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	Table of Contents
Theun-Hinboun Hydropower Project Currency Equivalents Basic Data [PDF] Maps I. Project Description II. Evaluation of Implementation III. Evaluation of Initial Performance and Benefits IV. Conclusions and Recommendations Appendixes: [PDF] 1. Ownership Structure of Theun-Hinboun Power Company 2. Public Access Roads 3. Civil Works, Including Hydraulic Steelworks 4. 230 kV Transmission Line 5. Theun-Hinboun Power Company Organization Chart 6. Final Implementation Costs 7. Final Structure of Theun-Hinboun Power Company 8. Currency Exchange Rates, 1994-2000 9. Chronology of Major Events 10. Implementation of Schedule 11. Compliance with Major Loan Covenants 12. Appraised and Actual Disbursements 13. Financial Internal Rate of Return 14. Economic Internal Rate of Return 15. Assumptions in FIRR and EIRR Analyses 16. Project Financial Statements

Project Completion Report on
Theun-Hinboun Hydropower Project

II.  EVALUATION OF IMPLEMENTATION

A.  Project Components

16. The components of the Project are summarized in para. 7. The financial implications of necessary design changes are discussed in para. 26, their technical justification is described in para. 28 and further details are in Appendixes 2, 3 and 4. For a better understanding of project implementation, the components may also be categorized according to contract packaging (paras. 17 - 23):

17. Preparatory Civil Works. The works executed under Contract C1: Preparatory Civil Works comprised (i) access roads to the powerhouse, to the dam site, and to the tunnel adits; (ii) excavation for the powerhouse and at the dam site; and (iii) the operators' village.

18. Civil Works. The works executed under Contract C2: Civil Works comprised all civil works for the Project not included in Contract C1, notably; (i) weir, (ii) spillway, (iii) diversion tunnels, (iv) powerhouse, and (v) tailrace canal.

19. Hydraulic Steelworks. The works executed under Contract H1: Hydraulic Steelworks comprised (i) delivery and erection of the penstock; (ii) trash rack; (iii) trash rack cleaner; and (iv) all gates at the weir, the intake, and the draft tube gates in the powerhouse.

20. Mechanical Works. The works executed under Contract M1: Mechanical Works comprised (i) turbines including governors and inlet valves; (ii) cooling water system; and (iii) drainage system in the powerhouse.

21. Electrical Works. The works executed under Contract E1: Electrical Works comprised (i) generators, transformers, switchgear at the power plant and at Thakhek switching station; and (ii) control systems, machine hall cranes, telecommunication equipment, including power line carrier, 22 kV transmission line to the intake, and electrical installations at weir and intake.

22. 230 kV Transmission Line. The works executed under Contract T1: 230 kV Transmission Line comprised, except for the works described in para. 23, all works for the 86 km long 230 kV transmission line from the powerhouse switchyard to the Mekong crossing at Thakhek, including the suspension tower at the Lao PDR riverbank. The works also included all civil and mechanical works at Thakhek switching station.

23. 230 kV Transmission Line (Supplementary Contract). The works executed under Contract T2: 230 kV Transmission Line comprised the foundation works for four of the eight tower sites on the limestone ridge.^6/

B.  Implementation Arrangements

24. The organization chart of THPC is shown in Appendix 5. To oversee project implementation, the board of THPC appointed an executive committee consisting of three members, each representing one shareholder. International competitive bidding procedures were used for all goods to be procured under the project. ADB-financed items^7/ were procured in accordance with ADB's Guidelines for Procurement.

25. As provided in the MOU, dated 23 June 1993, (i) MDX was assigned the task of financial manager; and (ii) NH, with (a) Statkraft SF as executing party, the task of project manager; (b) Norconsult International A.S. as executing party, the contract for consulting services; and (c) Vattenfall AB as the executing party, the contract for training, and project operation and maintenance. Support staff for THPC administration and secondment to the engineer for technical supervision of the works were engaged on fixed-term contracts. The majority of technical inspectors seconded to the engineer were provided by EdL. In view of these arrangements, initially no officers for project management were appointed. In preparation for the operational phase, a general manager was engaged in August 1997.

