An Analysis of Nam Theun 2 Compliance with World Commission on Guidelines

by Aviva Imhof

May, 2001

International Rivers Network 1847 Berkeley Way Berkeley CA 94703, USA Tel: 510-848-1155, Fax: 510-848-1008 Email: [email protected] Web: www.irn.org

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Introduction to the World Commission on Dams

The World Commission on Dams (WCD) was an independent body sponsored by the and IUCN, chaired by South African cabinet minister Kader Asmal, and including representatives from both the industry and anti-dam people’s movements. The WCD’s mandate was to review the development effectiveness of large dams and assess alternatives; develop a framework for assessing options and decision-making processes for water and energy services; and develop internationally-acceptable criteria and guidelines for planning, designing, construction, operation, monitoring, and decommissioning of dams.

Despite their many differences in background and political perspective, the 12 Commissioners managed to agree on a final report, Dams and Development: A New Framework for Decision- Making, which was released in London in November 2000.1

The report found that:

· large dams have forced 40-80 million people from their homes and lands, with impacts including extreme economic hardship, community disintegration, and an increase in mental and physical health problems. Indigenous, tribal and peasant communities have been particularly hard hit. People living downstream of dams have also suffered from increased disease and the loss of natural resources upon which their livelihoods depended; · large dams cause great environmental damage, including the extinction of many fish and other aquatic species, huge losses of forest, wetland and farmland, and the release of greenhouse gases; and · the benefits of large dams have largely gone to the already well off while poorer sectors of society have borne the costs.

Based on these findings, the Commission proposes criteria and guidelines for future planning of energy and water projects. The Commission’s guidelines are a “comprehensive and integrated framework for decision-making on the provision of water and energy services.” The aim is to “provide a framework that emphasizes a structured process incorporating the full range of social, environmental, technical, economic and financial criteria and standards.”

The WCD emphasizes that this framework is a process, rather than a checklist for dam construction. The process is based on the recognition of the rights of all affected groups, together with assessment of the significant involuntary risks imposed upon all those affected by the project. The WCD concludes that “only decision-making processes based on the pursuit of negotiated outcomes, conducted in an open and transparent manner and inclusive of all legitimate actors involved in the issue, are likely to resolve the many and complex issues surrounding dams.”

Despite being one of the two sponsors of the WCD and having publicly supported the WCD process, the World Bank's response to the report has been lukewarm at best. Senior Bank water sector staff are strongly resisting efforts to implement WCD into existing Bank operational policies and are working with the report's strongest critics to argue that these recommendations are unrealistic and unworkable. However, the Bank has stated that it will use the report “as a

1 Dams and Development: A New Framework for Decision-Making, Earthscan, London, 2000. Also available for downloading from www.dams.org.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 2 valuable reference to inform its decision-making process when considering projects that involve dams.”2 It is with this statement in mind that the following analysis has been prepared.

About Nam Theun 2

Nam Theun 2 is the largest and most controversial of all the hydropower projects planned for . Situated in in central Lao PDR, and only 50 km upstream from the already completed Nam Theun-Hinboun Hydropower Project, the $1.1 billion BOT (Build- Operate-Transfer) scheme is being developed by Electricité de France, Electricity Generating Company of (EGCO) and Ital-Thai Development Company in association with the Government of Laos (GoL). The project is currently stalled awaiting a power purchase agreement with the Electricity Generating Authority of Thailand (EGAT), a concession agreement with the government, and a decision from the World Bank on whether to grant guarantees and other financial assistance to the project.

The project consists of a 50-metre high dam on the Theun River, the fourth largest of the , in central Lao PDR, and would flood approximately 450 square kilometers of the Nakai Plateau, an area of rich biological diversity. Water from the Nam Theun will drop more than 350 meters to a powerhouse with an installed capacity of 1070 MW. Almost all of the power will be exported to Thailand. The water discharged from the powerhouse will then flow to the Xe Bangfai through a purpose-built downstream waterway.3 The Xe Bangfai flows into the Mekong about 150 km south of the Nam Theun. The reservoir will necessitate the relocation of approximately 4,500 people.

Despite maintaining that it is not committed to supporting the project, the World Bank has been promoting Nam Theun 2 since the mid-1980s. In 1986/87 the Bank was the executing agency for a UNDP-funded pre-feasibility study of Nam Theun 2.4 In 1989, the World Bank and UNDP funded a feasibility study of Nam Theun 2 by Australian hydropower consultants Snowy Mountains Engineering Corporation (SMEC). In 1995, the Bank was formally approached for assistance from the Nam Theun Electricity Consortium (NTEC), the consortium formed to develop the project. Commercial lenders have said that they will not finance the project without a political risk guarantee from the World Bank. The World Bank is expected to make a decision in the coming year on whether or not to grant the guarantee and other assistance to the project.

The following analysis examines Nam Theun 2’s compliance with the WCD’s seven strategic priorities. The analysis shows that the project fails to comply with six of the seven strategic priorities outlined in the WCD report. On this basis, it is submitted that the project should not be supported by the World Bank.

Strategic Priority 1 – GAINING PUBLIC ACCEPTANCE

1.1 Recognition of rights and assessment of risks are the basis for the identification and inclusion of stakeholders in decision-making on energy and water resources development.

2 The World Bank: The World Bank and the World Commission on Dams Report Q&A, March 2001. 3 NTEC: Background to the Proposed Nam Theun 2 Hydroelectric Project in Laos, Vientiane, January, 1997, p.1. 4 Motor Columbus: Prefeasibility Study Report of a Future Major Hydroelectric Project: Nam Theun 2 – Nam Ngum 2 – Nam Ngum 3, 1987.

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1.2 Access to information, legal and other support is available to all stakeholders, particularly indigenous and tribal peoples, women and other vulnerable groups, to enable their informed participation in decision-making processes.

1.3 Demonstrable public acceptance of all key decisions is achieved through agreements negotiated in an open and transparent process conducted in good faith and with the informed participation of all stakeholders.

1.4 Decisions on projects affecting indigenous and tribal peoples are guided by their free, prior and informed consent achieved through formal and informal representative bodies.

