Regional Electricity Planning and Transboundary Rural-Urban Divide

Dr. Carl Middleton1, Lecturer, Master of Arts in International Development Studies

(MAIDS), Faculty of Political Science, Chulalongkorn University
Prepared for
“International Seminar on Rural-Urban Tensions, Violence, & Conflict Transformation:
Thailand in Global Comparative Perspective”
26-27 August 2010, Chulalongkorn University, Bangkok, Thailand

Introduction

In the Mekong Region, demand for electricity is growing rapidly, especially in Thailand
and Vietnam, driven by rapid industrialization, export-led industrial expansion, and
expanding domestic consumer markets. Whilst the extent of this growth and the best way
to meet it is increasingly contested between civil society and government agencies,
exploitation of the region’s hydropower resources remains high on each Mekong
governments’ agenda, including through developing a regional market for electricity
trade (Middleton et al, 2009).

Over the past five decades, numerous large hydropower projects in the Mekong Region,
such as the World Bank-financed Pak Mun Dam in Thailand and the Asian Development
Bank (ADB) backed Theun Hinboun Dam in Laos, have often left affected local
communities worse off to this day (Amornsakchai et al., 2000; FIVAS, 2007). Most
recently, the ADB and World Bank were instrumental in pushing through the Nam Thuen
2 project in Lao, approved in 2005, after a fiercely contested decade-long project
preparation process that questioned the project’s consistency with the banks’ safeguard
standards (Lawrence, 2009).

Whilst Western governments, corporations and consultancies, backed by the ADB and
the World Bank, have been influential in promoting and financing major hydropower
schemes in the Mekong region in the past, in particular in Laos and Thailand, over the
past ten years a new generation of hydropower developers has emerged as the key
advocates of hydropower development. These new developers, mainly from Thailand,
Vietnam, China, and Malaysia, have picked up many projects that were abandoned by
Western corporations during the 1997 Asian financial crisis. In a complex interplay of
political support, development aid, and entrepreneurial spirit, these new proponents have
led the revived push for widespread hydropower exploitation, often backed by export
credit agencies and commercial financiers from their own countries. Yet, to date, these
developers and their financiers have demonstrated little commitment to International
Standards or meaningful Corporate Social Responsibility (CSR).

1
Author’s email: Carl.Chulalongkorn@gmail.com

1
Securing a reliable and sufficient supply of electricity is important to many dimensions of
development. Yet, in a region where millions of people depend on the natural resources
that rivers provide, many proposed dams pose risks for to the livelihoods of rural
communities and threaten to create conflicts with project developers, their financiers, the
governments.

With a focus on hydropower development and regional power trade, this paper explores
the trends towards regionalization in the Mekong region and its consequences, in
particular the externalization of environmental and social costs by Thailand and China,
and increasingly Vietnam, to neighboring countries where governance is weak, namely
Cambodia, Lao and Burma, that is creating new forms of transboundary urban-rural
divide and potential conflict. Three power-export projects in Lao are examined in detail:
Nam Theun 2 Dam; Theun Hinboun Dam; and the Nam Ngum 2 Dam. The causes and
implications of transboundary conflicts on transboundary rivers are also discussed,
namely on the Sesan River shared between Cambodia and Vietnam, and on the Lancang-
Mekong mainstream shared between China and the downstream Mekong countries. The
paper concludes by considering how electricity planning could be undertaken better to
reduce costs and maximize benefits, and considers the appropriate role of government
and the private sector.

Regionalization in the “Greater Mekong Subregion”

Since the early 1990s, the Asian Development Bank (ADB) has promoted regional
economic integration between Burma, Cambodia, Laos, Thailand, Vietnam, and Yunnan
and Guangxi provinces of China through its Greater Mekong Subregion (GMS) program.
Following the GMS’s 3C principles of “Competitiveness, Connectivity and Community,”
and with a vision to create a single, borderless economy, an important focus of the GMS
program has been building large-scale infrastructure to physically interconnect the region,
such as roads, railways, high-voltage transmission lines and hydropower dams. The GMS
framework promotes private sector investment as the principle engine of development,
including the privatization of public services such as water, gas and electricity (ADB,
2008).

Economic regional integration has undoubtedly brought benefits to some. The region’s
rising GDP, which has increased significantly since the early 1990s, is cited by the ADB
as the key measure of the GMS’s success. Furthermore, by the ADB’s measurement the
proportion of people living in extreme poverty (on less than $1 a day) has also dropped
significantly; between 1990 and 2003, the proportion of people living on less than $1 a
day fell from 46% to 34% in Cambodia, 33% to 13% in the People’s Republic of China,
53% to 29% in the Lao People’s Democratic Republic, 10% to less than 1% in Thailand,
and 51% to 10% in Viet Nam.

Yet, whilst conventional economic indicators such as GDP may show growth, statistics
such as these say little about whether quality of life is actually improving or inequalities
narrowing. Within the Mekong Region a large portion of the goods and services that
enrich people’s quality of life are found outside of the formal monetary economy and,

2
unfortunately, there is a growing body of evidence indicating that life is getting harder, in
particular for those at the margins of the region’s new market-based economy. Oxfam
Australia, in a recent report, observe that “Most GMS projects focus on promoting
economic growth or regional integration, with little explicit focus on targeted poverty
interventions” and suggest that growing inequality in the region and accelerating
environmental degradation is symptomatic of the regional integration and economic
modernization model (Cornford and Matthews, 2007).

The regionalization now underway in the Mekong region is establishing a “resource

extraction economy” which is increasingly integrated into the global economy and that
facilitates regional and multinational investors to gain access to new markets and natural
resources (Guttal, 2006). This development path threatens to undermine the natural
resource base upon which the region’s majority rural populations depend for their food
security and other basic needs (Peterson and Middleton, 2009).

