Nam Theun 2 Stranded With No Buyer for Its Power

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The future of the controversial Nam Theun 2 hydroelectric dam in Laos is increasingly uncertain after its sole customer, the Electricity Generating Authority of Thailand (EGAT), announced that it is no longer interested in buying power from the project.The announcement has the consortium of companies backing the project under growing pressure to find economic justification for the dam.

Nam Theun 2’s developers and the Lao government say the dam’s power output will be sold to Thailand, as Laos has no need for such large amounts of power at this time. The project is intended to be financed mainly by private capital, but the government of Laos is also involved, using the dam as a means to generate foreign exchange.

EGAT Governor Preecha Chungwatana stated in late February that Nam Theun 2 would not be on the final list of three Laos power facilities from which Thailand has promised to buy 3,000 megawatts of power by the year 2006. He said the project was not included because of the delay in the completion of the project’s environmental impact assessment. However, a reliable source close to the project says that the dam’s construction costs, financing and a final purchase price for electricity also remain unfinalized, and are all factors in EGAT’s decision.

Located in central Laos on the upper Theun River, the fourth largest tributary of the Mekong River, Nam Theun 2 will displace more than 4,000 ethnic minority people. Thousands more will suffer from the disruption of fisheries and agriculture along the Theun and Se Bang Fai rivers. In addition, the project threatens to flood more than 450 square kilometers of the Nakai Plateau, a biologically unique area of diverse grasslands, pine and cypress forests.

The decision by EGAT is the latest in a long line of problems confronting the dam’s backers. In October EGAT announced that Nam Theun 2 had been dropped from the list of projects chosen to supply the first 1,500 MW of power after the dam’s developers said they could not finish the project by the year 2000 as originally promised. A senior member of the state-owned Lao power utility, Electricit√© du Lao (EdL), told the Bangkok English-language daily The Nation in mid-September that the construction delay had increased the project’s cost by at least US$800 million, bringing its estimated final cost up to $2 billion. The dam’s developers have denied this, saying that the project’s price tag presently stands at $1.5 billion.

Lao government officials were reportedly shocked by the increased cost, as well as by the consortium’s proposal to offset the cost increase by raising the dam’s height ten centimeters to increase its generating capacity. A height increase, which the consortium says would increase power output from 682MW to 900MW, would require new engineering studies and designs, as well as revised economic and environmental impact assessments.

Nam Theun 2’s failure to be included in Thailand’s 3,000-MW power purchase agreement throws into doubt the scheme’s economic viability as well as that of the many other hydropower projects in Laos. It also highlights the risks of being dependent on a single, economically powerful buyer of electricity and one with an increasing number of power supply options. Viroj Nopphakhun, EGAT’s deputy governor, told the Thai press in September that Laos’ power accounts for less than one percent of Thailand’s power demand.

World Bank Role Crucial

The Nam Theun Electricity Consortium (NTEC) comprises Transfield (Australia), Electricit√© de France (France), Electricit√© du Lao, Ital-Thai, Phatra Thanakit and Jasmine International (Thailand). The project consortium cannot secure commercial financing unless the World Bank provides “political risk” guarantees, which would insure investors against losses in the event of nationalization of the project by the Lao government, civil war and similar risks. Even with such guarantees, the project has enough economic uncertainties that commercial lenders may not be attracted to it.

While keen to promote private sector participation in large-scale infrastructure projects, the World Bank has demanded that several additional studies of Nam Theun 2, including an alternatives study and a macro-economic impact study, be completed before it makes a final decision on whether or not to support the project. The importance of Bank support for the project was emphasized by David Iverach, NTEC’s director in Laos, when he told journalists in January that “If the World Bank does not proceed with the project, nor would we.”

Public Workshops

EGAT’s most recent decision came after the first of three public workshops dealing with the World Bank-requested studies, held in the Lao capital Vientiane in late January. The workshop on the project’s public consultations and alternatives study was attended by around 150 participants, including local leaders from the dam site, government officials, academics, foreign consultants and journalists. Of the 25 NGOs invited, fewer than 10 participated, most of them directly contracted by NTEC to do studies for the project. Media reports attributed the low turn-out among NGOs to the short notice they were given to attend the meeting. Lao officials said that due to the lack of NGO participation, the government would hold another workshop to draw up the terms of reference for studies on the project’s economic, social and environmental impacts.

Some workshop participants suggested that Laos should explore energy markets in Vietnam and Cambodia. There was also a suggestion the alternatives study should compare Nam Theun 2 with other potential dams in the sub-region that could supply power to Thailand, such as those in southern China.

Conspicuous in its absence from the meeting was EGAT. Lao Deputy Minister of Industry and Handicrafts, Chamomile Phoneme, speculated that EGAT’s absence was due to its heavy workload, and said there was no reason why Thailand would not buy power generated from Nam Theun 2 because of the spirit of cooperation that existed between the two countries and because Laos will become a member of ASEAN this year.

“As for EGAT, we have enjoyed very good cooperation and soon enough we will negotiate on the tariff of the Nam Theun 2 on the basis of mutual benefit,” he said after the workshop. “The Memorandum of Understanding between Laos and Thailand is valid and given the situation of cooperation, even a gentlemen’s agreement would be valid.”

Power Play

Many observers have interpreted the exclusion of Nam Theun 2 from the 3,000-MW power agreement as a tactic by EGAT to force down the price of its power. The economic fortunes of the dam must be seen in light of shifts in Thailand’s energy sector. Thailand has revised downward its expectations of power demand in line with a slowdown in the country’s economic expansion, a slowdown which became apparent in 1996. Senior EGAT officials have been quoted in the Thai press as saying that the reduced need for power would prompt an examination of all agreements to purchase power from independent producers.

At the same time, EGAT is embarking upon a policy of diversifying its energy sources. This has given Bangkok massive bargaining power by putting Laos in direct competition with Thailand’s independent power producer (IPP) schemes, which are being encouraged as part of the ongoing deregulation and privatization of the country’s power sector. Ironically, the cancellation of the Nam Theun 2 agreement coincided with EGAT signing a power purchase agreement for the first IPP deal in Thailand: a 70-MW natural gas-fired plant in eastern Thailand.

The World Bank has remained tight-lipped over its position on the dam. Kathryn McPhail, the Bank’s representative in Laos, told journalists that “the World Bank has yet to make up its mind on the project.”

Meanwhile, logging continues in and around the Nam Theun Nakai Plateau, which would be flooded if the project goes ahead. Maydom Chanthanasinh, vice president of the military-owned Mountainous Areas Development Corporation, said the company has cleared up to 600,000 cubic metres of timber over the past three years, most of it exported to Thailand and Vietnam. He added that 51 families had already been evacuated from the dam site. n

The author is a Bangkok-based journalist.