Comments on the Nam Ngum 5 Hydropower Project (Lao PDR)

Friday, November 11, 2011

Submitted to the China Environmental United Certification Center Co., Ltd.

We are writing to express our concerns over the application for validation of the Nam Ngum 5 Hydropower Project in Lao PDR.

Summary of Concerns

  • The project is not additional. The project is 60% complete as of June 2011, and is likely being financed by a loan from the National Bank of China. In addition, the Project Design Document (PDD) uses inaccurate values to calculate its IRR in its investment analysis in order to appear economically unviable in the absence of CERs.
  • The PDD is poorly written and riddled with gaps in information regarding prior consideration of the CDM, its assessment of alternatives, and its common practice analysis.
  • The PDD ignores serious impacts that the project would have on local biodiversity and livelihoods. The PDD bases its environmental and social impact information on faulty documents. The PDD also does not state whether Sinohydro Corporation, the main developer of the project, will provide compensation or s\upport the development of alternative livelihoods to all the displaced and affected people.
  • The project is unlikely to contribute significantly to emissions reductions. The PDD uses Grid Emission Factors from the Thai grid, which is higher than those used in the Lao grid, even though the project is meant for domestic consumption. The PDD also uses a conservative reservoir size, which increases the power density, and ignores recent research in reservoir emissions from dams in Laos.

(1) Additionality

1.1 Construction date

According to the PDD, the starting date of the project is July 9, 2008 and the completion date, or when the first crediting period would start, is April 1, 2012 (p. 20). However, news reports show that construction of the project started as early as April 28, 2008, marked officially by a ceremony in Vientiane. According to other sources such as the Vientiane Times (April 6, 2011) and The Nation, the project is 60% complete. The project did not receive environmental clearance from the Lao Water Resources and Environment Agency until June 2008, which may be why the start date is listed as July. Since the project is now over 60% complete and is expected to be completed as early as April 2012 according to the PDD, it is highly unlikely that the project needs additional financing or that it did not have complete financial security before starting construction. It is therefore highly unlikely that this project is additional.

1.2 Investment analysis

The Nam Ngum 5 is being developed by the Nam Ngum 5 Power Company, which is a joint project between China's largest dam builder, Sinohydro, and Electricite du Laos (EDL), with the distribution of shares at 85% and 15% respectively. In 2008, Sinohydro announced that it had signed a concession agreement in 2007 and a power purchase agreement with the Government of Lao for the project. On p. 8 of the PDD, it states that the project has a total static investment of US$ 222.80 million. However, the PDD does not state the types of investments that have already been made. According to different sources, the project has already obtained financing from the National Bank of China (US$140 million), Sinohydro Corporation (US$ 54 million) and Electricite du Laos (US$ 6 million).

The PDD states that CERs are required to meet the financial benchmark's internal rate of return of 9.575%. The PDD also states that without the sale of CERs the project IRR is 7.56% (PDD, p. 9), and that with the sale of CERs, the IRR is 9.60%. The CDM EB requires that the internal rate of return be below 8%. 7.56% barely avoids crossing this benchmark. However, there is a more serious problem with this IRR:

  • The PDD claims that the grid-in tariff is 0.05 yuan (p. 8), or US$ 0.007/kWh. However, this appears to be an arbitrarily low tariff that has been artificially manipulated to produce a lower IRR. Within Lao PDR, electricity tariffs for domestics users are between US$ 0.033/kWh to US$ 0.09/kWh; for industrial users US$ 0.074/kWh and for commercial users US$ 0.10/kWh. While this is the tariff for the end user, it is highly unlikely that the power producer would be getting as little as US$ 0.007/kwh (or 0.05 yuan in the PDD) for sale of their power to the grid. With an accurate grid-in tariff, this value would be much higher and it would be clear that the project does not need the sale of CERs in order to be financially viable. 

In general, it is highly unlikely that such a large project would require CDM investment in order to make it possible. Even the former chair of the CDM Executive Board (EB), Lex De Jonge, has said that it is unlikely that the CDM plays a crucial role in investment decisions for projects that cost more than US$ 50-100 million, and for hydropower projects over 50 MW.1

(2) Gaps in the PDD

2.1 Prior consideration

The PDD mentions that the "CDM was seriously considered in the decision to implement the proposed project" (PDD, p. 7), but it does not include any dates regarding board meetings with the project developer where the CDM was discussed.

