HYDROPOWER IN THE LAO PDR
The
Lao PDR is a mountainous and highly forested landlocked
country with few options to secure a sustainable and
environmentally sound economic and social development. With
a population about 6 million, its chance of developing labour intensive
industries is limited and the mineralogical resource base
is as yet relatively undeveloped and likely to be small in
scale.
Historic socio-economic studies by institutions such as the
World Bank have shown that the only currently feasible options
for economic growth and social development are the export
of tropical timber and the development of hydroelectric power
projects selling electricity to neighboring countries.
The large-scale export of tropical hardwood has been rejected
as being unsustainable in the long run and severely environmentally
degrading. The Government of the Lao People’s Democratic
Republic (the “GOL”) has long recognized that
the logging industry cannot meet the balanced requirements
of economic growth and environmental sustainability and has
sought foreign investment to both reverse the trend of unsustainable
resource exploitation and to develop sustainable resource
management.
By contrast, the development of hydroelectric power facilities
represents a highly appropriate method of achieving sustainable
social and economic development and one that has seen the
support of institutions such as the World Bank and the Asian
Development Bank. With neighboring Thailand needing large
amounts of competitive electricity, and identified feasible
hydroelectric potential in the Lao PDR exceeding 23,000 MW,
the export of hydroelectric power is, at present, seen as
the most appropriate alternative for Laos to best achieve
its development goals.
PROJECT RATIONALE
The Nam Theun 2 project is
an outstanding example of how the Government of the Lao PDR
is working with the private sector and multilateral organisations
to develop a model of sustainable development with strong
economic, social, and environment fundamentals. The Project
has long been recognised by independent experts as being the
one project amongst all the potential hydroelectric power
projects in Laos as having the greatest potential to achieve
the country’s development objectives.
With the export of 995 MW of generating capacity and electrical
energy to the Electricity Generating Authority of Thailand
(“EGAT”) at a very competitive tariff and the
supply of 75 MW of generating capacity and electrical energy
to Electricité du Laos (“EDL”), the Project
is forecast to generate average annual revenues of USD 80
million to Laos in the form of taxes, royalty charges and
dividends over the life of the concession. At the end of the
concession, the Project will be transferred to the Government
free of charge with all revenues thereafter accruing to the
Government. The Project will be, by far, the largest single
source of foreign exchange income to Laos, and its largest
single contributor to the Gross Domestic Product and fiscal
revenues.
To optimise the use of these revenues, the World Bank, other
multilateral institutions and the Government are working together
to establish and ensure that the Project’s revenues
to the Government will effectively serve the long-term development
of the country. The Project is recognized as an essential
part of the country’s development framework and the
Project’s implementation is likely to be the first real
possibility for the Lao PDR to reduce gradually its dependence
on Official Development Assistance.
The Government has agreed with the World Bank to implement
a Poverty Reduction Fund that is being initially sourced from
International Development Agency (“IDA”) 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 both
the implementation of the Project and the effective management
and allocation of the financial resources gained from the
Project.
At the local levels, the Project will allow both the considerable improvement of living standards for the impacted population, and the long-term protection of the watershed and its 4,000 km2 world-class biodiversity and primary forest heritage.
In a statement issued by the World Bank following a visit to Vientiane and the Project in May 2003, Shengman Zhang, the World Bank’s Managing Director, said in Vientiane in May 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.”
THE LAO-THAI RELATIONSHIP ON ELECTRICITY SUPPLY
In June 1993, the Government of the Lao PDR and the Government of the Kingdom of Thailand signed a Memorandum of Understanding (“MOU”) to support the development of power projects in the Lao PDR through the supply of up to 1,500 MW of electricity to Thailand. In June 1996, the agreement was superseded by a new MOU to increase the scope of supply to 3,000 MW.
The MOU represented the formalisation of the long history of bilateral electricity trades. Thailand began buying electricity from the Lao PDR in 1971 (from the Nam Ngum 150 MW hydroelectric dam) and has continued to purchase electricity uninterrupted, notwithstanding minor disputes between the two countries during the mid-1970s. In the same manner, the GOL has been purchasing low voltage electricity from Thailand to supply its border provinces for many years.
Whilst Thailand presents a long-term viable customer for power
generated from the Lao PDR, importing 2,806 GWh of power from
the Lao PDR in 2002, the current trade represents a fraction
of the potential electricity exchanges between the two countries.
As of today, only the 214 MW Theun-Hinboun and 126 MW Houay
Ho projects (i.e. 340 MW or just over 10% of the agreed capacity)
have been constructed under the MOU.
The Nam Theun 2 hydroelectric project (the “Project”), which had been previously identified by the World Bank as a potential key aspect of the economic and social development program of the Lao PDR, was nominated by the GOL as one of the potential suppliers of generating capacity and electrical energy to the Electricity Generating Authority of Thailand (“EGAT”) under the MOU and was reconfirmed several times as a priority project. Thanks to its strong economic fundamentals and its particular focus on the Lao PDR’s social and economic development, the Nam Theun 2 project has remained under active development since 1994, and is now being implemented in the framework of Power Purchase Agreements with both EGAT and EDL that were signed on 8 November 2003 in Vientiane.
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