bank support for private sector operations in low income
countries. Yet there is at least one private sector project that Mr
Wolfensohn might prefer that the Bank never got involved in.
The highly controversial $1.5 billion Nam Theun 2 dam in Laos has caused
numerous headaches for Mr Wolfensohn and his staff since the Bank first
recommended the project as the "best option" for hydroelectric development
in the small, land-locked country of Laos in 1991. Since that time, while
publicly stating that it is not committed either way to this dam, the World
Bank has been working closely with the Government of Lao and the dam's
private developers to push ahead with the project.
As the lead developer in the consortium, Transfield has reportedly already
spent $30 million on the project, which is being developed as a
Build-Own-Operate-Transfer Project to sell power to Thailand. The
Government of Lao is expected to hold a 25% equity stake in the project.
Mr Wolfensohn is under considerable pressure from non-government
organisations internationally to stop the World Bank from becoming
embroiled in yet another dam disaster. They see this as a test case in Mr
Wolfensohn's battle with Bank management. If he can use his power to stop
this project, then he may come out on top.
But if it goes ahead, this may prove that it is virtually impossible to
control the voracious desire of the Bank's senior managers to proceed with
economically unviable and socially and environmentally unsound projects.
The World Bank is due to make a decision on the project's future in the
coming weeks. Neither the project's private developers nor the potential
commercial lenders are able to move forward with the dam unless World Bank
guarantees are in place to protect their investment.
But after four years of studies, negotiations and consultations, Nam Theun
2 looks increasingly risky, and anticipated benefits for the government and
people of Laos are steadily shrinking.
The ongoing crisis in the Thai economy has seriously shaken the economic
viability of hydro schemes Laos, including the Nam Theun 2 dam. The crisis
has resulted in drastic downward revisions in projections of Thai economic
growth and power demand. As a result, Nam Theun 2 could be left without a
buyer for its power, or with a price too low to sustain the huge
construction costs.
But this is not the only problem facing the project. The recent indefinite
postponement of the Bakun hydropower project in Malaysia highlights the
economic unattractiveness of hydro projects. The demise of Bakun leaves the
Nam Theun 2 as the largest private hydropower project in Asia seeking
investors. If the returns are not high enough, investors could also shy
away from this project.
There is substantial evidence to indicate that the returns will not be as
high as promised. The recently released Economic Impact Study by
consultants Louis Berger International says the project will only generate
US$38 million in annual revenue for Laos, a vast difference from the $176
million promised by the developers in 1991.
Even this could be optimistic. A review conducted by independent
engineering/economics consultant Dr. Wayne White of Foresight Associates
reveals that the Louis Berger study systematically underestimates the risk
that the project will fail to produce net benefits to the Lao economy. Dr.
White finds that there is a "very real possibility of the project Š
subjecting the GoL [Government of Lao] to loss of its total investment
while incurring environmental, social and opportunity costs."
Dr White found that the Berger study's worst case scenario excludes any
consideration of sedimentation in the reservoir, limits its potential
construction cost overrun to 20%, and does not consider the possibility of
construction delays. According to Dr White, "familiarity with international
hydropower projects demonstrates that these factors are not only
pessimistically possible, they are typical." Even the World Bank's own
studies show cost overruns on hydropower projects average 27%.
The dam is a test case for the World Bank's new guarantee mechanism which
aims to transfer the economic risks of the project from the dam's private
sector backers to the Lao government. The guarantee would in effect provide
insurance to the international lenders against any potential losses caused
by the non-performace of contractual obligations undertaken by the
government.
Yet many critics wonder why the World Bank is guaranteeing the interests of
the private developers and foreign banks, while providing no parallel
guarantee to the government and people of Laos that the project will
deliver the benefits promised.
Aviva Imhof is Mekong Program Coordinator with International Rivers
Network, a US-based organisation working to protect the world's rivers.
****************************************************
Aviva Imhof
Mekong Program Coordinator
International Rivers Network
1847 Berkeley Way, Berkeley CA 94703, USA
Tel: + 1 510 848 1155 Fax: + 1 510 848 1008
http://www.irn.org
I AM CURRENTLY LOCATED IN AUSTRALIA - NOTE NEW PHONE NUMBER AND ADDRESS
TEL: +61 2 9955 5940
FAX: + 61 2 93861497 (C/O- AID/WATCH)
ADDRESS: 29/10 Carr St, Waverton NSW 2060, AUSTRALIA
****************************************************