ABSTRACT
Introduction In early 2010, the Nam Theun 2 (NT2) project – the largest hydropower plant in Lao PDR – went into operation after a five-year construction period. Touted as a “world class project” according to Patchimuthu Ilangovan, the Country Manager of the World Bank in Laos, the Nam Theun 2 is expected to generate approximately US$2 billion in revenues through taxes, dividends, and royalties for the Lao government over a 25-year operating period. This constitutes about 7-9 percent of the country’s annual budget and will be a key resource that will finance the development programs of Laos, specifically its drive to reduce poverty. As per update from the World Bank, the first revenue stream amounting to US$600,000 revenues from electricity sales to Thailand was already received by the Lao government in June 2010.1 An additional US$6.5 million was expected to bring in revenues in late 2010. To ensure that revenues are utilized to fund development programs, the World Bank assisted in the creation of the Poverty Reduction Fund, while the Asian Development Bank is working closely with the Lao government on streamlining reporting systems to ensure effective revenue management and accountability mechanisms. Despite this early economic success, the NT2 hydroproject has not been without controversy. Since the idea of the project began in the early 90s, various groups sought to oppose the project on the basis of environmental and social concerns. The World Bank, one of the project’s major financiers, agreed to postpone the project while putting together a comprehensive package of compliance measures that consisted of (i) an Environmental Impact Assessment and mitigation measures to address environmental degradation, (ii) a Social Impact Assessment, addressing in particular the sensitive issues of relocation of affected communities and a corresponding compensation policy, and (iii) an extensive multi-stakeholder process that involved consultations among a diverse set of stakeholders including the communities who were directly affected by the project. Further, the NT2’s massive financial requirements required private sector financing due to the limited financing capacity of international financial institutions. The result of extensive negotiations yielded a complex web of partnerships
that involved the Government of Laos, the World Bank, the Asian Development Bank, and seven international private sector partners to provide technical and financial expertise. The Nam Theun 2 Power Company spearheaded by a French contractor was established as the implementing unit to oversee the construction, implementation, and eventual turn-over of the project after 25 years under a Build-Operate-Transfer agreement with the Lao government.
