POWER SURGE THE IMPACTS OF RAPID DAM DEVELOPMENT IN LAOS - SEPTEMBER 2008
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Power Surge
THE IMPACTS OF RAPID DAM DEvELOPMENT IN LAOS
POWE R SU RG E | I
September 2008
About International Rivers International Rivers is a non-governmental organization that protects rivers and defends the rights of communities that depend on them. International Rivers opposes destructive dams and the development model they advance, and encourages better ways of meeting people’s needs for water, energy and protection from damaging floods. Acknowledgments This report was coordinated and edited by Shannon Lawrence, with significant support and contributions from Aviva Imhof, Carl Middleton, David Blake, Nok Khamin, Ernesto Cavallo, Maurice Campello and Berklee Lowrey-Evans, and assistance from Orawan Yafa, Katy Yan and Joyce Chu. Useful comments and suggestions were provided by Andrew Bartlett and Glenn Hunt. The experiences and insights from other organizations and individuals, many of whom cannot be named here, also proved invaluable. Special thanks to Marcus Rhinelander for permission to use his photos. This report was made possible by the generous support of the McKnight Foundation and the Richard and Rhoda Goldman Fund. This report and additional supporting materials can be downloaded at internationalrivers.org Copyright © 2008 by International Rivers ISBN: 978-0-9718858-7-5 Shannon Lawrence shannon@internationalrivers.org Published by International Rivers 1847 Berkeley Way Berkeley, CA 94703 USA Tel: +1 510 848 1155 Fax: +1 510 848 1008 internationalrivers.org Design by Design Action Collective Printing by Wanida Printing, Thailand Cover photo: Girls playing in the Hinboun River, Laos. Photo: David J.H. Blake
Contents
Abbreviations and Acronyms ..........................................................................................................................2
Executive Summary............................................................................................................................................3
Table: Summary of Project Impacts.........................................................................................................7
Map: Key Existing and Proposed Hydropower Projects in Laos................................................... 10
Introduction....................................................................................................................................................... 11
Hydropower Development in Laos: An Overview.................................................................................... 13
Box: Thailand’s Role in the Lao Hydropower Sector........................................................................ 14
Box: The ADB: Bankrolling Lao Hydropower..................................................................................... 16
Poverty Reduction in Laos: An Alternative Approach.............................................................................. 18
Case Study One: Nam Tha 1 Hydropower Project ................................................................................ 25
Case Study Two: Nam Theun 1 Hydropower Project............................................................................. 29
Case Study Three: Theun-Hinboun Hydropower Project and
Theun-Hinboun Expansion Project . ........................................................................................................ 35
Map: Key Existing and Proposed Dams in the Nam Theun Basin................................................. 39
Case Study Four: Nam Theun 2 Hydropower Project............................................................................ 41
Case Study Five: Nam Ngum River Basin ................................................................................................ 47
Map: Key Existing and Proposed Dams in the Nam Ngum Basin................................................. 48
Box: Nam Song and Nam Leuk . .......................................................................................................... 50
Case Study Six: Sekong 4 and Sekong 5 Hydropower Projects......................................................... 55
Map: Key Existing and Proposed Dams in the Sekong Basin........................................................ 56
Case Study Seven: Nam Kong 1 Hydropower Project ......................................................................... 63
Case Study Eight: Xekaman 1 and Xekaman 3 Hydropower Projects............................................... 67
Case Study Nine: Houay Ho Hydropower Project.................................................................................. 73
Case Study Ten: Xekatam Hydropower Project....................................................................................... 76
Case Study Eleven: Don Sahong Hydropower Project ........................................................................ 80
Map: Proposed Don Sahong Dam....................................................................................................... 81
Box: Known Fish Migrations through the Hou Sahong Channel................................................... 83
Box: Mekong Mainstream Dams .......................................................................................................... 86
Conclusions and Recommendations ......................................................................................................... 87
POWE R SU RG E | 1
Abbreviations and Acronyms
ADB Asian Development Bank MDB Multilateral Development Bank
AFD Agence Française de Développement MFCB Mega First Corporation Berhard
BOT Build-Operate-Transfer MIGA Multilateral Investment Guarantee Agency
CA Concession Agreement MoU Memorandum of Understanding
CIA Cumulative Impact Assessment MRC Mekong River Commission
CNMC Cambodian National Mekong Committee MW Megawatt
COD Commercial Operation Date NEXI Nippon Export and Investment Insurance
CSG China Southern Power Grid NGO Non-governmental organization
EdL Electricité du Laos NNRB Nam Ngum River Basin
EdF Electricité de France NPA National Protected Area
EGAT Electricity Generating Authority of Thailand NTFP Non-timber forest product
EGCO Electricity Generating Company of Thailand NTPC Nam Theun 2 Power Company
EIA Environmental Impact Assessment OECD Organization for Economic Cooperation and
Development
EMMP Environmental Management and Monitoring
Plan PDA Project Development Agreement
GDP Gross Domestic Product PoE Panel of Experts
GEF Global Environment Facility PPA Power Purchase Agreement
GoL Government of Laos PSIA Poverty and Social Impact Assessment
GTZ German Bilateral Development Agency RAP Resettlement Action Plan
GXED Guangxi Electric Power Industry Investigation REMDP Resettlement and Ethnic Minority
Design and Research Institute Development Plan
ha Hectares RMR Resource Management and Research
IEE Initial Environmental Examination SAP Social Action Plan
IFC International Finance Corporation SIA Social Impact Assessment
JBIC Japan Bank for International Cooperation SMEC Snowy Mountains Engineering Corporation
kg Kilogram STEA Science, Technology and Environment Agency
km Kilometer THPC Theun-Hinboun Power Company
kV Kilovolt UNDP United Nations Development Program
LHSE Lao Holding State Enterprise WCS Wildlife Conservation Society
LNMC Lao National Mekong Committee WWF World Wide Fund for Nature
m Meters WREA Water Resources and Environment Agency
m3/s Cubic meters per second All dollar amounts cited are in US dollars.