Nam Theun 2 Compliance

The overall thrust of the WCD’s approach is that there needs to be a “fair, informed and transparent decision-making process” in order to be “socially legitimate and produce positive and lasting outcomes.” For such a process to exist, there must a well-developed civil society, access to independent sources of information, and the ability for local people to have informed input into the process without fear of retribution.

Unfortunately, such a political climate does not exist within Laos. There is no independent media within Laos, and no independent local NGOs, human rights or environmental groups. The mass organizations such as the Lao Women’s Union are de facto arms of the government. The legal system is at a rudimentary stage of development and there is no independent judiciary. Critics of the government have been arrested and imprisoned. In such a political climate, it is difficult to see how a truly open and participatory decision-making process could take place. This is a fundamental problem in proceeding with a large project like Nam Theun 2, and underpins all the consultation efforts undertaken thus far.

Three main groups of stakeholders are affected by the Nam Theun 2 dam. According to the WCD, all three groups must give their agreement to the project. Nearly 5,000 indigenous people living on the Nakai Plateau will be resettled to make way for the dam. More than 50,000 people living along the Xe Bang Fai will be affected by increased water flow in the river. The Lao population as a whole is affected by the risks assumed by the government on the project, in terms of incurred and the environmental and social impacts of the project. Public participation and efforts to obtain the consent of each of these groups of people will be discussed separately. a. Consultations with indigenous people living on the Nakai Plateau

Resettlement documents for Nam Theun 2 recognize that the numerous different ethnic groups to be directly affected by the project should be defined as indigenous peoples according to World Bank criteria.5 The WCD states that indigenous and tribal peoples must give their free, prior and informed consent to the project. They should have access to legal and other professional support to participate fully and actively in negotiations. Consent should be obtained through formal and informal representative bodies. The WCD says that a “final agreement on how to express consent will be reached before the start of the planning process.”

Numerous public consultations have occurred with communities living on the Nakai Plateau. This is not under dispute. Nor is it under dispute that some of the communities have expressed

5 For example, Resettlement Action Plan, p.ES2; Panel of Experts First Report.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 4 their desire to move because of the severe depletion of their natural resource base as a result of the logging that has taken place on the Plateau in anticipation of the dam. However, the processes that have taken place thus far cannot be considered to be compatible with the concept of free, prior and informed consent as defined by the WCD and international human rights conventions.

First, the decision to construct the dam had been taken well before the public was invited to participate in the decision-making process. The majority of the public consultation and participation efforts took place after 1995, when the project’s detailed design had already been finalized. While social, health and wildlife studies did take place prior to 1995 and involved consultations with villagers, these were primarily to elicit information from plateau residents, not to discuss the proposed development in any detail. Substantive input of affected communities and the public at large has occurred largely in the context of developing resettlement options and mitigation measures, which came in the later part of the project development process.6

Second, due to logging on the Nakai Plateau, the project in effect commenced long before communities had any opportunity to provide their consent. As Shalmali Guttal from FOCUS on the Global South puts it

The proposed area started to be aggressively logged almost immediately after the decision was taken to proceed with the project. This accelerated the deterioration of the natural resource base that local communities depended upon, but no interim compensation was offered for the decline in their livelihoods. In a sense, people started to be affected by the project well before it actually materialised, although the promised benefits of the project are still a long time in coming.7

The most recent report produced by NTEC on public consultation and participation on the Nakai Plateau states that in general villagers “responded positively to the presentation and hoped for an improvement in their lives” but that “there is a growing scepticism and a need for action to restore dwindling confidence that the project will one-day be realised.”8 People’s expectations on the Plateau have clearly been raised by the activity surrounding the project and they are presumably experiencing a great deal of uncertainty over their future. The promise of the dam has precluded alternative development programs and options for the villagers, leaving them in a highly vulnerable position whether or not the dam proceeds.

Third, the plentitude of information that was available about the project was not accessible to directly affected communities, province and district residents, and even government officials because of a tremendous knowledge gap between the foreign experts and consultants on the one hand, and the local people on the other hand. Educational levels in the country are low, particularly in the rural areas, and the complexity of the information made it extremely difficult for affected communities and the general public to absorb and understand key issues about the project. To compound matters, most of the reports were in English and translations were often delayed.

At local levels, language and comprehension is further complicated by vast differences between the experiences of local residents and the project teams. A 1998 report of public consultation and participation on the Nakai plateau about resettlement options cautioned against expecting

6 Shalmali Guttal: Public Participation and Consultation for the Nam Theun 2 Dam, submission to the World Commission on Dams, 2000. 7 Guttal, op cit. 8 Stephen Sparkes: Public Consultation and Participation on the Nakai Plateau (April-May 1998), NTEC, Vientiane, July 1998, p.22.

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"too much" from villagers' participation because of their "limited experience of the outside world." According to the report's author, it was only when communities experienced events themselves (such as "farm extension activities" and the "actual move") that "real participation" would begin in earnest (NTEC, April-May 1998). The report also outlined problems in communication and comprehension resulting from local language differences and limited literacy levels.

A Socio-Economic and Cultural Survey undertaken by Care International in 1996 stated that

To date, while there have been a number of official visits to villages in the proposed reservoir area announcing plans for the dam, there has been no attempt to include villager thinking in the planning process, nor even any attempt to ascertain how indigenous thinking of the various ethnic groups is structured, and in particular how decisions are made. Social structures of the villages, apart from the government administrative system, have not been studied. This fact alone negates any viability or credibility that might be claimed for such village meetings in the name of consultation, participation, or information dissemination.9

The World Bank’s International Advisory Group, appointed to advise the Bank on its handling of social and environmental issues on the project, stated it

has doubts about the effectiveness of consultations on the ground with the most vulnerable populations, particularly women and ethnic minorities... Its own direct contacts with these groups, though not extensive, suggest that the level of comprehension of project proposals and their impacts is low.10

Fourth, the affected communities have had no access to any independent legal or other professional support. All consultations that have taken place have been conducted by NTEC, the Nam Theun Electricity Consortium, or consultants hired by NTEC. No formal or informal representative bodies exist amongst the indigenous communities to be resettled by the project.

