Thai Stakeholders Discuss Economic Analysis of Nam Theun 2 Hydropower Project in Lao PDR

November 5, 2004

BANGKOK November 5, 2004 - The World Bank hosted a follow-up meeting on the Interim Economic Analysis of the proposed Nam Theun 2 (NT2) Hydroelectric Project today, following through on a commitment made at a stakeholders workshop held in Bangkok on August 31.  “This meeting,” said Mr. Ian Porter, World Bank Country Director for Thailand, Cambodia, and Lao PDR, “is intended primarily to listen to the views of interested stakeholders, answer any further questions they may have, and have an open debate about the issues around the economic and cost analysis of the proposed project.” 

Today’s meeting was attended by about fifty representatives from government, civil society, academia, media, development agencies, and the private sector from Thailand, which would provide the main market for electricity from the proposed project.  The World Bank commissioned the detailed economic analysis to answer three main questions:  first, whether there is a market for the energy that the project will offer; second, whether the project is part of a least-cost expansion plan for the Thai and Lao power systems; and third, whether it offers sufficient value-added impact.  The Interim Economic Analysis concludes that the Thai power system is a reliable market for Nam Theun 2 because the additional energy it would provide is only half of the growth of the Thai market in 2009 (expected to grow at 6.5 percent per annum), and only six percent of the growth between 2009 and 2016; because the Thai market would thus be able to absorb its additional input within a period as short as six months; and because compared to alternative sources of power, especially combined cycle gas turbines (CCGT) in neighboring countries—the cost of which is currently competitive but relatively unstable—Nam Theun 2 emerges decisively as a least-cost source of supply.

Participants in today’s meeting discussed a number of technical and theoretical issues related to the Interim Economic Analysis, mainly the load forecast for Thai power demand, as well as the need for diversification of energy sources in any power system, the commercial viability of renewable energy sources, the assumptions on which the analysis of least-cost alternatives was based, and how the risk of cost overruns is addressed in the Interim Economic Analysis.

Power economist Mark Segal, author of the Interim Economic Analysis, noted that in order to finalize the analysis, the numbers are being reviewed in light of more recent forecasts of Thai power demand, which suggest that the current forecast is overly conservative.  The study’s conservative oil price estimates, which affect the analysis of CCGT as the most competitive alternative to NT2 power, are also being reviewed in light of higher estimates in the mainstream.  Furthermore, Mr. Segal noted that the Interim Economic Analysis would be revised once the environmental and social costs of the proposed project, currently estimated to equal all the environmental and social expenditures that the project developers are committed to make under the Concession Agreement, are known.

Thanking participants in today’s discussion for their detailed interventions, Mr. Porter said that a summary of the discussion would be posted on the World Bank website.

This meeting was a follow-up to the earlier discussion in Bangkok on August 31, part of an international series of stakeholder workshops to facilitate an open and well-informed discussion of the project and to capture specific comments and ideas related to the safeguard and other project documents which are currently in draft.  These workshops complement ongoing local consultations with project-affected communities.

The World Bank has not yet made a decision on whether to support the project, but is considering Lao PDR’s request to support NT2 because the project, if properly managed and implemented, could bring significant benefits to the Lao people by providing incremental revenues for poverty reduction and environmental protection; that the safeguard policies of the international financial institutions help to ensure that social and environmental risks are mitigated; and that IFI involvement brings standards of transparency and accountability to project preparation in the framework of the broader reform agenda in Lao PDR.