Dead in the water: Global lessons from the World Bank's model hydropower project in Laos (Shoemaker and Robichaud, 2018)

Rajesh Daniel

DeadInTheWaterShoemaker, B. and Robichaud, W. (Eds). 2018. Dead in the water: global lessons from the World Bank's model hydropower project in Laos, University of Wisconsin Press. ISBN 0299317900, 384 p. Hardcover $79.95.

(URL: https://uwpress.wisc.edu/books/5568.htm)

Rajesh Daniel

Stockholm Environment Institute, Bangkok, Thailand; rajesh.daniel@sei.org

 

To cite this Review: Daniel, R. 2018. Review of “Dead in the water: global lessons from the World Bank's model hydropower project in Laos”, University of Wisconsin Press, 2018, by Shoemaker, B. and Robichaud, Water Alternatives, http://www.water-alternatives.org/index.php/boh/item/9-dw

 

In July 2018, the massive dam break of the Xe-Pian Xe-Namnoy dam in Laos killed more than 30 people in Laos and left thousands of people homeless in both Laos and Cambodia. The US$1 billion Xe-Pian Xe-Namnoy dam was a "build-operate-transfer" project much like the Nam Theun 2 (NT2) dam.

The US$1.3 billion, 1070 megawatt, trans-basin NT2 dam, built on one of the largest tributaries of the Mekong River inside Lao PDR, is the largest hydropower plant in Lao PDR in terms of generating capacity. The NT2 is also the largest private sector financed project in Lao PDR. Also, according to the World Bank, NT2 is their "largest and most controversial project". This book is about the NT2, it explores how NT2 came to be built, and how it helped the Government of Lao PDR (GoL) break ground in attracting private finance for the build-own-operate dam schemes that are a feature of hydropower development in present day Laos. In detailing the many socio-ecological and economic issues, the book makes the case that the NT2 has not kept the World Bank’s promises of poverty reduction and environmental sustainability.

This book provides a fascinating account of how, with the NT2, the World Bank and the GoL took the first steps on the dam-building program that has brought us to where we are now: more than 72 new large dams, 12 of which are under construction and 25 in advanced planning stages in Laos, many involving private-public partnerships.

The World Bank was not a direct funder of the NT2 dam but a "guarantor" for the project’s private investors against the risk of financial loss from political instability. The Bank has touted NT2 as a "promising new model" for dam building that could lead to poverty reduction and a test case for "project-specific environmental and social protection policies" that could be replicated in other dam projects involving the Bank.

During the late 1990s, the dam industry, along with the World Bank (as one of the key funders of large dams around the world), was being forced to answer difficult questions from the World Commission on Dams (WCD) about why large dams were actually increasing rural impoverishment rather than alleviating poverty and causing conflicts.

The NT2 made easier the Bank’s reentry into dam building after the difficult years of the WCD. The Bank’s experience with NT2 also helped it launch a major initiative to support hydropower development in other countries, for example in Myanmar through the Bank’s private sector arm, the International Finance Corporation (IFC), and in Nepal and Vietnam.

With the NT2, the World Bank promised nothing less than a transformation in the socio-economic landscape of Laos. Given the high stakes involved, ever since its planning in the 1990s, to project approval by the World Bank in 2005, and after commercial operations began in 2010, the debate about whether the NT2 is a "good" or "bad" dam has not gone away.

Was the promise kept, of bringing a better future for the people in Laos? Did the dam revenues go as intended towards national poverty alleviation? Finally, were the disruptions across two major river basins in Laos in creating one of Asia’s largest reservoirs and resettling several thousand indigenous peoples and destroying the Nakai Plateau’s rich biodiversity including fisheries worth it?

According to the World Bank, the answer to all of the above is yes. The book offers a counter perspective: that the World Bank’s rosy view of the NT2 is not justified, and NT2 was a disappointment from which the Bank should draw lessons to change its approach to similar large dam projects.

NT2 and the build-own-operate-transfer model

NT2 coincided with the World Bank emphasizing the need for greater private sector financing in government projects: the public-private partnership model would generate revenue for both companies and governments and reduce the need for the poorest nations to rely on hand-outs from grants and soft loans. To this was added the build-own-operate-transfer (BOOT) model of dam building that is now in place in much of the Mekong Region.

Chapter one shows that, during the 1990s, public-private partnerships in a country like Laos, with weak governing institutions and a government seen as non-credit worthy, were considered a big risk. Companies were wary of entering unless they could be assured their investments (that could often last 25 years for a large dam) would be protected. The World Bank entered with "a precedent-setting political risk guarantee" (p. 30) and said that NT2 would be the beneficiary as a first test case of the mechanism.