C.  Project Costs

26. The overall project cost, including both foreign exchange and local currencies, was estimated at loan appraisal at $270.0 million equivalent. The actual cost was about $240.2 million, resulting in savings of about $29.8 million. The most important savings of about $22.9 million were due to substantially lower than estimated tender prices for the main civil works and hydraulic steelworks. The savings comprised about $10.9 million for mechanical works, and about $11.2 million for electrical equipment (Basic Data, C, item 3). Despite the difficulties due to the crossing of the limestone ridge, transmission line savings of about $3.2 million were realized. The most important cost overruns (about $5.5 million) were incurred in preparing the final design and tender documents, and were due to, among others, elaboration of new tender documents for the T2 contract for the transmission line (paras. 46-48) and a T4 transmission line contract never awarded, introduction of the reregulation pond, change in weir height, elimination of one gate in the weir, and other environmental measures. The apparent cost overrun of $14.7 million under Financial Allocation was not an overrun but rather a different form of financing.^8/ The final implementation costs are summarized in Appendix 6.^9/ The financial structure of financing this cost is shown in Appendix 7. Currency exchange rates during project implementation are shown in Appendix 8.

D.  Project Schedule

27. The chronology of the major events in implementing the Project is given in Appendix 9 and the implementation schedule, as originally planned and as actually executed, is presented in Appendix 10.

28. As during the rainy season lasting generally from mid-May to mid-October access and working conditions may be very difficult, great care was taken to schedule implementation of the works, particularly the access roads and the diversion weir, mostly during the dry season (mid-October to mid-May). Fortunately, the weather conditions during construction of these works were generally average and only in September 1995 was the access to the site interrupted for a few days due to flooding of Road No. 13. In mid-September 1996, a typhoon hit the Nam Theun catchment and caused a sharp rise of the Nam Theun water level, which reached elevation 408.8 m at the damsite. This elevation was 0.3 m above the design flood level determined for the diversion weir, corresponding to a design discharge capacity of about 9,650 m³/s. The observed flood peak was estimated at about 10,700 m³/s. As a result, certain adjustments were made to the design of the diversion weir, including raising the design floodwater level from elevation 408.5 m to 410.0 m.

29. Appendix 10 shows that most activities experienced some delays. The most notable ones were delays in (i) commencing procurement of the main civil and hydraulic steel works (over 8 months); (ii) completing the civil works for the weir and intake (seven months), the power house (16 months), and the switchyard (seven months); and (iii) erecting the draft tubes and units (over six months), and commissioning the units (six months). Circumstances leading to the delays are described in paras. 38-48 and the associated Appendixes.

E.  Engagement of Consultants and Procurement of Goods and Services

30. Preparatory Civil Works. Contract C1: Preparatory Civil Works, was awarded to JV Vianini Lavori-Vianini Thai Construction and Development Co Ltd., of Thailand, on 1 November 1994, for an estimated $9.3 million.

31. Civil Works. Contract C2: Civil Works was awarded to JV Recchi S.p.A.-CMC, of Italy, on 26 July 1995, for an estimated $69.2 million including the nominated subcontract H1:Hydraulic Steelworks.

32. Hydraulic Steelworks. Contract H1: Hydraulic Steelworks was transferred as a nominated subcontract under Contract C2 on 26 July 1995 and awarded to ATB Caldereria S.p.A. of Italy on 12 May 1995, for an estimated $18.8 million.

33. Mechanical Works. Contract M1: Mechanical Works was awarded to Kvaerner Energy A.S. of Norway on 2 February 1995, for an estimated $12.9 million.

34. Electrical Works. Contract E1: Electrical Works was awarded to ABB Generation AB of Sweden on 26 July 1995, for an estimated $32.3 million.

35. 230 kV Transmission Line. Contract T1: 230 kV Transmission Line was awarded to Thai Development Associates Co. Ltd. on 15 March 1995, for an estimated $13.1 million.^10/

36. 230 kV Transmission Line, Foundation Works on Limestone Ridge. In early 1997, the employer deleted the foundation works for four tower sites on the limestone ridge crossing from Contract T1 in order to secure completing the line on time. This work, with an option for further extension, was assigned to John Holland Lao in a separate Contract T2: 230 kV Transmission Line on 14 March 1997, for an estimated $2.9 million.

37. Supervision of Project Implementation. Four contracts were awarded as follows: (i) Contract A1: Project Management to Nordic Hydropower AB (Statkraft SF) on 7 December 1994, for $2.6 million; (ii) Contract A2: Consulting Services to Norconsult International A.S. on 7 December 1994, for $11.5 million; and (iii) Contract A3: Operation, Maintenance and Training to NH (Vattenfall AB) on 14 December 1996, for $2.9 million.^11/

38. Some difficulties during construction can be attributed to the extremely short period for planning, final design, and preparing documentation for the construction and procurement contracts between completion of the feasibility study in May 1993 and assignment of the first construction contract in late 1994. As a result, the tender documents for Contract C1: Preparatory Civil Works had to be prepared before the detailed investigations for the ground conditions were completed. Furthermore, negotiations for the PPA with EGAT lasted up to mid-1996, i.e., almost one year after all contracts for construction and procurements had been assigned. Since the PPA contained design criteria and requirements not known at the time the contracts were assigned, a number of variations to the design became necessary. The main consequences were inclusion of circuit breakers at Thakhek switching station to satisfy EGAT's criterion for power system stability, and other changes to the electrical and mechanical equipment imposed by detailed requirements of the PPA and EGAT's new grid code. In addition, the PPA's requirement for a peaking mode of operation created the need for a reregulating pond at the outlet of the tailrace canal.