During the stages of preparation for Nam Theun 2, the most basic requirements for informed participation in decision-making have not been met. It is difficult to see how this project could, at any point in the near future, be in compliance with WCD guidelines on the need for free, prior and informed consent of indigenous peoples. b. Consultations with communities living along the Xe Bang Fai

Around 50,000 people living along the Xe Bang Fai will be affected by increased water levels as a result of releases from the dam. By all accounts, these communities have been the least consulted and least studied of all those to be affected by the Nam Theun 2 project.

Eleven villages in the upper Xe Bang Fai are ethnic minorities, largely Brou, who do not speak Lao as a first language.11 As they are indigenous people, the principle of free, prior and informed consent applies to these communities. However, it appears that these communities understand very little about the project and its potential impacts on their livelihoods. Barbara

9 Care International: Socio-Economic and Cultural Survey, Nam Theun 2 Project Area, Lao PDR, Report to Nam Theun 2 PDG, Vientiane, 1996, Chapter VI-5. 10 International Advisory Group: World Bank’s handling of social and environmental issues in the proposed Nam Theun 2 hydropower project in Lao PDR, 19 August 1997, p.11. 11 Barbara Franklin: A Review of Local Public Consultations for the Nam Theun 2 Hydroelectric Project, Consultant to the Government of Lao PDR, September 1997, p.17

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Franklin, who was hired by the World Bank to undertake a review of local public consultations for Nam Theun 2, reports that consultations in the upper Xe Bang Fai were ineffective. She states that:

While opportunities for public involvement appear to have been offered without prejudice to all stakeholders, it is not clear whether these opportunities have been on terms that are most meaningful to women and ethnic minorities who do not speak Lao. Comprehension checks carried out by the consultant in the downstream area during and immediately after information dissemination and consultation sessions yielded unsatisfactory results among women and villagers who spoke little Lao.12

Approximately 8 villages are situated in the middle Xe Bang Fai, and more than one hundred in the lower Xe Bang Fai. All of these villages will be affected by the increased water levels in the Xe Bang Fai. However, according to the most recent Panel of Experts report,

Aside from setting aside some funds to compensate for project-induced increased flows within the upper and middle Xe Bang Fai basin, no project-related interventions… have been planned for the more densely populated lower Xe Bang Fai.13

The Resettlement Action Plan allocates $1.5 million in compensation for the 19 villages in the upper and middle Xe Bang Fai. However, there is no budget for compensation of the more than 100 villages in the lower Xe Bang Fai as NTEC claims the project will have little net effect on villages. NTEC assumes that more water means more fish, without considering what the changes to the natural cycle may mean for the native fish species in the river (more on this below). These villages have not even been consulted about the project, let alone given their consent or agreement to it. c. Consultations at the national level

Project proponents point to a public participation program held in Laos throughout 1997 as proof that Nam Theun 2 has gained public acceptance at the national level. However, these workshops were attended primarily by government officials and staff from international organizations, and local civil society was notably absent. The World Bank’s own International Advisory Group remarked upon this in their first report:

[In Vientiane], given the nature of Laotian society at this time, there was little involvement of ‘the public’ as such. There were (intermittently) representatives of expatriate NGOs, many Lao officials and some representatives of the people affected by the project but few others. The process was open enough but stilted in tone.14

Reports from international NGOs based in Laos who attended the meetings showed that most participants could not sufficiently absorb the information provided to engage in discussion about the complexities of the project. The issue of accessibility of information has already been discussed above. Further, the discussions in the consultations took place within the framework of a decision already taken. The central government had already decided to proceed with the project, the World Bank had already been heavily involved in project preparation, some resettlement had already occurred, and logging of the reservoir area was well underway. Bruce

12 Ibid, p.46 13 Scudder, Talbot and Whitmore: Fifth Report of the International Environmental and Social Panel of Experts, Ministry of Industry and Handicraft, January 22, 2001, p.28 14 IAG, op cit, p.7.

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Shoemaker, who was at the time the Director of an international NGO in Laos, said of the process:

Many observers viewed this as a cynical and insincere exercise by the project proponents. … NGO “participation” was manipulated and stage-managed through an elaborate public relations exercise carried out by the proponent’s consultants. Workshop agendas were pre-set and mostly devoted to presentations by the project proponents and their consultants. This allowed little opportunity for NGOs or others to critique the project in fundamental ways or examine issues in depth. Much of the dialogue was between foreigners and the voices of Lao decision-makers and local people were, for the most part, excluded. … Many International NGO staff ended up feeling that they had been used as surrogates for local NGOs in order for the World Bank to try to legitimise a fundamentally flawed consultative process.15

As a result, many participants in consultation meetings were unable to engage in comprehensive discussions with policy and decision makers about possible impacts of the project.

In short, in none of the three groups of affected people can the process of consultation and participation be considered in accordance with WCD guidelines, which specify that the process must be “open and transparent” and conduction “in good faith and with the informed participation of all stakeholders”. In the case of the indigenous peoples on the Nakai Plateau and the upper Xe Bang Fai, their free, prior and informed consent was not obtained. Of those living on the middle and lower Xe Bang Fai, most are only vaguely aware of the project and have not even been consulted, let alone given their consent or agreement to it. There has been no meaningful public participation process or open and informed debate amongst Lao society as a whole, indeed it is questionable whether such a process could take place in a country that lacks local civil society and an independent media. The project fails this most fundamental and basic requirement of the WCD.

Strategic Priority 2 - COMPREHENSIVE OPTIONS ASSESSMENT

2.1 Development needs and objectives are clearly formulated through an open and participatory process before the identification and assessment of options for water and energy resource development.

2.2 Planning approaches that take into account the full range of development objectives are used to assess all policy, institutional, management, and technical options before the decision is made to proceed with any programme or project.

A multi-criteria assessment was used to screen and select preferred options from the full range of identified alternatives. The screening of options covered all policy, programme and project alternatives.

Nam Theun 2 Compliance

The World Bank has been promoting the dam as an income generator for Laos since 1986. Yet no comprehensive assessment of alternatives to hydropower as a means for generating foreign exchange has ever been completed for Laos. In 1997, the World Bank commissioned a Study of Alternatives to Nam Theun 2, done by hydropower consultants Lahmeyer. The study focused on

15 Shoemaker, Bruce, “NGOs and Natural Resource Conflict: In Whose Interests?”, Watershed, Vol. 4, No. 2, Nov 1998-Feb 1999.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 8 how the country could meet its commitments to provide electricity to Thailand, rather than on other options by which water and other resources could be utilized to provide revenue and alternative livelihoods in Laos.