2.2 Alternatives

The PDD does not define all available alternatives to the project. On p. 8, it vaguely discusses "grid-connected power plants" and new generation sources. This ignores the fact that hydropower is the dominant energy source in Lao, which also means that the project does not replace any fossil fuel projects in the grid. While there are opportunities to improve the energy efficiency within the Lao grid and the operation of existing hyropower plants, the PDD does not mention these options.

2.3 Common practice analysis

The PDD states that "there is no hydropower project that is similar to the proposed project in CLCG [the Central Lao C1 Grid]" (PDD, p. 10). This is not true, since hydropower is the dominant source of energy in the two national grids of Lao PDR. According to our records , as of December 2010, there are eight hydropower projects in operation, seven officially under construction, 18 at the plannning stage, and 43 at the feasibility stage.

While the PDD lists and disqualifies Nam Lik ½, Nam Leuk, and Nam Ngum 1 given their age and CDM status, it ignores the rest of the Nam Ngum cascade. Nam Ngum 2 is already operating, and Nam Ngum 3 recently received a US$ 465 million loan from the Asian Development Bank. The PDD also ignores other major hydropower projects in Lao PDR, including Theun Hinboun expansion in Khammouane province (78% complete), the Nam Nhone in Luang Namtha (91% complete), and the Xekhaman 3 in Xekong province (90% complete). It is clear that the Lao government has extensive experience in building hydropower projects. The PDD makes an unconvincing case that the Nam Ngum 5 project does not represent common practice.

(3) Environmental and social impacts

3.1 Environmental impacts

The PDD does a poor job of describing the enviornmental impacts of the project during the operation period. It claims that "the proposed project is planned to adopt imported technologies, which have been used worldwide and safe on environment and will not result in a negative damage to the ecosystem." This claim ignores the fact that even new technology to mitigate dam impacts cannot entirely erase these impacts on water flow, sedimentation, water chemistry, and both upstream and downstream ecosystems.

The PDD does not address the cumulative impacts of the entire Nam Ngum cascade. A Cumulative Impact Assessment of the entire Nam Ngum cascade considered the cumulative impacts of eight planned and existing dams in the Nam Ngum basin, including Nam Ngum 5, and found that blocked migration routes, destruction of riverine habitat, and water quality problems caused by these dams would gravely threaten the basin's fisheries, including the productive fishery of the existing Nam Ngum 1 reservoir.

The PDD claims that "there is no significant impact on aquatic habitats due to the reservoir is small and lies along the Nam Ting, Nam Sout, and Nam Phat rivers and it will be flushed each year" (p. 21). The PDD does not provide any basis for this information. Even the EIA upon which this section is based describes significant wildlife in the area. The PDD also makes the unscientific claim that any fish species that cannot surivve in the new reservoir environment will just migrate to suitable habitat upstream.

The PDD does not provide any details in the conclusion of Section D about what its "preventive and mitigation measures" will be during the dam's operation period to reduce the environmental impacts of the project.

The PDD bases its enviornmental impacts assessment on reports produced by the Dongsay Company, including the EIA, Environmental Management and Monitoring Plan, and Social Action Plan (SAP). However, these documents are filled with data gaps and provide little confidence that the project's impacts have been adequately assessed, or that proposed mitigation measures are sufficient. If these documents are used as the basis for project mitigation and compensation strategies as it is in the PDD, the project is likely to result in impacts greater than its size would indicate. For instance:

  • The EIA does not include baseline data for the aquatic resources and fisheries assessments. It draws the unfounded conclusion that the Nam Ngum 5 project will not have "any significant impact on aquatic habitats."2 Although the EIA states that there is significant wildlife and wildlife habitat surrounding the proposed powerhouse, it concludes – without any data to support this assertion – that since the construction site is small, it will have only a minimal disturbance on wildlife.3 
  • The impact matrix provided in the EIA assesses all identified potential impacts on wildlife, wildlife habitats, aquatic habitats and water quality as insignificant without explaining how these conclusions were drawn. For example, the downstream dewatering effect of the diversion of the Nam Ting to the powerhouse (approximately 26 km) is identified as insignificant for water quality, fish species diversity or migration. The EIA claims that there is no requirement for water - either for irrigation, fisheries or other uses - downstream from the dam site to the Nam Ngum River, so presumably no environmental flow is being considered. However, the EIA states there will be a beneficial increase in the fish population in this same stretch of water through the Community Promotion Plan, without providing further information to prove this assertion.

