The Nam Theun 2 Hydropower Project, or simply NT2, is a hydroelectric dam on the Nam Theun River in Laos. Commercial operation of the plant began in April 2010. The scheme diverts water from the Nam Theun, a tributary of the Mekong River, to the Xe Bang Fai River, enabling a generation capacity of , from a difference in elevation between the reservoir and the power station.
It is the 2nd largest hydroelectric project so far in Laos after Xayaburi Dam, exporting power to Thailand as well as supplying the local area with electricity. At the time of signing in 2005, NT2 was the largest foreign investment in Laos, the world's largest private sector cross-border power project financing, the largest private sector hydroelectric project financing, and one of the largest internationally financed IPP projects in Southeast Asia. The dam also marked a return by the World Bank to funding large-scale infrastructure, after a decade-long hiatus.
According to the government of Laos, "the project is an essential part of the country's development framework and the project's implementation is likely to be the first real possibility for (Laos) to reduce gradually its dependence on Official Development Assistance".
The project has significant environmental and social impacts, and comprehensive measures have been designed to mitigate these. According to a group of social and environmental experts who advise on the project, these measures could become a global model. Although Newsweek referred to it as a "kinder and gentler dam",World Bank September 2007 the project has also attracted criticism.
By 2015, it was possible to see the effect of the dam and criticism mounted. A group of non-governmental organisations said: "Ten years after the start of the construction of the Nam Theun 2 Dam in Central Laos, it is clear that this mega project has disastrous impacts on people and their environment."
History and current status The Nam Theun 2 project was identified in the 1980s and a concession was awarded in 1993. It was subjected to a long anti-dam campaign. The project was frozen after the 1997 Asian financial crisis, but preparation resumed in 1999. In October 2002 a concession contract between the Nam Theun 2 Power Company (NTPC) and the government of Laos was signed, followed by the signing of power purchase agreements (PPA) in November 2003 between NTPC on the one hand and, Electricity Generating Authority of Thailand (EGAT) and the Laotian state-owned power company Electricite du Laos (EDL) on the other. Financial closing was reached in June 2005. The Nam Theun River diversion was begun in March 2006 and then closed in April 2008 following completion of the Nakai Dam wall. Impoundment of the Nakai Reservoir occurred over the 2008 wet season and the reservoir was close to full supply level by the end of 2008. Test hydro power generation began in mid-2009 and the commercial operation date was achieved in April 2010.Nam Theun official website , accessed on 20 May 2010
Technical features NT2 enables Laos to export of electrical energy to the EGAT. The project also supplies of capacity for domestic use in Laos.
Nam Theun 2 is a trans-basin diversion power plant that uses water from the Nam Theun River and releases the water into the Xe Bang Fai River. The project site is in Khammouane and Bolikhamxay Provinces in central Laos, about 250 kilometers east of Vientiane. It stretches from the Nakai Plateau to the lower Xe Bang Fai River confluence with the Mekong.
The main features of the project include: high gravity dam reservoir Pressure shaft, pressure tunnel and a powerhouse artificial regulating pond, and a artificial downstream channel leading to the Xe Bang Fai River long, double-circuit transmission line to the Thai grid long, single-circuit transmission line to the Lao domestic grid.
Institutional arrangements The project is structured as a build-operate-transfer (BOT) project. It has a concession period of 31 years, of which the operating period is 25 years. At the end of the concession period, the project facilities will be transferred to the government free of charge.
The project was developed by NTPC, which is owned by a consortium composed of EDF (40%), Electricity Generating PCL (EGCO) of Thailand (35%), and the Government of Laos (25%). Governments and government-owned enterprises own a majority of NTPC. This arrangement is atypical of an IPP. Normally the power generating company is privately owned.
Laos is a People's Democratic Republic (PDR) with a one-party system under the Lao People's Revolutionary Party. It is one of the few communist states in the world.
The government has multiple roles related to NT2, some of which may be conflicting: It partially owns NTPC and thus has an interest in the financial profitability of the project; it is supposed to monitor compliance with environmental and social safeguards under the concession contract; and it buys some of the electricity generated from the project through the state-owned power company EDL and thus has an interest in low electricity prices.
Some of the owners of NTPC are also contractors engaged in the construction of the dam. For example, EDF International is the lead contractor for the project under a turnkey contract. It has engaged various sub-contractors for specific parts of the project.
Financial aspects
Project costs and financing Construction costs were initially estimated at US$1,250 million plus US$331.5 million for contingencies. More recently construction costs have been given as US$1.3 billion.
