Nam Theun 2 is a unique development project in Lao PDR. It is larger and more complex than any other hydropower project in the country. The project is jointly implemented by the Nam Theun 2 Power Company and the Government of Lao PDR and supported by financing from 27 parties including the World Bank and Asian Development Bank. NT2 is expected to generate USD$2 billion in revenues over a twenty-year period, money already earmarked to support the country’s economic development and poverty reduction. Direct benefits for affected people include largely improved living conditions for over 6,000 resettled villagers; development program for 200 villages in the downstream areas; improved road access, employment opportunities as well as protection of a large biodiversity areas.
NT2 enables Lao PDR to export 1000 MW of electricity-generating capacity and electrical energy to the Electricity Generating Authority of Thailand. The hydroelectric project also supplies 75 MW of electricity for domestic use in Lao PDR. The project is expected to generate annual revenues for the Government of Lao PDR (GoL) averaging about US$30 million (nominal) per year during the first ten years while commercial debt service is paid, then rising sharply thereafter to an average of approximately US$110 million (nominal) from 2020 to 2034. If the around US$2 billion in revenues are spent efficiently, and transparently—in accordance with project agreements—NT2 will provide significant support to Lao PDR’s poverty reduction and environmental management efforts.
The project was approved on March 31, 2005 by the International Development Association (IDA) and the Multilateral Investment Guarantee Agency (MIGA) and it features:
- A hydropower facility providing 1000 MW of power for export to Thailand and an additional 75 MW for domestic consumption;
- The management of the project’s environmental and social impacts on the Nakai Plateau and in the downstream areas of the Nam Theun and Xe Bang Fai rivers, as well as the protection and management of the 4000km2 NT2 Watershed (including the Nakai Nam Theun National Protected Area and two corridors linking it to other national protected areas);
- Assisting the Government with the design and implementation of the NT2 revenue and expenditure management arrangements which focus on strengthening the national public expenditure management systems. This framework helps to ensure that NT2 revenues received by GoL are applied effectively—with transparency and accountability—to reduce poverty and improve environmental management.
- Monitoring and evaluation arrangements designed to meet sound engineering practices fiduciary responsibilities, as well as ensure full compliance with the projects social and environmental objects.
The World Bank Group’s financial support consists of:
- a US$42 million IDA Partial Risk Guarantee,
- a US$20 million IDA Grant for NTSEP (Nam Theun 2 Social and Environment Project, which finances a part of the GoL’s equity in the project to be used for management of environmental and social impacts and independent monitoring and evaluation of the NT2 project), and
- US$91 million in MIGA Guarantees.
The US$1.3 billion* construction is effectively complete, while the social and environmental programs are designed to continue implementation over the medium-term.
*Project cost was originally budgeted at US$1.25 billion with a contingency budget of US$200 million
NT2 implementation is being undertaken by the Nam Theun 2 Power Company (NTPC) and the Government of Lao PDR.
The Nam Theun 2 Power Company (NTPC) and the Government of Lao PDR signed a number of agreements with public and private lenders and guarantors to complete the project financing arrangements for Nam Theun 2. A total of US$1.45 billion equivalent (excluding bonding facilities) in US dollars and Thai Baht has been committed by various financing partners to fund the base project cost of US$1.25 billion, plus an additional US$200 million for contingencies.
The Government of Lao PDR seeks to generate revenues, through environmentally and socially sustainable development of NT2’s hydropower potential, which will be used to finance priority poverty reduction and environmental management programs. The project plays an important role in the broader development of the country by building capacity to manage natural resources and develop infrastructure; and by improving transparency and the effectiveness of public expenditure management systems.
The decision by the World Bank to approve the project followed careful consideration of the substantial preparation work done, which included almost a decade of studying the project and evaluating the risks, taking into account valuable lessons learned from past projects, an intense process of consultations, and due diligence on environmental and social impacts and the economic costs of the project. Project implementation is being monitored and supervised closely through a coordinated program being carried out by a number of public and private entities.
NT2 provides impetus for the Government of Lao PDR to continue economic, social and public financial management reforms, while at the same time it furthers cooperation among donors, deepens engagement with private sector and civil society, and strengthens the nascent regional electricity market.