3.2 Social impacts

The PDD describes the stakeholder consultation with no details regarding the number of individuals interviewed and the responses that were received. In addition, the stakeholder consultation section bases its information on Dongsay's SAP, which is riddled with problems and does not adequately address the full range of social impacts or mitigation measures. For instance:

  • The SAP asserts that only 50 ha of rice paddy used by 49 families will be flooded. Due to limited availability of suitable paddy land, the SAP recommends providing compensation in the form of cattle, buffalo, cash crops, and "wire fencing."5 There is no assessment of available land for cash crop production or livestock grazing, the accessibility of markets, or villagers' experiences with these types of activities. It is also not clear how villagers would provide rice for their families beyond the five years of rice support offered by the project.
  • The SAP and the EIA acknowledge that fishing provides the main source of protein for villagers and that both fishing and non-timber forest products (NTFP) are critical sources of income for affected communities. There is no assessment of how the Nam Ngum 5 project will affect these activities, nor are there provisions in the budget for compensation for potential fisheries and NTFP losses. The SAP merely recommends that the Lao Fisheries Department conduct monitoring for five years with the financial support of the project.6

(4) Emissions reductions

4.1 Grid emission factor

The PDD uses Grid Emission Factors (GEFs) from the Thai grid (p. 16), even though there is no mention in official documents such as the EIA7 or on official websites that the project has an export component. The Thai grid emission factor has likely been used to artificially increase the amount of emissions reductions that the project can claim, because the Thai GEFs are higher than those used in the Lao grid (usually quoted at around 0.05 tCO2e/MWh). Thai GEF is usually calculated at around 0.50 tCO2e/MWh, which is what the PDD uses in Section B.6.3. If the Lao GEF is used, the total emissions reductions would be much less than the 291,722 tCO2e claimed by the PDD.

4.2 Power density

The power density for the project is calculated as 11.1 W/m2, which is greater than 10 W/m2. However, the PDD uses the reservoir size of 10.8 km2, which is lower than official estimates. According to Vattenfall Consultants AB, Ramboll Natura AB, and Earth Systems (p. 14) and to the Lao government, the reservoir will flood up to 15 km2 of land. This would make the power density 8 W/m2, which is less than 10 W/m2. Tropical projects with power densities between 4 and 10 W/m2 (and even those with higher power densities) are still a significant source of carbon dioxide and methane.

4.3 Measurements from similar reservoirs

The PDD includes no emissions measurements for CO2 or CH4, even though research on a similar project has recently been done that shows significant emissions even ten years after operation. Instead, the PDD states that there will be zero emissions from the project during the seven years that emissions reductions will be claimed (p. 16). This contradicts field research done on the Nam Leuk reservoir in the same area, which revealed reservoir emissions comparable to other tropical reservoirs, making Nam Leuk a net carbon source even ten years after the filling of its reservoir.

The PDD also does not take into account recent research that degassing of methane from turbines and spillways are a significant source of greenhouse gas emissions. The graphic on p. 7 only shows methane being diffused from the reservoir, but omits emissions from the turbine and the spillways at the dam.


The issues we have raised around the Nam Ngum 5 PDD show that this project is clearly non-additional. As the EB has reviewed over 38 projects in China due to questionable additionality, this is one more example for the EB of a project operated and financed by China that is already happening without carbon credits. The poor quality of the PDD also raises serious questions about whether adequate public participation was pursued by the project developer, as required by the CDM and and the EU ETS (which requires all large hydropower project to demonstrate compliance with the World Commission on Dams).

We request that validation of this project be withheld until the developer is able to prove that this project is additional, and to resolve any negative environmental impacts and develop a compensation plan that meets the basic needs of local fishermen and affected communities.

Nichola Hungerford
Lao Campaigner

Katy Yan
Climate Program Associate

1 "CDM EB to discuss offset curbs from some schemes," CDM & JI Monitor, Point Carbon, 2 November 2011.
Sinohydro Corporation Ltd. and Dongsay Company Ltd., Nam Ngum 5 Hydropower Project: Update on Environmental Impact Assessment, (Sept 2007), pp. 5-25.
Ibid, p. 7-3.
Ibid., p. 5-14.
Sinohydro Corporation Ltd. and Dongsay Company Ltd., Nam Ngum 5 Hydropower Project: Update of Social Action Plan, (Sept 2007), p. 12.
Ibid., p. 17.
Sinohydro Corporation Ltd. and Dongsay Company Ltd., Nam Ngum 5 Hydropower Project: Final Environmental Impact Assessment, (June 2008), p. 1-3.