If the aim of the project is to protect the watershed area and ensure that those living on the Nakai Plateau have sustainable livelihood options, then it is unlikely that a huge dam project would be the best available option to achieve these goals. There has never been any analysis of how the resources of the area could be managed to balance watershed protection and enhance livelihoods while avoiding the serious negative impacts expected from Nam Theun 2.

As a result of the aggressive promotion of hydropower by the World Bank, and other international donors, Laos is now facing an extremely vulnerable economic situation. Having put all its eggs in the hydropower basket, the Lao government is facing an uncertain future. Thailand’s energy needs have changed over the past 5 years, making Lao hydropower an unattractive option.

Analysis of Thailand’s energy demands and changing power market suggests that Nam Theun 2 is not the best option for either Laos or Thailand. The Electricity Generating Authority of Thailand’s Power Development Plan (PDP) was planned in the context of the so-called bubble economy of Thailand, with the belief that economic growth and demand for electricity would increase by 10-13% every year. In this context, EGAT signed a Memorandum of Understanding with the GoL to purchase 3,000 megawatts of power by 2006.16 At the same time, Thailand launched its Independent Power Producer program and invited private generating companies to submit bids for power plant licenses to own and operate new plants and sell all or part of their output to EGAT.

However, with the onset of the economic crisis, demand for electricity in Thailand plummeted. The Thai economy has not been growing at the rate predicted during the ‘bubble economy’ and yet EGAT, in its PDP, has consistently overestimated projected demand, the result being a huge oversupply of electricity. The National Energy Policy Office (NEPO) recently reduced the reserve margin from 25% to 15%. Despite this, the current excess of installed capacity of electricity is 40% over and above the maximum demand. Recently, EGAT temporarily shut down some of their own power plants and postponed the signing of PPAs with 5 privately- funded projects.

Within the current context of privatization, EGAT and NEPO are negotiating the introduction of a power pool, which would see all electricity-supply projects bid every hour every day to sell electricity to the “free market” power grid. For projects with existing PPAs, EGAT would either have to honor the price as per the PPA or cancel the PPA and pay a fine accordingly.

For projects that have not yet signed a PPA, EGAT can either hold off negotiations until the power pool is introduced or incorporate the changeover to the power pool within the PPA. In the power pool, projects like the Nam Theun 2 dam, with its huge construction and transmission costs, are unlikely to be competitive against smaller gas-fired plants. No economic study of how the NT2 would fare in the power pool has been conducted, but the political situation between the governments of Thailand and Laos may force EGAT to sign a PPA with the developers of NT2, regardless of whether EGAT needs the electricity or not. If this is the case, both the GoL and Thai consumers would be forced to share the financial burden, for unmitigatable

16 These purchases continue to be delayed by EGAT. So far, EGAT has only committed to purchasing an extra 313 MW of power from Laos.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 9 environmental and social damage in the case of the GoL and for expensive electricity in the case of the Thai consumers.

The latest Memorandum of Understanding between EGAT and the GoL for Nam Theun 2 would see EGAT purchase electricity from the project at an average tariff of 4.219 US c/kWh for primary energy, to be paid approximately half in US dollars and half in , beginning in 2006. EGAT also agreed to purchase an additional 300 million kilowatt-hours of secondary energy from the project. The conditions of the new MoU mean that EGAT would purchase almost 95 per cent of the maximum generating capacity of the Nam Theun 2 project, at a total of $225 million per year.

The new average tariff offered is 26% below the price used by the 1997 World Bank-funded Louis Berger Economic Impact Study of the project. The Louis Berger study found that a price of 5.7 cents per kilowatt hour would produce only $38 million annually for the GoL and did not necessarily guarantee that the GoL would gain financially from the project. In fact, the Louis Berger study states that the GoL would only achieve “adequate returns” if the baht remained stable and inflation was maintained at low levels. However, for over three years since this study was completed, the baht and kip have both been very unstable and inflation rates in Laos remain high.

The current MoU provides a price guarantee to the project for only seven years. The PPA would expire in 2013 if the power pool system commences within 7 years after the Commercial Operation Date (COD). If the power pool commences between 7 and 24 years after COD, the PPA shall expire one year after the power pool starts. Both NTEC and the GoL, therefore, face a financially uncertain and risky future.

In addition, NTEC would have to bear costs formerly shouldered by EGAT. Under the power pool, NTEC would be required to pay a “wheeling charge” of 0.756 cents/kWh for the cost of transmission from the Laos-Thai border to the Thai electricity grid. This would mean that NTEC would lose a minimum of $30 million per year, or approximately 13% of their annual income. This would further reduce the revenues for the GoL from the project.

In such a context, Nam Theun 2 is not the best option for meeting Thailand’s energy demands. It is also difficult to see how it could be the best option for generating foreign exchange for Laos, or for protecting the watershed area and the livelihoods of communities living on the Nakai Plateau. Better and cheaper alternatives for achieving these objectives have never been assessed.

Strategic Priority 3 – ADDRESSING EXISTING DAMS

3.3 Outstanding social issues associated with existing large dams are identified and assessed; processes and mechanisms are developed with affected communities to remedy them.

Nam Theun 2 Compliance

The Nam Theun-Hinboun dam, 50 km downstream of the proposed site of the Nam Theun 2, was funded by the Asian Development Bank and completed in 1998. The Theun-Hinboun Power Company is a joint public-private venture. The GoL has a 60% stake in the project and Nordic and Thai investors control the remaining 40%.

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Theun-Hinboun has had a severe impact on the livelihoods of more than 25,000 people living downstream and upstream of the dam, including decline in fish catches of between 30-90%, the destruction of vegetable gardens and dry-season sources, loss of fish nets and increased difficulties with transportation. These impacts have been acknowledged by the ADB and the Theun-Hinboun Power Company.17 However, despite sustained lobbying by NGOs and numerous promises from the ADB, adequate compensation has still not been provided to affected communities.

