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ADB to Support Nam Theun 2 Hydroelectric Project in Lao PDR

MANILA, PHILIPPINES (4 April 2005) - The Asian Development Bank (ADB) will help the Government of the Lao People's Democratic Republic (Lao PDR) achieve its poverty reduction and development goals through a $20 million public sector loan, a private sector loan of up to $50 million, and a political risk guarantee of up to an aggregate maximum liability of $50 million approved today in support of the Nam Theun 2 Hydroelectric Project. [ PDF ]

"I am pleased that ADB's Board has approved this important project," said ADB President Haruhiko Kuroda. "This project will improve the living standards of one of the poorest countries in the region. We recognize there are risks involved and we have studied these very carefully with the Government and other development partners. That is why we are involved. We feel that the risks can be managed and that these will be better managed by our involvement," he said.

"While progress has been made, seven out of every 10 people in the Lao PDR still live on less than $2 a day. About 80% live in rural areas with little or no access to basic social services. The sustainable development of hydropower is one of the few options the country has for long-term growth and for further reducing poverty," Mr. Kuroda said.

The public sector loan will be provided to the Government to purchase equity shares in the Nam Theun 2 Power Company Ltd (NTPC), which will develop, construct, and operate a 1,070 megawatt trans-basin diversion power plant on the Nam Theun river, a tributary of the Mekong river, in central Lao PDR.

The private sector loan will be provided directly to NTPC, which is owned by a consortium comprising EDF International of France (35%), the Government of Lao PDR (25%), the Electricity Generating Public Company Ltd of Thailand (25%), and the Italian-Thai Development Public Company Ltd also of Thailand (15%).

The political risk guarantee, to be issued by ADB in favor of commercial lenders that will provide direct loans to NTPC, will cover both Lao and Thai political risks.

"This project forms a critical element of the Government of Lao PDR's long-term development plan," said Rajat M. Nag, Director General of ADB's Mekong Department. "The revenue it generates will help the Government improve the lives of some of the poorest people in Asia."

"The Lao PDR is well positioned in terms of natural resources and physical location to develop hydroelectric energy as a major source of growth and to generate revenues to implement the Government's poverty reduction and environment conservation initiatives," Mr. Nag added.

Revenue from the project will help the Government improve livelihoods, rural infrastructure, irrigation systems, water supply, education and health facilities in many parts of the country. Importantly, the project will help preserve the Nakai Nam Theun-National Protected Area, one of Southeast Asia's few remaining intact tropical rainforests and wildlife habitats.

The total estimated base cost of the project is about $1.25 billion. The Project will export about 5,354 gigawatt-hour (GWh) of electricity annually to Thailand and provide revenue to the Lao PDR through taxes, royalties, and dividends. It will generate about $1.9 billion in foreign exchange earnings for the Government over the 25-year operating period, expected to begin in 2009. An additional 200 to 300 GWh of electricity will be supplied each year to consumers in Lao PDR.

"ADB's participation was actively sought to catalyze significant amounts of long-term US dollar debt from commercial lenders to support the power sectors of Thailand and Lao PDR. Under current market conditions, NTPC would be unable to mobilize the required amount of foreign currency debt without guarantee support from ADB and others," said Mr. Robert Bestani, Director General of the ADB's Private Sector Operations Department.

Revenue from the project will also help implement measures for poverty reduction and environmental conservation programs as outlined in the Government's National Growth and Poverty Eradication Strategy and intended to improve the quality of life of the people of the Lao PDR. The Project will generate about 4,000 job opportunities in the country during the construction period.

Four documents provide detailed information on the mitigation and management measures proposed to address potential social and environmental impacts of the project. These documents are the Environmental Assessment and Management Plan, the Social Development Plan*, the Social and Environmental Management Framework and Operational Plan for protection of the Nakai Nam Theun-National Protected Area*, and the Summary Environmental and Social Impact Assessment. [ PDF ]

Stakeholders have raised concerns about the Government's experience with projects of this size and questioned the Government's ability to effectively and transparently undertake the project. These concerns are recognized by the international financial institutions supporting the project, including ADB, as important and significant risks to the long-term project success.

ADB believes these risks are manageable with substantial and careful oversight. With this in mind, the project has been designed with a number of mechanisms to minimize these risks, including

• Multidonor technical assistance to help the Government improve its overall public expenditure management program
• Oversight through audits and public expenditure surveys to monitor the utilization and effectiveness of the Government revenue from the project for agreed priority programs, as well as technical review by the international dam safety review panel
• Long-term funding, as well as technical assistance, for conservation programs as part of the overall project cost
• Commitments from NTPC to providing funding and to share management and operational responsibility for the outcomes of environmental and social mitigation and compensation programs, including resettlement on the plateau and in the downstream areas
• Delineation of the roles, responsibilities, and authorities of the central, provincial, and district government agencies of the Government with regard to project-related activities and programs
• A program of transparent monitoring and evaluation of project performance including the publication of project performance evaluations, progress reports, and monitoring data.

"Approval of this project marks a milestone in the Government of Lao PDR's development planning. We are convinced that if managed properly and implemented effectively, it has great potential to bring large and lasting benefits to the people of the Lao PDR," Mr. Kuroda said.

Mr. Kuroda committed ADB to work closely with the Government of Lao PDR and other development partners to ensure successful implementation of the project through effective monitoring and supervision.

The $20 million loan to the Government of the Lao PDR, from ADB's ordinary capital resources, has a 30-year term, including a grace period of six years. Interest is determined in accordance with ADB's LIBOR-based lending facility.

The Asian Development Bank is dedicated to reducing poverty in the Asia and Pacific region through pro-poor sustainable economic growth, social development, and good governance. Established in 1966, it is owned by 63 members, with 45 from the region.

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