Thailand does have enough demand for the energy to be produced by the Nam Theun 2 Hydropower Project (NT2) and is likely to meet its commitments to the project.

That was one of the assessments of an alternatives study carried out by the NT2 project partners over recent months and presented at the Nam Theun 2 second national public consultation workshop held on May 8-10, 1997 in Vientiane.

Alternatives to the present dam proposal included moving it upstream and halving the size of the reservoir, to reduce the environmental impact.

NT2, located 250 km south of Vientiane, is being developed as a build-own-operate-transfer (BOOT) project by the Nam Theun 2 Electricity Consortium (NTEC) and the Lao government. The power generated is expected to be exported to Thailand. The government will initially have a 25 per cent share, with 100 per cent ownership after 25 years of operation.

NTEC consists of Electricite de France (a power utility), Transfield of Australia (an engineering enterprise), and a Thai Consortium of Ital-Thai Development (a construction company), Jasmine International (a telecommunications firm), and Pratra Thanakit (a financial institution).

The main characteristics of the scheme currently proposed by NTEC are:
* Creation of a 450 sq. km reservoir on the Nakai Plateau, with a capacity of 3.6 billion cubic metres.
* Construction of a 45 m high, 325 m long dam.
* Construction of a power house with a 680 MW capacity, generating 4500 GWh per annum. * Resettlement of approximately 4800 people.
* Improvement of local infrastructure: roads schools, hospitals, irrigation facilities.
* Contribution of US$ one million per annum over a period of 30 years for protection and management of the Nakai Nam Theun Conservation and Protected Forest Area, also called the Nakai Biodiversity Area (NBCA), which constitutes 75 per cent of the 4,000 sq. km catchment area.

According to Prof. Dr Souli Nanthavong in his opening remarks at the public consultation:
"NT2 is very significant for national socio-economic development. It is the largest in Lao PDR at the moment."

The World Bank (WB) has been asked to provide a guarantee for this project. "In order to respond to this request, the WB needs independent proof that its economic, social and environrnental standards can be met," the bank has said. T o provide this information, the following studies have been commissioned by the Lao government, with IDA credit:

* The Nam Theun 2 Study of Alternatives, the subject of this workshop;

* The Economic Impacts Study, which examines the macro economic impacts of NT2, including the use of foreign labor, increased use of local goods and services, and the effect on the balance of payments and inflation;

* The Environmental and Social Action Plan for the NBCA, which develops strategies for the conservation of the outstanding diversity of its human, geographical, biological resources.
The studies will provide valuable baseline data for this and other projects.

The second public consultation workshop was held in Vientiane, at STENO, the Scientific, Technological and Environmental Organization of the Lao government, from May 8-10. About 130 participants from the Lao PDR and abroad attended this workshop, including representatives of various Lao government organizations, and representatives of people affected by the project.

The main conclusions drawn by the consultant were as follows:

* The power demand in Thailand is more than enough to accommodate 3,000 MW of electricity imports from Lao PDR by the year 2006, as specified in the MOU between Thailand and Lao PDR. This is true even with maximum energy conservation efforts and a slump in the Thai economy. Thailand may also import electricity from other countries, such as Burma and China, but this will not affect power exports from the Lao PDR.

* Apart from lignite, Thailand has insufficient energy resources to cater for its own needs, and will therefore have to import significant amounts of fuel: oil, gas and coal. The cheapest form of generation for Thailand is gas-fired, but not enough gas can be imported in the short to medium term, in spite of contracts and MOUs with Malaysia, Burma, Vietnam, Oman and Indonesia. The next cheapest form of power for Thailand is coal-fired. Coal would most likely be imported from Indonesia or Australia. Coal plants have considerable environmental impact, even with the latest emission control equipment. Imported power from the Lao PDR competes with coal plants in Thailand.

* The only energy resources in Laos which could significantly contribute to the export of 3,000 MW power to Thailand by the year 2006 is lignite (3,000 MW) and hydropower (23,000 MW).