Regional power trade in the Mekong region

The plans for regional electricity integration, first prepared by the ADB in the early
1990s and now widely supported by the Mekong region’s governments, serves as a
poignant case study to illustrate the potential for creating inequality and rural-urban
divide – including across borders – as a result of poorly-planned, large-scale
infrastructure projects.

The ADB’s first regional electricity study, completed in 1994, was carried out by
Norconsult International, one of Norway’s largest hydropower consulting companies
(Norconsult, 1994). Reflecting both the study’s terms of reference and the consultants’
own bias, the plan envisaged a network of high-voltage transmission lines linking the
Mekong countries and opening up mountainous regions mostly in Laos, Yunnan province
of China, and Burma to hydropower development to export electricity to Thailand and
Vietnam. In 2002, a second study funded by the ADB filled out the details of this master
plan and in 2009 the plan’s logic was extended to the wider energy sector, including coal
and gas, which was endorsed at the GMS Ministers’ Summit in June 2009 in Thailand
(ADB 2009).

In many ways, these plans reflect the Mekong region’s governments’ own preconceived
ideas for electricity generation and limited consultation with the public, and are a missed
opportunity to assess all potential options to meet the region’s energy needs. These plans
also fail to take account of the cumulative social and environmental impacts, and have
been prepared largely without the participation of diverse stakeholders. As such, the
planning process to date falls well short of international standards in energy planning,
such as Integrated Resources Planning that is now common in many highly-industrialized
countries.

These regional power development plans have also been the root source of injustice to the
tens of thousands of people who have already been affected by export-orientated

3
hydropower projects, such as the Theun Hinboun, Nam Ngum 2, and Nam Theun 2 dams
in Laos (see below).

Electricity Demand and Hydropower Potential in the Mekong Region

As all economies in the region continue to rapidly expand, demand for electricity is
surging. Thailand’s government estimates that electricity demand in Thailand will
approximately double to 70,000 megawatts (MW) by 2030 (Permpongsacharoen, 2010).
In Vietnam, one of the world’s fastest growing economies, according to Vietnam’s
government demand is predicted to triple by 2020 to 69,500 MW, requiring the
construction of 50,000 MW of new generation capacity (Sinh, 2010). Burma, Cambodia
and Lao have more modest domestic demand growth predictions, although all
governments have committed to urgently develop electricity infrastructure to support
economic growth.

Thailand, which has already developed much of its domestic hydropower potential and
faces stiff opposition to further projects at home, plans to import at least 14,000 MW of
hydroelectricity from neighboring Burma, Lao and Yunnan Province, China over the
coming fifteen years. Vietnam plans to develop almost all of its viable hydropower over
the next twenty years, totaling at least 17,000 megawatts, as well as importing electricity
from Cambodia, China, and Laos. Responding to this demand, the governments of Burma,
Cambodia and Lao are keen to develop their relatively unexploited hydropower potential
for both electricity export, which would earn these governments foreign currency, and
domestic demand. Laos, for example, has proclaimed its ambition to become the “battery
of Southeast Asia” and generating revenues from hydropower exports is a key policy of
the government; as of March 2010, Laos had 8 hydropower dams in operation, 7
officially under construction, 18 at a planning stage, and 51 at a feasibility stage, and the
government holds Memorandum of Understanding with Thailand to export 7000 MW by
2015 and with Vietnam to export 3000 MW by 2020 (International Rivers, 2010).

Burma, Cambodia and Laos’ total hydropower potential is approximately 40,000 MW,
10,000 MW, and 26,500 MW respectively. Not all of this capacity, however, is
economically viable, and some planned hydropower schemes, such as those proposed on
the Mekong River and Salween River mainstreams, if developed would inevitably incur
massive environmental and social costs and have drawn significant controversy.

Hydropower development in the Mekong region is hotly contested – to the extent that
political space permits - by affected communities, academics, and civil society
organizations.i Many are concerned that plans for hydropower are moving forward in a
haphazard and unregulated fashion and without genuine consultation with local
communities and other stakeholders. If developed in this way, they argue, hydropower
dams threaten the integrity of the Mekong river ecosystem through blocking the
migration of fish and the transport of sediment, and through changing the natural flood-
drought cycle of the rivers. In turn, this threatens the livelihoods of the millions of people
that depend on the Mekong River and its resources.

4
Civil society groups have also questioned Thailand and Vietnam’s power development
plans, which heavily promote the development of new large-scale electricity generation
plants, such as fossil-fuel fired power stations and hydropower dams, and that are
increasingly locking the region into a centralized electricity supply model (Greacen and
Footner, 2006; VUSTA, 2007). They claim that future electricity demands are
overestimated, and that the potential that investment in energy efficiency measures,
renewable energy, and decentralized energy options could play are downplayed,
especially in the more industrialized cities of the region in Thailand and Vietnam. They
argue that existing plans mostly serve the interests of the state-owned electricity utilities,
energy companies, and the construction industry, rather than the needs of the regions’
electricity consumers (Gracen and Gracen, 2004).

Hydropower Development in Laos

In Laos, rivers provide for fish, drinking water, irrigation and transport for the majority of
the rural population. As described above, Laos is now undergoing a dam-building boom,
with the majority of the generated hydroelectricity to be sold to neighboring Thailand,
Cambodia and Vietnam. Laos is a one-party socialist state where press freedoms is
limited, independent civil society organizations are restricted, and corruption is high
(Stuart-Fox, 2006). These circumstances significantly enhance the risks associated with
hydropower development – particularly for the hundreds of thousands of villagers who
would be affected by extensive hydropower development. Project developers from
Thailand, Vietnam, Russia, Malaysia, China, Japan, and Korea, amongst others, are
competing with each other in what threatens to become a race to the bottom in terms of
environmental and social standards (International Rivers, 2008).

