Technical Background Paper for the third National Human Development Report Lao PDR 2006

International Trade and Human Development

EXPORT OF ELECTRICITY Positive and Negative Contributions to the Lao PDR

Pafoualee Leechuefoung Vientiane 2006

Acknowledgements In the course of preparing this report we received generous assistance and contributions from many individuals, institutions and organisations. Our sincere gratitude is expressed especially to Dr. Charles Myers; who provided support, great advice and suggestions; and to the National Human Development Report team and particularly to Mr. Khamsavath Chanthavysouk for his assistance. Special thanks go also to the National Statistics Centre, the Department of Electricity of the Ministry of Industry and Handicrafts, Electricit du Lao, the Nam Theun 2 Power Company, the Theun- Hinboun Power Company and to both district and provincial staff. In addition, the report could not have been completed without the full co- operation of the villagers affected.

"

ABBREVIATIONS ADB AFD ASEAN CPI EAMP EdL EGAT EGCO EIA EIB GMS GoL GRID HIV/AIDs IDA IPP IRN MEM LDC LHSE LNCE MOFA MOU NBCA NGO NT2 NTFPs NTPC PPA STD THP THPC WB WCD Asian Development Bank Groupe Agence Franaise de Developpement Association of South East Asian Nations Committee for Planning and Investment Environmental Assessment Management Plan Electricit du Lao Energy Generating Authority of Thailand Electricity Generating Public Company Environmental Impact Assessment European Investment Bank Greater Mekong Sub- Region Government of the Lao PDR Gender Resource Information and Development Centre Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome International Development Association International Power Producer International Rivers Network Ministry of Energy and Mining Least developed country Lao Holding State Enterprise Lao National Committee for Energy Ministry of Foreign Affairs Memorandum of Understanding National Biodiversity Conservation Area Non- Governmental Organisation Nam Theun 2 Non- Timber Forest Products Nam Theun 2 Power Company Power Purchase Agreement Sexually Transmitted Disease Theun- Hinboun Hydro- Power Plant Theun- Hinboun Power Company World Bank World Commission on Dams

Table of Contents
EXECUTIVE SUMMARY .......................................................................................................................... 6 1. 2. 3. 4. 5. INTRODUCTION................................................................................................................................. 8 METHODOLOGY ........................................................................................................................................ 10 HYDROPOWER BENEFITS FOR THE LAO PDR....................................................................... 10 EXISTING AND PLANNED HYDRO-POWER PROJECTS IN THE LAO PDR:..................... 11 REVENUES:........................................................................................................................................ 17 NT2 REVENUES ......................................................................................................................................... 21 IMPACTS ............................................................................................................................................ 23 5.1. 5.2. 5.3. 5.4. 5.5. 5.6. 5.7. 5.8. 5.9. 5.10. 6. IMPACT ON EMPLOYMENT:............................................................................................................ 23 IMPACTS OF INFRASTRUCTURE: ..................................................................................................... 27 IMPACTS OF ELECTRIFICATION:..................................................................................................... 29 IMPACTS ON ELECTRICITY IMPORTS AND INDUSTRIAL DEVELOPMENT:.......................................... 33 IMPACT ON THE ENVIRONMENT:.................................................................................................... 36 IMPACT ON THE PEOPLE ................................................................................................................ 42 IMPACTS ON ETHNIC MINORITY PEOPLES...................................................................................... 49 IMPACT ON TOURISM:.................................................................................................................... 51 GENDER IMPACTS:......................................................................................................................... 53 IMPACTS ON THE MEKONG ........................................................................................................ 57

CONCERNS AND RECOMMENDATIONS: .................................................................................. 60

REFERENCES ........................................................................................................................................... 62

List of Tables Table 1: Major existing and planned hydro- power plants in the Lao PDR...........12 Table 2: Export generation development scenarios 2008- 2020..........................22 Table 3: GoL IPP revenues (millions of US$) from base export scenario ...........22 Table 4: Number of employees in EdL hydropower plants..................................25 Table 5: Numbers employed in NT2 construction (August, 2004).......................26 Table 6: Domestic prices of electricity (EdL) in nominal terms 2004 - 2011........32 Table 7: Projected increase of electricity demand in the Lao PDR 2003 - 2020 .33 Table 8: Current status of Lancang- Mekong Dam Cascade Scheme .................57 List of Figures Figure 1: Total power exports 1990 - 2001 .........................................................18 Figure 2: Total eleclricity imports 2000 - 2004 ....................................................19 Figure 3: Electricity exports and imports 2000 - 2003.........................................19 Figure 4: Main electricity producers/suppliers in the Lao PDR............................30 Figure 5: Estimated electricity imports from neighbouring countries 2004- 2013.35

List of Maps Map 1: Location of the shortlisted projects..........................................................13 Map 2: EdL Power System Development Plan to 2020 ......................................14 List of Boxes Box 1: NT2, the biggest hydro- power project in the Lao PDR.............................15 Box 2: THPC employees (2005) .........................................................................24 Box 3: Changes in Ban Kengit............................................................................28 Box 4: The impact of THPC: ..............................................................................37 Box 5: Ban Phou Kao Keo ..................................................................................44 Box 6: Ban Phou Kao Khouay ............................................................................45 Box 7: Employment around the reservoir............................................................53 Box 8: A successful businesswoman..................................................................55 Box 9: Ban Phou Kao Khouay ............................................................................56 Box 10: Impacts on the Mekong River Basin .....................................................59

Executive Summary The Lao PDR is experiencing ever greater economic integration both regionally and globally. International trade impacts both positively and negatively on human development. The recent rapid increases in the global prices of oil and natural gas have forced ASEAN1 members to seek alternative sources of energy. The 38th ASEAN Ministerial Meeting in Vientiane emphasised that greater cooperation was needed in energy. The Lao Prime Minister said ASEAN nations must cooperate to minimise the impact of world oil price increases. Investment in dams would not only bring cheaper and alternative energy to the region but would also boost the economy and reduce disparities between member countries (Vientiane Times, July 27, 2005). Lao electricity at 3 - 4 US cents/kW h2 is quite competitive and may make the Lao PDRs hope of becoming a battery of South East Asia a reality. Neighbouring countries, Thailand in particular, need electricity. Many dams are planned and some are under construction.3 If oil and gas prices remain high, Lao power will be more cost- competitive. Thus the demand will increase as will the pressure to build yet more dams. Electricity exports and their contributions must be carefully examined to ensure dam construction has the smallest possible negative impact on the environment and the greatest positive impact on the people. This report looks at the positive and negative contributions of Lao electricity exports on a sector by sector basis. Electricity exports will help to lift the Lao PDR from its status as a least developed country (LDC). Although hydro- power projects can inject huge amounts of foreign currency into the Lao economy so contributing to national human development this is often at the cost of damaging both livelihoods and the environment. This report is in five sections. The first examines the benefits of hydro- power for export - from which the Lao PDR can benefit hugely - especially from exports to the expanding markets of other ASEAN members. The Lao National Committee for Energy (LNCE) states that electricity exports will reduce the reliance on foreign aid and other revenues; in particular, those from logging. And they will contribute to public expenditure on health and education, thus assisting in
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 1 ASEAN the Association of South East Asian Nations - comprising the Federation of Malaysia (Malaysia), the Republic of Singapore (Singapore), the Kingdom of Thailand (Thailand), the Republic of Indonesia (Indonesia), the Republic of the Philippines, Negara Brunei Darussalam (the Sultanate of Brunei), the Socialist Republic of Vietnam (Vietnam), the Union of Myanmar (Myanmar), the Kingdom of Cambodia (Cambodia) and the Lao Peoples Democratic Republic (the Lao PDR). 2 One kilowatt watt- hour (kW h) is equivalent to one kilowatt of power used for one hour.&& # &One of these is Nam Theun 2 (NT2) which will be the biggest hydro- power plant in the Lao PDR, contributing roughly US$2 billion over the 25- year concession period. '

poverty alleviation. The construction of dams improves local infrastructure and produces cheap and reliable electricity thus facilitating industrial sector growth. The second section explores both the existing and planned Lao hydro- power projects. In 2004 there were more than 40 hydro- power plants for both domestic and international supply. About thirty more dams will be built. The main hydropower plants currently exporting are: Nam Ngum I4, Theun- Hinboun (THP), Houay Ho and Xeset. The biggest dam, Nam Theun 2 (NT2) will come on line in 2010. Power is exported mainly to Thailand, but soon also to Vietnam and possibly to China. The third section examines the revenues (from royalties, taxes and dividends) from Lao power exports which in 2003 were just under US$100 million and are expected to increase from the present 2 percent of total revenues to about 11 percent in 2010. However, this increase also means an increase in the national debt. Thus, if the poor are to benefit attention must be paid to both debt- servicing and revenue spending. The fourth section analyses the impacts, both positive and negative on Lao people, especially on those directly affected, and on the environment. It examines the creation of employment, the impacts of infrastructure and electrification, of electricity exports and industrial development, the environmental impacts, resettlement, tourism and gender impacts and impacts on the Mekong. The construction of dams for export purposes does have some positive effects. However, compared to the large scale dams of China, the Lao ability to handle the issues of compensation, resettlement and environmental protection is still weak. The impacts of electricity exports on each individual are different, but the poor are less likely to be able to take full advantage of any of the benefits. The final section highlights the key concerns to be considered in order to generate a huge income from electricity exports while ensuring the poor and the environment benefit. Policies and regulations dealing with resettlement, compensation and the environment should be improved. The annex includes statistical tables of the potential benefits to the Lao government from hydro- power.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
$

&This includes Nam Leuk and Nam Mang 3. (

1.

Introduction

The government of the Lao PDR (GoL) recognises electricity exports as a way of increasing national revenues, particularly when oil and natural gas prices are high. Hydro- power is important in helping to lift the country out of its economic plight. In recent years, dam- building has been mainly for the generation of electricity for export. Although the total Lao hydro- power potential has been estimated at around 23,000 megawatts (MW)5 less than 2 percent has been developed over the last 30 years (LNCE, 2005). Electricty exports are increasing. At the end of the 1990s the hydro- power sector constituted about 3 percent of Lao GDP. In 2003, electricity exports to Thailand were around 30 percent of total export revenues. (National Policy, 2005) The ultimate goal is to make the Lao PDR a battery of South East Asia. Many are optimistic about power exports. The vast hydro-power potential of our country should be exploited to the maximum. We can foresee there will be limited adverse impacts on the environment and communities, said the Vice Minister of Industry and Handicrafts, Dr. Nam Viyaket (Vientiane Times, 11 April 2005). There are not many options for generating income. It comes down basically to timber or hydro-electricity, said Mr. Stephens (Gupte, 2004). Hydro-power resource is probably the only economic activity where the Lao PDR has a comparative advantage over other countries in the region, (ADB, 1999:1). Electricity development is very important in the Greater Mekong Sub- Region (GMS).6 The Lao PDR will become not only the land link but also the energy source of the GMS countries. The Asian Development Bank (ADB) considers THP, the first GMS hydroelectric project, to be a success. The strategy for energy sector development is two- pronged: (i) the development of export- oriented power projects, utilising mostly private sector investment, to earn foreign exchange to finance socio- economic projects and (ii) the increase in access to electricity for the largely rural population (ADB, 1999). In the past decade, foreign investment in hydro- power has been welcomed. Houay Ho and THP were the first two plants owned by independent power
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
% '

&This excludes the Mekong mainstream.&

&The GMS comprises the Lao PDR, Thailand, Vietnam, Cambodia, Myanmar and China.& )

producers (IPPs). More IPPs will follow in the next 10 to 20 years. Many countries7 are interested in hydro- power investment. Currently, the power purchasing agreement (PPA) is important as it eliminates the IPPs market risk and ensures stable revenue streams. IPPs depend on its take- or- pay provision which locks both the purchaser and producer together in a long- term contract (ADB, 1999). Many memoranda of understanding (MOUs) have been signed. The first in 1993, between the Lao and the Thai governments was for the export of 1,500 MW to Thailand by 2000. Next was an MOU for the supply about 3,000 MW by 2010. However, the THP and Houay Ho projects supply only 214 MW and 126 MW, respectively - less than half of the agreed amount (Vientiane Times, 20 April 2005). In 1995, an MOU with Vietnam was signed for the supply 2,000 MW by 2010. New dams are planned to meet these demands. (For more details on the planned new power plants8 see the Committee for Planning and Investments (CPIs) summary and the National Power Committees website (LNCE, 2005).) Thailand is seen as the primary market for Lao electricity. Between 1993 and 2003, the Thai electricity demand - 6.5 percent per annum - exceeded the average GDP growth - 3.1 percent. Although currently Thailand has a surplus power generating capacity - thanks to the economic slump in the late 1990s each year the demand outstrips the capacity. By April 2004, the Thai peak load had grown by 1,502 MW - about one- third of the annual excess capacity - and exceeding 2002 predictions by approximately 300 MW. With the recovery of the Thai economy, the demand for electricity is certain to grow steadily. In 2004 the demand was growing at a rate of 7 percent. If this continues then Thailands surplus capacity of 25,378 MW will have disappeared before 2009. This is one incentive for the construction of Lao dams, especially NT2. In the near future, the Lao government hopes to export electricity to China another possible major market - and to Cambodia. China experiences continual electricity shortages. In 2005, the estimated gap between supply and maximum demand in China was 20 to 25 million kW h. Dams and power plants are being built rapidly but demand is expected to increase 13 percent per year, especially in eastern China (Vientiane Times, 28 February, 2005). The Chinese and Lao transmission lines will be linked between 2010 and 2020 since China will export electricity from Yunnan to Thailand (Porter and Situmeang, 2005). The southern Ban Hat substation will be connected to Cambodia between 2005 and 2009. This will be a great opportunity for the Lao PDR to export and further expand its electricity markets.
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
( 8

&These include Thailand, France, Malaysia, Korea, Vietnam and China. These include Nam Ngum 2, Nam Ngum 3, Nam Ngiep and the THP extension - to supply power to Thailand - and the 2 plants - Nam Mo and Xe Kaman 3 (and possibly Nam Theun 3 - at present not feasible - or Nam Theun 1F) - to export to Vietnam (MEM, 2001).

This report discusses how hydro- power development - about which many people are optimistic - contributes to national human development. Methodology This report used various methods of data collection including literature reviews, direct observations, group and individual interviews. The case studies focused on the five hydro- power projects which are (or will be) the main power exporters: Nam Ngum I, Nam Leuk, Nam Mang 3, THP and NT2. The case study villages are listed below: Ban Phou Kao Keo (Resettlement village of Nam Mang 3) Ban Phou Kao Khouay (Resettlement village of Nam Mang 3) Ban Houai Leuk (Downstream of both Nam Leuk and Nam Mang 3) Ban Namsanam (Affected by THP) Ban Khounkham (Affected by THP) Ban Kengbit (Affected by THP) Ban Nong Boua (The first resettlement village of NT2) Ban Sengkeo (Affected by NT2) Ban Nakai Neua (Affected by NT2) 2. Hydropower Benefits for the Lao PDR The ASEAN 9 countries will benefit a lot from electricity trading and connections, especially if the markets of Thailand, Malaysia and Singapore are aggregated and interconnected. The substantial hydroelectric resources of the Lao PDR, Myanmar and Cambodia would be of much greater value should there be effective interconnections and capacity to provide the major population and economic growth centres with electricity at peak times. There are many potential benefits for the Lao PDR from hydro-power particularly from direct links with southern China, Thailand, Malaysia and indirect links with Singapore and Indonesia. These offer classic gains from sharing and dealing in a wider market. Electricity could be the key for the Lao PDR to become a high growth country. Although land-locked and with limited resources, hydro power and interconnections offer a path to economic prosperity - the larger the market the better, particularly if power trading post-interconnection introduces peak load pricing - the premium product best delivered by hydro power. There is a sense at the moment that the Lao PDR could benefit more from transparent and competitive arrangements across the region and from sale of hydro power into the expanding and trading market. (Porter and Situmeang, 2005)
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
*

&In particular the Lao PDR, Thailand, Myanmar, Vietnam and Cambodia !+

The LNCE identified the following benefits for economic development from hydropower projects: Electricity exports will reduce the unsustainable reliance on revenues from logging and other forest products. (However, dam constructions always involve large forest areas. And from past experience logging has always been hard to control.) Hydro- power projects for export will assist in the National Growth and Eradication of Poverty Strategy. Export revenues can be used to improve and expand public sectors health, education and infrastructure (water supply, rural electrification, transportation and communications). Ministry of Finance (MOF) data shows the steady and significant increase in expenditure on education and health.10 Export revenues can also be used to improve environmental protection programmes. (One percent of the electricity export revenue from the Nam Leuk project is supposed to be used in the protection of Phou Kao Khouay National Park and its resources. However, the National Park has yet to benefit.) Dam construction will boost employment and local economies as well as improving the local infrastructure. (Often only in the short- term - however, construction and electricity exports could generate indirect employment.) The reliance on slash and burn cultivation, which definitely impacts on the environment, in the rural areas could be reduced. However, dam construction usually causes more damage. Hydro- power projects will expand the transmission system, thus providing cheap and reliable electricity and so facilitating rural industrialisation and improving the lives of the people affected.

