World Bank support for Nam Theun 2 was approved following an extensive due diligence process, undertaken with full attention to the Bank’s operational policies and guided by a Decision Framework agreed with the government that specified that the project must be embedded in a development framework aimed at poverty reduction and environmental conservation; must be technically, financially, managerially and economically sound and adhere to the Bank’s environmental and social safeguard policies; and must have greater understanding and wider support within the international donor community and civil society.
In the course of this due diligence process, arrangements and agreements were reached with the Government of Lao PDR and NTPC to ensure that:
1. There is a sound framework for managing NT2 revenues transparently and directing them towards priority poverty reduction and environmental conservation programs. In addition to measures to improve its public expenditure management system, the Government has approved revenue and expenditure management arrangements, intended to provide further assurance that project revenues will be used to finance additional expenditures on poverty reduction and environmental management programs from the expected commercial operations date (COD) of 2009. Following these arrangements, NT2 revenues will be channeled through a dedicated Treasury account and will only be applied in financing programs that meet financial management, reporting and transparency standards. These arrangements are reflected in project legal agreements and will be subject to an annual consultative review, as well as on-going monitoring through the implementation of Public Expenditure Reviews and Tracking Surveys.
2. The project design is robust, with sound provisions to mitigate social and environmental risks, informed by extensive local consultations and feedback from international stakeholders, and girded by a strong economic rationale. Mitigation and compensation measures will include specific environmental management programs for species of special conservation significance, such as the Asian elephant and the white-winged duck; the protection of the NT2 watershed comprising forests nine times the size of the proposed reservoir and important ecological habitats; and proactive community development programs, designed through participatory local consultations, to assist the communities whose livelihoods will be affected by the project so that they are prepared to cope with these changes well in advance of the actual impacts. The detailed plans to manage the project’s social and environmental impacts are outlined in the following safeguard documents:
- The Environmental Assessment and Management Plan (EAMP)
- The Social Development Plan (SDP)
- The Social and Environment Management Framework and First Operational Plan (SEMFOP—the plan for the watershed area)
3. The proposed implementation arrangements, which include a continuous process for involving local communities in project implementation and informing international stakeholders, are sound. These arrangements have been confirmed with the Government, NTPC, and other potential providers of financing for the project.