Many of the laws, regulations and policy developed in preparation for the Nam Theun 2
project with support from the ADB and World Bank contain important provisions to
ensure participation, consultation, information disclosure, compensation and resettlement
with livelihood restoration for affected communities. However, whilst Nam Theun 2 has
struggled to meet its environmental and social commitments, it is clear that subsequent
hydropower projects by the new developers are not following these standards and they
are not being enforced by the government of Lao (International Rivers, 2008). These
implementation failures are most evident during the development and review of the
environmental impact assessments (EIAs) and resettlement action plans (RAPs) for
hydropower projects, for example the Nam Ngum 2 and Sekamen 3 projects that are now
almost complete. EIAs and RAPs have generally not been disclosed to the general public
and are often of questionable quality, and there has been a general lack of progress to
operationalize the National Policy on the Environmental and Social Sustainability of the
Hydropower Sector (2005).

Power Exports to Thailand: The social and environmental costs of hydropower

development

Thailand’s power demand has been a key driver for hydropower development in Laos,
with dam projects being built in Lao that would largely be unacceptable to local

5
communities in Thailand nowadays. Consumers in Thailand’s urban centers have also
benefited from the seemingly cheap electricity that hides these projects’ social and
environmental liabilities. In other words, these costs are being externalized to
neighboring countries.

• Nam Theun 2
The 1,070 megawatt Nam Theun 2 Dam is located in Khammouane province, Central
Laos. The project is owned by Electricité de France International (35%), the Electricity
Generating Company of Thailand (25%), Lao Holding State Enterprise (25%) and Ital-
Thai Development (15%). Nam Theun 2 began generating power in March 2010,
exporting more than 90% of the power to Thailand.

The Nam Theun 2 project has a complex financing arrangement, involving five
multilateral agencies, four export credit agencies, two bilateral governmental agencies,
nine international commercial banks and seven Thai commercial banks. At the time, Nam
Theun 2 was the largest internationally-financed Independent Power Producer (IPP) in
Asia since 1997, and the largest single foreign investment ever in Lao PDR. The World
Bank and ADB were central players in brokering the agreement, because of the financing
complexity and because the World Bank Group’s and ADB’s political risk guarantees
lowered the project’s risk profile to attract commercial bank financing, in particular for
the US dollar international lenders.

In supporting Nam Theun 2, the World Bank and Asian Development Bank (ADB) have
claimed that the mistakes of their past hydropower projects would not be replicated. Yet,
key questions remain around the project’s livelihood restoration programs and whether
the project will really contribute towards poverty reduction in Laos (International Rivers,
2008).

To make way for the Nam Theun 2 Dam, 6,200 indigenous peoples were forcibly
resettled from the reservoir area on the Nakai Plateau. While they have received better
houses, water supply, and electricity, the dam’s large reservoir leaves these people with
only one-third of the land they once used for farming, grazing and collecting forest
products. Within these constraints, Nam Theun 2’s developers still have not yet
developed clear plans for how these resettled people will earn income and feed their
families in their new villages.

Approximately 15,000 people have been affected by the project’s construction activities,
losing land, assets, and access to resources. The World Bank and ADB’s resettlement and
disclosure policies have been violated on occasion, as well as the provisions of the
project’s Concession Agreement. Compensation payments and replacement land for
villagers affected by construction activities have been inadequate, unfair, or in some
cases, non-existent.

Since its turbines started operating in March 2010, Nam Theun 2 has also affected as
many as 120,000 villagers living along the Xe Bang Fai River, the Mekong tributary into
which Nam Theun’s waters is diverted. Over the past months, the Xe Bang Fai villagers

6
have suffered frequent flooding, poor water quality that is mostly like causing skin
complaints now being experienced by villagers, and inundated riverbank gardens, the
impacts of which have been inadequately prepared for or addressed by the company
(Mekong Watch and International Rivers, 2010).

• Nam Ngum 2
The US$832 million, 615MW Nam Ngum 2 Hydropower Project broke ground in 2006.
Its shareholders are primarily Thai construction and energy companies, including Ch.
Karnchang and Ratchaburi. The Nam Ngum 2 Dam is wholly financed by three Thai
commercial banks, namely Krung Thai Bank, Siam City Bank, and the Thai Military
Bank. Details on the financing arrangement are unclear, although it is known that the
Export-Import Bank of Thailand guaranteed a baht-denominated bond issue by Electricité
du Laos totaling 1.5 billion baht for its 25% stake in the project, with the Lao Ministry of
Finance acting as a counter-guarantor (Middleton, 2009)

Nam Ngum 2 is being developed within the context of chaotic development within the
Nam Ngum River Basin, home to 10% of Laos’ population, with competition between
the logging, mining and hydropower sectors that threaten the area’s fisheries, tourism
potential, and land and water quality, as well as the livelihoods and culture of tens of
thousands of ethnic minority people.

Whilst Nam Ngum 2’s EIA has apparently been finalized, it has not been publicly
disclosed, in violation of National Hydropower Policy. Despite this, the project’s
transmission line cuts through Phou Khao Khouay National Protected Area, fragmenting
the area and opening it up to timber and wildlife exploitation. The dam will block key
fish migration routes and affect the quality of water entering the Nam Ngum 1 reservoir
downstream, an important fishery for more than 9,000 people.