However, as the ADB acknowledges, the benefits from energy projects will come about only if there is a strong pro- poor policy environment - for example, electricity at affordable prices for rural consumers. The Lao PDR should consider the sustainability of both the electricity services and the dams ensuring the electric companies are financially strong and tariff policy is de- politicized (ADB, 2004 b). 3. Existing and Planned Hydro-power Projects in the Lao PDR:

By 2004, the Lao PDR, a river rich country, had more than 40 hydro- power projects. In 2003, there were 6 large11 or medium sized dams and 9 major hydro&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 10 In 2002- 2003, approximately 436,316,000,000 kip was spent on education while 254,626,000,000 kip was spent on health. 11 A large project is classified as having an installed capacity of higher than 50 MW or flooding more than 10,000 hectares of land at their full supply (National Policy, 2005). !!

power plants.12 And around 30 small, medium and large hydro- power plants will be constructed between 2005 and 2020.13 Many of these are for export purposes. In addition, some possible large and medium hydro- power plants have been identified, such as Nam Hai with an estimated installed capacity of 800 MW (Ministry of Industry and Handicrafts, 2004 b). Table 1 summarises the major hydro- power projects for both domestic and export supply. Table 1: Major existing and planned hydro-power plants in the Lao PDR
Hydro- Power Plant Nam Ngum Xeset Theun- Hinboun Houay Ho Nam Leuk Nam Mang 3 Nam Theun 2 Nam Ngum 2 Nam Ngum 3 Xekaman 1 Xe Pain- Xe Nam Noy Nam Theun I Xe Kong 4 Xe Kong 5 Nam Kong 1 Nam Tha 1 Nam Ou 2 Nam Mo Xekaman 3 Theun- Hinboun Phase II Nam Ngieup I Nam Theun III Location Vientiane Saravanh Khammouane Attapeu Vientiane Vientiane Khammouane Vientiane Vientiane Attapeu Attapeu Bolikhamxay Sekong Sekong Attapeu Bokeo Phongsaly Xieng Khouang Sekong Bolikhamxay Bolikhamxay Bolikhamxay Installed Capacity (MW) 30 6 210 150 60 60 1,070/1,088 615 460 468 390 400 440 253 240 263 630 105 218 210 240 237 Year of Completion 1970s 1991 1998 1999 2000 January 2005 2009 2009 2009 2011 2010 2011- 2020 2011- 2020 2011- 2020 2011- 2020 2011- 2020 2011- 2020 2006- 2010 2006- 2010 2006- 2010 2006- 2010 2006- 2010

Sources: MEM and Maunsell and Lahmeyer International (2004)

Map 1 shows the shortlisted projects and Map 2 is the Electricit du Lao (EdL) Power Development Plan. The current main exporting hydro- power plants are Nam Ngum I (includes Nam Leuk and Nam Mang 3), THP, Houay Ho and Xeset.

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 12 Nam Ngum I, Xeset, Selabam, THP, Houay Ho, Nam Leuk, Nam Ko, Nam Dong and Nam Phao 13 These planned hydro- power projects include the controversial NT 2, the extension of THP, Nam Ngum II (in the early construction stage) and Nam Ngum III. !"

Map 1: Location of the shortlisted projects

Source: Maunsell and Lahmeyer, 2004

!#

Map 2: EdL Power System Development Plan to 2020

!$

Box 1: NT2, the biggest hydro-power project in the Lao PDR

NT2, approved in April, 2005, is the largest hydro- power project in the Lao PDR. Although smaller than completed or planned Chinese dams, its location and potential impact have made NT2 an international issue. Like many dam projects, it has both its supporters and opponents. The supporters - the GoL, the World Bank (WB) and the ADB - claim NT2 has the potential to lift the Lao PDR from its LDC status. Provided that the environmental and social impacts are mitigated, it will be a key project for the socio- economic development of the country. On the other hand, the opponents believe the benefits to the Lao PDR will be small and the environmental damage in the Nakai Plateau will be severe. And the project will displace around 6,200 villagers. The 39m NT2 dam with a capacity of 1,070 MW will create a 450 sq km reservoir in the Nakai Plateau. A 230 m long channel will transfer reservoir water to the powerhouse near the town of Yommalat. The spent water will be discharged into the Xe Bang Fai River through a 27 km channel. There will be a 138 km double circuit 500 kV transmission line to the Thai grid, and a 70 km single circuit 115 kV transmission line with 22 kV connections to the regional Lao grid. NT2 plans to supply 95 percent (5,354 GW h annually) of its power to Thailand and about 200 - 300 GW h domestically. NT2 is expected to provide 12 percent of the active storage capacity in the Mekong Basin in 2010 and 7 percent in 2025. The US$1.2 billion loan for NT2 has only recently been approved. Seventy percent will come from international financial institutions and the remaining 30 percent from the Nam Theun Power Company (NTPC) itself. The grants and loans approved for NT2 total more than US$100 million. The ADB will lend US$20 million and the European Investment Bank (EIB) US$55 million. A 5 million Euro grant will come from Groupe Agence Franaise de Developpement (AFD) and US$20 million from the WB (International Development Association (IDA)). The WB also provided a US$50 million IDA partial risk guarantee. NTPC shareholders are Eletricit de France (35 percent), the Electricity Generating Public Company (EGCO, 25 percent), EdL (25 percent) and the Italian- Thai Development Public Company (15 percent). The Energy Generating Authority of Thailand (EGAT) with 25 percent of EGCO owns around 6 percent of NTPC. At the time of signing the PPA, Mr. Kraisi Karnasuta, EGAT Governor from 2000 to 2002, was also the president of EGCO. Hence the Foundation for Ecological Recoverys (2004) claim that NT2 (75 percent foreign owned) will benefit only NTPC, the owner and the constructor. It will also benefit the WB and ADB since they can portray it as sustainable development in partnership with the private sector. Hence, they will be able to secure funding from North America, Europe and East Asia. Source: Vientiane Times, 4 and 21 April 2005, and The Foundation for Ecological Recovery (2004).

In spite of the decline in power exports between 2001 and 200214 after the 2000 peak hydro- power is still seen as a sector with potential (Power in Progress, 2005). LNCE 2000 - 2002 data show a decline15 in the total electricity generated for export. There are different explanations for this. The Department of Electricity of the Ministry Energy and Mining (MEM) states EdL had to meet the increase in the domestic demand. An alternative explanation may be THPC were unable to
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 14 Revenues fell from US$110,337,098 to $106,895,337 in 2001 and to US$106,688,849 in 2002. 15 The total generated fell from 3,679,888,192 kW h to 3,603,522,963 kW h. !%

generate any electricity because of low water levels. Perhaps the water levels were more important. Domestic and foreign investment in the hydro- power sector has been varied. In 2001, the total investment was US$360,000,000 - the highest - and much higher than the second largest investment of US$12,838,000 in the wood industry. However, by 2004 this had changed - the wood industry had the highest investment of US$11,000,000. Hydro- power investment at US$2,000,000 was lower than that in many other sectors. There were only a small number of hydropower projects between 2002 and 2004. However from 2005 onwards the investment should be huge since so many projects, including NT2, will be built between 2005 and 2010. In May 2004, the GoL and Malaysias Gamuda Berhad signed an agreement on the 450 MW Nam Theun I dam in Bolikhamxay at an estimated cost of US$526 million. If approved, construction will begin in 2006 and be completed in 2010. EGCO and Gamuda Berhad will own 80 percent while the GoL has 20 percent. The electricity will be sold to Thailand. China is also increasing its involvement in hydro- power. Recently the Chinese Sinohydro Corporation - a contractor of the Nam Mang 3 and Nam Leuk projects - signed an MOU for a feasibility study on Nam Ou 8 in Phongsaly (Vientiane Times, 1 June, 2005). And the same company, according to the CPI, is also studying the Nam Leek and Nam Ngum 5 projects. In addition, the 76 MW Xeset 2, approved by the National Assembly, is now in the preparation phase. (This should be completed in 2009 and will supply to Thailand and maybe to Cambodia.) This will be financed by a Chinese loan and thus be constructed by a Chinese company - the same company that constructed Nam Mang 3. Other projects16 are either in the process of negotiation and/or preparation. The GoL has tried to maximise the profit from electricity exports and recognises the importance of the sustainability of Lao dams. Learning from past experience, some general policies related to electricity exports and hydro- power projects are given below. Period of license Operating concession 30 years from date of issue 25 years - assuming a 5 year constructionperiod 10 percent of power must be supplied within the Lao PDR 5 - 15 percent of gross revenue 15 percent of net profit Equal to net profit after depreciation and tax

Royalties Profit Tax Dividend

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 16 These include Nam Ngum II, Nam Ngum III, Thuen- Hinboun extension, NT2 2 and 3, Xe PainXe Nam Noy, Nam Mo and Xekaman !'

After 30 years IPP hydro- power projects in good operating condition must be handed back to the government. The government welcomes foreign investment in hydropower. Although the approval processes may take a considerable time, once granted, necessary imports are easy since this is a priority sector. .EdL state all materials, equipment and machinery - often from the very country with which the government made the deal - are normally included in the investment cost. Nam Mang 3 was financed by a Chinese loan. And constructed by a Chinese company that imported all the materials and equipment for the basic infrastructure (including the dam itself) as favoured goods taxed at 1 percent or less as a government development project (Foreign Investment Law, 1994). By 2020, a total of roughly US$9,543.5 million - $8,738 million in dams and $849.53 million in transmission systems - will be invested mostly by IPPs in hydro- power projects. 4. Revenues:

Electricity exports are an important source of foreign currency for the Lao PDR, generating US$4,500,820,000 between December 1999 and February 2001. By 2010, the Lao PDR will be producing up to 2,000 MW, helping to increase the per capita income from the present US$330 to over US$830 and to US$1,000 by 2020 so lifting the country from its LDC status (Vientiane Times, 9/09/05, p.1). However at the same time borrowing to finance dam construction, especially from the ADB and the WB, has increased enormously. At the end of 1999, the outstanding government foreign debt was US$1,155 million - 25 percent for the power sector (MEM, 2004). Electricity export revenues are of two kinds. The first (from royalties and profit taxes paid by IPPs on exports to Thailand and dividend payments to EdL as a shareholder) go to the general revenues budget - some however, go to service the debt and GoLs annual deficit. The second is the revenue from EdL power exports - from Nam Ngum I, Xeset and Nam Leuk. The GoL re- lends some of the revenues - at a very high premium - to EdL for equity shares in the IPPs. EdLs revenues can be used to expand rural electrification. Figure 1 illustrates the significant and continual rise of Lao power exports over the decade. Total exports increased more than 5 fold, with a dramatic increase from 1997 as a result of the contribution from THP and Houay Ho (coming on stream in 1998 and 1999, respectively). In 2001, THP alone made up two thirds of Lao power exports (Moreau and Ernsberger, 2001). If the 13 planned hydropower projects are included, electricity exports are estimated to increase more than 9 fold by 2020 (See Appendix Table 2). Between 2000 and 2004 electricity imports from Thailand and Vietnam doubled from US$5,806,769.24 to US$10,298,888.50 (see Figure 2). However this increase was minimal when compared to the decline in exports. In the last four years, these have slowly
!(

declined either as the result of a reduced generating capacity or an increase in domestic consumption. Figure 1: Total power exports 1990 - 2001

120000000

100000000

80000000

USD$

60000000

40000000

20000000

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: LNCE (3005) and MEM (2004).

Electricity exports earn foreign currency for both the government and EdL and so contribute to economic and human development. These revenues are made up of royalties, profit tax and dividend payments. However, some revenue is used to service the debt. Between 1995 and 1999, EdLs average gross revenue from electricity exports was roughly US$22 million annually or about 7.5 percent of total export revenues (ADB, 1999).

!)

Figure 2: Total eleclricity imports 2000 - 2004

12000000

10000000

8000000

USD$

6000000

4000000

2000000

0 2000 2001 2002 2003 2004

Years

Source: EdL (2004)

Figure 3: Electricity exports and imports 2000 - 2003

120,000,000.00

100,000,000.00

80,000,000.00 U SD $

60,000,000.00

Total Import USD$ Total Export USD$ Net export USD$

40,000,000.00

20,000,000.00

0.00 2000 2001 Year 2002 2003

Source: LNCE website (2005) and EdL (2004)

!*

Electricity export revenues are in both Thai baht and US dollars. The first IPP THPC - pays half in US dollars and half in baht (at a fixed rate of US$1 = 25.35 baht). Although the PPA guarantees the amount of electricity sold, it does not guarantee THPC revenues. An increase in the US inflation rate of more than 1 percent would decrease the tariff in real terms. And US dollar revenues are linked to fluctuations in the baht exchange rate, fixed until 2008 (ADB, 2002a). Recently, the exchange rate reached nearly 40 baht, certainly creating a big baht loss. THPC has been generating a reasonable amount of foreign exchange revenue for the country - 2 percent of the 1999 total government revenues. The projects sales revenues rose from US$42 million in 1998 to $58 million in 2001 and are expected to remain at this level in the future. Moreover, the project produced a net income of US$116 million between 1998 and 2001 and is estimated to generate about US$156 million from 2002 to 2006. As a result of THPCs exports, total Lao electricity exports grew significantly from US$21 million in 1997 to US$106 million in 2001. Thus, this helped reduce the current account deficit as a percentage of GDP from 16.5 percent in 1997 to 6.9 percent in 2001 (ADB, 2002a). EdL and the government should earn about US$25 million per annum from THPC. In the first four years of operation, the dividend was US$93 million US$56 million to EdL (with 60 percent of the share capital). In 2001, THPC paid a dividend of US$18 million to EdL and royalties of US$3 million to the GoL. Between 1998 and 2001 the national development budget more than doubled in nominal terms. Thus, THPC indirectly increased expenditure in the social sectors. In 2000, the income generated by the project increased the government expenditure by up to 20 percent. The combined share of education, health and social welfare rose from 3 percent in 1994 to 10 percent in 1998 and to 21 percent in 2001. EdL claimed its revenue contributed to financing further projects, expanding rural electrification and subsidising low domestic tariffs. Furthermore available data indicated that while total power generation increased by 38 percent from 1996 to 1999, domestic consumption increased during the same period by 68 percent and the number of domestic consumers by 84 percent, (ADB, 2002a). The total net benefit to the Lao PDR from power exports from both EdL and IPPs is estimated to reach US$121.3 million17 equivalent to 4.7 percent of GDP in 2010 (see Appendix Tables 1 and 2). The Lao government has never benefited financially from Houay Ho although royalties are calculated at US$0.9 million a year. However, since EdL has to repay the equity share loan, any revenue is more than offset by the debt servicing. Interest alone accounts for about US$1.3 million. Hence, for the foreseeable future, Houay Ho will not contribute any dividends or tax payments to
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
!(

&This is an increase from only US$14.5 million in 1995 or 0.8 percent of GDP "+

the GoL. The IPP operates at a loss. NT2 is predicted to be of the greatest benefit to revenues. NT2 Revenues NT2 is expected to generate a huge amount of revenue - roughly US$2 billion over the 25- year Project Concession Period and is claimed to be the single largest source of foreign exchange for the country and thus will reduce the dependence on international aid (NT2, 2005). Revenues in 2011, adjusted to FY2003 prices, are estimated to constitute about 60 percent of the domestically financed FY2003 expenditure on education and health. The share of total expenditure allocated to education and heath sectors in FY2003 was 17 percent (Fozzard, 2005). The project US dollar costs are financed by dollar equity and debt, while baht costs are funded by baht equity and debt. This 50/50 mix of currencies matching the tariff paid by EGAT and EdL aims to reduce the risk of a currency mismatch between the revenues received by NTPC and the amounts paid to the lenders (ADB, 2005). The net benefit for the Lao PDR is estimated at around US$171 million - 52 percent in taxes and royalties to the GoL. Furthermore, the GoL as a project investor will receive a share of about US$18 million. The ADB also claims that Lao Holding State Enterprise (LHSE) will be able to service the debt. Under the base case scenario, total dividends paid to LHSE over the concession are projected to be almost $640 million expressed in current prices. Total debt servicing, including both principal and interest, on the proposed ADB and the EIB loans is estimated at $124 million while LHSE operating costs over the entire concession period are projected to be less than $4 million. Therefore the total debt servicing and operating expenses are equivalent to only 20 percent of net dividend income (ADB, 2005). The debt equity ratio will decrease from a predicted 3.6 in 2009 - 2010 to 0.7 by 2020. The loans are expected to be fully paid by the end of the concession period in 2034 (ADB, 2005). On the other hand, the International Rivers Network (IRN) and Environmental Defense (March, 2005) claim NT2 export revenues will be only a small proportion of the total GoL revenue, around 3 percent between 2009 and 2020 and around 5 percent throughout the 25- year concession period. They also state - as the WB itself acknowledges in the December 2004 Country Economic Memorandum for the Lao PDR - that the direct contribution of natural resources to the country GDP growth is fairly small. This may seem somewhat disappointing when hydro- power is one of the main national resources. However, this predicted impact of hydro- power on the Lao economy does not take into account the multiplier effects which the revenues may contribute to the overall economy.

