Nam Theun 2 Dam

Nam Theun 2
Location of Nam Theun 2 in Laos
Location Khammouane, Laos
Coordinates 17°59′49″N 104°57′10″E / 17.99694°N 104.95278°E / 17.99694; 104.95278Coordinates: 17°59′49″N 104°57′10″E / 17.99694°N 104.95278°E / 17.99694; 104.95278
Dam and spillways
Type of dam Gravity dam
Impounds Nam Theun
Height 39 m (128 ft)
Length 436 m (1,430 ft)
Reservoir
Total capacity 3.53 km3 (2,860,000 acre·ft)
Catchment area 4,039 km2 (1,559 sq mi)
Surface area 450 km2 (170 sq mi)
Power station
Operator(s) Nam Theun 2 Power Company
Commission date March 2010
Turbines EDL: 2 × 37.5 MW
EGAT: 4 × 250 MW
Installed capacity 1,070 MW

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.[1] 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 1,070 MW, 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".[2]

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",[3] the project also attracted criticism.[4]

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 NTPC 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.[5]

Technical features

NT2 enables Laos to export 995 MW of electrical energy to the EGAT. The project also uses 75 MW 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:

Institutional arrangements

The Project is structured as a BOT 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 (40%), EGCO of Thailand (35%), 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 states 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.

Financial aspects

Project costs and financing

Construction costs were initially estimated at US$1,250 million plus US$331.5 million for contingencies. More recently construction costs have been given as US$1,3 billion.[6]

The project base cost is funded through US$330 millioin of equity and US$920 million of debt. It is financed through equity, loans and guarantees from 26 financial institutions, including

All financing in hard currencies is guaranteed through political risk insurance provided by the above-mentioned three export credit agencies, the ADB (US$50 million), the International Development Association (IDA) of the World Bank Group (US$50 million) and the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group (US$91 million). 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.[7] 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 percent) was largely funded by donors, including a US$20 million grant from the International Development Association of the World Bank Group, the ADB (US$20 million), 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." [2]

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.[8]

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.[2]

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.

Environmental and social impacts

Environmental and social impacts of the project include downstream impacts, impacts on biodiversity, resettlement and reservoir sedimentation. More details can be found in the Environmental and Social Impact assessment,[9] 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.[3]

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.[11]

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.[12] 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 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 ponds 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.[13]

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.[14]

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 sediment content.[15] However, monitoring of the villages along the river conducted by NTPC has so far not detected any significant impacts to the fishery.[16]

Biodiversity and forests

Three existing protected areas on the Nakai plateau (the Nakai-Nam Theun, 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 parks 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 elephants 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.

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.[17] 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 nets, 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.[18]

Reservoir sedimentation

At current sedimentation rates, the reservoir has a lifetime of more than five centuries. If substantial logging 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.

See also

References

Further reading

External links

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