Guaranteeing Chinese Overseas Dams – By Whom and at What Cost?

Grace Mang
The Chinese built Stung Atay Dam in Cambodia
The Chinese built Stung Atay Dam in Cambodia

After a possibly longer than warranted report-writing sojourn (the China Program produced its updated New Great Walls Guide in November 2012) - I wanted to pick back up the keyboard by briefly looking into the political guarantees being dished out by Cambodia's government in order to secure Chinese overseas dam builders and their investment in large dams. 

By and large, China's dams in Cambodia are Build-Operate-Transfer projects, where the Chinese dam builder has the right to operate the dam post construction for up to 45 years (depending on its negotiating skills). During this period, all electricity generated is sold at a pre-negotiated rate to recoup the dam builder's initial investment costs. The entire investment is underwritten by the Cambodian Government. This means that should the state electricity company, the buyer of the electricity, not have the funds to pay for the electricity generated, the Cambodian Government will foot the bill. Further the Cambodian Government has also underwritten any political risk such that any loss incurred from war, civil strife or national chaos would also see the Chinese dam builder fully compensated. With the painful losses of Libya and the suspension of Myitsone Dam still raw for Chinese companies going overseas, Chinese dam builders are getting a good deal. In the event of political upheaval or civil war such as that suffered in Libya, any future Cambodian government would find themselves compensating Chinese dam builders for any losses incurred. Similarly by having the deal enshrined in law, as was recently done with HydroLancang's Lower Sesan 2 Dam, there is no way that such a project could ever be suspended by any future Cabinet. Even the Asian Development and IMF have questioned whether Cambodia can afford to shoulder the future liabilities resulting from the sovereign risk it has given to the Chinese dam builders.

While these dams will marginally reduce the cost of electricity for Cambodians, what has been the cost that Cambodians have had to pay to attract major Chinese dam builders to its rivers? Chinese hydropower companies have been able to write a blank cheque when it comes to the cost of construction of the dams. There has been no competitive bidding process to get the best dam proposals at the best price. For example, the budget of the destructive Lower Sesan 2 Project rose from $500 million to $781 million within a few years. Cambodian civil society and impacted communities have little access to information about proposed dam projects. There are no transparency requirements. Chinese dam builders don't have a good track record when it comes to engaging with local communities. Finally, despite the huge environmental and social risks of Cambodia's dam projects, Environmental and Social Impact Assessments are conducted as an after thought, doing little more than to rubber stamp the development than mediate its impacts. The quality of these assessments are also in doubt. In the case of HydroLancang's Lower Sesan 2 Project, the environmental and social impacts have been seriously if not deliberately underestimated, such that Cambodians may have to deal with an additional compensation bill for those not covered by the Chinese dam companies budget. 

While there is no doubt the Chinese overseas dam builders have negotiated themselves a good deal, it has almost certainly been to the detriment of Cambodia's environment and people.

Thursday, February 28, 2013