JUNE 17, 2005, WASHINGTON, DC—The Multilateral Investment Guaran-tee Agency (MIGA), a member of the World Bank Group, announced today the issuance of $91 million in political risk insurance for a hydropower project in Lao People’s Democratic Republic (PDR). The bulk of the guarantee, $86 million, is covering a non-shareholder loan by Fortis Banque SA/Fortis Bank NV (representing itself and acting as agent for a number of banks) against the risks of expropriation, breach of contract, war and civil disturbance, and transfer inconvertibility in both Lao and Thailand. The rest of the coverage is protecting EDF International against the risk of transfer restriction in Lao. The agreement complements a $50 million partial risk guarantee issued by the World Bank, as well as a $20 million grant from the International Development Association.
Total cost of the project, referred to as Nam Theun 2, is $1.2 billion, the larg-est investment ever in Lao PDR. The project involves the development, construction, and operation of a trans-basin power plant that will use water from the Nam Theun River, a tributary of the Mekong River.
Lao PDR has an average income level of less than a dollar a day, with levels considerably lower in rural areas and few options for generating income. The project is expected to generate an estimated $1.9 billion in foreign exchange earnings over a 25-year period through the export of 995 MW of electricity to Thailand. The project will also produce 75 MW of power for domestic consumption.
“The income generated by this project will provide key funding for Lao’s National Growth and Poverty Eradication Strategy, enabling the country to increase the amount of money it can invest in health, education and basic infrastructure for the benefit of the poor,” said Yukiko Omura, Executive Vice President of MIGA. “The project will also benefit consumers in Thailand by providing cheaper electricity.”
Nam Theun 2 will run on a build-own-operate-transfer (BOOT) basis. The project site is located in central Lao, about 250 kilometers east of Vientiane, and will stretch from the Nakai Plateau to the lower Xe Bang Fai river confluence with the Mekong.
Key project features include a 48-meter high gravity dam on the Nam Theun River; a 450-square kilometer reservoir; a powerhouse; a 130-km long, double-circuit 500-kV transmission line to the Thai grid; and a 70-km long, single-circuit 115-kV transmission line to Lao’s domestic grid.
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, be-ing set aside and conserved.
- Improved housing and higher incomes for the 6,200 villagers who are re-settling from the reservoir area.
- A robust and proactive mitigation and compensation program to help communities downstream 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.
- A continued commitment by the World Bank to monitor the project and ensure that it is fully and properly implemented.
The MIGA political risk guarantee was key to lowering the project’s risk profile, which in turn enabled the government and developers to attract com-mercial financing at better rates and gave the investor the assurance needed to go ahead with the deal.
“MIGA is pleased to have played a role in this important transaction, which offers a critical source of revenue for poverty-reduction programs, the promise of long-term, competitively priced electricity for the citizens of Lao and Thailand, and important measures to protect local villagers, as well as rainforests and wildlife habitats,” said Omura.
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MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment into emerging economies to support economic growth, reduce poverty, and improve people’s lives. In addition to providing technical assistance to investment promotion agencies, MIGA fulfills this mandate by offering political risk insurance (guarantees) to investors and lenders (covering expropriation, breach of contract, currency transfer restriction, and war and civil disturbance), and by mediating investment disputes. Since its inception, MIGA has issued 767 guarantees for projects in 86 developing countries, totaling $14.5 billion in coverage. Nearly 38 percent of MIGA’s net outstanding portfolio is in IDA-eligible (world’s poorest) countries. MIGA’s gross exposure totals $5.3 billion.
