The Nam Ngum 3 Hydropower Project (NN3) is a 440-megawatt (MW) hydropower plant that will be located on the Nam Ngum River, a tributary of the Mekong River in the Lao People's Democratic Republic, 130 kilometers from the capital city of Vientiane and 260 km upstream of the confluence with the Mekong River. It will export 2,072 gigawatt-hours of energy every year to Thailand, generating export revenues for Lao PDR, boosting clean energy supply in Thailand and displacing the emission of 1 million tons of carbon dioxide annually.
Under the 41385-013: Greater Mekong Subregion Nam Ngum 3 Hydropower Project, ADB will provide $115 million in loans to the Government of Lao PDR for its equity contribution in the Nam Ngum 3 Power Company (NN3PC), which will build, own, and run the hydropower plant for a 27-year concession period; and for the development of dedicated transmission facilities needed to export electricity to Thailand.
Under a separate arrangement, ADB is also providing $350 million in private sector (nonsovereign) financing for the NN3 project, which will construct a 220-meter-high concrete-faced rock-fill dam, an underground power station, a gated spillway to release water from the dam especially during the rainy season, an underground 10.6-km headrace tunnel to channel water from the reservoir to the power station, and a 99-km 500-kV transmission line.
The build-own-operate-transfer project will (i) generate an estimated $770 million in taxes, royalties, and dividends for the Lao PDR government over the concession period; (ii) promote economic growth in the Lao PDR through private sector investment, technology transfer, employment generation, and local infrastructure development; (iii) promote sustainable development in northeast Thailand by improving energy security and reducing greenhouse gas emissions; and (iv) increase regional cooperation in the Greater Mekong Subregion (GMS).
The NN3 project is the second large-scale hydropower plant to receive ADB financing in the Lao PDR, following Nam Theun 2 Hydroelectric Project, which was approved in 2005.
|Project Rationale and Linkage to Country/Regional Strategy
The midterm review of ADB's country strategy and program, 2007-2011, for Lao PDR notes that developing hydropower for export can generate foreign currency revenues, which can be channeled into education, rural infrastructure, healthcare, and environmental protection programs. Since the government does not have the financial resources to build hydropower plants on its own, it has decided to hold minority shares in export-oriented projects to boost the revenues it will receive and ensure that any adverse social and environmental impacts of these projects are mitigated effectively and sustainably. The government has opted to raise funds through a public-private partnership (PPP), encouraged by the success of, the Nam Theun 2 project in attracting private financing.
Power projects structured as PPPs are typically based on the build-operate-transfer model with the off-taker entering into long-term power purchase agreements that guarantee power purchase cost recovery.
The public sector loan for the NN3 was listed in ADB's 2011 country operations and business plan for Lao PDR. The project also helps achieve the objectives of the 2010-2012 regional cooperation business plan for the GMS which stresses integrating national markets to promote economic efficiency and private sector development and managing the environment and shared natural resources to help ensure sustainable development and the conservation of natural resources. The foreign exchange revenues generated by the project will provide funds for the Lao PDR government to meet its poverty-reduction goals. It will also provide low-cost and renewable energy to meet rising demand in Thailand.
Thailand's electricity is generated mainly by thermal power plants that burn the fossil fuels natural gas and lignite. The country has limited hydropower resources and does not have enough renewable energy to meet its growing energy demand. The Thailand Power Development Plan 2010 estimates that the country will need an additional 21,564 MW of electricity-generating capacity by 2020 to maintain economic growth. The 20-year plan envisions sourcing more than 5 GW from neighboring countries.