2 | I nternational R i v ers
Executive Summary
T he small country of Laos is undergoing some big changes. As it tries to become the “battery of Southeast
Asia,” Laos’ hydropower industry is booming. Increasing power demand from neighboring Thailand and
Vietnam and new investors from Thailand, China, Russia, Vietnam and Malaysia are driving this expansion. Six
large dams are officially under construction in Laos and at least 12 more are at advanced planning stages. Laos
is also proposing six dams for the mainstream Mekong River.
Most of power produced by these hydro projects will Dam developers, consulting firms and construction
be exported to countries like Thailand and Vietnam, as companies are benefiting from the lack of resources,
well as to Cambodia and China. If favorable contracts capacity and authority of the Lao Water Resources and
are negotiated with the buyers of Laos’ hydropower, the Environment Agency (WREA). WREA is supposed to
Lao government could earn substantial revenue over the ensure that dams built in Laos comply with the country’s
next few decades. But in a country with low government social and environmental laws and policies. However,
capacity to monitor the impacts of dam projects, WREA often has not approved the social and environmental
where freedoms are restricted, transparency is low, and plans for these dams before their construction begins, and
corruption is high, this “flood” of new high-risk hydro dam builders are not being required to provide sufficient
projects raises important concerns. Hundreds of thousands funding to address their projects’ negative impacts on Lao
of Lao villagers are likely to lose land, fisheries and other villagers. Since WREA does not have the funding or staff
resources when these large dams are constructed and Laos to monitor dams during their construction or operation
does not have a good track record of managing the social phases, many dam companies will be able to reduce their
and environmental impacts of big dams. costs by violating Lao regulations and the commitments
The few large hydropower projects now in operation, they made to affected communities. Finally, because
such as the Houay Ho and Theun-Hinboun dams, have WREA does not have the authority to say no to a project,
increased poverty for tens of thousands of Laotians. some of the most harmful dams will still be built.
Villagers who have been resettled have not had their Furthermore, no genuine strategic planning process
incomes restored to previous levels. Other villagers or river basin-wide management approach is informing
have lost important fisheries, rice fields and riverbank how the Lao government selects and approves dam
gardens, but have not received sufficient compensation or projects. Although studies have been done in recent years
replacements. to help prioritize projects in terms of costs, benefits and
Laos’ largest dam, Nam Theun 2, is nearing the end environmental and social impacts, the recommendations
of its construction phase. This project was supposed to of these studies are not being followed. It seems that any
help raise the environmental and social standards applied company that wants to build a dam in Laos is allowed
across the Lao hydro sector. But Nam Theun 2 itself has to do so. This dam disorder increases the costs and the
experienced resettlement and compensation problems, negative impacts of hydropower development, both for
and its program to address the impacts on villagers living the government and for Lao people.
downstream has significant shortcomings. Furthermore, Since most of Laos’ large dams export their electricity
the new dam projects that have been approved since Nam across national borders, their primary benefit is the
Theun 2 actually indicate a regression in environmental revenue that is generated in taxes, royalties, dividends
and social performance. It does not seem that Nam Theun 2 and other payments to the government. Laos is one of
is leading to improvements in the design and management the poorest countries in the region, and these revenues
of Lao dam projects so that impacts on communities and should be used to help reduce poverty in the country.
the environment are addressed. This was the commitment made for the revenue that
Though Lao environmental and social laws, will be generated when Nam Theun 2 begins operating
regulations and policies are good on paper, the companies at the end of 2009. However, money alone will not be
building dams in Laos are not following these rules. The enough to reduce poverty in Laos if a number of harmful
Lao government also does not seem to be enforcing the policies and initiatives continue to be supported by the
laws and policies that it has adopted.The 11 case studies of government and donors. These initiatives include the
dam projects included in this report tell troubling stories eradication of swidden agriculture, internal resettlement,
of poor planning, inadequate compensation and mitigation and the rapid awarding of hydro, mining and plantation
measures, and broken promises to affected villagers (see concessions, which are undermining food security and
table on pages 7-9). income opportunities for rural people.
POWE R SU RG E | 3
The Mekong River at Vientiane, Laos. Photo: Shannon Lawrence
There are alternative development and poverty- Large dams that do not meet Lao laws, regulations and
reduction options for Laos, a number of which are already policies, or that would cause widespread, irreversible
being studied and implemented by Lao government environmental and social harm, should not be built.
agencies in cooperation with donors and non-governmental Overall recommendations for the Lao hydropower
organizations. These approaches would improve the ability sector include:
of lowland and upland farmers to adapt to change, safeguard n Better assess the development options for
their natural resources, and help them take advantage of new Laos. The Lao government and donors should
income-generating opportunities. Bottom-up strategies, comprehensively assess, through a broad-based
such as developing markets for niche agricultural products participatory process, all poverty reduction and
and ensuring community land rights, combined with top- revenue generation options for Laos and evaluate their
down strategies to improve government transparency and costs and benefits.
revenue collection and management capacity, need to be n Slow the flood of new dam projects. The Lao
prioritized and scaled-up. government should slow the pace of new hydro
While the Lao government has declared hydropower projects and consider a moratorium on the signing
to be a national priority, Laos will gain few long-term of Concession Agreements for new dams until
benefits from these projects if serious consideration is not comprehensive assessments and basin-wide planning
given to when, how and if they should be built in the are used to prioritize hydropower developments.
first place. Rushing to meet its neighbors’ power demands n Minimize the costs/maximize the benefits.
or the profit-seeking motives of investors will likely do Donors and the Lao government should work together
Laos more harm than good. A selective, cautious approach to increase the capacity, authority and resources of the
would allow the government to use revenues from the next Water Resources and Environment Agency of Laos.The
few dams to improve its regulatory capacity and its ability government’s capacity to negotiate favorable agreements
to negotiate favorable contracts with power purchasers. with power purchasers should also be strengthened.