Despite more than a decade of strong growth and progress on poverty reduction, Lao PDR remains one of the poorest countries in the region. The country’s per-capita income is US$380, and many of its social indicators are among the lowest in East Asia. Lao PDR has few options to earn the money it needs to invest in basic health, education and infrastructure.
NT2 has been designed as a build-own-operate-transfer (BOOT) project. The project includes the development, construction, and operation of a trans-basin diversion power plant that would use water from the Nam Theun River and release the water into the Xe Bang Fai River (both are tributaries of the Mekong River). The proposed project site is located in the Khammouane and Bolikhamxay provinces in central Lao, 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:
- A 39-meter-high gravity dam on the Nam Theun River.
- A 450-square-kilometer reservoir.
- A powerhouse (from which water would flow into the Xe Bang Fai).
- A 130-kilometer-long, double-circuit 500-kV transmission line to the Thai grid
- A 70-kilometer-long, single-circuit 115-kV transmission line to Lao’s domestic grid.
Monitoring and Evaluation
NT2 has a robust, multi-layer monitoring and evaluation framework consisting of the following elements:
- Supervision of physical implementation of the hydropower project by professional engineering firms under contract to the Nam Theun 2 Power Company Limited (NTPC) and the Government of Lao PDR, respectively.
- Lenders’ Engineer to monitor progress in project construction, and implementation of environmental and social management plans through review of monthly and half-yearly progress reports submitted by implementing agencies and through quarterly site visits.
- Dam Safety Review Panel to advice on technical construction, operations, and dam safety issues.
- Independent Monitoring Agencies, reporting to the Government of Lao implementing agencies, to monitor progress on resettlement, environmental impact mitigation, and watershed management issues.
- Panel of Environmental and Social Experts (POE), reporting to Government, to advise on environmental and social issues. The POE normally visits the Lao PDR once or twice per year (or more often at the Government’s request). The latest visit took place in February 2010 and their reports are publicly available.
- International Advisory Group (IAG), advising the World Bank’s President on implementation of the project, covering revenue management arrangements as well as environmental and social aspects. The IAG normally visits Lao PDR at least once per year. The latest visit took place in November 2009 and their reports are available to the public.
- Regular supervision by staff of the World Bank, other international financial institutions and Bilateral agencies in the form of site visits and management and technical missions.
World Bank: Yearly Reports: The World Bank and the Asian Development Bank release project reports to inform their respective Boards and the public on the status of project implementation on an Annual basis.
NTPC: NTPC also release reports updating information on project implementation and responding to issues raised through supervision missions and reports by the IAG, POE, and others. Reports are available at the NTPC website for more information.
Additional Reports: The IAG, POE, and the DSRP are expected to make 1 to 2 visits per year and to issue reports following each visit. The findings and recommendations of the various panels of advisors are taken into account for implementation and adaptive management purposes by the implementing agencies and for supervision by the international financial institutions. In addition, the updates on the past findings and recommendations of these panels are likely to find place in subsequent reports of the panels.
A number of complementary projects are being designed to support Nam Theun 2 and prevent it from being an isolated, stand-alone “enclave” project by extending some of the standards and programs established for NT2 beyond the project area. These programs include:
The Lao Environment and Social Project (LEnS), currently under implementation, which helps the Government, on a national level, to strengthen the management of environmental and social issues associated with the sustainable use of natural resources in Lao PDR. In particular the project assists GOL strengthen institutions and instruments for assessments, monitoring and compliance for environmental and social sustainability and broaden the constituency for environmental change; invest in on the ground environmental improvement activities with emphasis on sustainable biodiversity and community environmental management and livelihoods enhancements; and operationalize the Environmental Protection Fund (EPF) to that is able to allocate revenues for priority environmental protection activities.
The Khammouane Development Project aiming at enhancing the planning process and public financial management associated with the decentralized delivery of services and infrastructure, including irrigation development, in Khammouane Province and offering broader development opportunities for villages and communities living in the Nam Theun 2 project area, helping them to be better able to participate in growth opportunities resulting from, East West Corridor, and trade integration.
The Rural Electrification Project which helps expand access to electricity in rural areas through off-grid renewable resources and grid connections, and further strengthens Electricite de Lao, a key counterpart for Nam Theun 2 Hydroelectric project.
The Hydro Mining Technical Assistance Project which will increase the human resources capacity and improve the performance of Government oversight institutions for the hydropower and mining sector.