In many ways, the Theun-Hinboun, being a trans-basin diversion project, is an indicator of the types of impacts that can be expected at Nam Theun 2, except that the impacts at Nam Theun 2 are expected to be on a much grander scale. At Theun-Hinboun, the water is diverted from the Theun River to the Hinboun River. Villages living along the Hinboun all the way to its with the Mekong have been experiencing serious declines in fish catch, flooding of vegetable gardens, of river banks, problems with and transportation difficulties due to the increased water levels. Villagers living downstream along the Theun River (which becomes the Nam Kading) have been experiencing impacts due to the low water levels in the river, which have resulted in decimation of dry season and water deficits. Villagers living upstream along the headpond have also experienced serious declines in fisheries due to the blocking of fish migration as a result of the dam. Other impacts include erosion, flooding of vegetable gardens and problems with fresh water supply.18

Terry Warren, a fisheries biologist hired by the Theun-Hinboun Power Company to undertake a fisheries study one year after the construction of the dam, found that the major impacts to fish populations and fisheries have resulted from the following:

1) The blocking of the upstream wet-season spawning migration in the Theun in 1998, 2) The submerging of rapids and the alteration in aquatic environmental conditions in the head-pond area, 3) The temporary reduction in water quality in the Theun head-pond in May 1998, 4) The quantity of dry-season minimum by-pass flows released past the Theun dam, 5) The nutrient-trap effect of the Theun head-pond, 6) The loss of natural hydropower downstream of the dam, 7) The increased dry-season flows in the Hinboun and its associated increased sediment load, and 8) Migratory disorientation in the Nam Hai.19

There is no reason to believe that the impacts of Nam Theun 2 will be any different to those identified by Warren at Theun-Hinboun. Nam Theun 2 is also a trans-basin diversion project in the same river basin. In fact, the impacts are likely to be more severe due to the size of the project. Water flows will be increased by up to 285 cubic meters per second in the Xe Bang Fai, and dry season flows downstream will be maintained at only 2 cubic meters per second, compared to 10 cubic meters per second at Theun-Hinboun. The Nam Theun 2 reservoir is

17 See for example, Asian Development Bank: Aide Memoire: Special Review Mission, 18-28 November, 1998, Loan N. 1329-Lao (SF): Theun-Hinboun Hydropower Project, Manila and Asian Development Bank: Aide Memoire: Special Review Mission, 9 to 18 November, 1999, Loan N. 1329-Lao (SF): Theun- Hinboun Hydropower Project, Manila. 18 These impacts are documented in Shoemaker, Bruce: Trouble on the Theun-Hinboun: A Field Report on the Socio-Economic and Environmental Effects of the Nam-Theun-Hinboun Hydropower Project in Laos, International Rivers Network, Berkeley, 1998; International Rivers Network: An Update on the Environmental and Socio-Economic Impacts of the Nam Theun-Hinboun Hydroelectric Dam and Water Diversion Project in Central Laos, Berkeley, 1999; and Warren, T: A Monitoring Study To Assess The Localized Impacts Created By The Nam Theun-Hinboun Hydro-Scheme On Fisheries And Fish Populations, June 1999 19 Warren, T: op cit, p.4.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 11 much larger than the Theun-Hinboun headpond. All of these factors mean that similar but more severe impacts can be expected at Nam Theun 2.

In September, 2000 the Theun-Hinboun Power Company released its Mitigation and Compensation Program (MCP) report. The MCP was prepared as part of the company’s obligations under its loan and concession agreements with the ADB and GoL. Bruce Shoemaker, an independent researcher who documented the first impacts of the project on affected communities in early 1998, conducted an analysis of the MCP. His analysis reveals many serious inadequacies with the program, and he concludes that the program "actually represents a step backwards in efforts to gain redress and justice for those Lao citizens suffering impacts from the project."20 A recent visit to the project site by Shoemaker confirms that villagers are yet to receive compensation for their losses.

WCD guidelines stipulate that outstanding issues with existing dams be rectified before additional dams are built in the same river basin. The problems at Theun-Hinboun are far from rectified, and will take at least several more years before they are. Furthermore, if the Government of Laos, the ADB and the Theun-Hinboun Power Company cannot ensure that Lao citizens negatively affected by Theun-Hinboun dam are adequately compensated for their losses, then it is difficult to see how the World Bank can ensure that the many thousands more people who will be affected by Nam Theun 2 will not be worse off as a result of the project.

Strategic Priority 4 – SUSTAINING RIVERS AND LIVELIHOODS

4.1 A basin-wide understanding of the ecosystem’s functions, values and requirements, and how community livelihoods depend on and influence them, is required before decisions on development options are made.

Effective avoidance, minimization and mitigation of negative environmental impacts from large dams and their alternatives require good baseline information and scientific knowledge of the riverine ecosystem, gathered over several years…. Therefore, project proponents must assess the ecosystem consequences of the cumulative impact of dams, dam induced developments and other options along the full length of the river reaching as far as the delta, even where this extends into neighbouring provinces or countries.

Nam Theun 2 Compliance

One of the major concerns is the impact of Nam Theun 2 on the fisheries of the Theun and Xe Bang Fai Rivers. The Theun River provides habitat to over 80 species of fish, including at least 16 of which are endemic. More than one million people in central Laos depend on fish from the Nam Theun, Nam Kading, Nam Hinboun, Xe Bang Fai and Mekong rivers and their for more than 60 percent of their protein intake. Fish also represent an important source of supplemental income.21 Fisheries impacts will be experienced in three separate locations: downstream of the dam in the Nam Theun/Nam Kading, upstream of the dam and in the reservoir, and along the Xe Bang Fai. It is unknown what the impact will be on the Mekong mainstream.

20 Bruce Shoemaker: THEUN-HINBOUN UPDATE:A Review of the Theun-Hinboun Power Company’s Mitigation and Compensation Program, December 2000. 21 TERRA Briefing Paper: Nam Theun 2 Hydroelectric Project: Impact on Fisheries and Local People’s Fishing-based Means of Livelihood in the Nam Theun, Xe Bangfai and Mekong River Systems, Bangkok, August 1997, p.3.