Despite the risk guarantee, many hurdles cropped up. By 2000, the World Commission on Dams (WCD), after reviewing dams around the globe, had recommended major reforms for future planning of large dams, making the World Bank itself a bit more cautious about NT2. Meanwhile, a power purchase agreement between Laos and the Electricity Authority of Thailand (EGAT) was necessary for NT2 to get off the ground, ensuring a regional buyer for the electricity. But by late 1997, a severe financial crisis in the regional economy brought energy demand to a halt inside Thailand.

In 2001, the regional economy recovered and NT2 emerged back on the Bank’s agenda with a new justification for the dam: as a contribution to nationwide poverty reduction and environmental sustainability. Approval for the dam gained momentum with a fillip given by the Australian Agency for International Development which recommended that the Australian government support NT2. With the governments of both Australia and France now on board, other countries and lenders offered support as well. By early 2005, the Bank managed to assemble an impressive group of International Financial Institutions (IFIs), bilateral agencies and private banks to finance the US$1.297 price tag of the NT2 dam that included banks and the private sector in Thailand (see full list in p. 38.)

Environmental sustainability and poverty alleviation

Part two of the book focuses on social and environmental sustainability ranging from ethnicity and indigenous peoples, to resettlement failures and the failure at conservation of the rich biodiversity of the Nakai Plateau, to the downstream impacts in Xe Bang Fai River Basin, an area with more than 150,000 people and heavily impacted by the trans-basin diversion of water under the NT2. The six chapters in this section offer a very detailed account of the range of environmental issues faced by NT2, and its impacts on riverine and forest ecosystems.

But the real answer that is sought, that can enlighten the dam debate in the present day, is whether the dam project brought prosperity and development to the people of Laos. This is explored by Chapter nine in this same section, which also happens to be one of the shortest chapters in the book.

In May 2002, the World Bank helped the Government of Lao PDR (GoL) to set up a new Poverty Reduction Fund to encourage investment in rural infrastructure. The idea was that NT2 revenues would go through the fund for health, education, agriculture, and rural infrastructure. However, as Chapter nine says, "there was to be no independent financial oversight or separate bank accounts to ensure that profits actually went to poverty alleviation and environmental programs. The Bank did not require the use of any external independent financial auditors. Instead the revenue to the Laotian government from the dam funds would be treated just like any other government income" (p. 208).

This was a bad move. Lao PDR remains one of the countries in the bottom tier of nations worldwide in terms of the perception of corruption, with low accountability of state institutions and, as recognized by the World Bank itself, Laos had an environment in which the state audit organization was weak. But the GoL resisted strict controls proposed by the Bank, and eventually the Bank accepted the vague promises of the GoL "of good behavior in management of NT2 revenues" (p. 208).

As of July 2016, the World Bank reports that "neither the required financial statements of NT2 revenues nor audits of the program have been made available by the GoL to the World Bank" (p. 209). In effect, the book argues that, despite the framing of NT2 as first and foremost a poverty alleviation project, the World Bank cannot ascertain "where project revenues are actually going" (p. 209). Inside Laos, meanwhile, the chronic problems of health, fiscal crisis and inability of the central government to pay its civil servants continue (p.210).

Even though there’s been an overall high level of economic growth, government officials had admitted in 2016 that the GoL’s long-standing goals of being poverty free and progressing from the status of Least Developed Country (LDC) would not be met by 2020. Other sustainable development goals remain unachieved, including on child nutrition. For instance, in the 2018 Global Hunger Index, Lao PDR ranks 83rd out of 119 qualifying countries, with a score of 25.3 that is considered as a "serious" level of hunger. The book states, "In sum, whether or not NT2 has had a significant, positive impact on poverty reduction in Laos remains unknown, although there is considerable anecdotal evidence that it has been much less successful than anticipated …. NT2 is contributing only a small fraction of what was initially projected …" (p. 211).

The book further drives home the point about not only unclear financial benefits but also the limited legal liability of the project developers (Chapter 12). NT2 made inflated private profits possible "by limited liability for social and environmental costs; EGAT’s conflict of interest as power buyer and investor; limited public accountability for risks and rewards set out in project contracts; and no regulatory oversight to protect the public interest or win public consent either in Thailand or Lao PDR" (p. 265).

Given all this, it is astonishing that the World Bank has continued to promote the NT2 as a "model dam". But as the book shows, it is more likely that what the World Bank is interested in being a model of, is different from what the public may expect: the Bank’s approach is to offer "protection and guarantees to private investors and commercial lenders without providing commensurate protection and guarantees to affected citizens and ratepayers" (p. 265).