4 | I nternational R i v ers
n Improve environmental and social assessments. affected communities should be provided for the life
The Lao government and dam developers should of the project. Performance bonds, or other legally
ensure the timely disclosure of feasibility studies and binding mechanisms to ensure that dam developers
draft environmental and social assessments in Lao and provide sufficient funding to address the impacts of
English languages and in multiple venues, including their projects, should be required.
through the internet. Comprehensive consultations n Share the benefits directly with affected
should be conducted to identify gaps and weaknesses people. The Lao government should establish clear,
in these studies. enforceable mechanisms to guarantee that dam-
n Support rural livelihoods. The Lao government affected communities receive a share of project
should reject any resettlement plan that does not revenue or other benefits for the life of the project.
include detailed documentation of the availability Benefit sharing must be additional to compensation
of productive agricultural land and resources in for people’s losses.
the proposed resettlement sites. The government n Protect critical resources. Based on their
should not proceed with any dam project unless the considerable environmental, social, economic and
assessments include baseline data and a comprehensive cultural value, some rivers—such as the Mekong River
evaluation of upstream and downstream fisheries mainstream—simply should not be dammed.
impacts. Compensation for fisheries losses for all
Children near Khongpat Village on the Hinboun River. Photo: David J.H. Blake
POWE R SU RG E | 5
6 | I nternational R i v ers
Summary of Impacts
For dams featured in Power Surge case studies
Developers EIA
Project Market Status Main Issues
(+ GoL) Disclosed?
Don Sahong Mega First Thailand Proposed; No • First dam proposed for the lower Mekong
240-360 MW PDA signed mainstream
(p. 80) • Block main fish migration channel in
Khone Falls area; severe fisheries impacts
for Laos, Cambodia and region
• Threaten last Irawaddy Dolphin population
in Laos
• Jeopardize tourism value of Khone Falls
area and potential RAMSAR status
• Affected villagers not properly informed;
no consultations in Cambodia
Houay Ho Suez Thailand Operation; No • Resettled about 2,500 mainly ethnic
150 MW Energy- 1999 minorities to area with insufficient
(p. 73) Tractebel, agricultural land and affected others
MCL downstream; adequate compensation still
not provided
Nam Kong 1 Region Oil Vietnam or Proposed; No • Villagers already displaced from project
150 MW Thailand PDA signed area
(p. 63) • Impact about 1,612 ethnic minorities
downstream; no compensation proposed/
budgeted
• Affected villagers not properly informed
Nam Leuk EdL Laos Operation; Yes • More than 9,500 people downstream
60 MW 1999 affected by fisheries losses and clean
(p. 50) water shortages; adequate compensation
still not provided
• Built in Phou Khao Khouay NPA
Nam Ngum 2 Ch Karnchang, Thailand Construction; No • Resettle 6,000 mainly ethnic minorities;
615 MW Ratchaburi, COD 2013 questionable land availability and livelihood
(p. 47) Bangkok proposals; apparent lack of RAP
Expressway, • Impact fishery of Nam Ngum 1 reservoir, a
TEAM, source of food and income for more than
PT Construction 9,000 people
and • Transmission line constructed through
Engineering Co, Phou Khao Khouay NPA
Shlapak Group
Nam Ngum 3 GMS Power, Thailand Proposed; No • Resettle 523 people within their village
440 MW Ratchaburi, CA/PPA territory
(p. 47) Marubeni under • Affect at least 2,455 people downstream
negotiation and unknown numbers upstream
• Road construction before EIA approval
Nam Ngum 5 Sinohydro Laos Construction; Yes • Affect paddy land of 49 households;
120 MW COD 2011 questionable livelihood proposals
(p. 47) • EIA/SAP underestimate impacts; lack
of baseline data or assessment of
downstream impacts
• Construction before EIA approval
POWE R SU RG E | 7
Developers EIA
Project Market Status Main Issues
(+ GoL) Disclosed?
Nam Song EdL Laos Completed; No • About 1,000 families affected by fisheries
(p. 50) 1996 losses, flooding/erosion impacts, clean
water shortages; adequate compensation
still not provided
Nam Tha 1 China Thailand/ Proposed; No • Resettle 8,000 mainly ethnic minorities;
168 MW Southern Laos CA under questionable land availability and livelihood
(p. 25) Power Grid negotiation proposals
• Affect more than 4,600 downstream;
unknown numbers upstream
• Road construction before EIA approval
• Impact Bokeo Reserve and Nam Ha NPA
Nam Theun 1 Gamuda, Thailand Proposed; No • Resettle 3,700 mainly ethnic minorities
523 MW EGCO CA/PPA • Significant fisheries impacts affect at least
(p. 29) under 32,000 people upstream and downstream
negotiation • Bisect regionally significant Nam Kading
NPA
• Road construction before EIA approval
• Questionable economic viability
Nam Theun 2 Electricité Thailand/ Construction; Yes • Program to deal with downstream impacts
1,070 MW de France, Laos COD 2009 on 120,000 people behind schedule and
(p. 41) EGCO, under-funded
Ital-Thai • Some livelihood programs for 6,200
resettlers and other affected villagers of
questionable viability
• Compensation for more than 10,000
people affected by construction paid
more than a year after land and assets
taken; apparently not enough land to
provide most of 200 significantly affected
households with critical land-for-land
replacement
Sekong 4 Region Oil Vietnam or Proposed No • Resettle more than 5,000 mainly ethnic
600 MW Thailand minorities; questionable livelihood
(p. 55) proposals; many villagers already moved
out of reservoir area
• Cause an estimated $6.25 million in
fisheries losses annually in Lao part of
basin, potentially affecting more than
190,000 people in Laos and unknown
numbers in Cambodia; no compensation
proposed
• Affected villagers not properly informed; no
assessment of impacts in Cambodia
Sekong 5 Region Oil Vietnam or Proposed No • Resettle unknown numbers of mainly ethnic
400 MW Thailand minorities; many villagers already displaced
(p. 55) from reservoir area
• Exacerbate fisheries losses and water
quality problems caused by Sekong 4
• Bisect Xesap NPA
Theun- GMS Power, Thailand/ Proposed: Yes • Resettle 4,360 mainly ethnic minorities;
Hinboun Statkraft Laos CA/PPA questionable land availability and livelihood
Expansion signed proposals
280 MW • Affect 48,411 people downstream, on
(p. 35) project lands and in host villages
• Exacerbate flooding and erosion in Hai and
Hinboun basins
8 | I nternational R i v ersDevelopers EIA
Project Market Status Main Issues
(+ GoL) Disclosed?