The future livelihoods of an estimated 6,100 mainly ethnic minorities resettled by the
Nam Ngum 2 dam remains uncertain. Viable alternative livelihood plans have not been
presented as a Resettlement Action Plan has not been publicly released. The resettlement
process itself has been widely criticized with villagers from different ethnic groups being
grouped into three “focal sites” 120 km to the west of their present villages with
insufficient land to support their livelihoods and without their participation in the
resettlement process (International Rivers, 2008).

In March 2010, the Nam Ngum 2 started impounding its reservoir creating a shortage of
water in the Nam Ngum 1 reservoir downstream that generates electricity for Laos’
capital, Vientiane (Vientiane Times, 6 July 2006). As a result, there were serious
electricity shortages in Vientiane, which were partially met by importing expensive
electricity from Thailand. Nam Ngum 2 dam had previously sought to increase its
electricity tariff to EGAT, facing increased construction costs from the 2008 oil crisis,
although EGAT had refused but instead offered to buy electricity from the project early if
construction could be accelerated. The original planned year of commission was 2013,
according to the Lao government’s website.ii It appears, therefore, that Nam Ngum 2’s

7
earlier completion represents the prioritization of private sector profit motives over Laos’
national interest and securing the capital’s power needs.

• Theun Hinboun and the Theun Hinboun Expansion Project

The 210 MW Theun-Hinboun Hydropower Project (THHP), commissioned in 1998, is
the first build–operate–transfer (BOT) project in Laos. Partially funded by the Asian
Development Bank (ADB) and the Nordic Development Fund, the project is owned by
Electricité du Laos (EdL) (60 per cent), Norway’s Statkraft (20 per cent) and Thailand’s
GMS Power (20 per cent), and exports 95 per cent of its power to Thailand.

While initially lauded by the ADB as a project with ‘little for the environmental lobby to
criticize’, widespread impacts soon emerged that the ADB later reluctantly acknowledged
(ADB, 1999). The project has reduced fishery catches between 30 and 90 per cent along
the three rivers it affected, and has caused extensive river erosion and severe downstream
flooding, resulting in repeated loss of wet season rice crops, water contamination, skin
diseases and death of livestock from drowning and disease. The net result has been a
severe impact upon the livelihoods of 30,000 people living downstream and upstream of
the dam (FIVAS, 2007).

After sustained pressure from non-governmental organizations (NGOs), the project’s

owners released a Mitigation and Compensation Program in September 2000. While the
program has been able to address some of the material needs of the villagers, such as
building wells, its efforts to replace lost livelihoods, such as encouraging villagers to
grow dry season rice, cash crops and livestock, have been problematic and are mostly
failing (Barney, 2007).

Although the project has made villagers poorer, it has generated windfall profits for its
shareholders. Located downstream from the Nam Theun 2 Dam, Theun-Hinboun's
earnings were boosted by the long delays in Nam Theun 2's implementation. In April
2008 the project’s operators reported strong profits (Vientiane Times, 2 July 2008). EdL
alone had received total dividends of US$145 million since the project was
commissioned, which is greater than its initial investment. The Government of Lao has
earned about US$27 million as royalty fees and US$9 million in taxes.

To make up for the reduced water flows caused by Nam Theun 2, which started filling its
reservoir in 2008, in October 2008 the company started building a new dam called the
Theun-Hinboun Expansion Project on the Nam Gnouang River, a tributary of the Theun
River. The US$585.5 million Theun-Hinboun Expansion Project is financed by four Thai
commercial banks (Bank of Ayudhaya, Kasikorn Bank, Siam City Bank, and Thanachart
Bank) and three international commercial banks. Thailand’s Export-Import Bank
contributed a further US$100 million. An earlier US$152 million refinancing deal in
April 2002 for the existing Theun-Hinboun project was covered entirely by Thai banks
(Middleton, 2009).

The Theun-Hinboun Expansion Project is displacing 4,800 people and will effectively
double flows down the Hai and Hinboun rivers, causing more flooding, erosion, fisheries

8
losses and resettlement. The project has been criticized for violating Lao law on
resettlement and the Equator Principles, and failing to provide viable resettlement and
livelihood restoration plans (Banktrack et al, 2009).

Power Exports to Vietnam from Hydropower in Laos and Cambodia

To secure its electricity supply, Vietnam has also looked to its neighbours, partly
facilitated by the ADB’s GMS programme. From Laos, by 2010, Vietnam will import
power from the 250MW Xekaman 3 Dam, the first of at least nine hydropower projects it
is considering in Laos (LNCE, 2008). Furthermore, in June 2007, EVN agreed with
Cambodia’s government to undertake feasibility studies on the Lower Sesan 2, which
would export some of its electricity to Vietnam.

The Viet Nam-Laos Joint Stock Electricity Investment and Development Company
(VLEIDC), whose major shareholder is Song Da Corporation - Vietnam’s largest
construction company -, commenced construction of the 250MW Xekaman 3
hydropower project in Southern Lao in 2006. Financing has largely been secured through
a bonds issued by Vietnam’s Ministry of Finance and loans from Vietnamese commercial
banks. As with the Thai-backed Nam Ngum 2, the project’s EIA documents have not
been publicly disclosed in violation of Laos’ National Hydropower Policy. The VLEIDC
is presently studying a further 4 hydropower projects in the Xekong and Xekamen basins
that, in combination with several other hydropower projects under study by Russian and
Korean developers, threaten the livelihoods of ten of thousands of people in Lao and
downstream in Cambodia along the Srepok River (Hubble, 2007).