  1. Preparatory Civil Works

39. After the notice to commence was given on 1 November 1994, already well after the commencement of the dry season lasting generally from mid-October to mid-May, the main challenge was to perform during the rest of the 1994/95 dry season the initial mobilization at all sites and a significant amount of the preparatory civil works.

40. As the contractor started work preparations at his own risk one month before the notice to commence was issued, he was able to mobilize in an efficient manner. However, the contractor could not completely follow the very tight time schedule for all the works to be completed within the 1994/95 dry season. One reason was the difficult road conditions and ongoing works to complete Road No. 8, which hampered his transports (Appendix 2). Some of the works extended into the 1995 rainy season and due to the above average rains in 1995 were completed under less favorable conditions than planned. The works most affected were the foundation works for the powerhouse, which because of complicated ground conditions required a technically more advanced solution than originally foreseen; completing the access road to the damsite; and road and pipe works in the operators' village.

  2. Civil Works, Including Hydraulic Steelworks

41. The notice to commence was issued on 26 July 1995. However, mobilization throughout 1995 was unsatisfactory. By the end of December 1995 all major works, which according to the contractual program should have been in progress at that time, were delayed by 6-12 weeks. Among the causes of the delays were late arrival of equipment at the site, lack of adequate equipment and skilled operators, and lack of experienced staff for site management. During the first months of 1996, progress on the works improved somewhat, but time was still lost compared with the revised work programs presented by the contractor during this period. In early May 1996, the engineer issued a formal notice to the contractor to take steps deemed necessary to expedite progress to comply with the contractual time for completion. The first realistic work program was presented by the contractor at the end of May 1996. Soon thereafter, THPC started negotiations with the contractor for a supplementary agreement including certain financial support and incentive measures intended to accelerate implementation and recover lost time. The incentive depended on the achievement of a number of revised intermediate milestones and an ultimate milestone aiming at project completion in accordance with the target program of the PPA between THPC and EGAT.

42. By mobilizing additional human resources and equipment, both site management and production capacities were significantly improved and the contractor was able to keep up with his work program of May 1996. A supplementary agreement was signed in December 1996 and the contractor succeeded to comply with all the revised intermediate milestones as well as the ultimate milestone of the agreement. As a result, the commercial operation date assumed in the PPA was achieved and the works were taken over by THPC on 1 May 1998, with the two years defects liability period running from that date. The contractors for Contract C2, including Nominated Subcontract H1, and Contract T1 were not able to keep their original contractual time schedules. However, this did not delay the start of commercial operation, which was determined by the date of completing the transmission system including the Thai portion of the line. Further details are in Appendix 3.

  3. Mechanical Works

43. The delay in the civil works for the powerhouse resulted in delayed access for the erection of the draft tubes and the inlet cones and later, in a revised schedule for the main erection of the turbines and the auxiliary equipment. An additional complication was the limited load capacity of a number of bridges on Road No. 8 (Appendix 2) requiring some bypasses for the heaviest transports, which could only be carried out in the dry season. Most heavy items arrived at the site in May 1996, with a very narrow margin to the onset of the rainy season. However, the contractor accommodated the changed circumstances in the early phases of erection in his approach and was able to accelerate the progress of implementation works as soon as access was allowed. THPC took over Turbine No. 1 on 15 February 1998 and Turbine No. 2 on 27 February 1998, with the defects liability periods running two years from those dates. THPC took over Generator No. 1 on 16 February 1998 and Generator No. 2 on 1 March 1998, with the defects liability periods running two years from the same dates.

  4. Electrical Works

44. The contractual erection schedule of electrical works was revised in accordance with the revised overall implementation schedule. As the changes were made well ahead of the start of erection, they did not result in any serious problem for the contractor.

45. In August 1997, it was discovered that control cables with stranded conductors generally suffered from earth faults^12/ caused by poor quality insulation. In total about 3,000 m of cable was affected; the earth faults were on all 1.5 square millimeter (mm2) and 2.5 mm2 conductor control cables with stranded conductors. As most of the cables had already been installed, all had to be replaced. A new batch of cables with stranded conductors was ordered, but tests performed before shipment showed that the new cable had the same type of fault. It was thus decided to replace the faulty cables with solid conductors cables. By mobilizing additional personnel, the electrical works contractor managed to complete the replacement work without serious implications for the ongoing installation and commissioning activities.

