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dam-l THAILAND: 'Battery of Asia' may run flat
Financial Times
<fontfamily><param>Arial</param><smaller>MONDAY APRIL 6
1998</smaller></fontfamily>
<fontfamily><param>Arial</param><smaller> <bold>Asia-Pacific</bold>05:20
PM GDT</smaller></fontfamily>
<bold><fontfamily><param>ARIAL</param><smaller>THAILAND: 'Battery of
Asia' may run flat
<color><param>6666,6666,6666</param>Thailand's economic crisis is raising
questions over the energy exporting hopes of neighbouring Laos. Ted
Bardacke reports
</color></smaller></fontfamily></bold>
As two giant turbines begin to roar in the middle of the jungle, Laos is
starting to become the "battery of Asia." Last week the $280m
Theun-Hinboun dam began producing electricity for neighbouring Thailand,
the first of what Laos hopes to be as many as 21 dams spanning this poor
landlocked country.
Although Theun-Hinboun, at 210MW, is small as hydro-power projects go, it
is huge for poor land-locked Laos. It will nearly double export earnings
and increase gross domestic product by 7 per cent. It also marks the
first time the country has got private bank financing on a large scale,
albeit with cover from a host of multilateral institutions led by the
Asian Development Bank (ADB).
Access to financing is crucial if Laos is to complete the other big
infrastructure projects necessary to fulfil its non-binding 1996
agreement with Thailand to provide 3,000MW of power by 2006. Both the
World Bank and ADB are actively looking at other hydro-power projects in
the country.
But if Theun-Hinboun, a joint venture between the government of Laos, GMS
Power of Thailand and Nordic Hydropower, has shown that cash-generating
dams can indeed be built and financed in Laos, doubts are being cast on
Thailand's ability to fulfil its side of the agreement.
As Thailand's economic downturn continues, the country's need for new
sources of electricity is diminishing. Power demand, once expected to
grow at 7 per cent annually for the next 10 years, is slowing
dramatically. The Electricity Generating Authority of Thailand (Egat) has
already committed itself to buying electricity from seven new Independent
Power Producers (IPP) inside the country.
"Five years ago we had high demand and saw that Laos could provide us
with electricity at a reasonable price," says Viravat Chlayon, governor
of Egat. "But now we have to consider very carefully when we can take
power from the next [Lao] projects. If growth is not high enough we could
end up with unnecessary power reserves."
Mr Viravat adds that the 3,000MW agreement with Laos, like a similar
1,500MW agreement to buy hydro-power from Burma, "will not be cancelled
but made into a long-term idea."
Even if Thailand does decide to buy more Lao hydro-power, regional
currency volatility makes projects harder to finance. In the case of
Theun-Hinboun, developers were "hit hard" by Thailand's devaluation, says
David Michaels, managing director of GMS Power.
The price Egat pays the Theun-Hinboun consortium is paid out half in
dollars and half in baht. With a minimum 30 per cent devaluation in
Thailand, revenues in dollar terms are about 15 per cent lower.
Theun-Hinboun had attempted to create a natural hedge by splitting the
financing equally between baht loans, led by Bangkok Bank, and dollar
loans led by Crédit Agricole Indosuez. But since all costs in Laos are
dollarised and because the baht loans carry high interest rates,
developers used their dollar financing first. When the devaluation came,
there was a financing gap and baht interest rates climbed even higher.
"When we financed this project Laos was a problem but Thailand was a gem.
We really sold it as a Thai project," says Mr Michaels. "Now even IPPs in
Thailand need concessionary financing. For projects here in Laos it's
even tougher."
Theun-Hinboun is still profitable. Not so Houay Ho, a 150MW dam in
southern Laos built by Daewoo of Korea, scheduled to begin operation in
October. Plagued by cost overruns, it is understood to be for sale and
Daewoo is asking Egat to renegotiate its purchase agreement.
Theun-Hinboun and other future Lao hydro-power projects would benefit
from any adjustment in how Egat pays for Lao hydro-power. Still,
construction has been halted at two other sites, Xepian-Xenamnoy and Nam
Ngum 2, while the concession and power purchase agreements at the giant
Nam Theun 2 have lapsed.
Many in the energy industry believe that by 2006 Laos will, at most, be
supplying Thailand with only about 700MW of hydro-power. "That's about
all Egat can take," says one developer.
Going slow may be a good thing. Theun-Hinboun is relatively benign in its
environmental and social costs, with no large reservoir and no human
resettlement needed. But according to a report released this week by the
International Rivers Network, villagers in the area are complaining about
declining fish stocks.
Theun-Hinboun developers are funding fishery and rural development
studies for the area, but it will be up to the Lao government to
implement them, a big question mark given the government's limited
capacity and resources.
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Aviva Imhof, Mekong Program Coordinator
International Rivers Network
1847 Berkeley Way, Berkeley CA 94703 USA
Tel: + 1 510 848 1155 (ext. 312), Fax: + 1 510 848 1008
Email: aviva@irn.org, Web: http://www.irn.org
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