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Project Completion Report on
Theun-Hinboun Hydropower Project
IV. CONCLUSIONS AND RECOMMENDATIONS
A. Conclusions
73. With its timely completion and a cost saving of about $29.8 million compared to the cost estimate at appraisal the Theun-Hinboun Hydropower Project has been successful. The modern plant operates at high efficiency and with high economic and financial returns. The actual and projected financial performance show that THPC has favorable liquidity, profitability, and leverage position.24/ The equity investment is expected to be fully returned within six operating years of the Project. To date, the Project has been highly profitable for both the Lao PDR and the private investors of THPC, and its contribution is expected to continue to promote the macroeconomic stabilization efforts in the country.
74. The Project had an important impact on capacity building in EdL as most of the professional operating staff were acquired from EdL. The staff underwent several years of training under supervision by NH in the Lao PDR and Sweden. Senior EdL staff serve on the board of directors of THPC and are gaining experience on how a private sector organization works. The Government and EdL also received legal advice on preparing and negotiating licensee agreements and PPAs, which benefited the Lao PDR as a whole and not just EdL. Unfortunately, the social and environmental mitigation staff did not receive the benefit of training outside the Lao PDR under the Project. However, EdL and EMCO staff did receive training under a separate ADB-supported TA.25/ Although THPC had undertaken a number of mitigation measures, the pace and effectiveness of their implementation have been hampered by lack of a comprehensive mitigation plan. Preparation of the 10-year EMP and THPC's stated strong determination to implement the EMP in full are crucial in remedying the situation.
B. Lessons Learned
75. The Project has been remarkably successful in financing arrangements, project implementation, and coordination between all parties concerned and should serve as an example of how to implement private sector projects that will eventually be turned over to a government.
76. The development of ADB-sponsored hydropower projects, especially transbasin diversions such as Theun-Hinboun, should be done in a regional (e.g., river basin) planning context to fit them into an overall development scenario, thus maximizing beneficial development impacts in the project area while minimizing unintended adverse impacts.
77. During project design, and particularly during implementation of project preparatory TA, sufficient time should be allocated to the preparation of EIAs and EMPs. EIAs and EMPs that are prepared with a relatively low person-month allocations, as in the case of the Project, typically are generic, include little primary information, lack systematic and robust analysis of impacts, frequently jump to conclusions about impacts, and do not justify or describe mitigating measures in detail. This sets the stage for problems during implementation and operation. To minimize problems, improved tracking of the evolution and disposition of environmental and social recommendations in the EIA and other documents throughout the project design and implementation phases is necessary. This could be done by preparing a checklist that is continuously updated, especially during frequent review missions of adequate duration.
78. Establishing adequate baseline environmental and social conditions and thoroughly analyzing potential impacts during project design are essential. In particular, the baseline data will allow more efficient, accurate, proactive instead of reactive, and cost-effective management of impact mitigation/compensation and monitoring.
79. Establishing an adequately staffed and budgeted environmental management unit (EMU), ready to execute environmental and social mitigation, compensation, and monitoring measures systematically during the design and construction periods, as well as after project completion during normal operations, is essential for complex hydropower projects. This would include regular revision and updating of the EMP, a resettlement and implementation action plan, and similar documents to ensure that they remain valid and adapt to changing conditions throughout the construction period and beyond. It may also be advisable to retain the services of an expert panel, NGO, or another third party to regularly monitor and guide the EMU. In countries with limited indigenous capacity for environmental management, special measures, such as retaining recognized experts, including a fishery expert, for periodic trouble-shooting during project preparation, design, and construction, may be particularly useful.
80. The EMU should work with the project-affected communities in a participatory manner, not intermediaries. Its activities should be undertaken in a transparent manner, and outputs made available to all stakeholders and the public at large. This should include regular environmental reporting to a level of detail and clarity that allows outside reviewers to track the actual progress made in mitigation, compensation, and monitoring.
C. Recommendations
1. Project Related
81. Future Monitoring. Presently, with the technical and financial management being assured by MDX and NH, daily operations run properly. Careful monitoring by ADB is advisable of the environmental and social impacts that will continue to evolve over the next 10 years. ADB should consider undertaking annual reviews at least over the next 2-3 years in addition to considering other measures relating to possible ADB support as presented in the 10-year EMP.
82. Covenants. With the exception of the environmental covenants, all covenants have been fulfilled. An EMP has now been completed (para. 55) and it is of utmost importance that the recommendations of the EMP be executed with the full support of THPC.
83. Follow-up Actions. While overall success has been achieved, it is proposed that a gradual shift in the administrative and technical management be undertaken for eventual transfer of the Project to the Government. Persistent efforts should be made to allow EdL to increase its power generation and transmission capacity through resources generated by the Project.
84. It is recommended that, at the expiration of the contracts with MDX and NH in March 2001 and December 2002, respectively, the financial administration and technical management be put to public tendering. It is furthermore suggested that Lao PDR personnel be more involved in these activities to ensure transfer of technology. It is expected that THPC will advance the funds required for RE in the vicinity of the Project from future dividends due to EdL.
85. It is important that the EMP be actually executed by THPC as agreed upon. It is recommended that ADB carefully monitor the performance of THPC in this respect as it may serve as an excellent example of a systematic mitigation effort in a river diversion scheme in a developing country.
86. Additional Assistance. The Project has been implemented and is operating to the full satisfaction of its owners. Therefore, besides possible assistance associated with the EMP, no further additional assistance is required.
87. Timing of Project Performance Audit Report. A project performance audit report should be prepared only when all the environmental and social mitigation measures foreseen in the EMP have commenced and are being implemented to the satisfaction of ADB and the owners of THPC. It is expected that this might be the case in 2-3 years.
2. General
88. Project Appraisal. During project appraisal, implementation was possibly evaluated too optimistically. The lack of engineering, environmental, and social evaluation capacity in a country like the Lao PDR might have been taken more into consideration.
89. Project Implementation. It may be safely assumed, that would the Project, when facing the various major difficulties during implementation as described in the report, have been a public sector project and administered as is customary for such projects, it might still be under construction today. Due to the very proactive and innovative approach by THPC when these difficulties had to be overcome, the Project has been completed more or less within its original schedule and at cost savings of $29.8 million. As such, it has become a good example of how a Project should be implemented under adverse conditions from the technical, managerial, and financial points of view.
90. Future Projects. It is recommended that for future projects, the income distribution effects of royalties, dividends, and taxes accruing to the Government from hydropower plants be analyzed from a social perspective, including poverty reduction impacts.
- Debt/equity position.
- TA 3133-LAO: Strengthening Social and Environmental Management, for $950,000, approved on 22 December 1998.
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