The book argues that the World Bank has not provided timely monitoring of the project’s revenue management nor has made public any documents such as NT2 annual revenue reports, public expenditure tracking surveys and reviews, and audit peer reviews that could help understand how the project contributes to poverty reduction and environmental management.

The argument about the Bank’s failure to either provide poverty alleviation or bring about greater financial accountability of the GoL should form the core of the book but is also, ironically, the weakest part of the book, with the economic argument chapter fitted last inside the book’s section on social and environmental sustainability. A separate section focusing purely on the economic benefits (or not) of NT2 with more in-depth research and material from inside Laos (a difficult but not improbable task) would have made for far more interesting reading, also given that Chapter nine, as mentioned earlier, is one of the shortest chapters in the book. Was there really no more information and further analysis possible, for example, of the GoL’s financial and revenue streams not just from NT2 but from the other dams now in operation, or even finance information from the other private sector players involved in Laos?

Sustainable hydropower

The question of sustainable hydropower and what it means is raised in Chapter 13: "Within the discourse of sustainable hydropower … NT2 continues to be a topic of discussion and presentation, shaping, for example, the current debate about the role of large hydropower dams in development" (p. 286).

Since NT2, the GoL has built up the credentials of Laos as a sustainable hydropower laboratory (p. 281). For the hydropower industry, reframing hydropower as sustainable is crucial to address its legitimacy crisis (p. 283).

Further research and practical experience, however, is still needed, say the book’s authors, as to how sustainable hydropower can be achieved, given that a number of challenges lie in wait, including "developer-led screening and assessment of projects, weak state capacity to regulate hydropower, and limited transparency and accountability of both private developers and the state to the public" (p. 285-286).

Apart from a closer look at the economic argument, the book would also have benefited from a more in-depth examination of the sustainable hydropower debate given its relevance to the Mekong dam-building programme, with more than 140 dams planned on the Mekong and its tributaries in Laos and Cambodia, almost one third already completed, and another third currently under construction.

An important topic surprisingly missing from the book is the issue that dam building needs to contend with in the age of climate change. Albeit while the Xe-Pian Xe-Namnoy dam tragedy was not an event that the authors could have foreseen during the writing of the book, the climate change and hydropower topic would have made the book more topical and of greater relevance beyond NT2.

What now with NT2?

For Laos, the World Bank provided the narrative of dams as a development solution, along with the financial planning architecture. Now 20 years later, with the lessons from NT2 much clearer, the book’s authors can feel some kind of vindication, the "we told you so" moment. The book offers a kind of valediction that the warnings of environmentalists and economists (some even from inside the World Bank) had mostly called out the NT2 correctly for what it was: a deeply flawed dam, certainly not a "model" for hydropower development that should be replicated in Laos or elsewhere.

But as the book’s Chapter 13 also admits, in Laos, NT2 stands as an anachronism given the new wave of hydro industry that has landed in Laos, backed by the private sector in China, Thailand and Vietnam, a new wave that offer even less transparency and accountability (p. 287). And even as NT2 is an anachronism, the concept of "sustainable hydropower" has proved to be an oxymoron after the Xe-Pian Xe-Namnoy dam collapse. The Xe-Pian Xe-Namnoy dam tragedy has resulted in a shockwave running through the GoL, making it pause to rethink its dam plans, even as it attempts to hold steadfast to the narrative of hydro revenue for poverty reduction.

The larger question left unanswered, which needs to be the topic of debate and discussion going forward, is maybe not about the lessons from NT2 for Laos or dam-builders and dam proponents like the World Bank. But where does the environmental movement in the Mekong Region go from here? The Xe-Pian Xe-Namnoy dam collapse has certainly shown the risks inherent in large dams in an age of climate change. Many recent articles after the dam collapse have questioned whether dams in the Mekong Region can be better planned to face up to climate change-related impacts and disasters.

Eventually, does this book convince anyone other than the environmental campaigners, for instance government planners in Laos, that dam building in Laos and the Mekong should be halted given the lessons of NT2? That it’s time to reverse hydropower development so the region can plan for more comprehensive energy options, more benign renewable technologies, demand-side management, and energy efficiency, rather than just trying to build more dams? Given the complex processes at play both inside and outside Laos, and the high financial stakes involving so many private players including banks deeply involved in dams in Laos, somehow that seems unlikely, at least in the near future.

 

Additional Info

  • Author(s): Bruce Shoemaker and William Robichaud
  • Year of publication: 2018
  • Publisher: University of Wisconsin Press
  • Subject: Water policy
  • Type: Review
  • Review author: Rajesh Daniel
  • Language: English