The project base cost is funded through US$330 million of equity and US$920 million of debt. It is financed through equity, loans and guarantees from 26 financial institutions, including four multilateral development banks (the World Bank Group, the Asian Development Bank (ADB), the European Investment Bank (EIB), and the Nordic Investment Bank), three export credit agencies (Coface of France, EKN of Sweden, and GIEK of Norway), three bilateral financing agencies (French Development Agency, PROPARCO, and the Export-Import Bank of Thailand), nine international commercial banks providing finance in hard currencies (grouped together in a "lead arrangers group" including BNP Paribas, Crédit Agricole Indosuez, ANZ from Australia, Société Générale, Fortis Bank, and Bank of Tokyo-Mitsubishi), and seven Thai commercial banks providing finance in Thai baht.
All financing in hard currencies is guaranteed through political risk insurance provided by the above-mentioned three export credit agencies, the ADB (US$50 million), the International Development Association (IDA) of the World Bank Group (US$50 million), and the Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group (US$91 million). Specifically, MIGA has provided a US$86 million guarantee to Fortis Bank of Belgium against the risks of expropriation, breach of contract, war and civil disturbance, as well as transfer inconvertibility in both Laos and Thailand. According to MIGA, its guarantee "was key to lowering the project's risk profile, which in turn enabled the government and developers to attract commercial financing at better rates and gave the investor the assurance needed to go ahead with the deal".
The government's initial equity contribution of US$83 million (25%) was largely funded by donors, including a US$20 million grant from the International Development Association of the World Bank Group, the ADB (US$20 million), France, and the EIB.
Increase in government revenue and contribution to poverty alleviation According to the government "the Project is an essential part of the country's development framework and the Project's implementation is likely to be the first real possibility for (Laos) to reduce gradually its dependence on Official Development Assistance." In the same vein, the then Managing Director of the World Bank, Shengman Zhang, said in 2003 "We see Nam Theun 2 not as a project per se, but as a vehicle through which to make a considerable progress in the effort of poverty reduction."
The project generates three forms of revenue: dividends taxes royalties, i.e., concession fees.
Government revenue is estimated at US$1.9bn to US$2bn in nominal terms over 25 years. It has been estimated that at a 10% discount rate the net present value of the revenues will be six times higher than the net present value from the debt service, if all government equity was funded through concessionary lending. Revenues are expected to increase progressively from approximately US$10M in 2009 to US$110 to 150M per year at the end of the concession period in 2033. Thereafter the government will receive all revenues accruing to the project.
The power purchase agreement (PPA) between EGAT and NTPC was designed as to stabilize the cash flow despite hydrological variation and consequently variation in power output. Revenues will be partially in USD and partially in Thai baht. Power demand from Thailand is expected to be strong. In December 2007, Thailand and Laos signed an agreement increasing the total power to be supplied by Laos to Thailand from all sources in 2015 from 5,000 MW to 7,000 MW.Thailand Ups Demand for Lao Energy
The World Bank works with the Lao government to improve public financial management practices and increase transparency in order to increase the likelihood that revenues will be used to benefit the poor, including through investment in health and education. The government has agreed with the World Bank to implement a Poverty Reduction Fund that is being initially sourced from International Development Association funds, and then from the government's taxes, royalties, and dividends once the project commences operation. Special administrative units are being established to deal with the effective management and allocation of the funds earned by the project.
In 2007 Laos was ranked on the Corruption Perception Index by Transparency International 168 out of 179 countries assessed, making it one of the most corrupt countries on the index.
Environmental and social impacts Environmental and social impacts of the project include downstream impacts, impacts on biodiversity, resettlement, and reservoir sedimentation. More details can be found in the Environmental and Social Impact assessment,Summary Environmental and Social Impact Assessment , NAM THEUN 2 HYDROELECTRIC PROJECT IN THE LAO PEOPLE'S DEMOCRATIC REPUBLIC, November 2004. Retrieved 5 November 2009. and in the summary provided for the various impacts below.
Monitoring and evaluation NT2 has a multi-layer environmental and social monitoring and evaluation mechanism consisting of the following elements:
The Panel of Environmental and Social Experts) (POE) reports to the government. The POE normally visits Laos at least once per year. An International Advisory Group (IAG), advising the World Bank. The IAG normally visits Laos at least once per year. Independent Monitoring Agencies, reporting to the government. The Independent Monitoring Agencies were in the process of being assembled in December 2006. The Lenders' EngineerWorld Bank Monitoring and Evaluation December 2006
The comprehensive environmental and social measures designed to mitigate potential environmental and social impacts could become a "global model", according to a group of social and environmental experts who advise on the project.