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The WCD states clearly that there must be good baseline information gathered over several years before a decision to build the dam has been taken. NTEC’s own Environmental Assessment and Mitigation Plan recognizes the dearth of baseline information on fisheries in the area. The EAMP states:

The main issues encountered in the analyses of the Nam Theun and the Xe Bang Fai of fishes are: · data on fish diversity and distribution throughout the Lao PDR and the whole lower Mekong region are very limited; · reliable data have all been obtained during a single month in the dry season and no usable data are available for the wet season; · virtually no data exist on reproductive behaviour and migration of fishes in the Lao PDR, which makes predictions of fish distribution in the wet season highly speculative.22

The only fish study undertaken for the project, done by Maurice Kottelat in 1996, states:

The availability of data only for the month of March 1996 and for about 40 sites are serious limitations because it makes it impossible to have reliable information on fish migrations and reproductive biology.23

Dr. Kottelat finds that the dam will block fish migrations in the Nam Theun river. NTEC claims that this will have a negligible impact as fish migrations have already been blocked by the Theun-Hinboun dam further downstream. However, Dr. Kottelat states that “the problem remains for those species migrating only along the Nam Theun (between the lower Nam Theun and the Nakay Plateau or the headwaters) as these migrations are not affected by the Theun- Hinboun project.”24

The reservoir will result in a large body of still water – a habitat to which many riverine fish species have difficulty adapting, or simply cannot adapt and die out. Dr. Kottelat states that there is “a great likelihood that many species will simply disappear from the reservoir.”25 The EAMP states that this will be mitigated through the production of reservoir fisheries. However, Tyson Roberts, a fisheries biologist who has also studied Nam Theun 2’s impact on fisheries, states that

Of the total of 85 fish species known from the Nam Theun basin, only 27 are likely to be become established in a reservoir. Of these 27, no fewer than 14 are small or very small species of no direct fisheries significance and probably not even important as forage species for larger fishes that are significant. Six species have been identified as likely to be of minor fisheries significance in . These species may be important in subsistence fisheries, but will hardly support mechanized or large scale fisheries necessary to exploit reservoir fisheries effectively. And then there are eight species likely to be of substantial importance in Nam Theun reservoir fisheries.26

22 SEATEC International: Environmental Assessment and Management Plan for the Nam Theun 2 Hydropower Project, Bangkok, 2000, p.6-122. 23 Dr. Maurice Kottelat: Potential Impacts of Nam Theun 2 hydropower project on the fish and aquatic fauna of the Nam Theun and Xe Bangfai basins, Lao PDR, NTEC, Vientiane, 1996, p.39 24 Ibid, p.51. 25 Ibid, p.43. 26 Tyson Roberts: Fluvicide: An Independent Environmental Assessment of the Nam Theun 2 Hydropower Project in Laos, with particular reference to acquatic biology and fishes, Bangkok, December 1996, p.33.

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However, of these species, Dr. Roberts states that only three feed low on the food chain, and the other five are predators that will find it difficult to survive in the reservoir.

Dr. Roberts concludes:

What is the prospect for a highly productive reservoir in the Nam Theun 2 or other reservoirs resulting from hydropower projects in the Nam Theun watershed? … The prospect is not very good.27

In the Xe Bang Fai, the additional 285 cubic meters per second of water will lead to an increase by about 3-4 meters of the dry season minimum water level. The EAMP states that

the general effect on fish production will be positive: more water, more fish production. The existing fish diversity is not expected to be greatly affected.28

This assessment is not borne true from experience in the Nam Hinboun, as stated above. According to Kottelat, “several habitats will definitively disappear, some may be displaced and others will be altered.” He goes on to state that “the increased water level will be accompanied by an increased water velocity, and possibly different water temperatures and chemistry. Our knowledge of the life history and ecology of these fishes is still too limited to allow a prediction of the possible impact of these changes.”29

The Panel of Experts states that “the belief among fish biologists consulted by the PoE is that project-induced flows can be expected to reduce productivity. The primary reason for these divergent views is the lack of research on the environmental impacts of interbasin transfers in the tropics.”30 The PoE has recommended that fishery surveys in the Xe Bang Fai should commence this year and continue until the project is operational, and thereafter they should continue once every two years for a 7-8 year period. It is expected that NTEC will comply with this recommendation. While this is certainly needed, it does not meet WCD requirements, which stipulate that several years of baseline data must be gathered and analyzed before any decision on development options is taken. The fish surveys on the XBF are occurring after a decision to build the dam has been taken, thereby precluding full analysis of the potential impacts of the project before a decision to proceed is made.

The potential cumulative impacts on the Mekong mainstream from Nam Theun-Hinboun and Nam Theun 2 are simply unknown, and have never been studied in detail. The only information on this issue is contained in the EAMP, which provides an extremely rudimentary two-page analysis of cumulative impacts on the Mekong as a result of the project and then concludes that “Nam Theun 2 is unlikely to have a significant impact” on downstream water levels.31

The paucity in data and research thus far makes it difficult to predict just how serious the impacts of the project on fisheries, and therefore on communities’ livelihoods, are likely to be. Baseline information and scientific knowledge of the riverine ecosystem gathered over several years is lacking, and a cumulative impact assessment has never been completed. However, using the impacts at Theun-Hinboun as a guide, it can be assumed that impacts on fish populations are likely to be severe in all three areas affected by the project.

27 Ibid. 28 SEATEC International, op cit, p.128. 29 Kottelat, op cit, p.49. 30 Scudder, Talbot and Whitmore, op cit, p.30. 31 SEATEC International, op cit, p.9-10.

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4.5 Large dams provide for releasing environmental flows to help maintain downstream ecosystem integrity and community livelihoods and are designed, modified and operated accordingly.