* NT2 has reviewed some 20 IPP hydropower schemes and this by itself is of considerable value for the government of Lao PDR in ranking these projects. Much work has been done by the consultants to develop overall ranking criteria which involve not only technical and economic considerations, but also environmental, social, financial and regional development aspects.

* NT2 has investigated over 90 different alternatives for the Nam Theun 2 project. The consultant proposed that four be selected for final scrutiny in the last phase of the study, which will now begin. These include keeping the project as it is, moving the dam upstream at Ban Signo (Thalang) and halving the reservoir size, getting rid of the reservoir altogether, or abandoning the project.

In the next phase of the study, various alternative plans will be investigated so that the most attractive set of projects can be selected to cover Laos' 3,000 MW export commitment to Thailand. The options to be investigated include:
* Implementation of hydro schemes as planned by the developers and government;
* Hydropower schemes with minimum environmental and social impact;
* Plans which maximize the use of lignite-fired power plants and minimize construction of new hydro schemes.
Representatives of international organizations, members of NGOs, Thai and Lao power utility officials and local and international media raised-various questions at the conference.

The NT2 consultants, Lahmeyer International of Germany and Worley International from New Zealand, stated that concerns raised during the first workshop had been taken into account in their subsequent work, and made a number of presentations which were followed by lively debates. The audience raised concerns about the market for power, resettlement issues, and other options for alleviating poverty.

The next and final workshop on the NT2 alternatives study will be held at the end of June or in early July, and will integrate the findings of all three ongoing government studies on NT2.
The alternatives study was set up to determine if the expected load growth in Thailand, even under the assumption of a vigorous demand side management programme, warranted the import of 3,000 MW from Laos by the year 2006, which is the target agreed in a Memorandum of Understanding (MOU) between the governments of the Lao PDR and Thai land.

It was also set up to determine what the power supply options within Thailand are, describing their main technical, economic, financial, environmental and social characteristics, what the power export options for Laos are, describing the same characteristics as above, and to develop and investigate alternatives for the Nam Theun 2 scheme in the Lao PDR, which is one of the most important power export candidates.

The study team determined the technical, economic, financial, environmental, social and institutional consequences of alternatives with reduced impact, initiated and organized a programme of public consultations with interested parties, and proposed a number of scenarios to cover Laos' commitment to Thailand to export 3,000 MW of power by the year 2006.

Subject to these scenarios, public consultation and scrutiny NT2 hopes to select one plan which can be reasonably sure of broad acceptance.

Common questions include: "Can it be guaranteed that the Thai power market buys the full 3,000 MW of power exports at a reasonable price and that the MOU and the Power Purchase Agreements for individual projects are honoured?"

"Isn't too much attention paid to the environmental impact factors and too little to the people. Shouldn't more attention be paid to improving the living conditions of the people in the area, given their low income (about US$ 10 per person per year). Environmental destruction is a direct result of poverty, and if the Lao government does not exploit its hydropower resources, poverty will prevail and environmental destruction will gallop?"

"Is the exploitation of the nation's hydropower resources the best way to alleviate poverty?" About 70 per cent of the funds needed to develop NT2 will be borrowed from international lenders. The cost of borrowing (interest rate) is lower if the project is assessed as low risk. While NTEC is confident it can manage most risks to the satisfaction of the lending banks, it has no control over "sovereign" risks that relate to the action (or inaction's) of the Lao government, such as natural disasters, insurrection, nationalization of failure to honour government commitments.

However the World Bank (WB) has recently developed a type of insurance, called "partial risk guarantee", whereby it will guarantee to repay a lender (to the level insured) if their loans cannot be repaid because of the emergence of one of the insured "sovereign' risks.

The NT2 developer has requested the WB to make a partial risk guarantee available to the project, which would reduce the risk exposure of the developer and increase the likelihood of obtaining competitive finance for the project.

NTEC has also asked for direct loans to help finance the construction of the project from the International Finance Corporation (IFC), a subsidiary of the WB. The WB has not yet made a decision on this.

Copyright © 1997 by the Lao Embassy, Washington D.C. All Rights Reserved.