Bilateral transboundary tensions and urban-rural divide created by tributary

hydropower dams: Sesan River

Dam cascades are being built on two major Mekong tributaries in Vietnam, the Se San
and Srepok Rivers, the impacts of which are being experienced by ethnic minorities
living in Vietnam and by Cambodian villagers living downstream. The electricity from
these projects are delivered far away from the area of impact to Ho Chi Minh City.

Vietnam has paid no compensation to the tens of thousands of Cambodians living

downstream who have been affected by the Yali Falls Dam, commissioned in 2001 but
causing major flooding since 1996, and four other projects on the Se San River in
Vietnam, although the trans-boundary environmental and socio-economic impacts are
well documented (Fisheries Office and NTFP 2000; Rutkow et al. 2005; 3SPN 2006).

Approximately 55,000 people from 16 ethnic groups living along and depending on the
Sesan River for their fishing and farming have experienced, to varying extent, daily
erratic water fluctuations, widespread flooding, illness due to poor water quality, loss of
riverbank gardens, and diminished fish stocks. Dam-induced flooding has killed at least
39 people. Whilst the downstream impacts were acknowledged by the Vietnamese
Government in 2000, there has been little progress in addressing downstream impacts.
After years of protests from affected villagers, in 2008 the Vietnamese government

9
agreed to participate in consultations with affected villagers over the impacts of planned
dams on the Se San and Srepok Rivers, yet even to date it is unclear what impact these
consultations have had on project plans or on villagers’ requests for compensation.

Instead, In June 2007, EVN agreed with Cambodia’s government to undertake feasibility
studies on the Lower Sesan 2, which would export some of its electricity to Vietnam.
This project has also been heavily criticized for its potential environmental and social
impacts (Rivers Coalition in Cambodia, 2009).

Bilateral transboundary tensions by mainstream hydropower dams: The Lancang -

Mekong

China has plans to develop a cascade of eight dams on the Lancang (Upper Mekong)
mainstream in Yunnan Province. Four of these projects have already been completed, and
at least two more are under construction. China started operating its first dam - the
Manwan dam - on the Lancang mainstream in 1992. The second and third dams,
Dachaoshan and Jinghong, were completed in 2003 and 2008. In July 2009, the Xiaowan
Dam, which has a capacity of at least 15 cubic kilometers of water, started filling its
reservoir. These dams are built under China’s West to East policy, that promotes the
development of hydropower in Yunnan province to send power to cities and industrial
centers, such as Shanghai, on the Eastern seaboard (Magee, 2006).

These projects have been developed without any consultation with downstream countries.
Limited environmental impact assessments have only recently been made publicly
available within China for some of these projects, although only after the dams have now
been built, and there has been no comprehensive assessment of the cumulative impacts of
these projects on the ecology and hydrology of the Mekong River in downstream
countries.

Academics have previously linked changes to the Mekong River’s daily hydrology and
sediment load since the early 1990s to the operation of the Lancang dam cascade (Lu and
Siew, 2006). As a result, communities downstream in Northern Thailand, Burma and
Laos have suffered from a loss of fish and aquatic plant resources, which have impacted
local economies and livelihoods (SEARIN, 2004); since the second project, Dachaoshan,
was completed in 2003 local people were reporting a 50% decline in fish catch.

In 2010 the Mekong Region suffered its worse drought in decades. Fishers and farmers
who depend on the river for their livelihoods, especially in Northern Laos, Thailand,
southwest China and Viet Nam, suffered from declining fish catches, reduced water for
irrigated agriculture, livestock and drinking, and grounded river transportation affecting
trade and tourism.

While less rainfall was undoubtedly an important factor in the 2010 drought, the role that
China’s Lancang (upper Mekong) dam cascade played in the drought came under
scrutiny given the dams’ poor transparency on reservoir water-levels and dam operation
data, in particular because the filling of the Xiaowan Dam’s reservoir coincided with the

10
period of reduced rainfall and then drought. The situation was covered extensively by the
media in Thailand and China, as well as internationally, creating significant tension
between rural river-dependent communities in Northern Thailand and the Chinese
Government. To date, despite requests by civil society and local communities in April
2010, definitive clarification on the role played by the dams in the drought, or if water
stored could have helped alleviate its impacts, has not been released.

Thailand’s Electricity Demand and Hydropower Developers and Financiers:

Exporting Urban-Rural Disparity Across Borders and the Failure of Corporate and
Social Responsibility

As Thailand’s economy and demand for power has grown, and the Thai public’s
resistance to new large domestic power plants strengthened, Thailand’s electricity utility,
EGAT, has increasingly favored importing power from neighboring countries where
hydropower potential is huge and community opposition is largely stifled. Now, in
addition to domestic power projects, Thailand’s Independent Power Producer (IPPs)
companies are conducting feasibility studies for tens of projects in Laos and Burma,
including on the Mekong River and Salween River mainstreams.

The role of EGAT dominates power planning and development in Thailand (Gracen and
Gracen, 2004). EGAT owns just under half of Thailand’s total generation capacity with
the remainder provided by IPPs. However, EGAT is also a major shareholder in several
major IPPs, including the Electricity Generating Company of Thailand (EGCO) (25%)
and Ratchaburi Electricity Generating Holding Company (45%). This creates a
contradiction in the role of bureaucrats (civil servants), politicians, and state owned
enterprises that should act in the public interest, but are at risk of being influence by a
“private sector incentive.” Whilst an independent electricity regulator, the Energy
Regulatory Commission, was established in 2007 it is yet to become fully empowered
and effective in its role of protecting the public interest and promoting better power
planning processes with meaningful public participation. Whether it will successfully
decouple government from private sector interests and how it will respond to
environmental and social issues on power import projects remains to be seen.