Downstream of the dam, NTEC have guaranteed a minimum release of only 2 cubic meters per second, between one tenth and one-hundredth of the water volume naturally available in the Nam Theun. The EAMP states, without much corroborating evidence, that “Though the loss of rapids, reduced current, and elimination of migrants act to reduce production and particularly the diversity of fish species, the effect would be countered by increased nutrients and productivity.”32

The EAMP goes on to state that “It is expected that the minimum flowrate together with impacts of the dam on water quality of the reservoir and impacts of the dam as a physical barrier for migrating fish will decrease the fish biodiversity.”33 But then “Fish production in the long term may reach the same level or even higher due to the expected increase of primary production in the pools.”34

There are absolutely no justifications for these conclusions to be drawn. Dr. Maurice Kottelat found that:

A permanent low water level will have a negative impact on the fish as it will drastically reduce the available food sources, reduce the number of hiding places and increase the predation (by other fish as well as terrestrial animals and humans) and their sensitivity to diseases; all these, together can lead to the extinction of the native fish community.”35

The Nam Theun-Hinboun dam provides the best evidence of the types of impacts that could be expected from decreasing the minimum flow downstream. At Theun-Hinboun, the downstream minimum flow is 5 cubic meters per second, more than double that promised at Nam Theun 2. And yet, according to Terry Warren, fisheries expert,

the main impact on resident fish populations comes from the increased water residence times (time taken for the volume of water in a deep pool to be completely replaced by new water) in the deep pools where many species take up dry-season refuge. Fish are at their most vulnerable during the dry-season months when the effects of predation, increased water temperatures, lowered oxygen levels and susceptibility to disease are greatest. Increased water residence time produces three main effects. Firstly, water temperatures increase and, as a consequence of this, oxygen levels decrease. Increased water temperature and lowered oxygen cause stress to fish populations and as such make them more vulnerable to predation and disease. Thirdly, phytoplankton levels increase causing the water colour to appear more green. Many Nam Theun species are not suited to these conditions but instead are adapted to environments with clear, cool waters with high levels of dissolved oxygen.36

Villagers living along the Nam Kading reported 30-70 percent declines in fish catch in March 1998, three months after the dam had closed.37 In August 1999, villagers reported a 50% decline in incomes from selling fish and declines in fish consumption from an average of about 2

32 SEATEC International, op cit, p.6-109. 33 Ibid, p.6-132. 34 Ibid. 35 Kottelat, op cit, p.50. 36 Warren, op cit, p.23 37 International Rivers Network, Power Struggle: The Impacts of Hydro-Development in Laos, Berkeley, 1999, p.17.

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 15 kg a day per family to about 0.5 kg a day. Villagers claimed that some large and valuable species of fish no longer migrate up the Nam Kading due to decreased water flow. In addition, some migratory small cyprinids have also reportedly stopped migrating up the Nam Kading at the beginning of the dry season due to declines in water levels. Villagers also expressed concern that extraordinarily low water levels have left many large brood-stock fish especially vulnerable to capture fisheries. They fear that this could put the sustainability of some fish stocks in serious jeopardy.38

Mr. Warren in fact recommends increasing the downstream riparian flow at Nam Theun- Hinboun to a minimum of 10 cubic meters per second and undertaking a study to determine the optimal flow to maintain aquatic diversity downstream.

NTEC’s commitment to 2 cubic meters per second could not possibly be considered sufficient to maintain downstream ecosystem integrity as recommended by the WCD.

Strategic Priority 5 – RECOGNISING ENTITLEMENTS AND SHARING BENEFITS

5.1 Recognition of rights and assessment of risks is the basis for identification and inclusion of adversely affected stakeholders in joint negotiations on mitigation, resettlement and development related decision-making.

5.2 Impact assessment includes all people in the reservoir, upstream, downstream and in catchment areas whose properties, livelihoods and non-material resources are affected.

5.3 All recognized adversely affected people negotiate mutually agreed, formal and legally enforceable mitigation, resettlement and development entitlements.

5.4 Adversely affected people are recognized as first among the beneficiaries of the project. Mutually agreed and legally protected benefit sharing mechanisms are negotiated to ensure implementation.

Nam Theun 2 Compliance

As stated above, the risks for the thousands of people living along the Xe Bang Fai who are expected to lose their fisheries and other livelihoods has never been assessed as part of the project's risk assessment. These "involuntary risk takers" have been provided no opportunity to participate in decisions affecting their lives.

The WCD requires that all adversely affected people negotiate formal and legally enforceable agreements. This has never occurred at Nam Theun 2, and the concept of a legally enforceable mitigation agreement between affected peoples and project developers is virtually unheard of within Laos. For Nam Theun 2 to be in compliance with this stipulation, NTEC would need to negotiate legally binding agreements with all people likely to be affected by the project.

Furthermore, in Laos there are no independent organizations that are able to monitor the project and the commitments made by the government and the Nam Theun Electricity Consortium (NTEC) once the project goes ahead. The legal system is not sufficiently developed to provide

38 International Rivers Network, An Update on the Environmental and Socio-Economic Impacts of the Nam Theun-Hinboun Hydroelectric Dam and Water Diversion Project in Central Laos, 15-17 August 1999, p.16

An Analysis of Nam Theun 2 Compliance with WCD Guidelines Page 16 possible remedies for affected people should the commitments made by NTEC and the Government of Laos fail to eventuate. The only avenues for independent monitoring are through international NGOs based outside the country, a poor and unacceptable substitute for local NGOs.

Strategic Priority 6 – ENSURING COMPLIANCE

6.1 A clear, consistent and common set of criteria and guidelines to ensure compliance is adopted by sponsoring, contracting and financing institutions and compliance is subject to independent and transparent review.

6.2 A Compliance Plan is prepared for each project prior to commencement, spelling out how compliance will be achieved with relevant criteria and guidelines and specifying binding arrangements for project-specific technical, social and environmental commitments.

In project preparation, the World Bank has had problems ensuring compliance from the Lao government on key issues such as logging. In 1995, the World Bank stated as a precondition of Bank support for Nam Theun 2:

Bank policies preclude our supporting the project if project execution has already begun… Any resettlement activities relating to the project should not begin until the Bank has reached a decision on whether or not to support it… The Government will need to demonstrate clearly that logging has been brought under control.39

Since 1990, the military-run logging company, the BPKP, has cleared more than one million cubic meters of old-growth tropical pine wood from the reservoir area on the Nakai Plateau, despite the fact that the dam may never be built. This has had an enormous impact on the Plateau ecosystem. As far back as 1995, the Wildlife Conservation Society noted that “this logging operation has resulted in many new roads and new settlements”, which has had “major negative impacts on its wildlife importance.”40 In addition, the logging has steadily eroded the natural resource base of the people living on the Nakai Plateau.