"!

Table 2 shows the seven planned export hydro- power projects. Table 3 shows their revenues as estimated by Maunsell and Lahmeyer (2004). Table 2: Export generation development scenarios 2008-2020 Base Export Scenarios Theun- Hinboun Extension Nam Mo (Vietnam) Nam Theun 2 (Thailand) Xekaman 3 (Vietnam) Optimistic Export Scenarios Nam Mo Theun- Hinboun Extension Nam Theun 2 Xekaman 3 Xekaman 1 Xekaman 1 (Vietnam or Thailand) Xe Kong 5 Xe Kong 5 (Vietnam) Nam Ngum 3 (Thailand) Nam Ngum 3 Nam Ngum 2

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Maunsell & Lahmeyer (2004)

Table 3: GoL IPP revenues (millions of US$) from base export scenario

Year Royalties ($ mi) Taxes ($ mi) 2008 0.0 0.0 2009 1.4 0.0 2010 10.5 0.0 2011 15.0 0.0 2012 15.5 0.0 2013 15.7 0.0 2014 20.8 0.9 2015 21.6 7.4 2016 21.8 9.8 2017 26.2 10.4 2018 26.9 10.5 2019 27.1 13.9 2020 34.2 14.5 Source: Maunsell and Lahmeyer (2004)

Dividends ($ mi) 0.0 - 1.8 - 12.5 - 2.6 7.5 11.8 7.7 12.7 18.3 20.0 28.6 38.0 29.8

Total Receipts ($ mi) 0.0 - 0.4 - 1.9 12.4 23.1 27.5 29.4 41.7 49.9 56.5 66.1 78.9 78.4

""

Most Lao hydro- power projects are financed by loans from various sources, such as the WB and ADB. The ability to repay the debt is doubtful. For THP alone, the GoL borrowed US$60 million from the ADB to be repaid within 40 years. Is it possible to guarantee that electricity export revenues will be used in human development when such a huge debt needs to be serviced? (White, 2001) Massive spending on dams in developing countries has resulted in high debts, boom- and- bust economic cycles and crippling power cuts when droughts hit (IRN, 1997). Additional plants are to be commissioned from 2007 to 2009 in order to provide the planned exports to Thailand and Vietnam. Lao revenues will increase dramatically to over US$100 million by 2010. And EdL revenues from domestic plants exporting surplus energy to Thailand will also increase since new plants including Xeset 2 - will be commissioned from 2005. These revenues are expected to reach about US$34 million by 2010. Estimates suggest the GoL revenue from electricity exports will increase from the present 2 percent of total revenues to about 11 percent in 2010. This increase is very important since it is in foreign currency. Nonetheless, it will be slightly offset by debt servicing. Furthermore, this GoL revenue does not include the dividend payments to EdL. However, the most important question is whether the significant increase of revenues will be kept and utilised. It is vital that the GoL has transparent means to ensure that these revenues reach the poor and the poorest. 5. 5.1. Impacts Impact on Employment:

Although hydro- power projects are capital intensive, some villagers benefit directly or indirectly from the employment created. It is difficult to establish an exact or even a rough estimate of the numbers employed in Lao dam construction since many projects have no records especially of those hired by the variety of subcontractors. The employment tends to be temporary and low skilled - construction workers, workers to clear the reservoir areas and cleaners. The CPI states a hydro- power project must employ as many Lao or local people as are available. However Lao people seldom have the necessary skills. The government has no plans for upgrading Lao workers to meet the needs of the numerous planned hydro- power projects. Foreign construction companies tend to be hired, and they tend to bring and employ foreign labour (especially their own nationals). For example a hydro- power project financed by the Chinese will use a Chinese construction company - which normally would bring in Chinese workers.

"#

Lao people are mainly employed as security guards, cleaners, cooks and in some technical positions. Box 1 shows the employment generated by THPC which clearly illustrates that exports of electricity through dam construction create only short- term employment. Box 2: THPC employees (2005) The total employees of THPC in September, 2005 were: Vientiane: Lao: Foreign: Site (Operator and EMD): Technical/administrative Lao Lao villagers Foreign Total Lao Independent Constructors: Total Casual Labour: Lao staff (for the THP Private School) Total:
Source: Field visits

11 2 89 30 2 18 1089 16 1241

However some villagers did benefit from the short- term employment generated by the construction of THP - as one man from Ban Namsanam said, No dam no house. Around 50 - 60 Ban Namsanam villagers were hired for approximately 2 years, earning from US$70 to $600 per month. The incomes were used to build houses, buy motorcycles, mini- tractors and so forth. Nearly all Ban Kengbit and Khounkham households were employed by THPC, earning around US$250 to $300 per month.18 Some villagers19 still work for THPC as security guards, gardeners, drivers and maintenance workers. Table 4 shows the numbers employed by the three EdL Vientiane provincial hydro- power plants. These plants claimed to have no records of the total numbers of workers employed during the construction. The plants employ only a few ethnic minorities and women. After the completion of Nam Leuk, a few Hmong people were hired as security guards and technical staff.

&In the case of Ban Kengbit this was paid in dollars. Around 10 - 14 villagers from Ban Namsanam, 1 villager from Ban Kengbit and more than 2 villagers from Ban Khounkham
!) 19

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &

"$

Table 4: Number of employees in EdL hydropower plants

Name of Hydropower Project Nam Ngum I Nam Leuk Nam Mang 3 During Contruction Total Female 51 9 Total Present Female 159 39 59 9 36 5

Note: Excludes those who were/are emploed by construction companies Numbers of employees includes those who were employed as cleaners and so on Source: Field visit

NT2 claims all unskilled work during the five- year construction period20 will be offered to local people with Nakai Plateau residents being given first priority. There should be 40,000 jobs providing a full time job for one man in one out of three households for four years at a salary of up to US$450 per year - more than the income from the farm plots. Furthermore, reservoir logging should provide 22,000 man- days of work per year with possible average earnings of US$3 per day (NTPC 2005b). And the resettlement forest activities will provide an estimated 36,095 man- days of work a year. Wood processing, sawmill and sales will also require about 162 workers per year. Some towns and villages will benefit. Thakek will be the main transit point for project staff, while Yommalath, Nakai and Mahaxay will benefit from incomes and employment through food sales to project staff (Vientiane Times, 4 April, 2005). The Khammouane Department of Labour and the NT2 team reported a total of 2,774 employees - both project and contractor staff - 682 were foreign nationals (See Table 5). However, this excluded those hired by small sub- contractors including the company building the transmission line and those NT2 employees in the Vientiane office. The number of jobs created indirectly is also excluded.

&It is estimated that a total of 1,500 man- years will be required over the 5 year construction period (Field interviews). &
"+

&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &

"%

Table 5: Numbers employed in NT2 construction (August, 2004).

Foreigners Head Contractor Nishimatsu Construction Italian- Thai Development Other sub- contractors to Italain- Thai development Mine Tech International (British company) Suksamai (Lao company) Engineering and Construction (Lao company) Varee (Lao company) Hua Thang (Lao company) Sriharaj (Lao company) Sub- contractors to Nishimatsu Lao Tunnel Tech Ninety nine Survey Ltd (Thai company) Mine Tech nternational AV Survey (Thai company) BK Construction (Lao company) Phettavone Construction (Lao company) Nazmi & Chatre Ltd (Thai company) NKH (Lao company) Total 32 93 485 30 Lao Total 121 93 1,583 2,068 89 42 50 50 25 10 30 72 50 50 25 10 30 0 19 33 0 8 46 90 15 44 2,774

19 10 NA 5 1 3 4 682

23 NA 3 45 90 12 40 2,092

Source: Khammouane Department of Labour. Although power project policy clearly states that local villagers will be given priority, many people from the various surrounding villages were unable to get a job either during or after the dam construction. For example, in Ban Sengkeo - directly affected by NT2 - villagers were unable to find the promised work. In August, 2005 only 14 people were employed as construction workers. This problem was also raised by some in the pilot village. One man in Ban Sengkeo believed connections were necessary to get a job. Even though you have all the necessary documents, without inside connections or money you will not get a job with the project. Hydro- power projects create direct employment for construction workers. And, through rural electrification, they create indirect employment in irrigation, tourism and fisheries. An example is Nam Ngum I reservoir which has become a tourist site generating incomes for both the local people and the economy. The Provincial Tourist Authority recorded 32721 local people employed around the reservoir.
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 21 This figure excludes those working in family businesses and those 250 people (160 women) employed by Dansavanh. "'

The Nam Leuk project employed Ban Houai Leuk villagers as drivers, construction workers and surveying assistants, generating incomes which did at least improve their health, increased the accessibility of markets, schools and clinics, and provided better houses and motorcycles. And after the village had electricity, shops and small factories (an ice factory) were established which certainly resulted in more employment and greater incomes. 5.2. Impacts of infrastructure:

Improved basic infrastructure - roads, bridges, schools, community health centres and community water sources - often follow hydro- power projects, although the roads and bridges are most often for the projects benefit. THPC helped improve a 51 km section of Road No. 8 which branches off from Road No. 13 at Ban Lao and passes the powerhouse area. This road is one of the important routes connecting the Lao PDR to Vietnam at Km 20. Road building and improvement of roads leading to the project site have given people mobility, opportunities for new commercial activities and access to market centres (Ban Khounkham market), schools and hospitals. Not only do better roads give rise to new commercial activities, they also lead to several roadside resettlements. THPC also built bridges and culverts to facilitate local transportation. And to reduce the impact of the traffic congestion on the road crossing the head- pond, a ferry - at Ban Bounkoung - was given. And a new bridge across the Nam Theun at Ban Thabak was built and has been open to regular traffic since October, 1995. THPC also established a first- aid station near the power plant and allowed the local people unlimited access. Seriously ill patients are transferred to the main hospitals. In addition, it constructed two new schools and refurbished another. Within the station, one private school, consisting of primary to lower secondary classes, was built to serve children of THPC staff. However, it is open to village children for 3,000 kip per month. The students study a variety of extra subjects from Grade 3 - computer classes and English. However because of size limitations only some children from Ban Namsanam, Ban Khounkham and other villages were able to attend. Although THPC does not provide direct funds for building schools, it partially funded the school in Ban Kengbit, providing textbooks, and teaching and learning materials. The company also provided floating docks and alternative water sources (replacing the loss of rivers), such as wells, underground water sources and piped water from nearby streams. Only 10 villages (along the Nam Kading River) out of 61 affected have not yet received any new water supply. All these initiatives have contributed to human development since the villagers skills and knowledge, health, incomes, and living standards were improved.

"(

Box 3: Changes in Ban Kengit Before the construction of THP Ban Kengbit was very remote and had no road. The only access was by a paddle boat - a journey of more than 10 hours. It had neither a school nor a hospital. Villagers had a two day walk to buy salt. Now, there is a road, and once a day a mini- bus goes to Km 20. Most villagers have been able to build a basic house. Eighty to ninety percent of households now have toilets. THPC also provided zinc, cement, sand and building technical assistance. Now, the village has 9 motorcycles and 3 minitractors. With the new road and electricity, more than 10 mobile phones are owned by the villagers who use them mainly for business. In the old village, I sometimes had to carry firewood and a sack of rice on my back because of the bad road. Now, the family uses the mini- tractor to carry heavy loads home. In the old village, the rice mills were small; and sometimes I milled the rice by hand myself. If the family wanted to go to the bigger rice mills, the only way was by bus which was very costly, (Woman in Ban Phou Kao Khouay).
Source: Field interviews

The Nam Mang 3 resettlement villages have also benefited from infrastructure improvements - a primary school for Ban Phou Kao Khouay (Mai) and a community health care centre in Ban Vang Heua. And they also got an underground water supply, saving the time spent in collecting water. However, sometimes in the absence of good planning and follow up, such improvements are of no use to the villagers. Ban Phou Kao Keo was relocated to higher ground so at times the underground water supply is dry. The entire village is forced to use one private well creating a number of difficulties. The villagers think the well water is unsafe, and have banned its use since they fear chemical contamination. They have complained many times to the project, so far with no result. The project is building a 15 km main irrigation channel and 12 kms of secondary channels to irrigate 2,900 ha of the Nam Ngum plain including Ban Naoheng. Once completed, the farmers will benefit - crops can be grown throughout the year. However, there have been negative impacts on some villagers. The irrigation cut through many rice fields. Some families lost most of their paddy land and received no compensation from the project. The Nam Mang 3 Project improved a 5 km road from Road No 10 to Ban Nam Nyang and constructed a 20 km road from Ban Nam Nyang to the dam and a 4.3 km road from the dam to Ban Vang Heua and Ban Pa Pak. The roads around the reservoir will facilitate access for both tourists and the local villagers. Ban Phou Kao Keo was relocated to the lowlands, nearer to schools, hospitals and other facilities. There are more good quality houses - an increase from 1 to 90 percent. But villagers still experience many difficulties. The new village is

")

about 3 km from Ban Nayang School (Grades 1 to 3), 4 - 5 km from Ban Nanguen School (Grades 4 to 5), and about 9 km from Ban Na Nok Secondary School. One boy dropped out of Grade 5 because the school is too far away (4 5 km) and he had to help his family clear the paddy field on the allocated land (which has not yet been distributed to each family). Only a few villagers have been able to capitalise on the trading opportunities presented by the new infrastructure. NT2 has improved many roads - Road No. 8b, National Roads No.12 and No. 13 - and most of the bridges along Road No. 8b. Road No. 12 goes to the Vietnamese border and once finished, Vietnam will be only a three- hour drive away. Seafood will be easier to import (Vientiane Times, 27 April, 2005). NT2 is currently improving the 50- bed Yommalath Hospital and hiring doctors from both Vientiane and overseas. Although the main purpose is perhaps to serve the NT2 workers local villagers may also benefit. Recently, Lao Telecommunication and Enterprise of Telecommunications Lao have expanded their mobile networks to Nakai, Yommalath and Mahaxai. These new improved facilities and infrastructure could contribute to human development of the affected villagers. 5.3. Impacts of Electrification:

In 2005, around 47 percent of households nationwide (more than 90 percent of urban households) had access to electricity. The government plans to increase this to 70 percent by 2010 and to 90 percent by 2020 (Vientiane Times, 1 March, 2005). Domestic energy consumption is rising by 8 to 10 percent annually (LNCE, 2005). In 2004, 97.5 percent of electricity came from hydro- power. IPPs produced for 52.5 percent of the total electricity, while EdL produced 44.6 percent. (See Figure 4)

"*

Figure 4: Main electricity producers/suppliers in the Lao PDR

Local, 2.9%

EdL, 44.6%

Private sector (IPP), 52.5%

Source: MEM (2004).