Theun- GMS Power, Thailand Operation; Yes • About 30,000 villagers lost fisheries,
Hinboun Statkraft 1998 rice fields, gardens and drinking water
210 MW as a result of the project; adequate
(p. 35) compensation not provided
Xekaman 1 Vietnam-Laos Vietnam Proposed; No • Resettle about 800 ethnic minorities; many
322 MW Joint Stock PDA signed others already displaced from reservoir
(p. 67) Electricity area
Investment and • Affect up to 10,000 people downstream
Development through water quality changes, fisheries
losses and erosion
• Impact Dong Amphan NPA
Xekaman 3 Vietnam-Laos Vietnam/ Construction; No • At least 7 ethnic minority villages
250 MW Joint Stock Laos COD 2010 downstream and 40 villages upstream may
(p. 67) Electricity be affected
Investment and • Inundate one village
Development • EIA not completed before construction
• Impact Dong Amphan NPA
Xekatam Kansai Laos Proposed; No • Resettle 235 mainly ethnic minorities;
61 MW PDA signed questionable land availability and livelihood
(p. 76) proposals
• Affect unknown numbers downstream; no
compensation proposed/budgeted
• EIA/SIA underestimate impacts and
numbers of affected people; villagers not
properly informed
Xepian- SK Engineering Thailand Proposed; No • Would be built on former village land of
Xenamnoi & Construction, PDA Houay Ho resettlers that was supposed
390 MW Korea Western complete to be a nature reserve; possibly built in
(p. 73) Power, conjunction with large bauxite mining
Ratchaburi project
• Resettle at least 4 villages and affect at
least 8 other villages
• Impact Xepian River downstream
CA—Concession Agreement PPA—Power Purchase Agreement
COD—Commercial Operation Date SAP—Social Action Plan
EIA—Environmental Impact Assessment SIA—Social Impact Assessment
PDA—Project Development Agreement
POWE R SU RG E | 9Key Existing and Proposed Dams in Laos 10 | I nternational R i v ers
Introduction
I nternational Rivers is a non-governmental organization (NGO) that protects rivers and defends the rights of
communities that depend on them. International Rivers’ Southeast Asia Program has been working with its
partners in the Mekong Region for more than a decade, challenging destructive projects and advocating for
better compensation and mitigation measures for dam-affected communities. International Rivers works with local
researchers to make regular field visits to dam projects in Laos, produces detailed information about proposed
and existing hydropower projects, and advocates for better energy planning processes and the implementation of
strong standards to safeguard people’s rights and their natural resource base.
The majority of Lao people are subsistence farmers with a lack of capacity and will on the part of the Lao
who rely on rainfed rice farming, wild-capture fisheries government and dam developers, have meant that dams
and non-timber forest products to feed their families. have exacerbated poverty amongst affected villagers. In a
International Rivers is concerned that the dependence country where government criticism is rarely tolerated,
of Lao people on their rivers for all aspects of their lives press freedoms are curtailed, independent civil society
—including fresh water, fish, irrigation and fertilization of organizations are restricted, and corruption is high, dam-
crops, transportation, and recreation—renders them highly affected communities have limited information about their
vulnerable to the changes in river ecosystems caused by rights, and even less ability to demand that those rights be
large dams. protected. International Rivers tries to bridge this gap by
Existing Lao hydropower projects have created disseminating independent information obtained directly
a legacy of uncompensated losses and unmitigated from affected communities.
impacts. Poor planning and implementation, combined This report presents the challenges that hydropower
The Nam Mouan and Nam Theun-Kading Rivers are used for bathing, washing and drinking water. Photo: David J.H. Blake
POWE R SU RG E | 11Wing-trap fishing gear in the Hou Nok Kasoum channel of the Khone Falls area. Photo: Carl Middleton
development poses to rural livelihoods and fragile sizes, and dams in locations throughout Laos (organized
ecosystems, and details the specific impacts caused by Lao geographically from north to south).The case studies were
dam projects. It also suggests alternatives and provides primarily based on first-hand research supplemented by
recommendations for minimizing the costs of hydropower a review of available project information, news reports,
development while sharing the benefits. The report and related studies by NGOs and academics. They focus
considers questions such as: largely on the dams’ social and environmental impacts
n What does the Lao hydro boom mean for Lao people, and provide brief information regarding each project’s
and for the rural and river-dependent communities developers, funders, status and design.
who will be most affected by these developments? The case studies illustrate some of the recurring
n What laws exist to ensure that the rights of dam- problems in the Lao dam development process, such as
affected communities and their livelihoods are poor quality environmental and social assessments, a lack
respected and protected, and how are these laws being of transparency, and the failure to conduct comprehensive
implemented? consultations with all stakeholders, including those in
n What procedures are in place to ensure the strategic neighboring countries. These weaknesses exacerbate the
development of Laos’ hydro resources and the pro- often significant impacts these projects have had, are having,
poor use of the revenues these projects will generate? and will have on affected communities. Notable threats
n What needs to be done to prevent the impoverishment include the lack of suitable agricultural land and income-
of rural communities, economic losses and widespread earning opportunities in resettlement sites, particularly for
environmental devastation that can result from large ethnic minorities, and the major downstream impacts—
dams? from fisheries losses to flooding and erosion—that are
n What income-generating alternatives to large dams almost always underestimated, uncompensated or even
exist for the people of Laos? ignored.
The report focuses on 11 case studies of large The report also includes overview articles on the
hydropower projects which produce or will produce Lao hydropower sector and poverty reduction strategies
electricity primarily for export. These case studies were in Laos, and a number of brief boxes that examine issues
chosen to provide an overview of projects at various stages such as the roles of Thailand and the Asian Development
of development, including dams that are in operation, Bank in Laos’ hydropower sector, and plans to dam the
under construction and proposed, projects of different lower Mekong River mainstream.
12 | I nternational R i v ersHydropower Development in
Laos: An Overview
By Aviva Imhof, Shannon Lawrence and Carl Middleton
B ecoming the “battery of Southeast Asia” through exploiting its hydropower potential has been a longtime
dream of the Government of Laos (GoL) and its backers. The country’s rivers contribute around 35% of
the Mekong’s flow and have an estimated 18,000 MW of exploitable hydropower potential. Modest domestic
electricity demand makes Laos a prime candidate for power exports to neighboring countries. These exports could
generate millions of dollars in foreign exchange for the GoL. However, these plans have continually been thwarted:
in the 1970s and 1980s by war and political instability, and in the 1990s by the Asian financial crisis.
