Nam Theun 2 Hydropower Project in Laos Case Study

An expansive, modern hydroelectric project has progressively emerged as a base for Laos' development strategy.

The past ten years have seen tremendous growth within Laos as Nam Theun 2, an expansive, modern hydroelectric project, has progressively emerged as a base for the country’s development and an integral part of the country’s National Growth and Poverty Eradication Strategy. The project’s development process and its implementation have been instrumental in fostering economic reforms in Laos and its integration in the regional economy.

Inside one of Asia’s poorest countries, the Nam Theun 2 (NT2) hydroelectric dam is busy generating electricity – and national income. As with most big dams, it has divided opinion. But the project’s backers hope it will come to be seen as a model in socially sustainable infrastructure. On track to generate US$2 billion in revenues over 25 years, the 1,070-MW plant could contribute significantly to development and poverty reduction in Laos.1

The US$1.3 billion dam was jointly financed by a host of multilateral development banks, bilateral funding agencies and commercial banks from around the world. In all 27 parties were involved, from the World Bank, Asian Development Bank and French Development Agency AFD to BNP Paribas and Fortis Bank.2

Opponents of NT2 have criticised these institutions for supporting a project that displaced more than 6,000 local people.3 But its backers hail a success story in leveraging international finance for poverty alleviation.4 While a portion of the electricity generated stays at home, the bulk is exported to Thailand under a 25-year fixed-price power purchase agreement, meaning a big income boost for Laos.5 That revenue is largely reinvested in programmes to tackle poverty, boost health and education and improve environmental management domestically.6

The Nam Theun 2 Power Company, whose owners include Electricité de France, the Laos government, the Italian-Thai Development Public Co Ltd. and Thai power producer EGCO,7 have also sought to mitigate environmental and social impacts, investing heavily in local conservation efforts,8 as well as new housing and infrastructure on the Nakai Plateau.9 Household surveys suggest resettled communities are better off today than before they moved, says the World Bank.10

Challenges remain, including ensuring sustainable livelihoods for resettled people and supporting downstream areas, where campaign groups say fisheries and water quality have been disrupted.11 However, by enabling small and impoverished Laos to sell clean electricity to its energy-hungry neighbour, NT2’s backers point to a double win, and say they have shown that hydropower – done properly – can be an important development tool.12

References

1 Zachau, U., Times, V. (2015) “Can We Make Hydropower Work for All in Laos?”. World Bank News, 14 May. http://www.worldbank.org/en/news/opinion/2015/05/14/can-we-make-hydropower-work-for-all-in-laos.

2 World Bank. (2005) “IDA Guarantee Paves Renewed Interest in Private Hydropower – the Nam Theun 2 Project”. World Bank Project Finance and Guarantees Group, June. http://siteresources.worldbank.org/INTGUARANTEES/Resources/Lao_NamTheun2_Note.pdf

3 International Rivers. “Nam Theun 2 Dam”. https://www.internationalrivers.org/campaigns/nam-theun-2-dam.

4 Zachau, U., Times, V. (2015) “Can We Make Hydropower Work for All in Laos?”. World Bank News, 14 May. http://www.worldbank.org/en/news/opinion/2015/05/14/can-we-make-hydropower-work-for-all-in-laos.

5 Sinha, S. (2007) “Nam Theun 2 (NT2) Hydorelectric Project”. World Bank Group and Indian Institute of Management, January. https://ppiaf.org/sites/ppiaf.org/files/documents/toolkits/Cross-Border-Infrastructure-Toolkit/Cross-Border%20Compilation%20ver%2029%20Jan%2007/Resources/Sinha%20-%20Case%20Study%20Nam%20Theun.pdf.

6 European Investment Bank. (2015) “Update: Nam Theun 2 Hydropower Project, Laos”. EIB News, 9 November. http://www.eib.org/infocentre/press/news/topical_briefs/2005-november-01/nam-theun-2-hydropower-project-laos.htm.

7 Ibid.

8 “Nam Theun 2 Watershed Management and Protection Authority (NT2 WMPA)” http://www.nt2wmpa.gov.la/en/about/.

9 Zachau, U., Times, V. (2015) “Can We Make Hydropower Work for All in Laos?”. World Bank News, 14 May. http://www.worldbank.org/en/news/opinion/2015/05/14/can-we-make-hydropower-work-for-all-in-laos.

10 Ibid.

11 International Rivers. “Nam Theun 2 Dam”. https://www.internationalrivers.org/campaigns/nam-theun-2-dam.

12 Zachau, U., Times, V. (2015) “Can We Make Hydropower Work for All in Laos?”. World Bank News, 14 May. http://www.worldbank.org/en/news/opinion/2015/05/14/can-we-make-hydropower-work-for-all-in-laos.