It is no surprise that most households still rely on wood as their main fuel since only a few have access to electricity. In 1995, 93 percent of households used wood for cooking, 4 percent used charcoal and only 2 percent used electricity. If more people had access to electricity, perhaps fewer would rely on wood. And since electricity is a cleaner fuel there would be less air pollution. Dams for electricity export are also perhaps the best way to expand rural electrification. According to the MEM decree of February, 1999, IPP hydro- power projects must supply 10 percent of their electricity domestically. EdL buys 10 percent of THP power and supplies this to two districts (Viengthong and Khamkeut) in Borikhamxay. EdL will also buy 10 percent of NT2 electricity for domestic use. Nam Ngum I is the largest supplier of electricity in the Lao PDR, providing electricity to Vientiane Capital, where nearly all the households have electricity. It also supplies power to the provinces of Luang Prabang22, Vientiane23 and Xayaboury. Although Nam Leuk might not supply power directly, its power is distributed to a part of Xieng Khouang, Vientiane province and Borikhamxay.24 Houay Ho distributes electricity mainly to Attapeu (in only two districts - 29 villages). Xeset supplies power to Xekong and Saravanh. In other provinces - Savannakhet, Khammouane, Xayaboury, Houaphanh and Phongsaly
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
""

&Nam Ngum I supplies electricity to Luang Prabang city and to PakOu, Nam Bak, Ngoi and Chomphet districts. "# &The main districts supplied are Phonhong, Thoulakhom, Kasi, KeoOudom and Vangvieng. 24 The districts supplied in Xieng Khouang are Pek and Khoun, in Vientaine Longxan and Hom and in Bolikhamxay Paksan and Thaphabat districts. #+

- if electricity is not imported from Thailand or Vietnam, other light sources lanterns - must be usedt. The villages affected by dam construction usually get electricity connections - as did all the villages visited. Approximately 50 to nearly 100 percent of households in each village had access to electricity. Although THPC must provide electricity to the 61 affected villages many have not yet been connected. Just a month ago, THPC provided US$1,300 for electricity connections in southern Ban Namsanam. The resettlement process is an easy and cheap way of expanding electricity connections. Electricity increases economic activities and incomes. Ban Khounkham now has 17 rice mills and two wood processing factories. In Ban Phou Kao Khouay some men wanted to open their own motor repair shops. They were willing to take a private short- term course. One lady thought of installing a big rice mill. In Ban Namsanam, one evening activity is making handicrafts for sale. Many studies and information from the teams field visits show that rural communities benfit from electricity: It is easy to look after my baby at night, (Woman in Ban Kengbit). Electricity makes it easier to move around at night. With electricity I can see things and know where things are with my own eyes, (Woman in Ban Kengbit). We feel more urbanised with electricity, (the village headman and male representatives of Ban Hoaui Leuk). My life is more comfortable - Nam Lai Fai Savang. There is enough water and electricity provides a bright light for us. Buying or selling goods is also easier (Woman in Ban Khounkham). Electricity certainly makes it easier for students to study at night and for teachers to prepare their lessons. As one boy said, When batteries and kerosene lamps were used and I wanted to study at night if the battery was dead, then I would have to go to bed. Now, I can study as long as I want. Many electrical appliances, especially televisions, follow the advent of electricity. Although television has both negative and positive impacts on national human development, it can be a source of useful knowledge and information for farmers, traders and students.

#!

Children are more intelligent because they watch television which broadens their knowledge, (Woman from Ban Kengbit). The team saw children in Ban Phou Kao Khouay intently watching a variety of television programmes - from Hmong music videos to educational programmes on frog rearing. Previously children in Ban Houai Leuk went to watch television at a neighbours house and failed to return home after their classes. Thus, they spent less time studying at night. However, now that each house has a television, parents are able to control the time spent watching and the programmes watched. Electricity also impacts on culture. For example, in Ban Namsanam, villagers said that when there was no electricity, people used to spend more time together - drinking or socialising. However, now villagers spend most of their time at home watching television or engaged in other individual activities. Parents believe their children are lazier and spend a lot of time watching television and thus do not study. Since most of the villages receive only Thai channels, the village culture has been influenced. In Ban Kengbit, one lady said that young girls had started to wear miniskirts. Electricity and television could also expose the rural community to consumerism. Overall, the findings illustrate that electricity provided as a result of dam building benefits the local people. However, not all villagers had access to electricity or were able to take advantage of it. Some could not afford the installation fees (around 500,000 - 1 million kip) while others could not pay the electricity prices. Electricity prices may seem to be relatively cheap but without a regular income villagers may not be able to keep up with the payments. The table below shows the price of electricity for both rural and urban areas. (There are no crosssubsidies). Table 6: Domestic prices of electricity (EdL) in nominal terms 2004 - 2011 Electricity Price (kip) Domestic users: 0- 25 kW h 26- 150 kW h > 150 kW h Average Price Business users Average price
Source: EdL, 2005

2004 2005 2006 2007 2008 2009 2010 2011 percent change 113 265 765 380 663 125 221 760 394 663 145 242 760 409 655 170 265 760 425 647 200 292 760 443 638 230 317 760 463 631 265 340 760 483 623 305 361 760 503 615 169.9 36.2 - 0.7 32.4 - 7.24

#"

Table 6 shows expected electricity price increases25, especially for those using between 0 - 25 kW h. The cost to the business and industrial sectors (those encouraged by the government) will stay the same or maybe even decrease. The increases in electricity prices for normal household consumption are claimed as necessary to offset the high investment and distribution costs. The burden of these increases will fall heavily on the poor. If the cost of electricity is high, the poor and the rural communities will be unlikely to benefit much, even though there are hundreds of dams. Many households, especially the poorest (including an old widow in Ban Phou Kao Khouay and those who received a small cash compensation) had no electricity connections (although the dam is a few feet away). So far, only NT2 has paid electricity connection costs. Hence, the government should consider integrating the issue of rural electricity into the agreement with IPPs or EdL in order to meet the promises - Nam Lai Fai Sa Vang (having both enough water and electricity). However, for some villagers, electricity is not so important if there is nothing to support the family. As one man in Ban Phou Kao Keo said, I dont eat electricity. If there is no rice and no water, what use is electricity? 5.4. Impacts on electricity imports and industrial development:

Siebert (2001) claims 60 MW of power is enough for the Lao PDR since the country is not industrialised. However, the demand for electricity within the country continues to increase. The government aims to meet the domestic demand and to expand rural electrification. The table below indicates the expected rise of demand in the Lao PDR. Table 7: Projected increase of electricity demand in the Lao PDR 2003 2020 Off Peak Increase Rate Peak Increase Rate Load Factor (gW h) (%) (MW) (%) (%) 232.3 54.1 2003 1,101.7 205 1,608.7 21 328.3 19 55.9 2010 2,684.1 11 510.7 9 60.0 2015 3,650.8 6 694.6 6 60.0 2020 4,854.7 6 923.6 6 60.0

Source: MEM (2004).

Between 2003 and 2010 the Lao PDR will need 258 MW overall. The average peak load increase is estimated at 32 MW per annum. The demand for electricity will be highest in the central part of the Lao PDR (central grid - grids 1 and 2) since this is the economic and industrial centre. In recognition of this the
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
"%

&Prices change depending on the rate of inflation.& ##

government has focused on hydro- power development with IPP involvement as the best solution for reducing the environmental and social risks, and for maximizing profits. It is expected that by 2020 the Lao PDR will have 21 hydropower plants, including the ten existing plants, supplying electricity domestically. The total installed capacity will be 1,164.4 MW in 2020. It is claimed the increase in the numbers of dams in the Lao PDR will lead to the end of electricity imports. The provinces importing electricity are Bokeo (from Thailand), Houaphan (from Vietnam), Xayaboury (from Thailand), Khammouane (from Thailand) and Savannakhet (from Thailand and Vietnam). Khammouane and Savannakhet are probably the heaviest importers of Thai electricity. Savannakhet imports the most - 95,820,240 kW h (equivalent to US$3,286,239.91) from Thailand and another 5,417,790 kW h (equivalent to US$325,067.40 from Vietnam - around 36.47 percent of the total electricity imported in kW h). Khammouane is the second largest - importing about 78,587,232 kW h (equivalent to US$2,694,634.32 or around 28 percent of total imports in kW h) (EdL 2005).

#$

Figure 5: Estimated electricity imports from neighbouring countries 20042013

kWh 600000000

500000000

400000000

300000000

200000000

100000000

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Department of Electricity, MEM (2004)

Forecasts are that after 2009 the Lao PDR will no longer be an importer of electricity. The transmission lines connecting the Lao PDR to Thailand, Vietnam and China will become export points. Khammouane and Savannakhet will receive electricity from the Theun- Hinboun extension project, while Houaphan will get its power from the Nam Sim Hydro- Power Plant to be completed in 2008. Electricity imports are predicted to decline dramatically from 2007 as some hydro- power projects are completed (see Figure 5 above). This will reduce government expenditure and a stable electricity supply will make the development of the Lao economy possible. Most of the provinces are without electricity and this hinders the development of industry and tourism. For example, in Attapeu, electricity shortages limit industrial development. Factories must work according to a timetable - a new sawmill can only operate from 9 - 11 am and other factories have to schedule those activities that need electricity. This illustrates the importance of using electricity export revenues to contribute to the expansion and improvement of the supply, and so lead to more economic activity and improved living standards. This happened in Vientiane Province. Previously

#%

factories were concentrated in one or two districts with access to electricity. Now factories have spread to other districts or rural areas - for example the paper factories in Muang Fuang and Xannakham. Mr. Syvixay Soukkarath, the director of Khammouane Industry and Handicrafts Department, spoke of the advantages that NT2 in particular and the expansion of electricity in general could generate for provincial industries. Currently, 474 villages - 60 percent of the total - have access to electricity. By 2010, the aim is to increase this to 90 percent. To do this, the province needs a number of energy sources. The options are NT2, other small hydro- power plants and solar energy. The transmission line between Vientiane and Xeset is planned to be extended to the province. Khammouane is one of the main importers of Thai electricity and this has, at times, hindered industrial development. The supply is unreliable and inadequate for large factories. If the Thai electricity supply were to be cut, the province would be helpless. In order to implement plans to export semi- or fully processed products (generating employment for Lao workers), foreign factories are needed. Khammouane has mineral resources - iron and tin - and a cement factory is planned. China and Russia are interested in investing in the industrial sector. Currently, Vietnam and Thailand are the major exporters of Lao gypsum. Electricity is vital for these factories. If the industrial sector expands, Khammouane will benefit. Hence, Mr. Syvixay Soukkarath is very supportive of hydro- power projects, like NT2. The advantages outweigh the disadvantages. The main negative impact is on the environment, but the outcomes are more profitable. NT2 will feed 75 MW to the National Central- 2 grid supplying electricity to Savannakhet and Thakhek. These provinces will benefit from more reliable and cheaper electricity. Presently Sepon mine imports 20 - 30 MW of Thai electricity. In the future, this could be replaced with NT2 power, hence reducing government spending and the reliance on Thai electricity. In addition, the 20 MW power from the project will increase the amount and reliability of the existing power in the Xe Bang Fai region. This could facilitate economic activities in the region. Already NT2 has increased the availability of electricity within Yommalath, Mahaxai and Nakai districts, creating favourable conditions for trade, industry and other economic activities. 5.5. Impact on the Environment:

Greater attention is being paid to the environmental issues related to both hydropower project construction and operation. Forest and water resources are inextricably linked. Dam complexes mean the clearing of large areas of forest - a massive intervention in the natural balance. And early in their preparation there is a dual impact - on the reservoir itself and on those tributaries used to supply water. When tributaries are no longer able to deliver the required quantities of water the silting- up of the reservoir increases markedly (Blake, 2001). Each

#'

hydro- power project must truly commit itself to environmental protection and management. Dam building cannot take place without negative environmental impacts. THPC makes no positive impact on the environment (Environmental Impact Specialists and THPC, 2000) and other projects have no mitigation plans. Hydro- power projects impact on fisheries. In one way or another way dams contribute to the reduction of fish and aquatic habitats. In many cases initial studies on aquatic habitats are not carried out. Changes in rivers (e.g. the frequent or extreme changes in water level, the diversion of one river to another, etc) inevitably impact on river ecosystems. Recently, Nam Ngum I, despite claims of reducing wet season flooding and providing the villagers with ample water during the dry season, flooded at least 1,770 ha of agricultural land in Thoulakhom district. As a result of heavy rains, the dam gates had to be opened on August 19, 2005 flooding half of the 70 villages in the district. However, the plant offered no financial compensation and the assistance from the Agriculture Section of Vientiane Province was limited. As Mr. Somphet, Head of Planning of the Agriculture Section of Vientiane Province said, We will encourage local farmers to use their own crops to restore their agricultural land, but if they request help from us we will consider how much assistance we can give them, (Vientiane Times, 6 September, 2005). Box 4: The impact of THPC:
THPC not only has an impact on the Nam Kadding river but also on the Nam Theun and Nam Hai rivers, and plays a part in the frequent and extreme changes in water level which in turn have prevented the development of mature, productive and diverse aquatic and riverbank ecosystems. However, no monitoring of this is carried out. Only the water quality is monitored. In Ban Namsanam, erosion is a pretty serious problem. Villagers said that around 10 metres of riverbank had been eroded. They have lost some riverbank gardens and many are now reluctant to grow vegetables along the riverbank. However, THPC compensated for this by providing new gardens (further from the riverbank), varieties of fruit trees, fertilisers and training. THPC has also accepted responsibility for the serious erosion problems, especially along the Nam Hai and Nam Hinboun rivers. Solutions and compensation for this are on the way. The extent of erosion has already been estimated at the Xe Bang Fai junction and an anti- erosion wall will be constructed. There have also been problems with flooding including the downstream part of the Xe Bang Fai (before the fall to the Mekong). However, NT2 will halt its operation if flooding occurs, even though this may mean a reduction in electricity exports to Thailand. Ban Kengbit villagers reported the poorer quality of the Nam Theun river. There is less water and it takes longer for dead animals or leaves to decompose. The water smells and is muddy. Flooding is more frequent and is a particular problem for villages along the Nam Hai and Nam Hinboun rivers. THPC also acknowledge this issue. Source: Field visit

#(

Past experience shows dam construction leads to massive deforestation and the destruction of wildlife. Over the last decades, there has been a rapid decline in Lao forest cover26 - from 70 percent in the 1960s to a warning rate of 41.5 percent in 2002. This indicates serious impacts on the wildlife, the countrys economy and the livelihood of the people (MAF, 2005). Dam construction always involves logging (sometimes extensive and prolonged), so without good management and monitoring, the Lao PDR is in danger of losing forests. Nam Ngum I reservoir is not fully cleared and logging is still continuing. In 2004 2005, 1,490.814 cubic metres - equivalent to US$15,178.38 - were removed for domestic supply (for use in manufacturing). Between 2004 and 2005 approximately 1,490.814 cubic metres of May Pek were logged from the Nam Mang reservoir and sold in Bolikhamxay as there was no demand in Vientiane. This sale contributed around US$15,178.38 to the national budget. The Vientiane Division of Forestry has no record of any logging in the Nam Leuk reservoir and was not involved during the dam construction. The Deputy Director said that the environmental impact of the Nam Leuk plant is minimal since it is only a small plant covering 14 sq kms - 12 sq kms of this was forested and 2 sq kms was the village area. The Phou Kao Khouay National Park Authority claimed the Lao Army was responsible for the logging in the Nam Leuk reservoir. The team observed a number of trucks carrying large logs out of the park to an unknown destination. When asked, Mr. Singkham and Mr. Soudthikone of the National Park Authority said that these logs came from Hom district and were being transferred to other places (unidentified) through the National Park. The timber was said to have been logged to make way for electrical transmission lines. However, villagers said that this has been going on for years. The authorities said that there is no illegal logging in the National Park. There were some small incidences where villagers cut down trees for firewood, for building houses and clearing for rice fields. However, as is well known, the number of trees in the forest reduces each year and forest protection and monitoring is ineffective. Certainly, illegal (and large- scale) logging could occur in the National Park. In the case of NT2, 450 sq km of the Nakai Plateau, equivalent to approximately 40 percent of the total area will be flooded (NTPC 2005b) and a further 500 sq m will be degraded. There are claims that NT2 will damage 80 percent of the total plateau area (Foundation for Ecology Recovery, 2004). Timber harvesting and logging have been two of the major industries and sources of employment in Khammouane. More than 5,000 people were employed in the late 1990s supplying approximately 325,000 cubic metres of timber annually. However, from 2005 the estimated supply of around 100,000 cubic metres from lowland production areas will not be able to meet the demands of the wood industry. By 2010, Khammouane will stop the logging of natural forests completely. In
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
"'

