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Lao PDR, One of the Poorest Countries in East Asia, Receives Support for the Long Term

March 31, 2005

WASHINGTON, March 31, 2005 – The Executive Directors of the International Development Association (IDA) and the Board of Directors of the Multilateral Investment Guarantee Agency (MIGA) today discussed the development prospects of Lao People’s Democratic Republic (PDR) and approved a number of investments as part of an international effort to help increase incomes and living standards in one of East Asia’s poorest countries.

The measures include a US$50 million partial risk guarantee, a US$20 million IDA grant, and up to US$200 million in MIGA political risk guarantees in support of the Nam Theun 2 hydroelectric project. The US$1.2 billion Nam Theun 2 is the biggest single project undertaken in Lao PDR, and is expected to provide Lao PDR with up to US$150 million in additional annual revenue. This will enable spending on basic health and education to rise by as much as 25 to 30 percent in the project’s first year of operation.

The World Bank President, Mr. James D. Wolfensohn, said that Nam Theun 2 and the other initiatives were an effort to assist a country which has great needs and few options.

"Lao PDR has an average income level of less than a dollar a day, and in many rural areas, it is considerably less than that,” he said. “Children still suffer malnutrition in many parts of the country, and too many young people receive little or no formal education.

“But to get out of this poverty trap, the country has few options to generate income. Essentially, it relies on mining, timber and hydroelectricity. We believe that a sound approach to selling hydroelectricity, supported by improved government policies, is the best way for the country to increase the amount of money it can invest in health, education and basic infrastructure for the benefit of the poor.

"My colleagues and I have visited the project area and spoken to the villagers on many occasions over the past several years – in fact I was there just in February -- to talk with them and hear directly from them about their hopes and concerns. We have also had many intensive discussions with the Lao Government  and the project developers, making it clear that we all share the responsibility for this project succeeding in the years ahead.”  

Mr. Wolfensohn said that the project was quite complex and would pose some serious implementation challenges to the Government of Lao PDR, the private sector developers, and the other supporters, including the World Bank. 

“We have spent the best part of a decade studying the project and evaluating the risks,” Mr. Wolfensohn said. “In fact, we have been advised by some independent experts that we have studied it for too long, and been too focused on possible risks. But because it involves resettlement of people, because it impacts not one but two rivers, and because it is so vital for the future of the country, we believe these risks need the utmost attention. Our decision, after a lot of deliberation, is that the risks can be managed; in fact, one major reason we are involved is to help manage those risks.”

In addition to the construction of the dam, the project also provides for:

  • Increased environmental protection in Lao PDR, with a valuable biodiversity area, nine times the size of the area to be flooded for the dam, being set aside and conserved;
  • Improved housing and higher incomes for the 6,200 villagers who are resettling from the reservoir area;
  • A robust and proactive mitigation and compensation program to assist communities downstream to prepare for changes to their livelihoods well in advance of the actual impacts;
  • Special measures to ensure that revenues from the project are used effectively to reduce poverty; and
  • A continued commitment by the Bank to monitor the project and ensure that it is fully and properly implemented.

With $4.5 million in no-interest loans and $5.5 million in grants, the Board also agreed to a Poverty Reduction Support Credit. The money will support the government’s efforts to improve the management of public finances and provide better health and education services. 

The support program is part of the World Bank’s Country Assistance Strategy for Lao PDR, which was also discussed and endorsed by the Board today.  The strategy aims to sustain growth by strengthening the private sector, helping rural communities, better managing natural resources, and further linking Lao PDR to the regional economy.

The Regional Vice President for  and the Pacific, Mr. Jemal-ud-din Kassum,said that Nam Theun 2 and the other support measures approved by the Board showed the Bank’s long-term commitment to Lao PDR.

"We intend to work with the Government and the Lao people for many years to see that this major project is fully and properly implemented, and that the benefits flow to the poor who need them so much,” Mr. Kassum said. “Our involvement does not stop with the signing of the guarantee. That is when it really starts.”

He said that in the coming years, the Bank would continue to focus on the details of the project and work closely with the Government and the developers to ensure that all commitments are honored and risks properly managed. “We will also continue to encourage public discussion and scrutiny, and to make information available on the project via our website.”

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