Today, Laos is undergoing a renewed hydropower boom. strong growth in Thailand—marked EGAT’s willingness
Growing regional demand for electricity and new sources to reconsider additional power purchases from Laos. In
of financing from countries such as China, Vietnam, December 2007, Thailand and Laos signed their latest
Thailand and Malaysia finally promise to turn the GoL’s MoU for delivery of 7,000 MW by 2015. Vietnam also
hydro dream into reality. While new dams may bring renewed its interest in Lao power, and signed an MoU
wealth to the upper echelons of Lao society, profit for in December 2006 to import 3,000 MW by 2015. In
the developers, and in theory, wider benefits if project January 2008, this was increased “in principle” to 5,000
revenues are invested well, they are likely to decrease food MW by 2020.2
security and increase poverty for hundreds of thousands Foreign hydropower developers have also rushed
of affected Lao people. back to Laos in search of lucrative profits. But today, these
companies hail from Thailand, Vietnam, China, Russia
Laos’ Hydro Boom and Bust and Malaysia. In a complex interplay of political support,
The 1990s were a golden age for Laos’ hydropower commercial interest, development aid, and entrepreneurial
ambitions.The GoL signed Memoranda of Understanding spirit, these proponents have led the renewed push for
(MoUs) with the Thai and Vietnamese governments to widespread hydropower exploitation in Laos, often backed
export a total of 5,000 MW of power by 2010. Hydro by export credit agencies and commercial financiers
developers rushed to Laos to seize this opportunity, and by from their own countries. The new developers are able
1995 23 MoUs had been signed with Korean, Australian, to move quickly, and have picked up many projects that
European and North American corporations to build were abandoned by Western corporations during the
6,676 MW of new hydropower capacity.1 Asian financial crisis and its aftermath. These companies
But when the Asian financial crisis hit in 1997, seem to be more attractive partners for the GoL, thanks to
Thailand’s energy demand plummeted and the country their access to financing with no social and environmental
faced a huge supply glut, which meant it no longer needed strings attached.
Lao hydropower. Vietnam also seemed to lose interest in Companies and financing from Thailand now
Lao power imports and instead focused on developing its dominate the Lao hydro sector (see box on page 14), but
domestic hydro capacity. One by one, the foreign investors corporations from Vietnam and China are not far behind.
packed their bags and left, leaving behind only two Chinese companies are involved in three hydropower
completed hydro-for-export projects: the Theun-Hinboun projects currently under construction—the Xeset 2, Nam
Hydropower Project (see Case Study Three) and the Houay Ngum 5 and Nam Lik 1-2 projects—and have signed
Ho Hydropower Project (see Case Study Nine). MoUs to evaluate at least 10 more dams. Sinohydro
The Nam Theun 2 Power Company (NTPC) was Corporation has spearheaded this push with five MoUs,
one of the few foreign consortia that remained. Led by including a 1,100 MW cascade on the Nam Ou River,
Electricité de France, the Nam Theun 2 consortium bided the Nam Ngum 5 project (see Case Study Five), and the
their time, waiting for a Power Purchase Agreement (PPA) controversial Pak Lay Dam proposed for the Mekong
to be signed with the Electricity Generating Authority of River mainstream.
Thailand (EGAT). When the PPA was finally signed in The Vietnam-Laos Joint Stock Electricity Investment
November 2003, the project developers, the World Bank and Development Company began construction of
and other financial institutions kicked the project into the 250 MW Xekaman 3 project in southern Laos in
high gear, finally approving it in early 2005. 2006, with plans to export the electricity to Vietnam
The signing of Nam Theun 2’s PPA—after a period of (see Case Study Eight). Financing for the project was
POWE R SU RG E | 13Thailand’s Key Role in Laos’
Hydropower Sector
Faced with rising fossil fuel prices, a need to diversify Nam Theun 2 Hydropower Project with Electricité de
its energy mix, and resistance at home to the construc- France and the GoL. Along with the World Bank, the
tion of new energy projects, Thailand’s electric utility, ADB, and other international funders, Thai financiers
EGAT, increasingly favors importing hydropower from were key backers of the dam; seven Thai commercial
countries like Laos. At the same time, EGAT is export- banks and Thailand’s export credit agency, the Export-
ing the social and environmental costs of its energy Import Bank of Thailand, provided loans for the project.
production to its poorer neighbors, where opposition
to these projects is largely stifled. The construction of the 615 MW Nam Ngum 2 Hydro-
power Project, which broke ground in 2006, marked
Thailand’s 2007 Power Development Plan includes an important transition for the Lao hydro sector (see
4,000 MW of power imports from Laos between 2008 Case Study Five). In contrast to earlier projects
and 2015, and an additional 8,700 MW from unspeci- funded mostly by international financial institutions,
fied neighboring countries by 2021.1 Thailand’s energy Nam Ngum 2 was financed mainly by Thai commercial
and construction companies, backed by the Thai banks and the Export-Import Bank of Thailand. The
government, financial institutions and investors, are Nam Ngum 2 consortium’s shareholders are primarily
also developing many of the new cross-border hydro Thai construction companies, including Ch. Karn-
projects that will feed into Thailand’s grid. chang, which is also building the project, as well as
Ratchaburi, another major Thai independent power
While Thailand has been importing power from Laos producer.
since the 1970s, Thai investors and developers entered
the Lao hydropower market in the 1990s. GMS Power, This trend of regional dam builders backed by regional
a subsidiary of M.D.X., holds a 20% stake in the Theun- investors seems poised to continue in Laos. Thai en-
Hinboun Hydropower Project, and MCL holds a 20% ergy and construction companies, in partnership with
stake in the Houay Ho Dam. Both projects, which have companies from Malaysia, Japan and Korea, are now
been operating for almost a decade, have had seri- conducting studies on at least 15 new hydropower
ous impacts on local communities that have yet to be schemes in Laos, including two controversial projects
resolved (see Case Studies Three and Nine). on the Mekong mainstream. Thailand’s commercial
banks and Export-Import Bank have indicated their
Although Thailand’s interest in Lao hydropower waned willingness to support these projects.