&Measured as forest with a canopy density of more than 20 percent& #)

Bolikhamxay, now there is only one production forest area. NT2 will further impact on the forest in both Bolikhamxay and Khammouane. In fact, the NT2 project area includes two production forests (EcoLao and Norplan, 2004). Commercial logging in the NT2 project area is reported to be extensive (NTPC 2005b). The Patthana Phou Doy Company (Rural Development Company) began logging in the NT2 area in 1993. Logs went directly to Vietnam and Thailand. In 2002, logging was halted awaiting WB approval. Now the government has approved the clearance of the remaining trees in the reservoir. Mr. Khamphay Phengphaenguang, Head of Khammouane Science Technology and Environment Office estimated that only around a million cubic metres of trees need to be cleared. Some of the timber remaining will be used in the resettlement villages and some will be sold. The Ministry of Forestry and Agriculture (MAF) in corporation with the Provincial Forestry Department and the Patthana Phou Doy Company will be responsible for logging. In order to avoid mistakes, the logging area is clearly marked. The deputy headman of Ban Nakai Neua said that logging around the village began in 1987. May Dou or Pterocarpus macrocarpus trees were the first to be logged. Even the May Dou stumps were removed for sale. In 1994, the logging company started to log May Pek or pine. In 1996, logging was halted - awaiting NT2 approval. Before 1987 Ban Nakai Neua was surrounded by thick forest. Now, Mai Dou and May Pek are hardly seen. All the big trees in the reservoir are gone. As yet, there are no clear plans on how this timber will be used or who will be responsible. All the existing vegetation will be lost and the wildlife will be affected. The NT2 dam is in the middle of three important National Biodiversity Conversation Areas (NBCAs)27 which are home to a number of threatened and endangered species - Asian elephants, tigers, white- wing ducks, the Saola, the Muntjac, a new rabbit or hare species and Heudes pig (long thought to be extinct). In 1993 corridors between these three NBCAs were established to allow wildlife migration. Although the total elephant population is unknown (Foundation for Ecology Recovery, 2004) the most recent estimates are that at least 120 Asian elephants (around 10 percent of the total population in the Lao PDR) live in part of the Nakia Plateau. NT2 construction, operation and project- related activities might pose significant and further threats to these surviving elephants already threatened by logging, unsustainable harvesting, hunting and agriculture. NT2 will provide US$31.5 million for management support and financial assistance for conservation in the Nakai Plateau NBCA and for upgrading the livelihood of the residents. It claims that the loss of any valuable habitats from the Nakai Plateau will be offset by the project- enabled protection of the NakaiNam Theun (NTT) NBCA (NTPC 2005a). However, this is doubtful. Nothing
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
"(

&The three NBCAs are Nakai- Nam Theun, Phou Hin Phoun and Hin Nam Nor. #*

could offset the loss of the unique environment and ecosystem of the plateau the losses will never be replaced and the plateau will never be as it was. Experience, both past and present, has shown that promises made by hydropower projects to protect the environment are unlikely to be kept. Mr. Singkham, the Director of Phou Kao Khouay National Park, Bolikhamxay, said that although the Nam Leuk project generated income through power sales and conserved water for Nam Ngum I, it has some negative impacts on the National Park. In the first two years, the water was polluted, smelly and of a darker colour. Many fish died. In the past few years the water level has been much lower and the fish catch smaller. The Nam Leuk project plays an important role in destroying wildlife habitats and food sources - especially those of wild elephants, which recently have come down into villages destroying crops and killing a villager. The committee has tackled this problem through the creation of a wild elephant watch point in Ban Na village, which generates income for the villagers (and reduces the use of the National Park). This project receives US$4 from each tourist, US$6 for a guide (trained villagers), US$2 for the district, and some money for the village rotation fund but nothing for the wild elephants. According to the agreement, about 1 percent of the annual export revenue would fund the protection and management of the National Park. However, up to now the revenue has not been used effectively. Some was spent on building a compound for the National Park staff, improving roads, electricity connections and a motorcycle. The clear- cutting of forests to make way for hydro- power projects is often not transparent. No single department accepts any responsibility for logging. However, it is quite clear that many decisions come from the top. Nam Ngum II is said to be a government project meaning decisions are made only at the top. Currently no one knows the total forest area which will be logged to make way for this project. (Sources say the survey process, however, is already underway, as is the clearing for project roads.) MAF will decide on the extent to which the provincial forestry division will be involved. This division that has more knowledge about the local forest would have no say in any project- related issues if the Ministry decides not to involve them. Another common result of dam construction and operation is the loss of fisheries. This often impacts heavily on the downstream villagers. Men from Ban Kengbit could catch 20 - 30 kilograms of fish per day before the dam. Now, the water level is too high making fishing difficult. Similarly, before the construction of the Nam Leuk project, fishing was an income- generating activity for Houay Leuk villagers (a downstream village). During the wet season when the water was high, villagers could catch sacks of fish. You could catch as many fish as you wanted, said one villager. Nowadays, fish are smaller and fewer. Villagers can catch only two or three fish in a whole day using the same fishing techniques and equipment. The fishing is reported to be reduced by between 30 and 90 percent in the head pond area, by 50 percent on the Hinboun upstream of Ban Hinkhan

$+

and by 70 - 90 percent on the Nam Hai. One reason is the present operations regime of the head pond. The villagers will suffer extensively since fish are the main source of food and income. An old lady in Pak Kading village said that fish catches have decreased dramatically. She has to work five times harder to catch one fifth of the fish she used to get. I dont know how Ill survive if the fishing gets worse, she said. (Moreau and Ernsberger, 2001:4). NT2 will cause an enormous loss of fish especially in the Xe Bang Fai River. In 1996, the project identified 131 species in this river (5 percent were unique) and 68 in the Nam Theun (11 species were unique). The Xe Bang Fai is a more diverse habitat and has direct links with Mekong fauna. Loss from fisheries is estimated to be around 400 to 500 tonnes per year for the first year - equivalent to a loss of between 0.5 percent of income (in Nam Kathang and Nam Gnom) and up to 4.6 percent (in the upper Xe Bang Fai). This will have a severe impact on the lives of the Xe Bang Fai and downstream villagers who are heavily dependent on fishery. NT2 plans to promote reservoir fisheries. However, restrictions are likely. A former subsistence river fishery may become a commercial fishery where fishing may be taken over by professionals, and thus increasing the possibility of over- exploitation. Aquaculture has been widely promoted as a replacement for the lost river fishing. But aquaculture can rarely compensate the villagers for their loss. They lack technical aquaculture skills, have no funds and only limited marketing knowledge. In addition there is no market and they suffer from the economics of small- scale systems (EcoLao and Norplan, 2004:37). However, IPPs are becoming more aware that rivers and water resources are a crucial and central key to sustainable electricity production. In 2004, the Nam Leuk plant earned more than 84 billion kip from electricity exports. However, the plant could only produce electricity in the wet season - when there was little rain the revenue fell. The Deputy Director said that although the plant uses modern technology, electricity generation still depends on nature - the amount of rain. This does not seem to fit the goal of making the Lao PDR a battery of South East Asia According to the Deputy Director, there are no plans or risk assessments for the possibility of insufficient water in the future THP - a run- of- the- river project with no reservoir - has implemented a number of activities to reduce any negative impacts on those rivers necessary for its water supply. Tree clearing began in 1995 with the removal of about 3 - 4 cubic metres over two years. This was to make way mainly for roads and 30 - 40 m of transmission lines. In the past few years, THPC has been faced with low water levels. From February to May the water slowly dries up - resulting in no electricity generation. Slash and burn cultivation and bushfires are claimed to be the main causes. THPC has funded a number of projects in both Khammouane and Bolikhamxay to control bushfires and to promote fixed agriculture. Villagers have

$!

received training in farming. Some were taken to Vietnam to learn soil improvement strategies. NT2 in conjunction with some provinicial departments established a storage tank in the NNT NBCA through which the main donor rivers run. NT2 will provide US$1 million to protect the NBCA and to prevent the drying up and erosion of the river. Major construction works (road building), slash and burn cultivation, overlogging, hunting and new settlements are prohibited in certain areas of the NBCA. So far none of the projects have been penalised on environmental, social or resettlement issues. However, this is not because all the projects are without fault nor is it due to strong environmental laws. On the contrary the laws and their enforcement are weak. The hydro- power development sector tends to be given priority and is granted many concessions. As the Director of the Environmental Impact Assessment (EIA) Division said, Investment is encouraged. So if we are too strict then we will not be able to develop the country. What is important, however, is that a number of officials believe or claim to believe that dam construction causes only a little or no damage to the environment. Nonetheless, the government has been working tirelessly on improving the environmental laws and regulations. Recently, there have been discussions about including in national law, a requirement that dam projects and other large projects post performance bonds. 5.6. Impact on the People

Lao hydro- power projects, except for THP, have resulted in resettlement. The IPPs and EdL have promised to compensate the people for their losses. In theory, compensation will be in keeping with the somewhat ineffective resettlement policies. However, in practice, the villagers might not receive all they were promised. The compensation process is slow. Many villagers from Ban Phou Kao Keo, relocated by the Nam Mang 3 dam, have been disappointed to find that the resettlement supposed to have brought them development and better lives did not do so. Two years after resettlement, agricultural land has not yet been distributed.28 Water supply facilities, provided in the first year, are now not functioning. There is not enough water. The whole village uses a well on the nearby private land. Villagers have to stand in a long queue. One man said he wakes up around 12 am to fetch water. Some villagers have to purchase drinking water at 2,500 kip for a 30 litre bottle.29 These problems have led to quarrels between the villagers and the landowner. There is also a shortage of water for agriculture. Villagers were unable to do any gardening. As one old man said, the authority (without specifying who or which sector) brought them here (the new
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
") "*

&Land allocation is now not Edls responsibility but the district authoritys. &The water is delivered by the company.&

$"

village) and promised them a better life, but left them without a care. He felt like he was in a prison. The experience of Ban Phou Kao Khouay villagers, another village resettled by the Nam Mang 3 project, is similar to that of Ban Phou Kao Keo - the promised 1 ha of paddy land per household has not yet materialised. At the moment they are still able to feed themselves. However without paddy land and once the period of rice compensation is over life in both villages will be more difficult. Villagers from both villages also agreed that it is now more difficult to make a living (especially for Ban Phoua Kao Keo villagers). Before they could go into the forest to collect NTFPs for sale and consumption, now it is hard to access the forest. Furthermore, job availability is also a problem. Without financial support, the school drop- out rate could remain high even though the distance to schools is shorter and electricity is connected. As the village headman of Ban Phou Kao Keo said, the five children who dropped out after resettlement did so because of the lack of financial support. Nevertheless the villagers believe that they are better off in the new resettlement village, particularly in terms of housing, electricity connections and accessibility. Relocated villages often receive greater attention and more facilities or basic infrastructure than other villages. Villagers may enjoy these advantages - without any particular concern for the loss of the environment, and a river to play and wash in. The ability of the villagers to take advantage of the new opportunities often depends on their wealth and status. The following boxes provide different examples from two relocated villages. One village benefited more than the others, and some people are better off than others. Those who are worse off tend to be the poor. Resettlement and electricity connections are likely to benefit the non- poor since they tend to have more resources to invest and are able to take advantage of the economic opportunities created by electricity, improved roads and the resettlement.

$#

Box 5: Ban Phou Kao Keo

Ban Phou Kao Keo is one of the villages relocated by the Nam Mang 3 project. Most of the population are Lao Loum and are mainly retirees or families of military personnel. In the new village, 90 percent of houses are of good quality with toilets as against only one such house in the old village. Better housing may mean better health. A new all- weather dirt road passes through the village. (In the old village the road could only be used in the dry season.) Villagers can easily reach the market, rice mills, hospitals and schools. In the old village students had to walk around 10 - 20 kms to the lower secondary school (in the lowlands) and many had to drop- out after Grade 5. After dark, villagers had to take sick people to the nearest hospital on a push cart. Now that 70 percent of the households have electricity kerosene lamps and batteries are things of the past. Students can study at night. Villagers can watch television and listen to the radio. Nearly every household has a television. With a new road to drive on and cash compensation to spend some villagers bought minitractors. (The number of mini- tractors has increased from one to six.) Now firewood or heavy goods do not have to be physically carried. Mini- tractors are also rented out creating income for the owners. The lives of the villagers have been slowly changing (maybe positively or negatively depending on the individual). Villagers who used to rely on the forest as their main source of food and income, and could freely roam around on the mountain are now faced with the problem of restricted access to privately owned areas in the new village. This could have large long term effects. Now, villagers have no work and are waiting for paddy land to be allocated before the rains. The project rice compensation ended on 16th May, 2005. The villagers were worried that if the land was not distributed soon, there would be a shortage of rice the following year. The men said that they have no skills to find a job in the city or town. Rice and paddy land were very important for Ban Phou Kao Keo villagers. If there is enough rice and agricultural land villagers may feel more secure and able to invest their labour in other activities. As one man said, If there is paddy land and rice, then we have time to do other work.

Source: Field interviews

$$

Box 6: Ban Phou Kao Khouay Ban Phou Kao Khouay, a Hmong village, is another relocated by the Nam Mang 3 project. 115 households had to relocate however, only 74 households resettled in the new village. In the new village, roughly 90 percent of houses are good quality (compared to 20 percent in the old village). The majority have tiled roofs and either concrete or wooden walls. Most have toilets. There is enough easily accessible water. The Ban Phou Kao Khouay villagers are thought to be headstrong and impulsive. However, their negotiating ability (they have a written agreement while Ban Phou Kao Keo has none) and the compensation for their properties in the old village have brought them many benefits. Most villagers received up to 90 million kip while only a few received 5 million kip. The money was spent mainly on housing, vehicles and paddy land. The village now has 30 minitractors - 20 more than before - which have helped the villagers to engage in business, increasing incomes and reducing physical labour. Many villagers used the cash compensation and their own savings to buy extra paddy land, build extra houses and open businesses. One old lady said that her family now owned two houses - one in the resettlement village and another in Ban Vang Heua (near the old village). And the family bought their own mobile rice mill and a truck, and opened a small grocery shop for the son and daughter- inlaw, and are planning to install a big rice mill. Like Ban Phou Kao Keo, Ban Phou Kao Khouay villagers had not received the promised paddy land. However, since many have bought land in the lowlands and have their last years rice they will not starve for many months. However, villagers are afraid that they might face a rice shortage if agricultural land is not distributed soon. Electricity connections will help bring income to the villagers as 95 percent of villagers (women, men and children) do embroidery work. A small piece sells for 20,000 kip and a big piece for 100,000 kip. Now, villagers can do embroidery at night after other work or school. The men said that they would like to open small businesses - vehicle repair shops - since now electricity is available. However, not all villagers have access to electricity. Those who received cash compensation of only around 5 million kip, including one old widow, could not afford the initial connection fees.
Source: Field interviews.