Several companies, for example EGCO and Ratchaburi, identify investing in regional
energy projects as core to their business strategies (Middleton, 2009). Thailand’s
construction industry is also increasingly looking towards foreign markets; Ch.
Karnchang, Thailand’s second largest construction company, for example noted a slump
in domestic business in recent years necessitating greater effort seeking business in the
Mekong region (Wiriyapong, 2008). Furthermore, buoyed by Thailand’s power
development plans that support electricity imports from neighboring countries,
Thailand’s commercial banks, including Bangkok Bank; Bank of Ayudhya; Kasikorn
Bank; Krung Thai Bank; Siam City Bank; Siam Commercial Bank; Thai Military Bank;
and Thanachart Bank, have also proven to be willing backers of major regional energy
projects.

11
Whilst most major Thai energy companies, such as EGCO and Ratchaburi, have
statements on Corporate and Social Responsibility (CSR) available on their website, in
the case of the regional hydropower projects that they are involved in there is little
evidence that they are seriously implementing these commitments in practice. In fact,
Thai energy companies’ interpretation of CSR for their Thai projects is generally to
providing conservation and community programs to those affected by a project or
elsewhere, rather than CSR functioning to act as a screening mechanism to eliminate poor
projects and minimize the impacts of those that do go ahead.

All of the above major Thai commercial banks also have some form of Corporate
Governance and Corporate Social Responsibility (CSR) commitment on paper
(Middleton, 2009). These commitments vary between banks but include: fair treatment of
stakeholders, including customers, investors, business partners, and wider society and the
environment; compliance with relevant laws; transparency and information disclosure;
and environmental conservation and support for local communities. Despite these
commendable commitments, however, fundamental changes to the bank’s core business
practices have not occurred and therefore these policies are yet to be meaningfully
implemented, as reflected in their lending to the Nam Theun 2, Theun Hinboun
Expansion Project and Nam Ngum 2 dams detailed above.

Conclusion: Towards Regional Urban-Rural Reconciliation

Private-sector led regional-scale investment in the Mekong Region is growing in scope

and ambition. It has been investors from the region’s wealthier countries of Thailand,
China and Vietnam that have increasingly sought to invest in extraction-oriented large
projects in their resource-rich, but less wealthy neighbors of Laos, Cambodia and Burma.
Yet, all too often a form of frontier capitalism has emerged where investors, cooperating
with politically-connected elites, are developing projects such as hydropower dams (as
well as mines, plantations and agricultural concessions) that in the process undermine
rural livelihoods with seemingly little regard.

Reflecting on the track-record of the new regional hydropower proponents to date, their
commitment to international social and environment standards is dubious, and their lack
of public accountability is worrisome. The risk that affected communities will
disproportionally bear project-associated risks is compounded by the current weak
enforcement of national law, especially in Burma, Cambodia, and Lao. Skewed
electricity planning that is largely unaccountable to the public in Thailand and
increasingly in Vietnam, and that fails to take account of all potential options, as well as
consider environmental and social costs alongside economic criteria, has also resulted in
the current situation.

Whilst this situation may reflect favorably in macro-economic statistics such as GDP, the
result could seriously undermine the overall well-being of the majority rural population
dependent on the region’s river resources and contribute towards a growing disparity
between urban and rural areas within and between the Mekong countries.

12
How can regionalization become more focused on the region’s peoples’ well-being,
rather than macroeconomic growth alone? And, how can the current situation where
environmental and social impacts of mega-projects are externalized be remedied?

In the case of regional-scale power projects, an additional level of complexity is added

when we try and identify where ultimate responsibility lies for these investments.
Is it with the government of the power-purchasing country that should take responsibility
as the electricity buyer? Is it with the government of the power-exporting country that
should enforce its national laws? Is it with the project developers or with the financiers
that, in the presence of conditions of weak governance, could opt to follow international
standards and best practices voluntarily?

The region’s river resources are central to food security, nutrition and economies, as well
as cultural heritage. Many large dams built to date have exacerbated rather than reduced
poverty for local people. Even the model project for the region, Nam Theun 2 in Lao, is
running into serious problems as it begins operation. Given the difficulties in mitigating
the impacts of large dams and ensuring that affected communities are beneficiaries rather
than victims, it is essential that a new planning process be undertaken: one that would
objectively analyze the social, environmental and economic impacts of planned
developments and come up with the best options for meeting the region’s energy needs
while protecting its ecosystems and the rights of its citizens. Implicit to this is the need
for genuine public participation in decision-making processes. For decision-making to be
seen to be accountable and fair, there also needs to be a decoupling of the government’s
role as planner and decision maker from its private sector interests. Despite the distance
and hidden nature of impacts of regional hydropower projects from the wider-publics eye,
especially the power consumers in the region’s cities, civil society at the local, national
and regional level must play a critical role in ensuring these responsibilities are taken
seriously.

• Better electricity and water planning practices

Environmentally sustainable and socially desirable solutions to meeting the Mekong

region’s energy needs do exist, although, at present, they are not a part of any regional
energy plan (Greacen and Footner, 2006; VUSTA, 2007). The planning processes
currently in place both at the national and regional levels falls well short of international
standards in electricity planning. For example, the financial incentive structure of power
utilities is a ‘rate-of-return’ structure. All utility costs are periodically submitted for
review to a regulator; if approved, the organization will be permitted to recover its costs,
plus a profit margin, by passing them on to captive customers (Foran, 2008). This
incentive structure rewards utilities for investing in power plants, not for saving energy
through energy efficiency programs.