during the Asian financial crisis, as the economy recov-
ered so did the country’s involvement in the Lao dam Unfortunately, Thailand’s energy companies and
business. Thailand’s major independent power pro- commercial banks have yet to commit to international
ducer, the Electricity Generating Company (EGCO), best practice standards. In fact, none of Thailand’s
joined forces with Ital-Thai Development Plc., Thai- commercial banks have adopted the social and envi-
land’s largest construction company, to develop the ronmental standards known as the Equator Principles.2
continued
largely provided by Vietnamese financial institutions. The Agency (MIGA) is actively considering support for
company is presently studying four more hydropower a hydropower project, with a pending guarantee for
projects in the Sekong and Xekaman basins. Sinohydro’s Nam Ngum 5 project. The World Bank is,
The new hydro companies and their backers are however, financing a feasibility study for the proposed
fast displacing the Western corporations and multilateral Houay Lamphan Gnai project in southern Laos and
development banks (MDBs) that previously dominated transmission infrastructure between Laos, Cambodia and
Laos’ power sector. While the Asian Development Thailand.
Bank (ADB) will soon consider financing for two new The World Bank and ADB promised that Nam Theun
hydropower projects in Laos, Nam Ngum 3 and Nam 2 would pave the way for environmentally and socially
Ngiep 1, most of the ADB’s upcoming support will sustainable hydropower projects in Laos. And while Nam
back transmission infrastructure for a new generation of Theun 2 did help usher in a new wave of hydropower
hydropower projects (see box on page 16). For the World development, the latest projects can hardly be considered
Bank Group, only its Multilateral Investment Guarantee sustainable. In fact, some post-Nam Theun 2 large dams
14 | I nternational R i v ersWhile a number of Thailand’s energy companies have Compounding these concerns, until the new Energy
developed Corporate Social Responsibility policies, Act was approved in December 2007, EGAT was es-
their narrow interpretation of environmental and social sentially self-regulated and had a monopoly on power
governance practices provides limited safeguards for transmission in Thailand, a dominant role in power
affected communities. generation, and overarching responsibility for the prep-
aration of Thailand’s Power Development Plan, with
As a result of the partial privatization that occurred in
little public accountability. Thai civil society groups
the late 1990s, EGAT remains the largest shareholder
have been calling for a more accountable and partici-
in several of Thailand’s “independent” power produc-
patory planning process that would incorporate social
ers, holding a 45% stake in Ratchaburi and a 25%
and environmental — as well as economic — consid-
stake in EGCO, both of which are listed on Thailand’s
erations. Whether the newly established independent
stock exchange.3 EGAT’s conflict of interest threatens
to favor its associated companies’ profits over the regulator will be willing and sufficiently empowered to
wider public interest, and has led Thai civil society reform Thailand’s power planning process remains to
groups to question EGAT’s Power Development Plan. be seen.
Over the past 13 years, all of EGAT’s “base case”
power demand forecasts have overestimated actual Notes
demand, sometimes by as much as 48%. EGAT’s cur- 1 EGAT, Thailand Power Development Plan 2007-2021: Revision 1,
published by Systems Planning Division (Jan 2008).
rent “cost plus” incentive structure works to prioritize
2 See http://www.equator-principles.com/index.shtml.
new large-scale power plants over energy efficiency
3 Greacen, C.S. and Greacen, C. “Thailand’s Electricity Reforms:
programs and decentralized renewable technologies.
Privatization of Benefits and Socialization of Costs and Risks” Asian and
This has encouraged over-investment in new large Pacific Migration Journal 13 (1) (2004), pp. 517-542.
power plants, the cost of which is ultimately passed 4 Greacen, C. and Footner, J. Decentralizing Thai Power: Towards a
onto Thailand’s electricity consumers.4 Sustainable Energy System, Greenpeace Southeast Asia, (Nov 2006).
actually seem to represent a significant step backward where new dams have been constructed upstream) and
in terms of environmental and social performance. greater impacts on land, rivers, fisheries and the people
Furthermore, Nam Theun 2 is the only existing or planned who depend upon them.
Lao dam in which revenue management commitments Hydro concessions seem to be given out to any
have been proposed to help direct GoL earnings towards interested developer on a first-come, first-served basis,
poverty reduction expenditures. with little apparent concern for basin planning processes
or the reputation of the company involved. Furthermore,
Lack of Strategic Sector Planning it is unclear whether the GoL critically reviews each
The GoL has signed MoUs to develop about 55 new large project‘s feasibility study, or has a threshold at which it
dams.3 Six projects are in operation, at least six projects are would deem a dam’s economic, social or environmental
officially under construction, and Project Development costs to be too high to proceed. This lack of planning is
Agreements have been finalized for another 12 dams. This unlikely to maximize electricity production or revenue
rapid pace of hydropower developments and the apparent generation for the GoL, or for developers and investors.
lack of any overall sector planning is cause for concern. Rushing to sign more MoUs with neighboring
In 2004, prior to Nam Theun 2’s approval, the countries for power exports or developing scores of new
World Bank supported Maunsell Limited and Lahmeyer hydropower projects does not seem to be in Laos’ best
International to develop a Power System Development interests. The country’s hydropower potential and export
Plan for Laos.4 The study short-listed and ranked proposed markets will remain. It would make more sense to allow
hydropower projects on the basis of their economic time for strategic sectoral planning, project review, and
performance, determined in part by their estimated capacity-building to ensure that the dams that are built
average generation cost and their environmental and social maximize the benefits for the Lao people and avoid costly
impacts. mistakes.
Unfortunately, this ranking exercise and the report’s By starting small and building up, the GoL could
recommendations have generally not been followed invest in sound planning and implementation processes
in the pursuit of new hydro opportunities. Strategic that would avoid many of the problems detailed in the
environmental assessments are not being conducted. Basin- case studies of this report. There are, after all, economic
wide planning is not occurring, which ultimately results in costs of unsustainable hydro development as well as
more dams being built (to help fill the reservoirs of those environmental and social ones. For example, wild-capture
POWE R SU RG E | 15fisheries contribute approximately 6-8% to Laos’ Gross Hydropower Policy), were adopted in 2005 and were
Domestic Product (GDP).5 Eco-tourism also generates meant to incorporate some of Nam Theun 2’s standards
significant revenue for the GoL and has the potential to to ensure sector-wide implementation.
increase substantially in the future. Both of these sectors Many of these laws, regulations and policies contain
would be undermined by poorly conceived hydropower important provisions to ensure participation, consultation,
development. information disclosure, compensation, and resettlement
with livelihood restoration for affected communities.