  5. 230 kV Transmission Line

46. While work on most of the transmission line in the flatland could be implemented without particular difficulties, it was clear at the tender stage, that the 5 km wide limestone ridge crossing for the erection of eight towers would be a demanding task. To ensure that detailed design and construction of this part would be completed on time, the contractual time schedule assumed that the contractor would perform the detailed topographical survey across the limestone ridge before the onset of the rainy season in 1995. However, the contractor did not start this part of the work before late 1995 in the beginning of the next dry season.

47. In the contractual time schedule, both the foundation works and tower erection were expected to be completed during the 1995/96 dry season. However, by the end of that dry season, only the survey work had been completed and no construction work had started. From being a limited, but demanding part of the work, the stretch across the limestone ridge thus became critical for overall completion of the line. After the first months of the 1996/97 dry season elapsed without significant improvement in progress of the works, THPC decided to delete parts of the foundation works across the limestone ridge from Contract T1: 230 kV Transmission Line, and assign the construction of the foundations of the four most demanding tower sites to another experienced contractor in a separate Contract T2, signed in February 1997.

48. From this point, progress improved significantly. It was too late, however, to complete the line within the contractual date for energizing -1 July 1997- and the line became ready for energizing only at the end of December 1997 in accordance with the revised overall implementation schedule. The six months delay from the contractual schedule did not influence the date of commercial operation. THPC took over the transmission line on 29 December 1997, with defects liability period running two years from that date. Further information is in Appendix 4.

49. The status of compliance with the key conditions and covenants of the Loan Agreement is presented in Appendix 11. For reasons described in paras. 51-53, some environmental and social impacts have not yet been fully mitigated to the satisfaction of ADB. Plans on how to resolve the issue of environmental and social impacts are presented in paras. 55-58. Other important covenants concerning project implementation and reporting have been complied with.

50. The projected disbursement schedules were not explicitly available from the existing documentation and those for the ADB loan could only be deduced from the least-cost analysis performed during appraisal.^13/ Appendix 12 shows that the first actual disbursements in the last quarter of 1994 corresponded initially to the appraised amounts. During 1995 and 1996, however, presumably because of implementation delays discussed earlier, disbursements were substantially delayed until the middle of 1996. From then on, there were no additional delays in disbursements until project completion. Due to cost savings, the total disbursement was about $29.8 million less than the appraised Amount.

I. Environmental and Social Impacts

51. As virtually no baseline data were available in the Lao PDR during the elaboration of the environmental impact assessments (EIAs), this fact should have been addressed by endeavoring to collect as much data as possible. However, as much of that portion of the environmental investigation was left to local personnel with limited experience, baseline data collection was poor and affected the Project.

52. The first EIA of April 1994 appeared inadequate in scope, and a summary EIA to complement the findings of the first EIA, was circulated to the ADB Board in June 1994. During the project construction period, THPC established the Environmental Management Committee Office (EMCO) comprising local staff to manage mitigation and compensation issues. Additionally, a number of international and local environmental and social specialists were recruited during project construction to support EMCO and undertake specific environmental and social impact and/or monitoring studies.

53. While the establishment of EMCO was a good concept, it did not attain the level of performance required during project implementation because of low staff capacity and inadequate supervision from the international specialists. In particular, it failed to expand the environmental management plan (EMP) into a detailed and comprehensive document following the completion of detailed project design. Any management plan will always meet unforeseen situations, but in the case of the Project the impact of such unforeseen circumstances was exacerbated by the failure to revise, elaborate, and then implement a comprehensive EMP. As a result, THPC had to deal with impacts as they occurred, rather than in a strategically planned manner. This became a serious issue primarily from the start of project operation when flows were diverted to the Nam Hai-Nam Hinboun system.

54. At project completion and official inauguration of the Project, the nongovernment organization (NGO) International Rivers Network published a report^14/ describing unmitigated project-related environmental and social impacts. ADB immediately reacted by fielding a Special Review Mission in May 1998. The Mission confirmed there were unmitigated impacts, but concluded that there was no emergency situation. The Mission discussed with THPC and EMCO measures that had to be implemented immediately and endeavored to initiate their rapid execution, including compensation. In November 1998, ADB fielded another Special Review Mission and left with THPC an agreed-upon action plan comprising steps to take to promote comprehensive mitigation and monitoring. While ADB continued close monitoring of the situation in another Special Review Mission in November 1999, it appeared that, although THPC had completed numerous mitigation arrangements, there were still substantial shortfalls due once again to a lack of capacity of the consultants and EMCO to adequately undertake the required tasks. It was then agreed with THPC to engage an international environmental consultant with a proven track record and substantial Lao PDR experience to investigate the matter and to prepare a comprehensive EMP.