$%

Villages displaced by NT2 NT2 will displace around 6,200 indigenous people from the reservoir area and about 6,700 people as a result of the infrastructure construction. Another 50,000 people might be affected by changes in flows in the Xe Ban Fai River. Roughly 18,500 people dependent upon the Nam Phit and 10,000 people upon the Nam Katang will face a fate similar to those around the Xe Bang Fai. NT2 has completed one village relocation (the model village: Ban Nong Boua) out of the 17 to be relocated. Ban Nong Boua: Ban Nong Boua was relocated in 2001 and established as a pilot village - a model for other resettlement villages. Houses (built of wood from the forest in the proposed reservoir area and with zinc roofs) were provided according to the villagers needs. Kitchens are separate. The houses are claimed to be of better than those in the old village. Each house has its own toilet. It would take many generations for the villagers to be able to afford these houses. In 2003, the houses were connected to electricity. NT2 provided the families with training in its use and management. NT2 has learned that electricity is a strong incentive for villagers to relocate. The Ban Nong Boua access road and the village roads were recently constructed and agricultural areas cleared. The old village had only a footpath. In a medical emergency the villagers usually had to carry the patient to the hospital. This tended to be the last option. A drainage system was also constructed. NT2 provided a primary school and a kindergarten that were completed in 2002. Local villagers are employed as teachers and lunch is provided for all the children. One woman works in the village nursery and is paid around 200,000 kip per month. Although piped water has been provided rain is still an important water source. Each family received a 20 x 30 m construction plot, 0.5 ha of irrigated agricultural land, 0.5 ha of pasture land, 0.5 ha of banana garden and 0.5 ha of rubber. Land could be registered in both the husbands and wifes names, or in either name. Another hectare of community forest land was given into the care of each family. In the village, there is an organic fertiliser factory and an industrial tree nursery. Some villagers are employed in these centres. Regular health checks and training were also carried out by the project while non formal education was run every night, thus increasing literacy. The resettlement official claimed that currently the main sources of income are from work with the project, from livestock (on average each family has 5 cows or buffalo), and from agricultural products and NTFPs. On average each family earns around 600,000 kip per month. (Some earn 3,300,000 kip per year). Earnings are spent mainly on food and clothes. By the fourth year of resettlement incomes should have increased to US$800 per family per year and to US$1,200 by the eighth year. If the villagers are not able to achieve this target, NT2 must continue to provide assistance. Currently, the villagers grow wet season

$'

vegetables - maize and onions. Agricultural products are supplied mainly to the local market (at the moment the market demand is large due to the on- going construction, however, after NT2 completion marketing will need good skills and information) - the demand will probably continue to increase as the numbers of people in the area increase. Often dealers will come to buy products in the village. Like other affected villages, Ban Nong Boua villagers can choose one of five livelihood options. A commercial community forest committee will be established in order to protect the allocated forest and to find a market for the products under the supervision of technical staff. Each member is allowed to log a cubic metre of forest (for manufacturimg purposes in response to the market demand) and sell through the committee. Villagers agreed that life in the pilot village is better and has certain advantages. However, some still claimed to be poor. Although incomes have increased through paid work and the sale of agricultural products, their expenditures have also increased, especially on consumer goods - food, drinking water, clothes and electrical appliances. (Are these needed to display their improved status?). Villagers said that fish are more difficult to find (and the catch reduced) as are NTFPs. This could be due to the location of new village and possibly due to reservoir logging. One family said that their livestock numbers had reduced and they had not received any assistance from the project. They said that now it is impossible to rely only on farming (paid jobs are needed in order to survive). Women have benefited from relocation. They no longer have to carry water for great distances. Girls have more chance to study since schools are easier to access. Only a tiny number of women were able to study in the old village. Even though the hospital is quite far away the road makes access much easier. Sometimes, NT2 staff help transfer sick people to the hospital. Women are able to get paid jobs. There seems to be a division of work within each household as well. In one family, the mother works for the nursery, one daughter is responsible for the garden, one works for the village forestry nursery and the last daughter is a primary school student. Villagers working in the village nursery or factory earn about 200,000 kip a month. Women seem to keep their earnings for their own use but they probably spend most of their money on the household. But most women have no work with NT2 at present. One lady said this was because the women lack necessary skills. Firewood is still relatively easy to collect. Better sanitation, fridges for food preservation and participation in gender programmes may lead to improvements in womens health. Electricity not only provides women with light for working or studying at night but also allows the use of television - although only Thai channels - and radios bringing knowledge and helping women to relax and reduce some of their workload. Women were also able to concentrate on their work as their children could be taken care of at the village kindergarten. Although womens participation was encouraged by NT2 from the very beginning this did not mean that every woman took part.

$(

Overall, the villagers were satisfied with their new village. As one lady said I am happy here. There is electricity and I do not have to carry out slash and burn cultivation. I do not miss the old village where everyday was a struggle. People are motivated to relocate mainly by NT2 promises. I wanted to come here because I wanted to experience a life with modern conveniences. NT2 has also encouraged villagers to use a family socio- economic monitoring book to keep track of income and expenditure. In most cases, women maintain these books and in so doing may enhance their literacy skills. NT2 claimed that between July and December 2003, a villagers average income of 5,723,555 kip was more than double the average expenditure of 2,822,056 kip (NTPC, 2005b). Ban Nakai Neua: Ban Nakai Neua, the last village to be relocated, was briefly visited. More than half of the village will be flooded. The villagers have agreed to relocate, have visited the pilot village and are in the process of negotiating house styles. Some villagers have prepared wood for their new houses. A village centre provides information and advice on resettlement. Ban Sengkeo: Ban Senkeo villagers - more than 40 households will be affected by NT2 - had some concerns about the compensation agreement which some felt to be unfair. Some villagers received only US$15 per family per year not the US$15 per person as agreed. One claimed his property was wrongly described. He has complained several times to NT2 but no success. Villagers are also unhappy with the compensation offered for some property and in particular that for agricultural produce. (For example the current market prices differ from the previous years prices as agreed). Before NT2 approval villagers were told to stop farming and doing anything in the affected areas. However, if they had stopped, they would not have been able to survive. So, many continued farming even at the risk of losing their crops. Many illiterate villagers were vulnerable since some could not read the compensation agreement. Some were too afraid to state their needs or to ask questions as they felt powerless in the presence of NT2 staff. Thus, many villagers were afraid to negotiate and just signed the agreement without any clear understanding. Part of human development is encouraging people to participate in decisions that affect their lives. However, for Ban Sengkeo villagers, this aspect of human development does not appear to have happened. Nonetheless, the villagers are hoping for a brighter future. NT2 encourages activities like mushroom growing and rabbit rearing which generate incomes quickly The NT2 resettlement process appears to promote materialism - villagers success in life depends on what they own. Villagers have been motivated to want televisions, fridges and stereos, and to dress well. When one family has a television the next family wants one too. Another motivation is to provide a tour to the city or other places - to see how civilised people live. However, these trips may lead to an exchange of information and knowledge. Some villagers from Ban Nong Boua were taken to see garbage in Champasak.

$)

5.7.

Impacts on Ethnic Minority Peoples

In general, dams are built or planned on the land of indigenous peoples or ethnic minorities. Although Ban Phou Kao Khouay, a Hmong village, may have benefited more than Ban Phou Kao Keo this does not mean the benefits are equally distributed among the upland people. This report is based on only a small study, but the belief that the resettlement of ethnic minorities from remote areas to the lowlands with a better access to development makes a positive contribution to human development is unfounded. Without good and unbiased planning and monitoring, their lives could, in fact, get worse. For example, approximately 796 Hmong people had to resettle in the lowlands as a result of the construction of Nam Mang 3 and Nam Leuk. NT2 will affect 6,200 indigenous people and ethnic minorities - Makong, Bo, Kaleung and Hmong living on or nearby the Nakai Plateau (NTPC, 2005). And in the same way, the construction of the Houay Ho dam and the planned Xe Pain- Xe Nam Noy project will result in approximately 3,800 Heuny and Jrou people being forced to leave their homelands. If paddy land and sufficient water are not provided, villagers will be unlikely to escape poverty. Agricultural land seems to be the biggest resettlement problem. In the case of the Houay Ho and Xe Pain- Xe Nam Noy projects, resettled villagers faced a serious problem with agricultural land. The new land was infertile and unsuitable for cultivation. Some Heuny villagers claimed their living conditions had declined after their relocation in 1997. In their old villages, NTFPs, fish and arable land had been plentiful (Sayboualaven, 2004). Although resettlement improves accessibility and communications it also brings problems. Previously in Leuk Seua village30 before resettlement water was never a problem. Now in the relocated village - far away from any river - water is in short supply. The villagers were promised six wells, but only three were drilled. And only one of these was workable. From March to May this well dries up and there is no clean water. In Houay Soy and Nam Kong resettlement area on the Boloven Plateau, the primary school was too small to accommodate the increased number of students. There was not enough school furniture and what there was, was of poor quality. And there were only two teachers. And since the new village did not have a heath clinic, villagers had to rely on themselves. Many villagers wanted to return to their old village or live close by it. Many had lost faith in the authorities. As one old man from Leuk Seua village said, It would be better if I returned to my old village because here nothing has improved. The officials have never visited us. They treat us like people who do
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& & 30 In 2002&this village was relocated by the Xe Pain- Xe Nam Noy Hydro- Power Project in order to make way for the Xe Pain- Xe Nam Noy dam (which will be built for exporting electricity mainly to Vietnam). $*

not have any relatives. (Interviewed in February 6, 2003; cited in Sayboualaven, 2004). These problems show the ineffective resettlement plans of many hydro- power projects. The villagers relocated by the Houay Ho and the Xe Pian- Xe Nam Noy dam are mainly indigenous people - Heuny and Jrou. The resettlement impacted seriously on their culture and religion. The Hueny, relocated by the Houay Ho Dam, are now disintegrating. Ethnic unity has gradually lessened. Houay Chote and Nam Leng villagers used to look for food together. Now, since the relocation of Nam Leng village the villagers have lost contact with each other. Many Heuny families have changed their cultural practices, such as the tradition prohibiting social gathering after the birth of a child until the completion of the post partum practices. Heuny and Jrou people have various traditions for the care of sacred places where offerings are made to their ancestors. The loss of their traditional land and sites will surely have a profound impact on their religion and their lives (Sayboualaven, 2004). Local people are in a most vulnerable position and are now exposed to a number of social risks - risks of sexually transmitted diseases (including HIV/AIDS), illegal trafficking (especially of women and children), mental illness, physical abuse and alcohol- related diseases - as a consequence of the huge influx of people. The inmigration of construction workers and their followers enlarged many villages. Although this did increase trade opportunities and economic activities, many rural people forgot their own traditions. Women in Ban KhounKham stopped weaving Lao skirts since it is easier to buy them from the market. People have become more materialistic. An increased population puts pressure on land availability which in turn affects the livelihood of local people who depend mainly on agriculture, NTFPs and livestock rearing (the NT2 case). Thus, extra income must be sought. The affected population must be assured of alternative income sources after the completion of the dam construction and the population increase. NT2 NT2 is expected to result in a considerable population influx. During construction around 800 workers will be living near Oudomsouk town. And more will come as a result of the establishment of the administrative offices. By 2010, the population of Oudomsouk is estimated to be 4,000, while that of Mahaxai will possibly be more than double the current population. There will be population pressures and urbanisation in Yommalath and the villages along Road No. 8 leading up to the regulating dam. The newcomers will be job seekers, traders and small business people. The population could reach 2,500 - 3,000 by the end of 2009 - 2010 (EcoLao and Norplan, 2004). This may lead to a number of problems -

%+

prostitution, health risks, a rise in crime, the undermining of indigenous cultures, the weakening of traditional family linkages and environmental destruction. At the time of the field visit several shops were being built along the road. NT2 and the WB are claimed to be working on controlling the spread of the drinking shops and trade within the district. There is a restricted zone for food and drinking shops and 10 restrictions on drugs, prostitution, human trafficking, gambling, wildlife and so forth. NT2 has provided US$250,000 to deal with these issues. Many workers camps will be set up in the district and some in the ethnic minority areas. The influx of newcomers will inevitably bring changes. The Thai- Italian workers camp in Ban Sangkeo, a Makong village was followed by many small shops. Four main factors impact on the village: the introduction of machinery, and the construction of the small reservoir, the culverts and the workers camp. Villagers reported a number of fights between the workers and one month ago one female villager was involved with a Thai worker. She was arrested by the district police (since the relationship was illegal). Such social problems are likely to increase as the construction continues and more people come in. Lao resettlement policies are still weak and directed more at facilitating investment rather than protecting the rights of the poor. Perhaps only NT2 has met international standards. In the NT2 Concession Agreement, the annual income of the displaced villagers must increase from the current US$450 per household to US$800 - just above the Lao poverty line. NTPC is responsible for assisting these villagers to achieve this within five years of resettlement. However, if this is not achieved NTPC must continue its technical assistance and logistical support of the various livelihood options (Delplanque, 2005). The decree on compensation and resettlement was issued in July, 2005. This applies to ongoing and future hydro- power development projects. However, it does not include the requirement that the resettled families have at least the same standard of living, adjusted for changes in the cost of living, as they had before they were resettled (since it was claimed that this standard is too high for the Lao PDR). Compensation in terms of food is mentioned in the decree. However, it must be ensured that food compensation for affected villagers will be provided until villagers are able to support themselves. In the case of Ban Phou Kao Keo, rice compensation ended before villagers were able to stand on their own feet. 5.8. Impact on Tourism:

Although the Lao PDR has a number of hydro- power plants, not many dams are developed as tourist sites. Nam Ngum Is reservoir is probably the first and the most famous tourist site. Nam Ngum I reservoir is one of the two best- known tourist sites (the other is Vang Vieng). Tourism here generates approximately 10 million kip per day from

%!

an average of around 150 to 200 tourists. Thirty percent of these day- trippers are foreign nationals. Thai visitors are in the majority with approximately 4 - 5 groups - each of over 50 tourists - visiting each day. The provincial tourism authority has 5- year plans from 2005 to 2020 to improve and develop the reservoir into a more sophisticated tourist complex (Interview with the Director of the Vientiane Tourism Authority). The Vientiane Provincial Authority in a joint venture with the Malaysian Dansavanh Company will firstly redevelop the existing tourist site. Ten hectares have already been allocated. Although this will take at least two years for completion, the road works to improve access are in progress and nearly finished. Once the road is completed a gateway will be constructed. Hotels and restaurants will be built in the Sokpakeo area. Businesses will be relocated here and their present locations will become a car park. A Provincial Handicrafts Promotion Centre will also be set up. A new 16 km road will be built to link this new site to the Dansavanh resort (Vientiane Times, 9 May, 2005). Secondly, the tourism authority will create new reservoir amenities and attractions - sports competitions, better fishing and boating services. Thirdly, to attract more tourists, the provincial tourism authority will turn many islands in the reservoir into unique tourist sites. Some islands will become beaches. However, any fall in the reservoir water level would create enormous losses for the tourism industry. This year, Mr. Kham Phoua, the Director of the Provincial Tourist Authority agreed that the water level in the reservoir is very low. Although there has been no estimation of the loss, he believes that the continual low water level in the Nam Ngum I reservoir will have a great impact of the development of tourism sector. Mr. Kham Phoua also said that there is an idea to develop the reservoirs of the Nam Mang 3 and Nam Leuk projects into provincial tourism sites. However, the actual implementation is still up in the air. In 2004, businesses around the reservoir valued at more than 1 million kip employed a total of 327 people - 160 were women - and 250 of the 370 worked directly for Dansavanh. Mr. Kham Phoua observed an increase in the number of prostitutes in the area, but no study shows any direct link between the tourism sector in the Nam Ngum I reservoir and prostitution. In 2003 - 2004 the Provincial Planning and Investment Department conducted a survey around the Nam Ngum I headpond and found eleven businesses. The four biggest businesses had values of 150 million kip, and another seven medium to small businesses - these included one family run business had values of between 500,000 to 5 million kip. The following box shows the employee numbers and average earnings of these businesses.

%"

Box 7: Employment around the reservoir The Reservoir Clearing Company employs eight people, including the company director, but no women. The company director earns around 1,200,000 kip per month. Each worker earns 998,000 kip/month including welfare There were three businesses providing tourist guides and services, such as food and drink employing 21 people (including the directors). 20 of these were women. On average, each director earns about 600,000 kip per month. Other workers, such as waiters and waitresses, earn 420,000 kip per month including welfare. Seven businesses - mainly operated by women - were small shops selling in front of their houses.On the average, each family member earned 130,000 kip per month in 2004
Source: Vientiane Provincial Division of Planning and Investment.