Laws and Regulations: Strong on Paper, However, in practice, these provisions are often not
Weak in Practice followed, or are implemented on an ad-hoc, case-by-case
In the lead-up to Nam Theun 2’s approval, the World basis depending on the will, expertise and resources of
Bank, the ADB and other donors worked with the GoL to the environmental and social consultants and the dam
establish social and environmental laws and policies to guide developer.
hydropower development in the country. While some These implementation failures are most evident
laws pre-dated Nam Theun 2, such as the Environmental during the development and review of the Environmental
Protection Law (1999), others, including the Decree on Impact Assessments (EIAs) and Resettlement Action
Compensation and Resettlement of the Development Plans (RAPs) for hydropower projects, which have
Project and the National Policy on the Environmental and typically not been disclosed to the general public and
Social Sustainability of the Hydropower Sector (National are often of questionable quality. This was recognized
The ADB: Bankrolling Lao Hydropower
Although the Lao hydro playing field is currently domi- financing for transmission line interconnections will
nated by investors and developers from the region, the facilitate the development of a number of hydropower
multilateral development banks are still on the scene. projects in Laos, such as Nam Theun 1, Xekaman
The ADB in particular continues to be a key player in 1 and Xekaman 3, which do not meet the country’s
the Lao energy sector, providing technical assistance, regulatory standards or ADB safeguard policies. In its
loans and guarantees for a number of dam projects Lao Country Strategy Program for 2007-2011, ADB
and transmission lines in Laos. Although ADB-backed pledged to “continue to incorporate sound environ-
operations are supposed to comply with the institu- mental management in all its operations through
tion’s social and environmental policies and contribute application of its environmental and social safeguard
to poverty reduction, there is little evidence that ADB’s policies, and, through policy dialogue, will encourage
involvement has raised Lao hydro standards. the Government to adopt similar standards for all large
natural-resource intensive projects.” However, it seems
The ADB has provided considerable support to the the ADB will not even oblige the hydropower projects
hydropower sector in Laos over the last 15 years, connected to the proposed transmission lines to com-
backing the Nam Song, Nam Leuk and Theun-Hinboun ply with ADB safeguard policies.
projects. As documented in this report, there are a
number of unresolved problems with these ADB-fund- The ADB should require all associated hydropower
ed dams, and few indications that ADB’s involvement projects that use ADB-funded transmission lines or
in these projects improved their design or minimized substations to meet ADB standards. Furthermore,
their negative impacts on the environment and af- before the ADB provides additional assistance for the
fected communities. In addition, ADB’s commitment Lao hydropower sector, critical outstanding issues with
to donors and investors that Nam Theun 2 would help existing ADB-funded hydropower projects should be
improve the social and environmental performance of addressed. Finally, the ADB should require that the
the hydropower sector in Laos has not been met. Lao government demonstrate substantial progress in
implementing the National Hydropower Policy before
Soon the ADB will consider financing for the Nam new dams and transmission lines receive ADB support.
Ngum 3 and Nam Ngiep 1 projects, as well as techni- Failure to take action on these issues sends a signal to
cal assistance and loans for a number of substations the GoL and private dam developers that the ADB will
and transmission lines, such as the Na Bong-Udon continue to subsidize the hydropower sector, regardless
Thani line from northern Laos to Thailand and the Ban of whether its standards are adhered to or commit-
Sok-Pleiku line from southern Laos to Vietnam. ADB ments to the people affected by its projects are kept.
16 | I nternational R i v ersby the consultants who prepared the Cumulative Impact and monitoring—combined with requirements for renewal
Assessment for the Nam Ngum 3 Hydropower Project of environmental licenses during a project’s operation
in 2008. Their report states: stage—would improve dam developers’ responsibility for
their projects’ social and environmental impacts and their
Two areas of concern in this respect are compliance with Lao law.
public participation in decision-making, and
transparency in information management. It is Conclusion
very clearly stated in many legal documents that Laos’ current hydro boom will continue to be a bust for
public disclosure of project-related information villagers and the environment until and unless the GoL
is mandatory for all projects, but in practice this makes serious efforts to improve planning processes, slow
has not functioned very well. The same could be
the pace of new developments, strengthen its capacity to
said for participation, which is variable, but often
review and monitor hydropower projects, and guarantee
lacking in quality and extent. The quality of the
[EIA] documents we have reviewed as part of this that dam revenues benefit affected communities and the
study is highly variable, good examples are mixed country more broadly. More needs to be done to improve
with poor ones…. There are examples of when the implementation of these projects—including Nam
hydropower projects with large dams, significant Theun 2—to ensure that commitments made on paper
stretches of dry river beds etc., have been stated as translate into action on the ground.The case studies in this
yielding “no significant impacts.”6 report demonstrate how the latest round of hydropower
developments have failed to meet Nam Theun 2’s
In its National Hydropower Policy, the GoL standards or even to comply with Lao law, regulations and
recognizes the “right of all project-affected people to policy. While parts of the GoL may have found the Nam
sustainable livelihood options and services at least at the Theun 2 process to be too time-consuming and costly,
level previously enjoyed.”7 The GoL committed to bring attempts to circumvent adequate participation, disclosure,
all existing hydropower projects into compliance with the compensation, resettlement, and revenue management
policy, starting with the development of “costed plans and procedures for hydro projects will be even more expensive
timelines” by the end of 2007. However, tens of thousands in the long-run.
of people continue to experience negative impacts from
existing dam projects in Laos, and developers and the GoL
have largely failed to ensure that villagers’ livelihoods are Notes
at least restored. As illustrated in the case studies of this
1 Khaommone Phonekeo, Country Paper: National Hydropower Sector, Lao
report, there has been no evidence of the development of
PDR, prepared for the Hydropower Forum, Vietnam (16-19 July 1996).
any such plans and timelines for projects such as Theun-
2 Xaypaseuth Phomsoupha, “Hydropower Development Progress and Outlook,”
Hinboun (see Case Study Three) or Houay Ho (see Case Government of Lao PDR Department of Energy Promotion and Development
Study Nine). (May 2008).
