Letter to World Bank Citing Concerns about Nam Theun 2

Wednesday, September 13, 1995

Ms Rebecca B. Hall
Country Officer
Country Department 1
East Asia and Pacific Region
World Bank
1818 H. Street, NW
Washington, DC 20433

Fax 202 477 6391

Dear Ms Hall

I am writing to express International Rivers's concern over the possibility of World Bank support for the Nam Theun II hydropower project in Laos. Nam Theun II will undoubtedly have serious environmental and social impacts, which have so far been totally inadequately addressed in the little project documentation available. We believe that support for the project from the World Bank would be in contravention of a number of the institution's policies, most notably those on indigenous peoples, involuntary resettlement, and environmental assessment. Despite the fact that the environmental assessment for the project has not yet been completed, preliminary construction of the 600 MW dam, and logging of its reservoir and surrounding area, is already underway.

We understand that employees of the Australian construction company Transfield Holdings Pty. Ltd., acting as representatives of the Nam Theun II Project Development Group (PDG), are currently in Washington, DC, discussing the project with World Bank officials. We believe that a number of commercial banks in Europe and the US are interested in financing the project, but that they will only do so if the project receives funding or guarantees from the World Bank, IFC or MIGA. The Asian Development Bank has consistently stated that it will not fund Nam Theun II because of its unacceptable environmental impact and the economic risks associated with the size and cost of the project. The dam's price tag of $1.2 billion is roughly the same size as the GNP of Laos and three times the size of the Laotian government budget. By comparison, the Arun III Dam, now accepted by the World Bank as being disproportionately large for a small country like Nepal to undertake, would have cost one-and-a-half times Nepal's annual budget.

The 400 square kilometres to be flooded by Nam Theun II comprise around one quarter of the Nakai Plateau, an area ranked by the International Union for the Conservation of Nature as globally significant in terms of its abundance and diversity of wildlife. Mammals found on the plateau include the black gibbon, sun bear, clouded leopard, tiger, elephant, gaur, and the saola or Vu Quang ox, a species of deer discovered by scientists only in 1992. The dam will also wipe out one of the last habitats of the white-winged duck, of which only 250 individuals are believed to remain. If the World Bank supports Nam Theun II, it would likely be considered one of the Bank's most destructive projects ever in terms of biodiversity.

More than 4,300 people in 15 villages face involuntary resettlement from the Nam Theun II reservoir area. All of these people come from ethnic minority communities (Soh, Thai Bor, Kaleung and Luam) which fulfil the requirements to be identified as 'indigenous peoples' under the World Bank's Operational Directive on Indigenous Peoples (OD 4.20, paras 3 and 5). Thousands more people from ethnic minority communities will be negatively affected by proposed watershed management rules, and by the diversion of a large part of the flow of the Theun River.

Operational Directive 4.20 states inter alia

'Special action is required where Bank investments affect indigenous peoples, tribes, ethnic minorities, or other groups whose social and economic status restricts their capacity to assert their interests and rights in land and other productive resources.' (para 2)
'. . . the objective at the center of this directive is to ensure that indigenous peoples do not suffer adverse effects during the development process . . . and that they receive culturally compatible social and economic benefits.' (para 6)
'The Bank's policy is that the strategy for addressing the issues pertaining to indigenous peoples must be based on the informed participation of the indigenous peoples themselves.' (original emphasis) (para 8) and
'For an investment project that affects indigenous peoples, the borrower should prepare an indigenous peoples development plan that is consistent with the Bank's policy. Any project that affects indigenous peoples is expected to include components or provisions that incorporate such a plan.' (para 13)

The 'prerequisites of a successful development plan for indigenous peoples' include

'. . . full consideration of the options preferred by the indigenous people affected by the project.' (para 14(a)) and
'Mechanisms . . . for participation by indigenous people in decision making throughout project planning, implementation and evaluation.' (para 15(d))

Within the ongoing resettlement and compensation planning process for Nam Theun II, however, there has been no recognition of the special status of the communities displaced by the dam as ethnic minorities within Laos. No mechanisms exist for incorporating the 'informed participation' of the indigenous peoples in the planning, implementation and evaluation of the project. Debate about the project within Laos is severely restricted, and local people are largely uninformed about how it will affect them.

The current plan is to resettle displaced communities on land which at some sites is likely to be in use by other communities, without any consideration of the potential conflict over access to land and other resources that will arise between the displaced and host communities. The host communities have not been informed about the resettlement plans. This is clearly in contravention of the Operational Directive on Involuntary Resettlement (OD 4.30) which states

'Resettlers should be integrated socially and economically into host communities so that adverse impacts on host communities are minimized.' (para 3(d)) and
'. . . the affected hosts and resettlers need to be systematically informed and consulted during preparation of the resettlement plan about their options and rights.' (para 8)

The current plan suggests that families who do not get replacement land can become workers in chipboard factories and saw mills in the area. This cannot be considered compatible with the requirement in OD 4.20 that 'indigenous peoples . . . receive culturally compatible social and economic benefits'.