Since the 1995 Aide Memoir, logging has intensified on the Plateau, and visits to the project area in February 1998 confirmed that logging was still proceeding at a rapid rate. According to NTEC, about half of the inundation area had already been logged by mid-1998.41 The Panel of Experts, in their most recent report, refer to a May 2000 World Bank mission to Laos which surveyed the state of logging. The mission found that

there were substantial logging activities in at least four areas outside the sanctioned logging areas, including some of the areas scheduled to be community forestry areas for the resettlement activities, plus a number of less substantial but still significant infractions of the agreements between the GOL and WB.42

39 The World Bank: Aide Memoire on Nam Theun 2 Hydroelectric Project, Washington DC, November 9, 1995. 40 Wildlife Conservation Society: Results of a Survey of Terrestrial Wildlife in the Area to be Affected by the Proposed Nam Theun 2 Hydroelectric Project, Vientiane, June 5, 1995, p.40. 41 NTEC: Nam Theun 2: Answers to Commonly Asked Questions on Environmental Issues, Vientiane, May 1998, p.5. 42 Roberts, Talbot and Whitmore, op cit, p.14

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The mission describes the logging in the community forestry areas as “systematic and large scale”, and states that the livelihood model for resettled villages is “compromised to an unknown extent by logging of high value trees in the area.”43 These are serious breaches of the agreements between the GOL and the World Bank, prior to project approval when the Bank should have the greatest leverage.

The PoE reports that the GOL issued a notice to cease logging in the areas involved and establish monitoring in the future. However, there appears to have been no follow-up monitoring to ensure that logging has in fact ceased.

If the World Bank is unable to ensure compliance with conditionalities imposed prior to project approval, it is difficult to see how they will be able to ensure compliance once money and guarantees have been disbursed and the project is under construction. None of the proponents have indicated any way of enforcing compliance once the project has been approved – no conditions have been discussed, no penalties for non-compliance, in short no regulatory framework for compliance. Bank staff will have little power or leverage to enforce compliance.

According to the Bank’s 1996 Country Assistance Strategy, the success rate for Bank projects in Laos was 46%, compared to 72% for the Bank as a whole. The CAS goes on to note

The troubling conclusion … that there appears to be no relation between the intensity of supervision and any improvement in project ratings, due largely to the severity of the two systemic, underlying causes – the shortage of qualified staff and the lack of timely availability of counterpart funds…44

The CAS also notes a “severe lack of capacity within implementing agencies, which is the greatest single risk facing the implementation of our portfolio.”45

Weak government institutions and rudimentary legal, administrative and institutional structures will make compliance even more difficult to ensure. According to the Australian Department of Foreign Affairs and Trade, in Laos

Much of the fabric of modern commercial legal practice is being developed and is not yet well understood. New laws provide general guidelines only; invariably, they require implementing decrees. ... In some cases, establishing the exact legal position is extremely difficult, especially if different ministries declare contrary interpretations of a particular law. In some cases, legal interpretation can be negotiated. Furthermore, laws can change quickly but the public is not necessarily advised of the changes, either before or after they occur.46

DFAT goes on to state that this lack of legal certainty “particularly concerns larger investors.” An investment the size of Nam Theun 2 requires legal certainty, which is why the Bank is being called upon to provide a political risk guarantee. Foreign investors will not finance a project as large as Nam Theun 2 without this guarantee. Therefore, the World Bank guarantee effectively allows the GoL to by-pass the development of an appropriate legal system to support large foreign investments such as Nam Theun 2.

43 The World Bank: World Bank Logging Survey Mission: Technical Report, Washington DC, 2000, p. 57. 44 The World Bank: Country Assistance Strategy for Lao PDR, Washington DC, 1997, p.11 45 Ibid, p.13. 46 East Asian Analytical Unit, The New ASEANS: Vietnam, Burma, Cambodia and Laos, Department of Foreign Affairs and Trade, Canberra, 1997, p.282.

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There does not appear to be any improvement since the mid-1990s in the capacity or ability of the World Bank to ensure compliance with key policy or project stipulations. This does not auger well for the future. If the World Bank is unable to ensure compliance with key stipulations during project preparation, it is difficult to see how it will do so after the project has commenced, when it has even less leverage.

Conclusion

Nam Theun 2 fails to comply with six of the seven strategic priorities outlined in the WCD report, and it is difficult to see how the project could be brought in compliance in the foreseeable future. A fundamental problem is the political climate in Laos, which makes a truly open and participatory decision-making process almost impossible. While there have been innumerable public participation workshops, consultations and meetings, most of these took place within the context of a decision already taken, and most of the inputs were sought on project design rather than on whether or not the project was the best option for Laos. Indigenous people to be resettled by the project can not be considered to have given their free, prior and informed consent to the project, as defined by the WCD and international human rights conventions.

The Theun-Hinboun hydropower project, situated 50 kilometers downstream of Nam Theun 2, is a good indicator of the types of impacts that could be expected at Nam Theun 2. At Theun- Hinboun, more than 25,000 people remain uncompensated for impacts to fisheries, vegetable gardens, drinking water and other problems as a result of the project. The impacts at Nam Theun 2 are likely to be on a far grander scale, affecting more than 50,000 people living along the Xe Bang Fai, and many thousands more who rely on the Nam Theun and Xe Bang Fai rivers for their livelihoods. It is difficult to see how the World Bank will be able to ensure that all these people are adequately compensated for their losses.

Enforcing compliance is a fundamental problem within Laos. Laos’ rudimentary legal, administrative and political structures make enforcement of GoL and NTEC commitments difficult. The World Bank has been unable to ensure compliance with conditionalities imposed prior to project approval, and thus it is difficult to see how they will be able to ensure compliance once money and guarantees have been disbursed and the project is under construction.

With all these problems, it is recommended that the World Bank refuse guarantees and other assistance for Nam Theun 2, and immediately work on alternative plans for conserving the watershed area and ensuring that the 4,500 people living on the Nakai Plateau have adequate sources of livelihood.