The GoL’s environmental regulator, the Water 3 GoL Hydropower projects greater than 10 MW as listed in Power Projects
Resources and Environment Agency (WREA), lacks the in Lao PDR, Lao National Committee for Energy, http://www.powering-
authority, staff and resources to comprehensively review progress.org/updates/news/press/2008/Electric%20Power%20Plants%20
in%20Laos%20as%20July%202008.pdf (7 July 2008).
the significant number of proposed hydro projects and
4 Maunsell and Laymeyer International, Power System Development Plan for
monitor them during construction and operation to ensure Lao PDR, Final Report—Vol. A: Main Report (August 2004), 224 pp.
compliance with Lao laws and regulations.8 At the project
5 “Don Sahong Dam, Khone Falls, southern Lao PDR,” TERRA (October
review stage, the dam’s feasibility study is finalized and 2007), available at: http://www.terraper.org/articles/Don%20Sahong%20
the environmental and social budget is often agreed upon -%20TERRA%20Oct07.pdf.
before WREA gets involved. Decisions about whether or 6 Vattenfall Consultants AB, Ramboll Natura AB, and Earth Systems,
not to proceed with a project appear to be made exclusively Lao People’s Democratic Republic: Preparing the Cumulative Impact
by the Ministry of Energy and Mines and the Ministry of Assessment for the Nam Ngum 3 Hydropower Project, Technical Assistance
Consultant’s Report, Asian Development Bank (Feb 2008), p. 44.
Planning and Investment. Finally, unlike in many other
7 Lao PDR National Policy on the Environmental and Social Sustainability of
countries, WREA does not visit projects during and after the Lao Hydropower Sector, available at: http://www.poweringprogress.org/
the construction phase to determine if regulations have energy_sector/pdf_files/National_Policy_on_Sustainable_Development.pdf.
been followed. Strengthening WREA’s mandate in the 8 Vattenfall Consultants AB, Ramboll Natura AB, and Earth Systems, pp.
project review process and ensuring ongoing supervision 74-75.
POWE R SU RG E | 17Poverty Reduction in Laos:
An Alternative Approach
By Ernesto Cavallo*, with contributions from Shannon Lawrence and Aviva Imhof
F rom the point of view of villagers in the assessment it is clear that poverty in the Lao PDR is “new poverty,”
not an endemic condition. Poverty is the result of events external to the villager over which he or she has
no control, especially weather, war, resettlement, livestock diseases, and poorly implemented development
programs. And, because of the externality of causality, poverty is thus associated with calamity, misfortune,
fate, karma etc., and hence its substance is both physical and spiritual (GoL State Planning Committee, National
Statistic Center and Asian Development Bank, Participatory Poverty Assessment: Lao PDR, 2001).
Introduction prominent features of Laos’ pre- and post-war history,
Laos’ poverty reduction strategies, developed by the GoL internal, involuntary resettlement during the last 10-15
with assistance from bilateral and multilateral donors, are years has been increasingly aimed at eradicating shifting
focused on transforming a largely traditional, subsistence- cultivation and opium production; improving the access
oriented rural economy into a modernized, market- of ethnic minorities in remote upland areas to markets and
oriented, agribusiness system.1 The GoL aims to eradicate government services by moving them into “focal sites” or
shifting or swidden agriculture, alter community access consolidating villages; and facilitating the integration of
to land and forests through land allocation, and relocate ethnic minorities into “mainstream society,” by which the
villages from upland to lowland areas while aggressively GoL means lowland Lao populations.3
promoting new income-generating opportunities, such as A recent European Union/World Bank Poverty and
cash crop production through contract farming. Social Impact Assessment (PSIA) survey4 found that the
The impacts of these policies are exacerbated by displacement of upland populations to the lowlands has
rapid hydropower, mining and plantation development resulted in loss of land, forest resources, and livestock
which reduce the availability of fertile lowlands to support (through diseases) and higher mortality rates for resettled
people’s livelihoods, as well as undermine the riverine and villagers. It has increased the vulnerability of people
forest resources upon which they depend. In some areas, who were already at risk, rather than being a catalyst for
communities affected by these concession projects have their economic and social development. Over the past
already suffered the impacts of swidden eradication or decade, tens of thousands of vulnerable ethnic minority
resettlement and are still struggling to restore their food people have died or suffered due to impacts associated
security and income sources. with resettlement, with many more expected to be
Imposing these changes on rural communities over a impoverished long into the future.5
short period of time can especially overwhelm the capacity In some cases, communities such as the Brao living
of poor households to manage the transition. Abrupt in the Nam Kong 1 Dam area (see Case Study Seven)
transitions can be disastrous for local people’s livelihood that have been affected by these government resettlement
systems, particularly for ethnic minority communities schemes are being doubly impacted by hydropower
living in upland areas where poverty is most heavily development. In other areas, such as in the Xekaman 1
concentrated.2 and Sekong 4 and 5 hydropower projects, villagers were
This article outlines some of the specific GoL and resettled as part of these GoL initiatives but also to pave
donor-supported policies and initiatives that may be the way for future dam development (see Case Studies Six
exacerbating rather than alleviating poverty amongst rural and Eight).
communities in Laos. It then provides recommendations
for alternative approaches to improve the security, Elimination of shifting cultivation and promotion of
resilience and sustainability of rural livelihoods, and the cash crops
management of the Lao economy as a whole. The GoL has argued that shifting cultivation or swidden
agriculture (rotational farming) is a backwards agricultural
The Impacts of Government Policies and system and an inefficient, destructive use of upland
Donor Practices in Laos resources.6 GoL policy is to replace swidden agriculture
with lowland wet rice, cash crop or plantation production,
Involuntary resettlement although swidden agriculture continues to be practiced
While resettlement and movements of people have been throughout Laos and particularly in the poorest districts.
* To protect the identity of the author, Ernesto Cavallo is a pseudonym.
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