ECONOMIC MONITOR: LAOS
Dam the Poverty
A controversial power station has environmentalists upset, but it could increase government revenues.
By Bertil Lintner
The future is looking brighter for Laos since Thailand has agreed to buy more electricity from the country. After years of deliberations and controversy, the Electricity Generating Authority of Thailand finally signed an agreement with developer Nam Theun-II Power Company in the Lao capital Vientiane on November 8 to buy 995 megawatts of electricity worth $5 billion over 25 years.
Authorities in Vientiane estimate that once the dam on the Nam Theun River is operational it could enable Laos to achieve GDP growth of 6.4% by 2004, up from about 4% today. Laos is one of the poorest and least developed countries in Southeast Asia with tiny and shrinking foreign-exchange reserves. But, donor countries warn, income from the sale must be spent in a sound manner to reduce Laos' heavy dependence on foreign aid.
Currently, the sale of electricity to Thailand from existing dams accounts for almost 30% of total exports and constitute 15% of government revenues. Experts say the construction of the Nam Theun-II power station could increase government revenues by more than 5%.
But construction of the dam has been delayed eight years because of the 1997 Asian financial crisis and opposition from conservationists. The dam will be built in the previously forested Nakai Plateau in Khammouane province and concerns have been raised about the impact on the biodiversity of the area. The World Bank, whose backing the consortium needs in order to guarantee loans, met with Lao government officials in Washington in June this year to ensure that environmental safeguards will be followed, and that the project really contributes to macroeconomic stability and poverty reduction. The embassy of Sweden--one of Laos' main foreign donors--points out that though Laos generates a lot of electric power for export, less than 20% of its own rural population has access to electricity, which is one of the factors limiting commercialization and diversification of the economy. Other important factors, the Swedish report says, are the lack of administrative accountability, inefficient systems for public-service management and underqualified staff.
According to the World Bank, more than three-quarters of the 5.3 million population lives on less than $2 a day. Laos' social indicators are among the lowest in the region, and closer to the average for Africa south of the Sahara. Today, subsistence agriculture contributes 53% of GDP and employs 80% of the workforce. Even worse, inequality between various parts of the country is increasing. Whatever development Laos has seen over the past decades has been concentrated in Vientiane and other towns in the Mekong river plain, adjacent to Thailand, while remote provinces in the mountainous north have seen little or no change.
Laos has abundant natural resources of forestry, minerals and a vast hydropower potential. So far, only 3% of that potential has been exploited, and more dams are planned when the Nam Theun-II power plant is completed by the end of 2009. At the signing ceremony in Vientiane, Lao Minister of Industry and Handicrafts Onneua Phommachanh said that income from the project will ensure that Laos "by the year 2020 will no longer be an underdeveloped country." That seems overly optimistic, but the first step toward some badly needed prosperity has nevertheless been taken.
This article first appeared in the Far Eastern Economic Review, December 11, 2003
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