55. The EMP was completed in May 2000. It analyzed the Project's impacts on biophysical and socioeconomic fundamentals, and established a detailed comprehensive 10-year plan for mitigating and compensating for adverse impacts. The main features of the plan are as follows:

1. establishing of a 12-person unit, staffed by qualified professional and technical experts, some recruited internationally; paying competitive salaries; and providing an adequate budget to manage and
2. studies and trials of all features of the present new ecologies and hydrological regimes in the downstream source river Nam Kading;^15/ the head pond, the surge pond, and the downstream recipient rivers Nam Hai and Nam Hinboun with a view to modifying current discharge volumes and patterns with the following objectives: (a) creating two new river systems - the donor and recipient river systems - with flow regimes that enable them to function as aquatic ecosystems with high biological productivity, reasonable biological diversity, and high public utility; and (b) identifying key engineering and operational modifications that permit the rivers to function as described. Important studies and trials include (a) trials of the most effective riparian release; (b) studies of a reregulating reservoir capable of full weekly reregulation on the Nam Hai River; (c) trials of surge pond operations to accelerate erosion, so that the Nam Hai channel stabilizes sooner; (d) studies of a fish bypass to surmount the head pond weir; and (e) trials of head pond management to reduce public health hazards and increase fishery productivity;
3. investigating all outstanding claims for production system losses (mostly riverbank gardens and fisheries), for usufruct rights impairment (water supply, hunting/gathering, land, some trees) in a systematic fashion through village mitigation committees; and
4. mitigating and compensating for established losses and impairments, chiefly by developing new production system techniques and opportunities that will prevent recipient dependence, but rather promote local initiatives and capacities to take advantage of new opportunities.

56. The EMP recommends that the mitigations be aimed at householders to provide them with low-risk, affordable, and sustainable ways to replace those parts of their production resources that have been lost or impaired. These small steps are expected to become a foundation for widespread socioeconomic growth in the region, eventually enabling villagers to exploit some of the new commercial opportunities now available; for example, by applying rural electricity supplies, irrigating the Nam Hai plain with power station discharge water, and using the terrestrial and waterway infrastructure to commercialize cropping (e.g., sericulture, agro-forestry, production of fruit, etc.).

57. It is not possible for THPC to prevent the use of its infrastructure for logging, which is currently being done largely to implement the Government's National Rural Development Program (NRDP). The construction of roads in areas of valuable commercial timber will, unless that timber lies inside a conservation area, eventually create unsustainable pressure for that land to be cleared for agricultural production. The EMP suggests developing a strategic vision of all changes taking place in the project area, many of which have been catalyzed by the project works. It is suggested that other sources, such as ADB through loan and TA, should work with THPC to develop this understanding, which would harmonize THPC mitigation measures with local implementation of the NRDP and the overall patterns of regional change.

58. THPC has accepted the EMP as proposed and at the time of preparation of the present report is already recruiting its core team of managers. This is a welcome event, and should lead to timely, positive changes in the views of the stakeholders both within and outside the Lao PDR. THPC has also accepted a high degree of international scrutiny of its activities, which should ensure the levels of transparency and accountability now expected in these matters. An example is the posting the 10-year EMP on the ADB website to allow international reviews and comments.^16/

59. The performance of the Borrower was satisfactory. The performance of the Executing Agency for project implementation, THPC, with respect to financial management and technical project implementation may be considered exemplary. The Project was completed on time, and substantially below the budget. THPC reacted quickly to mitigate the impacts of the Asian economic crisis of 1997. As a result, the Project did not suffer any delays or substantial additional costs. THPC also reacted quickly to the inability of some of its contractors to maintain the original project implementation schedule by proposing adequate measures such as acceleration measures in the main civil works contract and elaborating the supplementary transmission line contract for the foundation works over the limestone ridge. Concerning environmental mitigation measures, THPC was not quite as successful during project implementation. However, it is making up for its initially less successful performance in this respect (paras. 55 - 58).

K. Performance of ADB

60. ADB cooperated well with the Borrower and EdL in formulating the Project and processing the loan. In view of the professional management arranged by THPC during project implementation, ADB follow-up was primarily with respect to environmental and social issues, which was intensified at project completion (para. 54). ADB will continue monitoring environmental and social mitigation measures until they have been completed to its satisfaction.