Activists cheer pullout of French firm from Lao dam project

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IPS 18 July 2003

By Marwaan Macan-Markar 

BANGKOK — A sudden announcement by a French company to drop a project to build Indochina's biggest dam in Laos pulls the rug from under a project that has been a hallmark of the skewed development model it represents, environmentalists say.

''This is good news for the tens of thousands of people who would be affected by the Nam Theun 2 dam,'' Aviva Imhof, South-east Asia programme director of the International Rivers Network (IRN), a U.S.-based environmental lobby, said in a statement.

''The dam threatened to destroy the unique ecosystem in the area and also affect the flow of fish migrating to the Mekong river. So the French company's decision is welcome,'' adds Witoon Permpongsacharoen, director of Towards Ecological Recovery and Regional Alliance (TERRA), a Bangkok-based environmental group.

On Thursday, Electricite de France (EDF), the major investor in the 1.1 billion U.S. dollar hydropower scheme, said it was withdrawing its share as a builder of the Nam Theun 2 dam in southern Laos.

A statement issued by the company, which had a 35 percent stake in the power project, said its decision ''is in line with EDF strategy to consolidate its assets and to refocus in priority in Europe''.

This about-turn comes a little over two months after Jean-Pierre Serusclat, head of EDF's South-east Asia operations, told the media in Thailand that the company was set on tapping into the region's lucrative power market. In September, EDF set up shop in Bangkok to guide its operations in South-east Asia, East Asia, Japan and Korea.

EDF's pullout forced the cancellation Friday of a major agreement that was to be signed between the consortium of the dam's investors and the state-run Electricity Generating Authority of Thailand (EGAT) about the amount of power Thailand was prepared to buy from the Lao hydroelectric power project.

Consequently, the Thai company in the consortium — the Electricity Generating Public Co(EGCO) — was forced to issue a statement to calm shareholders about the turn of events. Nam Theun 2 is ''a quality project that enhances shareholders' value,'' the statement read.

But World Bank officials concede that this project is heading into rough waters as a result of EDF's change of heart. ''This will affect the future of the project,'' a spokeswoman for the Bank told IPS.

''This has always been a highly complex and in some ways risky project,'' the Bank added in a statement released after EDF's announcement.

The World Bank is not a direct investor in Nam Theun 2. The consortium behind the project, which will build, own, operate and transfer it to the Lao government after 25 years, is the Nam Theun 2 Power Co Ltd.

Apart from EDF, the other shareholders of this company are EGCO that has a 25 stake, the Italian-Thai Development Public Co that has 15 percent, and the Lao government-run company Electricite du Laos that has a 25 percent share.

But the World Bank is involved as a political risk guarantor. A political risk guarantee is ''like an insurance policy to guarantee the investors in case of attempts to nationalise this private sector development venture,'' says the Bank's spokeswoman. It helps to ''lower the cost of the project'', she adds.

She says the Bank has yet to actually issue this guarantee, although both the World Bank and the Asian Development Bank (AsDB) are named in the official website of the Nam Theun Power Co as the multilateral institutions due to provide political risk guarantee facilities.

But environmentalists say the key point remains that this form of support by the two development banks means they are throwing their weight behind controversial dam projects despite the costly environmental and social errors of the past.

Not least, the banks' involvement helps draw private and other investors. Critics say it also encourages landlocked Laos to pursue big-ticket projects that would have it rely on selling hydroelectric power — it is said to have more than 10,000 megawatts of hydroelectric potential.

''It is time for the World Bank and the Asian Development Bank to own up to their failure in encouraging private sector hydropower development in Laos,'' says IRN's Imhof. ''These institutions should learn from this failure and encourage less socially and environmentally destructive forms of development.''

The World Bank was hoping to use the facility of risk guarantor for Nam Theun 2 as a model to be applied elsewhere, charges Witoon of TERRA. ''For the dam industry, it was a milestone, this level of involvement by the Bank.''

The consortium for this private sector-led project, which would involve the building of a 50-metre high dam across the Theun River, was formed in 1995. The project is expected to inundate 450 square kilometres of tropical forests and fertile farm land in the Nakai Plateau.

The impact of damming the Theun, a major tributary of the Mekong river, will also be felt by many local communities, according to IRN. ''The project would forcibly displace 5,000 people living on the Nakai Plateau and affect another 120,000 — 130,000 people dependent on the Xe Bang Fai River for their livelihoods.''

Thailand has been a major force behind this venture, since it is being built with the aim of selling power to EGAT to supply Thai demand for electricity.

Bangkok's interest in identifying external sources of electricity is reflected in the lead it has taken to develop a regional power grid for countries belonging to the Association of South-east Asian Nations (ASEAN). The 10-member group consists of Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam.

Under this scheme, transmission lines would be built to enable member countries to be able to buy power from each other. This regional power grid is expected to have two zones: an eastern zone connecting Borneo in Malaysia to Brunei and the Philippines and a western zone linking the Mekong region with Thailand, Malaysia and the island of Sumatra, in Indonesia.

Nam Theun 2 is pivotal for the ASEAN power grid. EGAT hopes that by 2008, power transmission lines would be ready to carry hydroelectric power from Laos into Thailand.

But now environmentalists say this may not be so — it remains to be seen what the effects of EDF's pullout will be for the Nam Theun 2 project. EDF's withdrawal means that ''the jewel in the World Bank's crown, Nam Theun, has failed,'' says Imhof.