World Bank Progress Report on Nam Theun 2 - Satisfactory

April 5, 2006

VIENTIANE April 5, 2006 — The World Bank released its first Annual Progress Report on the US$1.4 billion dollar Nam Theun 2 Hydroelectric Project in Lao PDR today, announcing that the implementation of NT2 is progressing satisfactorily, with construction activities well underway, and is doing so within the context of an improving economic and structural reform program in Lao PDR, one of the poorest countries in East Asia.

The Progress Report noted however that there have been some delays in the social and environmental programs that have been designed to ensure that any negative impacts the project’s construction may have on the people or environment are managed well and mitigated.Mr. Ian Porter, Country Director for Lao PDR, commented, “Managing the environmental and social aspects of the project is absolutely critical to the success of the project.  NT2 is part of a broader development program that will help reform the way Lao’s economy functions, will provide much needed funds and training to protect the environment, and will give Lao people – many of whom are desperately poor – the opportunity for better lives.”

Nam Theun 2 is a large, complex project with many challenging aspects involving physical construction, ongoing financial reform so that revenues from the project are utilized effectively, ensuring people living in the project area – both in the Plateau and downstream area of the dam and the powerhouse – have access to better living conditions through resettlement and livelihood activities, and ensuring that environmental conservation improved.  Mr. Porter noted, “It is important to keep the complexity of the project in mind as we move through the implementation phase.  We have put in place a robust program of internal and external monitoring and supervision to ensure that when problems arise – which they will, given the complexity of this project – that these problems are dealt with promptly by the project officials from the Government of Lao PDR and the implementing agency, the Nam Theun Power Company (NTPC).  Maintaining transparency around the project and access to the site are essential – and we encourage journalists, members of civil society, academics, parliamentarians, and others to continue to visit the site and report back their thoughts on what they’ve seen.”

The report highlights the following:

  • On the Development Framework, the report notes that Lao PDR has maintained relatively stable macroeconomic conditions and robust economic growth (7 percent in 2005, 6.5 percent in 2004). Monetary and fiscal discipline has been maintained and the momentum on structural reforms, in respect of trade, private sector and public financial management, has been sustained. Strong economic growth and relatively low inflation continue to reduce poverty in both rural and urban areas and improve social outcomes. Public financial management reform is proceeding satisfactorily, with an increased focus on center-local fiscal relations. 
  • Also, the report highlights the Government’s progress in formulating the 6th National Social Economic Development Plan (NSEDP) using a consultative and participatory process for the first time. This 6th Plan appropriately emphasizes the objective of poverty reduction and of the Millennium Development Goals (MDGs), as well as directions for policies and public investments necessary to achieve them.  However, for the country to realize the benefits of the plan, the Government needs to do more to mobilize more revenue, to control new recruitments and increases in wages, as well as to freeze further loans to over-exposed borrowers. And while structural reforms have continued, progress in some areas has been slow – in particular, the restructuring of state-owned commercial banks is not going well; there is an urgent need to adhere to “Governance Agreements,” to make better use of International Banking Advisors and to seek private strategic partners. To improve banking services in the country, there is also a need to “level the playing field” for all state-owned and private sector banks.
  • On Construction Activities, the report notes that the physical implementation of the NT2 project has begun well. Impressive construction activities are ongoing at the project site and the river diversion took place in early March. Construction has begun on the coffer dam and dam abutments are being excavated. The headrace channel and tunnel, the power house and the downstream water works, including the regulating dam and pond and downstream channel, are all under construction. The overall construction quality is good.
  • On implementing environmental mitigation measures, the report notes the good progress being made by the Watershed Management and Protection Authority (WMPA), a key entity for conservation of the protected area. Meanwhile, construction-related environmental impacts – dust, waste management, spoil disposal and erosion control – that were unsatisfactorily handled at the beginning, are now being progressively addressed to ensure compliance with environmental standards.
  • - Implementation of social activities has commenced, but the resettlement program is behind schedule. However, the regional health program, and curbs on camp followers are underway and working well. Also, the design of livelihood programs to compensate potential losses in the downstream areas of Xe Bang Fai and Nam Theun has commenced.  The resettlement program is delayed due to: (i) unusually heavy rains during the recent wet season; (ii) slow mobilization of required capacity within NTPC and GOL; and (iii) the need to find an alternative site (in Khamkerd District) to relocate two villages due to water quality issues (outside the control of NTPC, resulting from a gold mining operation outside of the project area) at the previously selected sites. NTPC has assured the International Financial Institutions that they are urgently addressing the resettlement delays to ensure that the people affected by construction have timely access to the new sites and livelihoods provided through the project. These actions include: better coordination, staff training and skills building, and better synchronization between the construction and safeguard schedules, so as to bring resettlement programs in line with the progress of civil works.

Mr. Porter concluded, “In summary, this complex development project has begun well, but work still needs to be done to more effectively manage risks and mitigate impacts in the area of environmental and social safeguards. This will require more effective measures to build capacity, strengthen implementation, and improve coordination within GOL and NTPC.  We will continue to closely monitor project implementation, and support Government efforts to achieve the project’s goals of providing the much needed revenue for poverty reduction and environmental conservation.”

To keep members of the public informed on the project, half-yearly reports are produced and made public by NTPC on a regular basis; the World Bank and ADB are also producing reports on this basis. The Government will hold its first Annual Stakeholder Forum on May 17, 2006, to update interested parties on the status of project implementation. Interested members of the public are invited to attend this Annual Stakeholder Forum – which will be followed with a visit to the Project Site.


Media Contacts
In Washington
Jill Wilkins
Tel : (202) 473-1792
In Bangkok
Kimberly Versak
Tel : (66-2) 686-8324