World Bank Urged to Quit Lao Dam Following Thai Crash and Critical Independent Review

Bretton Woods Project, International Rivers Network
Monday, September 22, 1997

Non-government organizations today called on the World Bank to reconsider its plan to support the Nam Theun 2 dam in Laos.1 Following recent events in Thailand - the proposed export market for the power produced by the dam - and a critical independent economic review of the project, NGOs say it represents an unacceptable risk for Laos, one of the world's poorest countries. The World Bank is due to decide in the next few weeks whether to move forward with preparing loan, equity and risk guarantee backing for the project.

The project consortium - led by Australian company Transfield - are not able to build the $1.5 billion dam without guarantees from the Bank to insure their investment against actions that might be taken by the Lao Government.

An independent review of the World Bank's Economic Impact Study for the project found that the study systematically underestimates the risks that the project will fail to produce net benefits to the Lao economy. 2

Dr. Wayne White of Foresight Associates finds that there is a "very real possibility of the project ... subjecting the GoL [Government of Lao] to loss of its total investment while incurring environmental, social and opportunity costs."

Dr White found that the Berger study's worst case scenario excludes any consideration of sedimentation in the reservoir, limits its potential construction cost overrun to 20%, and does not consider the possibility of construction delays. According to Dr White, "familiarity with international hydropower projects demonstrates that these factors are not only pessimistically possible, they are typical." Even the World Bank's own studies show cost overruns on hydropower projects average 27%.

The project's viability was already under question due to the recent economic crisis in Thailand, which is expected to drastically cut previous projections of Thai energy demand growth. As a result, Nam Theun 2 could be left without a buyer for its power, or with a price too low to sustain the huge construction costs.

Ms Aviva Imhof, spokesperson for International Rivers, says:

"Dr White's review confirms that the economic viability of Nam Theun 2 is highly marginal. This project is too risky for a poor, indebted country like Laos. The recent collapse of the financing package for the Bakun dam in Malaysia shows that even in a relatively powerful economy, large hydropower projects are simply not attractive to investors."

Alex Wilks, spokesperson for the Bretton Woods Project, a network of 27 groups in the United Kingdom working on the World Bank and IMF, says:

"The Bank should admit that it would be unwise to proceed with such a large and potentially destructive project when there is no buyer in place and such huge uncertainty in predicting Thai economic growth and currency movements. This dam would set a very dubious precendent for the Bank's new poor country guarantee facility and would show that the Bank is more interested in minimising the risks to private companies than those of its shareholder government."

Other independent reviews by US experts have criticised the competence of the World Bank's environmental studies of the project. Dr Guy Lanza, Professor and Director of the Environmental Sciences Program at the University of Massachusetts, concluded that the project "will produce major irreversible ecological, cultural and economic damage to the region."3


1. The 681MW dam has a price tag of $1.5 billion, three times the national budget of Lao PDR. The Government of Lao is expected to have a 25% equity share in the project, which is being developed as a Build-Own-Operate-Transfer (BOOT) project to sell power to Thailand.
2. The review, produced last month by US-based economics/engineering consultant Wayne White, for International Rivers Network, examined the assumptions made in the Louis Berger International Inc. Economic Impact Study prepared for the Bank in July.
3. Dr Lanza was commissioned by International Rivers Network to review the Environmental Assessment and Management Plan for the project, produced by consultants SEATEC International.