Civil society groups in Thailand and increasingly regionally are calling for reform of the
power planning process towards integrated resources planning (IRP), a process that
considers a full range of feasible supply-and-demand-side options, as well as the full cost
to society – including social and environmental costs, as well as risk – rather than the

13
lowest commercial cost to investors. Empowered and active regulators will be a key
factor in seeing IRP successfully implemented. Furthering the IRP concept, the World
Commission on Dams put forward a wider framework in the form of a Comprehensive
Options Assessment that combines sustainable water and energy planning practices with
public participation to prepare congruous, sustainable and publicly acceptable electricity-
and water-sector plans (WCD, 2000).

• International Standards for Regional Investments

Many western-backed hydropower projects developed in the Mekong region over the past
two decades have inflicted serious impacts on communities living nearby that continue to
this day. Whilst Western donors, financiers, and multilateral banks’ have claimed to hold
strong environmental and social safeguard policies, in reality these have on the whole
proven inadequate (Middleton et al, 2009).

Of concern, however, there is little evidence that the new hydropower proponents from
Thailand, Vietnam, Malaysia, and China, are striving to attain even these deficient
standards of best-practice. To genuinely mainstream environmental and social issues
throughout the companies’ decision-making process, CSR frameworks must reflect
international best practice standards - such as the recommendations of the World
Commission on Dams and the UN Norms on the Responsibility of Transnational
Corporations - and become embedded in the institutional culture of financiers and
companies.

These frameworks could reduce the risk of developing poorly conceived projects. Given
the massive interest in developing hydropower throughout the region, the region’s
governments are in a strong position to only select those developers of sound reputation.
In general, best practices address issues of concern to wider society through eliminating
or minimizing externalities and sharing project benefits.

While, in principal, such practices also reduce project developer risk – for example, from
protests or legal measures that could delay project construction or add unforeseen
additional cost – where the rule of law is weak, corruption high or local protest stifled,
such risks appear smaller to project developers - therefore, they have less impetus to
implement best practices. Commercial or strategic short-term interests favor poor
practices that constantly override consideration or application of precautionary measures
or standards. Past dam projects in the Mekong Region, unfortunately, confirm that all the
compensation schemes and other concessions from dam builders and governments have
been secured only after substantial controversy or protest.

• Green, sustainable financing

Commercial banks serve as important intermediaries that allocate resources from savers
to investors across economic sectors. By adopting more sustainable banking policies and
practices, such as the Equator Principles or, even better, developing their own in-house
standards, commercial banks from China, Thailand and Vietnam could contribute

14
substantially towards a prosperous, sustainable and peaceful Mekong Region for present
and future generations. This would have the added benefit of minimizing their lending
risk and increasing their profits from lending to emerging lucrative ‘green’ businesses
(Middleton, 2009; Banktrack, 2010).

In addition, amongst the new export credit agencies active in the Mekong region, only
China Exim Bank is known to have an environmental policy, publicly-released in May
2007, and environmental guidelines that were released in August 2008, although there is
little evidence of their rigorous implementation on the ground. The Thai Exim Bank,
while an increasingly keen supporter of large infrastructure projects in the region, does
not have an environmental policy and its activities are generally unaccountable to civil
society. Similar to commercial banks, export credit agencies should also develop and
operationalize responsible environmental and social safeguard standards.

References
3SPN, 2006. Briefing Sheet 1: Hydropower Dam Developments in Vietnam and their impacts on
Northeastern Cambodia. Ratanakiri: 3SPN

ADB (Asian Development Bank) (1999) Loan No 1329-LAO (SF): Theun Hinboun Hydropower Project,
Asian Development Bank, Aide Memoir: Special Review Mission, 9–18 November 1999

ADB (2008) Midterm Review of the Great Mekong Subregion Strategic Framework (2002-2012) Asian
Development Bank: Manila

ADB (2009) Building a sustainable energy future: The Greater Mekong Subregion. Asian Development
Bank: Manila

Amornsakchai, S., Annez, P., Vongvisessomjai, S., Choowaew, S., Thailand Development Research
Institute (TDRI), Kunurat, P., Nippanon, J., Schouten, R., Sripapatrprasite, P., Vaddhanaphuti, C.,
Vidthayanon, C., Wirojanagud, W., Watana, E. 2000. Pak Mun Dam, Mekong River Basin, Thailand. A
WCD Case Study prepared as an input to the World Commission on Dams, Cape Town

BankTrack, FIVAS, International Rivers, Les Amis de la Terre and Commission for Mission (2009)
“Expanding Failure: An Assessment of the Theun-Hinboun Hydropower Expansion Project’s compliance
with Equator Principles and Lao law”

Banktrack (2010) Close the Gap: Benchmarking Credit Polices of International Banks Published by
Banktrack: Nijmegan

Barney, K. (2007) Power, Progress and Impoverishment: Plantations, Hydropower, Ecological Change and
Community Transformation in Hinboun District, Lao PDR, York Centre for Asian Research Paper No 1
(June 2007), Centre for International Forestry Research, Probe International, Rights and Resources
Initiative and the York Centre for Asian Research

Cornford, J. and Matthews, N (2007) “Hidden Costs: The underside of economic transformation in the
Greater Mekong Subregion” Published by Oxfam Australia

15
Fisheries Office and NTFP, 2000. A Study of Downstream Impacts of the Yali Falls Dam in the Se San
River Basin in Ratanakiri Province, Northeast Cambodia. Ratanakiri Province, May 29, 2000. Ratanakiri:
The Fisheries Office.