The Phou Khao Khouay National Park Authority and the Nam Leuk project are planning to develop tourist sites linking Tat Leuk and Tat Xay to the Nam Leuk reservoir. Hotels, shops and restaurants are planned in the reservoir area. This tourism project will involve local people and focus on the natural scenic beauty of the area. Tat Leuk and Tat Xay have already been developed bringing a number of tourists, especially from the Netherlands. From past experience, tourist numbers are limited to a maximum of ten people per group. This is to prevent damage to the National Park. THP also helped to promote tourism by constructing many viewing points. In the long- term, an eco- tourism project will be developed in the area of Nakai Plateau and NT reservoir. 5.9. Gender impacts:

Hydro- power projects can have both positive and negative impacts on women through widening or lessening gender disparities (World Commission on Dams, 2000). Hydro- power projects tend to have a serious impact on the poor. And since women are believed to be the poorest of all, they suffer the most particularly through environmental degradation (GRID, 2004). However, the field trip showed that the impact on the women was relatively small with the exception of women in Ban Phou Kao Keo. Here the loss of the forest and forest access has reduced womens incomes thus threatening family stability. NTFPs were their main income. Women and girls would collect seasonal NTFPs for both sale and

%#

consumption. However, since the relocation of the village to the lowlands, the villagers have lost this important source of food and income. Women can be put at risk as a result of improved roads that allow for greater mobility and bring newcomers. Hydro- power construction always results in the presence of newcomers, creating potential risks for women. Some women engage in activities that expose them to the risk of STDs. During the construction of THP, many men working for the project used to come (to villages near the junction between Road No. 8 and the road to Ban Kengbit). There were a lot of women then. Now, they have left to find jobs in the city, said the driver who worked for the project during the construction. During the construction, many Ban Nam Leuk women worked in the service sector. Many opened their own small shops which were said to be profitable. However, when the Nam Leuk dam was completed, most of the shops closed down. Some women went to try their luck in Vientiane while others left for Thailand. International studies and experience demonstrate hydro- power projects often reinforce gender bias, with land being registered only by men and major sons (WCD, 2000). However, for the Nam Leuk and Nam Mang 3 projects, recent government policy states that land can be registered in both the names of a wife and husband. Mr. Thongphet Dongnguen, the head of EdL Environmental Division, claimed both projects allocated land to each family without specifying a named individual. It is up to the family to decide how the land would be titled. Thus, traditionally land is more likely to be registered in the mans name, especially in the rural areas. Many projects often do not take into account the different needs and perspectives of women and men. Women are often excluded from meetings or discussions on issues that will also affect them. Recently many hydro- electric projects in the Lao PDR, such as NT2 and THP, have encouraged women to participate in the processes of compensation and resettlement However, when it comes to meetings, men tend to be more active and involved. The wife of the deputy headman of Ban Nakai Neua did not go to any meetings about the construction of NT2 since her husband participated. Jobs created directly by hydro- power projects go mostly to the men. Only a small number of women were employed in clearing the reservoirs of the Nam Mang and Nam Leuk dams. The headman of Ban Namsanam said that the majority of men worked full- time for the project during the construction while women took care of farming. Many women said that they did not make an effort to ask for a job with the projects since they felt that they were unqualified. However, some women were indirectly hired in the service industry, such as tourism (for details

%$

see the tourism sector). Some were able to take advantage of the spillover from the projects by opening their own businesses. Box 8: A successful businesswoman Ms Mee, a Hmong villager of Ban Phou Kao Khouay, had to drop out of the first year of lower secondary school because the school was too far from the old Phou Kao Khouay village. After dropping- out, she merely helped her parents with housework and farming. Now, in the new village, the cash compensation has given Ms Mee the chance to own a grocery shop. She makes about 400,000 kip per month for herself.
Source: Field visit

A market was established in Ban Khounkham during the construction of THP giving many village women the chance to sell products and so increase their incomes. Some women collected and sold NTFPs. One woman with a shop in the market earned around 20,000 kip per day which she kept and spent by herself. She uses her mobile telephone to order goods and because of the improved road, can have these delivered to the village market once a week. Electricity benefits women, especially poor women by increasing their incomes, improving their health and reducing their workloads. Without electricity, women suffer severe health problems from indoor air pollution. The toxic chemicals from burning wood enter womens lungs and may cause cell damage and eventually give rise to breathing difficulties. Firewood is still largely used by villagers (although electricity is available), but a few women use some electrical appliances for cooking. Thus, the health risk may be slightly reduced. I have only a small family so sometimes I cook rice and other meals with electricity. said a lady in Ban Phou Kao Khouay. Now, if I am too lazy to make a fire for cooking, I can use the electric cooker, said a lady in Ban Kengbit. Easy access to electricity saves an enormous amount of the time and effort spent by women on gathering firewood and fetching water (GRID, 2004). Traditionally, women are mainly responsible for collecting firewood for family use. In 1999 GRID studied the relationship of wood energy - particularly firewood collection to the lives and livelihoods of women and men and found that women especially those in the rural areas - must carry 120 - 150 loads - on their backs or their shoulders - of firewood per year for a family of five to six. Electricity can help reduce this burden. In some villages, womens workloads are also reduced by new improved roads. All the women agreed that electricity and roads have been beneficial. Firewood or heavy loads, such as sacks of rice, can be taken home by mini- tractors while

%%

water can be pumped. And rice no longer needs to be milled by hand but can be taken to a rice mill. My life is more comfortable - Nam Lai Fai Savang i.e. water is sufficient and electricity provides a bright light for the villagers. Buying or selling products is also easier, said a lady in Ban Khounkham In the old village, sometimes I had to carry firewood and a sack of rice on my back because of the bad road. Now, the family uses the mini-tractor to carry heavy goods home. In the old village rice mills were small; sometimes I had to come back and manually crush rice by myself as well. If the family wanted to go to the bigger rice mills, the only way was by bus which was very costly, said a lady in Ban Phoua Kao Khouay. Electricity can also increase womens incomes by making it possible to work at night doing weaving or cross snitch embroidery. Box 9: Ban Phou Kao Khouay Approximately 95 percent of villagers, especially women and girls do embroidery, earning between 20,000 - 100,000 kip depending on the size. Previously the lack of light at night limited these activities. One lady said that her daughters can embroider after their school work at night.
Source: Field visit

Interestingly, not only does electricity make it easy for women to work at night, it also creates a safer environment for them to move around in thus increasing their chances of participating in night meetings. As one lady of Ban Kengbit stated, in the past, only men were allowed to go to the community meeting as it was thought inappropriate for women to go out at night, possibly for reasons of security. However, this had limited the womens ability to participate in discussions on issues affecting them. Within the villages visited, the women apparently did not engage in prostitution during the construction. Prostitutes often came from other places - in Ban Kengbit women came from places like Pakse (Champasak), Thakek, Vientiane and even Vietnam. Nevertheless the village women are still at risk of STDs. Hydro- power projects may help to improve the lives of rural women by providing training that brings knowledge and skills to improve their living standards. Many projects provide training on health, family planning and so on. New skills could also be taught. New improved roads and the provision of health centres and schools also have positive impacts on women. For example, before the construction of THP Ban Kengbit did not have a school and nearly all the women

%'

were illiterate. Since THP helped fund the village primary school, girls have the chance to get an education. 5.10. Impacts on the Mekong Lao dam projects will have an impact internationally. They will not only create changes within the Lao PDR but also on the Mekong - one of the largest and richest rivers and a lifeline for the people in the region. Vietnam and Cambodia, in particular, will suffer an enormous negative impact. China has already completed two Mekong dams. The table below shows the hydro- power development on the Mekong in China. Table 8: Current status of Lancang-Mekong Dam Cascade Scheme Site Gonguoqiao Xiaowan Dam Height (m) 130 300 Installed Capacity (MW) 750 4,200 1,500 1,350 5,500 1,500 150 600 Resettlement Current (Persons) Status ? 32,737 3,513 6,054 23,826 2,264 ? ? ? Site preparation Completed Under construction Feasibility study Feasibility study ? ? Completion (Year) 2012 2010 - 14 1996 2003 2014 2013 Before 2025 Before 2025

Manwan 126 Dachaoshan 110 Nuozhadu Jinghong Ganlanba Mengsong 254 118 ? ?

Source: Blake (2001), Plinston and Daming (2000) cited in IRN (2002); ADB and GoL (2004)

China will also export its power to Thailand through the Lao PDR. A 550V transmission line will be installed in the north of the country. However, as yet, there has been no agreement between China and the Lao PDR. And five hydropower projects - with capacities ranging from 600 - 5,600 MW - are planned in the Salaween river basin in Myanmar. Purchasing negotiations between the Thai and Burmese governments are in progress. The Burmese are also encouraging Thailand to co- invest in their hydro- power projects. Thus, the construction of these dams (including Lao dams) will change the Mekong environment enormously. Despite the many claims (including those of the Mekong River Commission (MRC)), that the impacts of the upstream dams on the Mekong and especially on its tributaries will be minimal, many are still concerned with their possible

%(

negative impacts. The loss of fisheries is perhaps one of the major concerns since the Mekong is home to over 1,200 species of fish, and many people living along the river depend solely on fishing. Seventy percent of Lao rural households supplement their income by fishing while over 1 million Cambodians rely mainly on fishing to make a living. The MRC estimated that the total value of fish caught per year in the Lower Mekong Basin is more than US$1 billion - directly consumed by farmers and fishers. The annual yield of Mekong fisheries is estimated at one million tons - 40 percent of the production is in Cambodia. For the past few years, fish catches have been falling, while the number of fishermen has been growing. It is not clear if dam construction has played a part in this. In Cambodia, where freshwater fish provide around 80 percent of all animal protein consumed, fish catches doubled between the 1940s and 1990s while the number of fishermen tripled. As a result, the fish catch declined by 44 percent. There is no doubt that any further reduction in the fish catches will have a significant impact on Cambodia. Anyway governments in upstream countries are unlikely to give much thought to the impact of projects on lowly fishermen or farmers beyond their borders, (The Economist, 2004:30). Any unusual or unnatural changes of water levels and flows may disrupt important feeding, spawning and nursery grounds. Furthermore, greater regulation of the flood cycle means less frequent flood events on the natural flood plain, decreasing sediment and nutrient deposition and hence reducing natural soil fertility over a wide area - affecting agriculture and leading to the greater use of fetilisers - thus increasing costs of production and lowering the economic viability of this livelihood strategy In addition, the waters released from the dam contain less sediment and may create sediment hungry conditions - the river has a greater capacity to scour and erode. This may pose a major threat to places, such as Luang Prabang, Vientiane and Nongkhai - and give rise to potential economic losses through weakening the supports for bridges, piers and buildings (Blake, 2001; IRN, 2001). Box 10 illustrates the potential impacts of dams in all GMS countries on the Mekong Basin.

%)

Box 10: Impacts on the Mekong River Basin 31 5- year scenario The dominant factor will be some additional development of hydro- power in Yunnan and the Lao PDR. The impacts are calculated to be: Dry season discharge at Savannakhet may increase by 70 percent corresponding to a water level increase of 65 cm. During floods, the discharges may be reduced by around 10 percent corresponding to a reduction of water levels by 85 cm. At Kratie the average annual maximum flow will be reduced from the present baseline of 35,250 m3/s to 33,565 m3/s (5 percent) At the Tonle Sap River confluence (Phnom Penh) the water level will be reduced by about 25 cm during floods and increased by about 28 cm in the dry season. The Great Lake responds to the Mekong changes by lowering the average annual maximum level of the lake by 22 cm, compared to an annual variation in maximum level of about 2.53 m. The change in flow pattern will have a small negative impact on the floodplain and Great Lake fisheries as these are favoured by high wet season water levels. The changes in flow pattern will, however, have a small positive impact by damping damaging flood incidents and by the increased dry season water level that will support irrigation and reduce salt intrusion in Mekong Delta.
Source: EcoLao and Norplan (2004)

20- year scenario The dominant factor will be further development of hydro- power in Yunnan and the Lao PDR. The impacts are calculated to be: Dry season discharge at Savannakhet may be increased by 13.5 percent corresponding to a water level increase of 1.2 m. during floods. The discharge may be reduced by around 20 percent corresponding to a reduction of water levels by 1.6 m. At Kratie the average maximum flow will be reduced from the present baseline of 35,250 m3/s to 32,020 m3/s (12 percent). At the Tonle Sap River confluence (Phnom Penh) the water level will be reduced by about 60 cm during floods and increased by about 70 cm in the dry season. The Great Lake responds to the Mekong changes by lowering the average annual maximum level of the lake by 54 cm, compared to an annual variation in maximum level of about 2.53 m. The change in flow pattern will have a significant negative impact on the floodplain and Great Lake fisheries as these are favoured by high wet season water levels. The changes in flow pattern will, however, have a significant positive impact by damping damaging flood incidents and by the increased dry season water level that will support irrigation and reduce salt intrusion in Mekong Delta.

The main impact of NT2 on the Mekong is the change in the seasonal flows between the confluence of the Nam Kading and the Xe Bang Fai rivers. A
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&& &
#!

&This includes Includes the impacts of planned hydro- power developments in all GMS countries. %*

reduction of flows is expected in both the wet (by roughly 7 cm) and dry seasons (by 23 - 24 cm). The WB regards these as insignificant. The Mekong at Phnom Penh is estimated to be 2 cm higher in the dry season and 8 cm lower in the wet season (ADB, 2005). These river impacts will make a negative contribution not only to Lao human development but also to those other countries depending on the Mekong. As Witoon Permpongsacharon, Director of the Bangkok- based group TERRA (Blake, 2001) said, this (the Mekong river) is the lifeblood, the life source, for millions of people. You simply cannot afford to make any big mistakes with the Mekong. 6. Concerns and Recommendations: Weak environmental institutions, relatively low environmental concern or awareness Weak environmental, compensation and resettlement policies Inability to fulfill the promises made to the population affected Revenue management problems Monitoring and evaluation - risk management Unequal distribution of benefits at different levels - among provinces, districts, local people The slow process of compensation and support for the population affected The control of (unstoppable) logging around the dam sites Weak enforcement of regulations Weak integration or cooperation between various sectors within the government Concentration of power in decision- making Necessity of ensuring that the poor have access to electricity (for example by providing free electricity connections under the hydro- power project agreements). Special attention should be paid to the needs of the poorest to be resettled. Women and ethnic minorities must also benefit and be involved in any decision- making that will affect them - by providing consultancy. Each hydro- power plant has its own life span. The question is what will happen after the end of the hydro- power life span.

Source: ASEAN Electricity Trading Report, Porter, M. and Situmeang, H.

. There should be a revision and improvement of laws and policies on resettlement, compensation and environmental protection. As the ADB has acknowledged there are management problems associated with hydro- power projects in the Lao PDR, including weak monitoring and inadequate attention paid to environmental and social impacts; inadequate involvement of civil society

'+

in planning, implementation and monitoring activities, and weak enforcement of regulations, etc (IRN, 2004). When compared to China, the scale of the impact of hydro- power projects on the Lao population and environment is tiny. However, compensation, resettlement and environmental issues have not yet been effectively dealt with. The government should ensure that hydro- power projects, which could bring enormous revenue to the Lao PDR, improve the lives of the villagers affected. Recently IPP projects have paid greater attention to the environment and resettlement than have many EdL projects. However, local villagers very often are unable to keep up with the fast pace of the development brought by hydropower projects. As villagers from both Ban Kengbit and Namsanam said, The project has been helping us a lot but then we cannot keep up with it. Other indirect negative effects may include fiscal indiscipline, poor debt management, Dutch Disease, and other currency risks. Debt will be increased as numbers of hydro- power projects increase. However, many claim that the revenues from electricity will be more than enough to pay off debt (but maybe not without a good debt management). In addition, importantly and ultimately, the benefits of electricity exports will depend on the expenditures of revenues by the government. Presently, it is not clear what the revenues from electricity exports are used for. Although it is claimed that NT2 revenues will be kept separate and transparent, and will be utilised directly for poverty reduction, at the end of the day it all goes into the national budget (mixing with other revenues) And the Ministry of Finance will be the only decision maker.

'!

