The USD 1.45 billion Nam Theun 2 (NT2) hydropower project in central Laos will forcibly displace 6,200 indigenous peoples on the Nakai Plateau, and decimate fisheries and exacerbate flooding for more than 120,000 downstream farmers and fishers along the Xe Bang Fai. The project is currently under construction, with power production scheduled to begin in 2009.

NT2 is being developed by the Nam Theun 2 Power Company Limited, which includes Electricité de France. In 2005, the World Bank and Asian Development Bank (ADB) approved loans and guarantees for NT2. With the World Bank and the ADB’s endorsement, other lenders – such as the EIB, the Nordic Investment Bank, various export credit agencies, Agence Française de Développement, and a number of private banks – committed to finance NT2.

For its part, the EIB loaned the oppressive Lao government EUR 45 million for NT2 in 2005, relying largely on the World Bank’s social and environmental assessments of the project. And the EIB has justified its involvement on the basis of some highly ambitious claims, such as the project’s “high development impact”, its generation of “net environmental benefit for the region, improved living standards and economic development for the local population”, and that it will tackle “climate change and promote sustainable use of renewable natural resources.”

With construction well under way, many problematic issues have already cropped up that demonstrate the hollowness of the assurances given by the EIB and the other major lenders, as well as the inadequacy of the mitigation measures. These include:

A poorly implemented Downstream Livelihood and Asset Restoration Program, that is not sufficiently financially endowed to compensate thousands of people for lifetime losses, and that is being piloted in less than 10 percent of the affected villages with only two years left until NT2 operations begin.

• A resettlement program to cover more than 6,200 indigenous peoples on the Nakai Plateau that has been fraught with delays and poor quality outcomes
• Poor environmental management practices that have been criticised by one of NT2’s official monitors
• Numerous violations of NT2’s legal framework, including the Concession Agreement and World Bank and ADB policies
• Evidence that contrary to the EIB’s claims that NT2 will help deal with climate change, in fact the NT2 reservoir will actually contribute to greenhouse gas emissions.
  

These, as well as ongoing uncertainties about how the project’s revenues can help the poor in a country where corruption, financial mismanagement and a lack of transparency are rife, point to the failure of the company, the Lao government, the EIB, and other project backers thus far. Major question remarks remain over the accountability of all parties and the enforceability of this over-ambitious project’s agreements.