FIVAS (2007) “Ruined Rivers, Damaged Lives: The Impacts of the Theun Hinboun Hydropower Project
on Downstream Communities in Lao PDR”, published by the Association for International Water Studies
(FIVAS

Foran, T. (2008a) ‘Better financial regulation could make energy organizations more sustainable’,
Generating Dialogue, A Forum on Sustainable Energy, Good Governance, and Electricity Regulation,
World Resources Institute, Centre on Asia and Globalization, National University of Singapore, 16–18
March 2008

Greacen and Footner (2006) “Decentralizing Thai Power: Towards a Sustainable Energy System”
published by Greenpeace SE Asia

Greacen, C. S. and Greacen, C. (2004) ‘Thailand’s electricity reforms: Privatization of benefits and
socialization of costs and risks’, Pacific Affairs, vol 77, no 3, pp517–541

Guttal, S. (2006) “Development and Plunder in the Mekong Region” (pp 33-47) in Revisiting Southeast
Asian Regionalism Published by Focus on the Global South: Bangkok

Hubble, D. (2007) “Laos Dams Threaten Cambodia” Watershed 12(1)

International Rivers (2008) “Power Surge: The Impacts of Rapid Dam Development in Laos”, International
Rivers, September 2008

International Rivers (2010) “Existing and Planned Lao Hydropower Projects – March 2010”
http://www.internationalrivers.org/files/LaoHydroMar2010.pdf

Lawrence, S. (2009). “The Nam Theun 2 Controversy and its Lessons for Laos”. In Molle, F.; Foran, T.
and Käkönen, M. (eds), Contested Waterscapes in the Mekong Region: Hydropower, Livelihoods and
Governance, pp. 81-110. London: Earthscan.

Lu, X. X. and Siew, R. Y. (2006) "Water discharge and sediment flux changes over the past decades in the
Lower Mekong River: possible impacts of the Chinese dams" Hydrol. Earth Syst. Sci., 10, 181–195

Magee, D. (2006) “Powershed Politics: Yunnan Hydropower under Great Western Development” The
China Quarterly, 2006 pp 23-42

Mekong Watch and International Rivers (2010) Letter to WB and ADB on Nam Theun 2 Commercial
Operation, March 26, 2010, www.internationalrivers.org/en/node/5209

Middleton, C. (2009) “Thailand’s Commercial Banks’ Role in Financing Dams in Laos and the Case for
Sustainable Banking” Published by International Rivers, December 2009

Middleton, C.; Garcia, J. and Foran, T. (2009). “Old and New Hydropower Players in the Mekong Region:
Agendas and Strategies”. In Molle, F.; Foran, T. and Käkönen, M. (eds), Contested Waterscapes in the
Mekong Region: Hydropower, Livelihoods and Governance, pp. 23-54. London: Earthscan.

Norconsult (1994) Promoting Subregional Cooperation among Cambodia, Lao PDR, Myanmar, Thailand,
Viet Nam and Yunnan Province of the People’s Republic of China: Subregional Energy Sector Study for
Asian Development Bank, Asian Development Bank, Manila

16
Permpongsacharoen, W. (2010) “Reading Vietnam’s PDP VIIbase on Thailand’s experience” At the
“Experience Sharing: Electricity Development in the Mekong Region & MEE Net Partners’ Meeting 2010”,
August 18 –19, 2010 Hoa Binh Hotel, Hanoi, Vietnam

Peterson, B. and Middleton, C. (2010) “Feeding Southeast Asia: Mekong River Fisheries and Regional
Food Security” Paper written for International workshop on “Mekong Environment and Livelihood: The
Changing Situation and Transboundary Implications”, Can Tho, Vietnam, 3 – 4 February, 2010

Rivers Coalition in Cambodia (2009) Best Practices in Compensation and Resettlement for Large Dams:
The Case of the Planned Lower Sesan 2 Hydropower Project in Northeastern Cambodia Published by the
Rivers Coalition in Cambodia

Rutkow, E., Crider, C., and Giannini, T. 2005. Down River: The consequences of Vietnam’s Se San River
Dams on Life in Cambodia and Their Meaning in International Law. Phnom Penh: NGO Forum on
Cambodia

SEARIN (2004) “Downstream Impacts of Hydropower and Development of an International River: A Case
Study of the Lancang-Mekong” Published by the Southeast Asia Rivers Network

Sinh, B.T. (2010) “Initial Review and Assessment of Integrating Economic. Social and Environmental
Considerations into the PDP Process in Energy Sector in Vietnam”
At the “Experience Sharing: Electricity Development in the Mekong Region & MEE Net Partners’ Meeting
2010”, August 18 –19, 2010 Hoa Binh Hotel, Hanoi, Vietnam

Stuart-Fox, M. (2006) ‘The political culture of corruption in Lao PDR’, Asian Studies Review, vol 30, pp
59–75

UNEP (United Nations Environment Programme) and TEI (Thailand Environment Institute) (2007) Greater
Mekong Environment Outlook, UNEP and TEI, Bangkok

Vientiane Times, 2 April 2008, ‘Laos profits from Theun Hinboun hydropower’

Vientiane Times, 6 July 2010 ‘Electricity production drops by 3.31 percent’

VUSTA (2007) “Assessment of Vietnam Power Development Plan” published by Vietnam Union of
Science and Technology Associations

Wiriyapong, A. (2008) “Ch. Karnchang to Grow in the Region” Bangkok Post 14.2.08

World Commission on Dams (2000) Dams and Development: A New Framework for Decision Making,
Earthscan Publications, London and Sterling

i
For example, see www.searin.org, www.terraper.org, www.ngoforum.org.kh, www.salweenwatch.org,
www.mekong.es.usyd.edu.au/ and www.internationalrivers.org.
ii
www.poweringprogress.com

17