References Ali, I and Pernia, E., 2003 Infrastructure and Poverty Reduction - What is the Connection? Philippines ADB ADB (Asian Development Bank), 2005 Report and Recommendation of the Preseident of the Board of Directors on a Proposed Loan to the Greater Mekong Subregion: Nam Theun 2 Hydroelectric Project, Vientiane ADB, 2004 Scaling up Poverty Reduction Potential of Infrastructure Projects: Lessons from the Asia- Pacific Region, Paper prepared for the Conference on Scaling Up Poverty Reduction Shanghai, The Peoples Republic of China, 25- 27 May 2004. ADB, 1999 Technical Assistance to the Lao Peoples Democratic Republic for the Power Sector Strategy Study Vientiane ADB, 2002a Project Performance Audit Report on the Thuen- Hinboun Hydropower Project in the Lao Peoples Democratic Republic, Vientiane ADB, 2002b Powering Economic Development and Reduction: A Case Study Based Analysis, Philippines: ADB ADB, 2002c Project Performance Audit Report: Theun- Hinboun Hydropower Project, Vientiane ADB, 2002d Logical Framework: 2001- 2006, Vientiane ADB and the GoL (Government of the Lao PDR), 2004 Cumulative Impact Analysis and Nam Theun 2 Contributions, Vientiane Blake, D., 2001 Proposed Mekong Dam Scheme in China Threatens Millions in Downstream Countries, World Rivers Review, June 2001, International Rivers Network, pp.4- 5 Delplanque, L., 2005 NTPCs Letter to the Editors, The Sydney Morning Herald, www.smh.com.au EcoLao and Norplan (2004) Culmulative Impact Analysis and Nam Theun II Contributions (from ADB website) Economist, 2005 The sweet serpent of South- East Asia, January 3rd, 2005, pp.28- 30 Environmental Impact Specialists and THPC (Theun-Hinboun Power Company), 2000 Theun- Hinboun Power Project Mitigation of Project
'"

Impacts: Phase 2 - A 10 year Mitigation & Compensation Master Plan Executive Summary, Vientiane FIVAS, 2004 Report of NGO Visit to Proposed Nam Theun 2 Hydroelectric Project, Lao PDR Foreign for Internasjonale Vann-og Skogstudier, 2004 Report of NGO Visit to Proposed Nam Theun 2 Hydroelectric Project, Lao PDR Foundation for Ecology Recovery, 2004 Nam Theun 3: No time for another mistake, Watershed: Peoples Forum on Ecology, No. 1, Vol. 10, July- Oct 2004, http://www.terraper.org/watershed/ Fozzard, A., 2005 Revenue and Expenditure Management: Nam Theun 2 Hydroelectric Project, the World Bank, Vientiane. Gupte, P., 2004 Laos: Still poor for now, but forgotten no more: Communist state inviting kinder thoughts from the outside world, The Straits Times, http://straitstimes.asia1.com/sub/storyprintfriendly/0,5578,281158,00.html (25/10/2004). IRN (International Rivers Network), 2005 Forestry Development Program for the Nam Theun 2 Hydropower Project: An Independent Analysis, www.irn.org. IRN, 2004 The Legacy of Hydro in Laos, www.irg.org IRN, 2002 Chinas Upper Mekong Dams Endanger Millions Downstream, http://www.irn.org/programs/mekong/gmskit/03.uppermekongfac.pdf IRN, 1997 The Asian Development Bank: Financing Destructive Development in the Greater Mekong Subregion, http://irn.org/programs/mekong/aviva.html (16/05/2005). IRN and Environmental Defense, 2005 Why Nam Theun 2 will Not Help the Poor in Laos, www.irg.org Levett, C., 2005 Dam a watershed for World Bank, The Sydney Morning Herald, www.smh.com.au LNCE (Lao National Committee for Energy), 2005 www.poweringprogress.org Maunsell Limited and Lahmeyer GmbH, 2004 Power System Development Plan for Lao PDR, Final Report, prepared for Ministry of Industry and Handicrafts and The World Bank, Vientiane

'#

MAF (Ministry of Agriculture and Forestry), 2005 The Forestry Strategy 2020, Vientiane MEM (Ministry of Energy and Mining), 2004 Statistics of Electricity Consumption in year 2003, Vientiane MEM, 2004 Power Sector Strategy Study, Vientiane Moreau, R. and Ernsberger, R., 2001 Strangling the Mekong, http://www.probeinternational.org/pi/Mekong/index.cfm?DSP=content&Co ntentID=1871 NTPC (Nam Theun 2 Power Company), 2005a Environmental Assessment and Management Plan, Vientiane NTPC, 2005b Social Development Plan, Vientiane National Policy, 2005 Environmental and Social Sustainability of the Hydropower Sector in Lao PDR issued by the Deputy Prime Minister, 07 Jun 2005 Perlez, J., 2005 Chinas reach: The Trouble Downstream: In Life on the Mekong, Chinas Dams Dominate, The New York Times, March 19, 2005, www.nytimes.com/2005/03/19/international/asia/19mekong.htm?ei=5070& en=7129 (21/03/2005) Porter, M. and Situmeang, H., 2005 Preparing for Electricity Trading in ASEAN, Tasman Asia Pacific Roberts, T., 2001 Downstream ecological implications of Chinas Lancang Hydropower and Mekong Navigation project, International Rivers Network, www.irn.org/programs/lancang/index.php?id=021112.ecoimplications.html (16/05/2005) Sayboualaven, P., 2004 Hydroelectric Dams and the Forgetten People of the Boloven Plateau, www.irn.org Siebert, R., 2001 No Chance for Participation: Dam- Building on the Mekong River, Development and Cooperation, No. 4, July/August 2001, pp.1419, www.inwent.org/E+Z/1- - 7- 2001/de401- 4.html GRID (The Gender Resource Information and Development Centre), and the World Bank, 2004 A Country Gender Analysis and Profile of the Lao PDR (Final Draft), Vientiane

'$

White, W.C., 2001 Theun- Hinboun: An assessment of early project performance, prepared for Probe International, www.probinternational.org/pi/documents/mekong/TheunHinboun2.html WB (The World Bank), 2005 Nam Theun 2 Hydroelectric Project: Project Economic Analysis, Vientiane WB, 2004 Nam Theun 2 Project Economics Interim Summary Report, Vientiane WCD (World Commission on Dams), 2000 Dams and Development: A New Framework for Decision- Making, http://www.dams.org/report/ (07/07/2005) Theiss, E., 2005 Reservoir Fisheries Predictions for the Nam Theun 2 Hydroelectric Project, IRN Vientiane Times Articles July 27, 2005, pp. 6: Dr. Chi Do Pham, Approved Nam Thuen II Project Augurs Well For A New Economic Era: Propects and Realities for Laos June 01, 2005, pp.1: Phonpachit, S. Nam Ou 8 hydroelectric power project underway May 31, 2005, pp.1: Phonpachith, S., Nam Ou 8 hydroelectric power project underway May 09, 2005. Pansivongsay, M., Tourist complex for Nam Ngum May 1, 2005, pp 7: Vongsay, P., Electricity prices under discussion April 27, 4 2005, pp.3: Latsaphao, K., Feeding the workers at Nam Theun 2 April 27, 4 2005, pp.7: Phonpachith, S. Nam Ngum 3 hydro project MOU signed April 26, 4 2005, pp.1- 2: Latsaphao, K., Nam Theun 2: Villagers relocate to a better life April 25, 2005: Vongsay, P., Regional energy links reviewed April 21, 4 2005, pp.1: AFD supports Nam Theun 2 project April 20, 2005, Latsaphao, K., Village resettlement underway in Nakai April 4, 2005, pp.1: WB approves Nam Theun 2 loan, March 31, 3 2005, pp.1: Nakai district chief speaks up March 21, 3 2005: Vongmany, S., Power integration workshop February 28, 2005, pp1: China to face electricity shortage in 2005 February 25, 2005, pp1: Vongsay, P., Electricity charges to rise The decree on compensation and resettlement caused by the development project, issued by the Prime Minster of Lao PDR, 07/07/05 (in Lao). Further Contributors of Some Data on Electricity Export Department of Electricity, Ministry of Industry and Handicrafts Electricit du Laos Lao National Committee for Electricity (Mainly website)
'%

Appendix Table 1: Estimated Government Financial Benefits from the Development Plan for IPP Export Projects

Estimate of Financial Benefit to the GoL of the Proposed Development Plan for IPP Export Projects (in Million US$ at current prices)

Total Annual Benefit (Mio US$; at Current Prices) 2000 IPP Development Plan Theun Hinboun HPP Houay Ho HPP 1) Nam Theun 2 HPP Nam Mo HPP Nam Ngum 3E HPP Nam Ngum 2B HPP Xe Pian - Xe Namnoi HPP Xe Kaman 3 HPP Nam Theun 1F HHP Nam Ngiep 1 HPP Xe Kaman 1 HPP Nam Kong 1 Total Net Benefit from IPPs Aver. Benefit per kWh gen. (Uscts/kWh, nominal) Benefit by Type Royalties Dividend Profit Tax from HPP Less debt service Total Net Benefit for IPPs Estimates Export Revenue from Domestic HPP 2) Total Export Revenue Lao 23.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 23.3 1.50 2001 24.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 24.3 1.57 2002 25.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 25.7 1.66 2003 29.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 29.8 1.92 2004 31.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 31.3 2.02 2005 32.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 32.8 2.12 2006 34.4 0.0 0.0 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 36.3 1.71 2007 27.0 0.0 16.6 2.2 4.3 1.5 8.5 0.0 0.0 0.0 0.0 0.0 60.0 0.48 2008 28.4 0.0 18.6 2.4 4.3 1.9 9.6 2.3 3.1 2.6 0.0 0.0 73.3 0.43 2009 29.9 0.0 20.6 2.6 4.4 2.4 10.8 2.3 3.1 2.6 5.4 1.2 85.3 0.43 2010 39.9 0.0 22.5 2.9 4.5 2.8 11.9 2.4 3.6 2.6 6.5 1.2 100.8 0.50 2011 38.3 0.0 24.5 4.2 5.6 3.2 13.1 2.7 4.6 3.1 7.5 1.2 108.1 0.54 2012 35.6 0.0 26.5 4.5 9.6 4.7 17.7 3.5 5.7 4.0 8.6 1.3 121.6 0.61 2013

35.9 0.0 31.5 4.8 12.3 5.3 19.2 5.4 8.7 6.2 9.7 1.3 140.3 0.70

3.8 20.1 0.0 0.6 23.3 21.7 44.9

3.9 21.0 0.0 0.6 24.3 21.4 45.6

3.9 22.4 0.0 0.6 25.7 19.5 45.2

3.9 19.7 6.8 0.6 29.8 16.8 46.6

4.0 20.8 7.1 0.6 31.3 10.2 41.5

4.0 22.0 7.4 0.6 32.8 17.6 50.5

5.2 24.0 7.8 0.7 36.3 20.0 56.3

25.5 31.3 6.2 3.0 60.0 29.4 89.4

35.0 35.9 6.6 4.2 73.3 35.0 108.3

41.0 42.4 6.9 4.9 85.3 39.4 124.7

41.5 57.0 7.2 4.9 100.8 34.3 135.0

42.0 64.3 8.7 6.9 108.1

42.5 67.3 18.7 6.9 121.6

43.0 73.4 30.8 6.9 140.3

''

1) Houay Ho HPP, which presently does not generate a benefit and for which a financial restructuring plan is pending, has not been taken into account. 2) Estimated to 2010 only

Estimated Financial Impact of Benefits from Export Projects on Lao Economy

(in Million US$ equivalent; at current prices) Historic 1997 Projection (Estimate) 2004 2005 2006

1995 Benefits from Export Projects to Lao Benefit from IPPs Royalties Profit Tax Dividend to EdL Less GoL debt service for equity loan Total Net Benefit to Lao Revenue of EdL from power export Gross Revenue Less Production Cost (estimated) Net profit from Export Total Net Benefit to Lao from Power Export Gross Domestic Product (GDP) In billion kip at constant prices of 1990 annual growth (real) annual inflation In billion Kip at current prices Av. Exchange rate (kip/US$) Exchange rate variation In million US$ at current prices Population (million) Per Capita GDP (US$ equivalent) Benefit from Power Export in % of GDP (excl. net contribution of power plant operation) GoL Revenue Total excluding revenue from export IPPs Annual increase (assumption) Revenue from export IPPs (royalties, tax) In % of Total GoL Revenue Total GoL Revenue Export Revenue Total, excluding EdL power export Annual increase (assumption) EdL Power Export Total Export Revenue EdL Power Export in % of Total Export

1996

1998

1999

2000

2001

2002

2003

2007

2008

3.1 16.0 0.6 18.5 15.7 6.3 9.4 27.9

3.8 18.0 0.6 21.2 22.4 9.0 13.4 34.7

0.0 24.1 9.6 14.5 14.5

0.0 29.7 11.9 17.8 17.8

0.0 20.8 8.3 12.5 12.5

3.8 0.0 20.1 0.6 23.3 21.7 8.7 13.0 36.3

3.9 0.0 21.0 0.6 24.3 21.4 8.5 12.8 37.1

3.9 0.0 22.4 0.6 25.7 19.5 7.8 11.7 37.4

3.9 6.8 19.7 0.6 29.8 16.8 6.7 10.1 39.9

4.0 7.1 20.8 0.6 31.3 10.2 4.1 6.1 37.4

4.0 7.4 22.0 0.6 32.8 17.6 7.1 10.6 43.4

5.2 7.8 24.0 0.7 36.3 20.0 8.0 12.0 48.3

25.5 6.2 31.3 3.0 60.0 29.4 11.8 17.6 77.7

35.0 6.6 35.9 4.2 73.3 35.0 14.0 21.0 94.3

835.6 7.0% 1,419.1 830 1,710 4.83 354 0.8%

893.3 6.9% 1,725.7 950 14% 1,817 4.96 366 1.0%

955.0 6.9% 2,200.7 1,350 42% 1,630 5.09 320 0.8%

983.4 3.0% 3,745.0 3,400 152% 1,101 5.22 211 2.5%

1,035.0 5.2% 8,700.0 7,900 132% 1,101 5.36 205 3.1%

1,086.8 5% 10% 10,005 8,200 4% 1,220 5.49 222 3.0%

1,141.1 5% 10% 11,506 8,500 4% 1,354 5.63 240 2.7%

1,198.1 5% 10% 13,232 9,095 7% 1,455 5.77 252 2.6%

1,258.0 5% 10% 15,216 9,732 7% 1,564 5.92 264 2.5%

1,321.0 5% 10% 17,499 10,413 7% 1,680 6.06 277 2.2%

1,387.0 5% 10% 20,124 11,142 7% 1,806 6.22 291 2.4%

1,456.3 5% 10% 23,142 11,922 7% 1,941 6.37 305 2.5%

1,529.2 5% 10% 26,613 12,756 7% 2,086 6.53 319 3.7%

1,605.6 5% 10% 30,606 13,649 7% 2,242 6.69 335 4.2%

282.4 0.0 0% 282.4

289.4 0.0 0% 289.4

220.9 0.0 0% 220.9

166.8 3.1 2% 169.9

185.0 3.8 2% 188.8

198.0 7% 3.8 2% 201.8

211.8 7% 3.9 2% 215.7

226.6 7% 3.9 2% 230.5

242.5 7% 10.7 4% 253.2

259.5 7% 11.1 4% 270.5

277.6 7% 11.4 4% 289.1

297.1 7% 13.0 4% 310.0

317.9 7% 31.8 9% 349.6

340.1 7% 41.6 11% 381.7

288.7 24.1 312.8 7.7%

291.0 0.8% 29.7 320.7 9.3%

296.1 1.8% 20.8 316.9 6.6%

325.3 9.9% 15.7 341.0 4.6%

288.5 - 11.3% 22.4 310.9 7.2%

300.0 4% 21.7 321.7 6.7%

312.0 4% 21.4 333.4 6.4%

324.5 4% 19.5 344.1 5.7%

337.5 4% 16.8 354.3 4.8%

351.0 4% 10.2 361.2 2.8%

365.0 4% 17.6 382.7 4.6%

379.6 4% 20.0 399.6 5.0%

394.8 4% 29.4 424.2 6.9%

410.6 4% 35.0 445.6 7.9%

Source: MIH

'(