Consultant Reveals Financial Risks of Lao Dam: Nam Theun 2 Could Prove Liability for Lao Government

International Rivers Network
Tuesday, August 6, 1996

The Nam Theun 2 Dam in Laos is likely to cost significantly more and yield significantly lower revenues than claimed by its backers, reveals an economic analysis commissioned by International Rivers Network.1

The analysis was carried out by Dr. Wayne White, an engineer and hydropower expert who is a partner at US-based management and environment consultants SmithOBrien.2 The World Bank is currently considering whether to help subsidize the controversial dam.

Using official project documents and World Bank reports, Dr White concludes:4

  • · Even using conservative assumptions in terms of interest rates, inflation, and cost and time overruns, 'a more accurate estimate' of the project cost 'is not less than US$1.4 billion, $200 million more than the estimate commonly given in the press.'
  • Estimates of project income are based on highly uncertain assumptions of the availability of water to flow through the dam's turbines.5
  • · If energy production were to be 20% less than predicted the project could lose $7 million in its first year of operation. Over a 30-year time-span a 20% reduction in projected energy generation would reduce net project revenues by 80%. Were this reduction in revenues to occur, profits from the dam would be less than profits from sustainable logging of the area to be flooded.6
  • · Future deforestation upstream of the dam could cause the reservoir to fill with sediment within 40 years and 'expensive dredging . . . could be needed in slightly more than ten years of operation'.
  • · By the time the dam comes on-line the cost of power from Nam Theun 2 would likely be around 25 per cent higher than power from coal plants in Thailand (all the power from the dam is to be exported to Thailand).
  • · Project costs not taken into account in his economic analysis, such as biodiversity loss and social disruption, 'further reduce the attractiveness of the project.'

Dr White also notes that the bulk of the financial risk falls on the Lao Government rather than the Australian-led consortium intending to build and operate the project as no matter the financial outcome the consortium will earn a considerable construction fee.7

Patrick McCully, Campaigns Director for International Rivers Network, says: 'Dr White's analysis further strengthens the argument that this dam is a highly risky investment for the cash-poor Lao Government and that its main beneficiaries may well be the consortium of foreign companies building it. The promises the consortium is making of the revenues that will be generated for Laos simply do not appear to be credible.'

- ENDS -


1. The 16-page analysis 'Nam Theun 2 project economics' is available from International Rivers.

2. Dr White wrote a thesis on 'Defining Sustainability for Hydropower Development: The Lao Case' as part of his PhD at Tufts University's Fletcher School of Law and Diplomacy. He has a degree in civil engineering from the University of Missouri.

3. The World Bank (IDA and IFC) is currently considering subsidizing the project with political risk guarantees and an equity investment. The Bank has been involved in financing feasibility studies for the project since the late 1980s.

4. The main source for the analysis was the November 1990 'Nam Theun 2 Hydroelectric Project Feasibility Study'. Other sources include Merrow, E.W., and Shangraw, Jr., R.F. (1990) 'Understanding the Costs and Schedules of World Bank Supported Hydroelectric Projects', World Bank Industry and Energy Department Working Paper No. 31.

5. The 1990 feasibility study says the available data on rainfall and streamflow 'cannot be regarded as adequate for sound hydrological estimation for feasibility purposes'.

6. Figures for logging income are from the 1990 feasibility study. These figures do not take into account recent findings that the reservoir would actually be one-third (c. 100km²) larger than originally estimated.

7. The Nam Theun 2 Project Development Group (PDG) includes Australia's Transfield Holdings, Electricité de France and three Thai firms.