World Bank president urged to halt Transfield dam in Laos

From International Rivers Network, AID/Watch media release
29 September, 1997

Canberra - Plans by Australian construction firm Transfield to build a giant dam in Laos with guarantees from the World Bank could be an embarrassment to the President of the Bank, Mr James Wolfensohn, when he accepts an Honorary Doctorate from Sydney University today.

The dam, with a US$1.5 billion price tag, three times the national budget of Lao PDR, will negatively impact the natural environment and the livelihoods of thousands of people in central Laos. The economic returns to Laos from the sale of electricity to Thailand - the Bank's justification for supporting the project - are fast diminishing.

In a media conference in Canberra today, Senator Bob Brown, together with AID/WATCH and the US-based International Rivers Network, called on Mr Wolfensohn not to provide World Bank assistance to this controversial project, arguing it represents an unacceptable risk to Laos.

Senator Brown drew parallels between the Lao situation and Tasmania's dam mania in the 1960s and 1970s. "With the dam building era virtually over in Australia, companies like Transfield, with the help of the Australian government, are targeting low income countries like Laos for new business opportunities. Transfield, as with Tasmania's Hydro-Electric Commission, is clearly going to make a huge profit just from the construction of this dam. Even if it doesn't generate an economic return for Laos, the investment of Transfield and other foreign companies will be recouped.

"Dam-building has left Tasmania the most debt-impoverished state in Australia. Laos, like Tasmania once did, is putting all its eggs in the hydropower basket. As it is unlikely that this project will generate enough foreign exchange, Laos could end up seriously indebted. Its rivers and the livelihoods of thousands of people would have been compromised," Senator Brown concluded.

The World Bank is due to make a decision in the next few weeks on the project's future. Neither the project's private developers nor the potential commercial lenders are able to move forward with the dam unless World Bank guarantees are in place to protect their investment. Whereas the first feasibility study of the dam in 1991 estimated that it would generate US$176 million in annual revenue for Laos, the recently completed economic study commissioned by the World Bank says it will only generate US$38 million. Even this figure is likely to be optimistic. The project relies on a single buyer - Thailand. The current economic crisis in Thailand has led to the downward revision of power demand, and the liberalisation of the Thai power sector has resulted in falling energy prices. As a result, Nam Theun 2 could be left without a buyer for its power, or with a price too low to sustain the huge construction costs. Ms Aviva Imhof, spokesperson for International Rivers Network, said, "Even after nearly a decade of World Bank involvement in the project, Bank staff are still unable to respond to many of the concerns we have raised about the substantial economic, social, and environmental problems likely to result from Nam Theun 2. Mr Wolfensohn should admit that as so many questions remain unanswered, it would be simply irresponsible for the World Bank to continue with this project."

Ms Lee Rhiannon, spokesperson for the development watchdog AID/WATCH, said, "The Australian Government has been a keen promoter of the Nam Theun 2 since the Snowy Mountains Engineering Corporation first undertook the feasibility study in 1989. Now the Australian government's highly secretive government export credit agency - the Export Finance and Insurance Corporation - is expected to grant commercial risk insurance and debt financing to Transfield should the World Bank approve the project. AID/WATCH is calling on the Australian government to immediately disclose all forms of government subsidies to this project and to disallow any form of EFIC support for this project."

A major concern is the impact of the proposed enclave guarantee mechanism. Through this mechanism, the World Bank would in effect provide insurance to the international lenders against any potential losses caused by the non-performance of contractual obligations undertaken by the government. Canberra-based researcher Charlie Pahlman, who has spent 10 years working in Thailand and Laos, said, "Given the World Bank's stated objective of poverty alleviation, it is extraordinary that the Bank should step in to protect the interests of the private sector and foreign banks, while providing no parallel guarantee to the government and people of Laos. If the World Bank is so convinced of the economic viability of the project, why doesn't it guarantee the benefits for Laos?"

For further information, or for a media kit, please contact: Senator Bob Brown 0419 704 095 or (06) 277 3170
Ms Lee Rhiannon and Ms Aviva Imhof 0411 500 187
Mr Charlie Pahlman (02) 6249 6294

Aviva Imhof
Mekong Program Coordinator
International Rivers Network
1847 Berkeley Way, Berkeley CA 94703, USA
Tel: + 1 510 848 1155 Fax: + 1 510 848 1008
http://www.irn.org

I AM CURRENTLY LOCATED IN AUSTRALIA - NOTE NEW PHONE NUMBER AND ADDRESS TEL: +61 2 9955 5940 FAX: + 61 2 93861497 (C/O- AID/WATCH) ADDRESS: 29/10 Carr St, Waverton NSW 2060, AUSTRALIA