There been no consideration in project documents of the affect of new watershed management rules on the estimated 60 ethnic minority villages in the upper watershed. Neither has there been any documented consideration in the planning process of the ethnic minority communities living along the Theun and Xe Bang Fai rivers who are likely to lose access to water, fish and other resources because of the downstream affects of the dam on the river flow. OD 4.30 on Involuntary Resettlement states that

'Land, housing, infrastructure, and other compensation should be provided to the adversely affected population, indigenous groups, ethnic minorities . . . who may have usufruct or customary rights to the land or other resources taken for the project.' (para 3(e))

Although preliminary construction has already begun, the final Environmental Assessment (EA) for Nam Theun II has not yet been completed and made public. The Bank's Operational Directive on Environmental Assessment (OD 4.01) requires a full EA for dam and reservoir projects, and states that

'The EA should form part of the overall feasibility study or project preparation, so that the EA's findings are directly integrated into project design.' (Annex D, para 5)

A draft EA has been the subject of a review, coordinated by the UN Development Programme, by Professor Lex Brown of the School of Environmental Planning at Australia's Griffith University. Professor Brown says that the draft EA

'. . . is not a sufficient document on which decisions with respect to preceding with construction of this project should be based. It does not ensure that decision-makers have in front of them adequate information on all the significant impacts associated with this project, and their long-term costs, against which to weigh the development benefits . . . I believe that decision makers would be very unwise to approve construction while there remain large unknowns and uncertainties with respect to the magnitude of a range of important impacts, and with respect to the long-term "cost" of these to Laos.'

The Bank's OD on Environmental Assessment says that 'mitigation plans' are 'essential elements' of projects which require EAs. It also details that a mitigation plan should

'(a) identify the set of responses to potentially adverse impacts, (b) determine requirements for ensuring that those responses are made effectively and in a timely manner, and (c) describe the means for meeting those requirements.' (Annex C, para 1)

Professor Brown, however, states that the draft Nam Theun II EA does not ensure that

'. . . where various mitigation strategies and management plans have been proposed or suggested, that the costs of achieving these is clear. Further, where mitigation of adverse environmental and social effects has not been proposed, or where only partial mitigation might be able to be achieved, the magnitude and significance of the residual impacts have not been adequately documented. The report is particularly deficient in critical areas such as social impacts and impacts on biodiversity and human health.'

The OD on Environmental Assessment also states that

'For projects with potentially major adverse environmental impacts, such as large dams or projects involving large scale resettlement, the borrower should retain independent EA experts not affiliated with the project.' (Annex D, para 5)

This does not appear to have been the case with the draft EA for Nam Theun II. Professor Brown says that

Exactly who carried out the environmental assessments reported [in the draft EA] is not specified, neither is the level of expertise of the consultants . . . or the relationship of any of these to [the Government of Laos] or the [Project Development Group]. If those preparing [the draft EA] were employed by and reported directly to the PDG, there is potential for serious conflict of interest to have existed between the responsibility of Environmental Assessment as independent provider of information with respect to the magnitude of environmental and social impacts, and the responsibility to the development group to ensure the project proceeds.

The issues listed above are only some of the most serious problems surrounding the Nam Theun II Dam. International Rivers believes that they are more than sufficient to show that the World Bank should not subsidize this project and the private companies building it in any form, whether through direct funding, guarantees, insurance, or financial or technical advice.

I look forward to hearing from you on the Bank's latest position on this project.

Yours sincerely

Patrick McCully
Campaigns Director

cc Jan Piercey, US Executive Director, World Bank (fx 202 477 2967)
Russel J. Cheetham, Vice-President, East Asia and Pacific Regional Office, World Bank (fx 202 477 0169)
Jamil Sopher, Infrastructure Operations, East Asia Country Department 1, World Bank (fx 202 477 2743)
Michael Cernea, Senior Adviser, Social Policy and Sociology, World Bank (fx 202 477 0565)
Robert Goodland, Adviser, Environmental Assessment, World Bank (fx 202 477 0565)
Jannik Lindbaek, Executive Vice President, IFC (fx 202 676 9566)
David Martinusen, Senior Investment Officer, Asia Department, IFC (fx 202 676 0820)
Harold Rosen, Manager, Division 2, Asia Department, IFC (fx 202 676 0820)
Vijay Chaudhry, Manager, Power Division, IFC (fx 202 676 1719)
Timothy T. Thahane, Vice President & Secretary, MIGA (fx 202 477 0741)
Christina Westholm-Schröder, Regional Manager, MIGA (fx 202 477 9886)
Gerard West, Senior Advisor, MIGA (fx 202 477 9886)
Thayer Scudder, Professor of Anthropology, CalTech (fx 818 405 9841)
Philippa Birtwell, Public Affairs Manager, Barclays Bank PLC
Pat Parker, Lloyds and Midland Boycott
Nay Htun, Assistant Administrator, UNDP (fx 212 906 5825)
Professor Lex Brown, Griffith University (Lex.Brown@ens.gu.edu.au)