Hydropower Helps Lift Rural Communities

Feature | 31 January 2009

The $1.25 billion Nam Theun 2 Hydroelectric Project in central Lao PDR is improving the economic landscape in one of Asia's poorest countries

In the remote jungles of central Lao People's Democratic Republic (Lao PDR), a landmark experiment has been going on. A vast array of hard hats and heavy machinery has been working on a project that has been changing the lives of thousands of families and boosting the economy of one of Asia's poorest - yet most promising - countries.

The $1.25 billion Nam Theun 2 Hydroelectric Project (NT2) has set the standard for the construction of "good dams" - those that address environmental and social impacts, and steer revenue toward a country's neediest people.

NT2 - as the project is often called - is the result of studies beginning in the late 1970s of the hydroelectric power potential of the Nam Theun River, a tributary of the Mekong. The potential was there, but in the 1980s and 1990s, few major investors were willing to back large hydroelectric projects.

The World Commission on Dams renewed the debate on such megaprojects by recommending that they be undertaken in conjunction with extensive public consultations on environmental and social impacts. NT2 presents an attempt to live up to the high standards set by the commission.

The innovative financing partnership brought together 27 different financial institutions - both public and private - from around the world.

"With a total project cost equivalent to more than 80% of the country's annual gross domestic product, this is the single largest foreign investment in the Lao PDR's history," says John Cooney, a former director of Infrastructure for ADB's Southeast Asia Department. "But this is also the world's project, with partners from around the globe."

NT2 will export about 5,354 gigawatt-hours of electricity annually to Thailand and provide revenue to the Lao PDR through taxes, royalties, and dividends. This will generate about $1.9 billion in foreign exchange earnings for the government over the 25-year operating period, expected to begin in December 2009. This will bring in about $80 million a year. After 25 years, the project will be turned over to the Lao PDR Government at no charge, and with low operational costs. It is expected to continue operating and generating revenue for the Lao PDR Government for another 75 years after the turnover.

An economic impact study conducted in advance of the project estimated that the Lao PDR's gross domestic product will increase by 3.2% (without an increase in inflation) as a direct result of NT2.

Once operational, the project's revenue is expected to make up 7-9% of the government's annual national budget.

The money generated by the project will be coursed through a carefully designed and monitored revenue management plan that will work toward reducing poverty and developing the country. To deal with the influx of foreign exchange, and with the assistance of its development partners, including ADB, the government is instituting extensive reforms of the country's public finance and expenditure management systems.

Pristine Area Preserved

Ten percent of the project's total cost will go toward funding the environmental protection and social safeguards built into NT2. The company will give significant assistance for the duration of the concession period to the government for the conservation of the Nakai- Nam Theun National Protected Area, a pristine area in the Annamite mountain range upstream of the dam that contains some of the most natural areas in Southeast Asia.

Today, about 1,240 affected households have moved to permanent resettlement sites where they benefit from better houses, better roads, clean water, schools, and regular health checkups, and have permanent agricultural land and livelihoods provided by the project.

In the Nakai Plateau in Khammouan Province, 16 villages were isolated in the jungle, home to more than 6,000 ethnic groups living in dilapidated huts with leaking roofs. The villagers - many still illiterate - used and drank unclean water from the Nam Theun River. They hunted for food and relied on a slash-and-burn method of farming.

Selling Forest Products

A few years ago, Kham Sy, a 14-year old boy, lived in one of these villages, named Bouama, with his family of seven in a tiny bamboo house. "When the rain came we had to use big leaves to cover holes in the roof," he says.

Their home had no toilet, and the one room they had served as the bedroom, kitchen, and living room. "My two brothers stopped going to school to help my parents search for food and to sell forest products to buy me a school uniform," he adds. "I had to wash my school uniform in the river every day so I could wear it again the next day."

He walked 2 hours to go to school every day. "When it rained, I couldn't attend my classes because the walking path to town went under water."

In a new home built through livelihood provided through the project, Kham Sy can now read his school books with electric light. "I can now reach my school in 15 minutes on a motorbike that my parents bought," he says.

His mother earns 150,000 kip ($17.58) per month selling vegetables that she grows in their backyard. "Now, I have three school uniforms. My younger sister can walk only 5 minutes to a school provided by the project in the village." He adds, "We have rice, chicken, and vegetables the whole year round and my parents can now easily sell vegetables in the market of a nearby village because of the new paved road."

By April 2008 more than 6,000 people in 16 villages had been resettled. To make sure that the lives of those resettled are improved, and that the programs being implemented that will do this reflect the peoples' wishes, more than 300 consultationsand workshops were conducted with the people in the project area. In addition, a development program is being implemented for about 200 villages in the downstream areas affected by the project.

Many villagers are getting healthy and child morality rate has been reduced," says Chan Thone, chief of Bouama village.

Despite an unprecedented level of safeguards built into the project and a high level of public scrutiny as to how they are developed, implementing the project has been a challenge for development professionals who hope that "good dams" of the future can become a powerful tool for fighting poverty while addressing critical energy needs.