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Summary of the Nam Theun 2 Board Update: Project Progress during 2011

The World Bank and Asian Development Bank (ADB) circulated a written update on project progress to their Boards in March, 2012.  This update touches on commercial operations and revenue management; the management of social and environmental issues on the Plateau, the Downstream areas, and in the Watershed, and concludes with a description of ongoing monitoring, oversight and supervision efforts.

Commercial Operations are generating Revenues for Poverty Reduction

  • NT2 revenues from the sale of electricity, accruing since the start of operations in March 2010, are being used for poverty reduction and environmental protection around the country in accordance with the Revenue Management Arrangements. During the Lao Fiscal Year 2011 (October 2010 to September 2011) NTPC paid around US$19m in royalties and dividends, and is projected to pay around US$27m during the current financial year.

  • Extreme rainfall (three over 1 in 1000 year events)impacted the project during the 2011 rainy season, including the need to halt generation to avoid exacerbating the natural flood in the Xe Bang Fai (in compliance with project agreements), as well as damage to project roads and a transmission tower due to earth slippage and erosion. While NT2 ceased generating for most of August 2011, it still met its annual generation targets. The reservoir ended the rainy season at full supply level, which secured the generation potential for the dry season.

Environmental and Social Programs on Nakai Plateau

  • Socioeconomic monitoring shows that resettler incomes are clearly above baseline levels, and the challenge now is ensuring sustainability of incomes, as well as focusing on the most vulnerable households.  87% of resettlers feel their lives have improved after resettlement and services as well as livelihoods have improved: school enrollment rates among 5-9 year old children in resettlement areas went from 31% in 1998 to almost 90% in 2009.

  • Reservoir fish catch monitoring indicates stabilization at lower levels after an initial windfall period. Daily fish catch monitoring is undertaken, and fish species remain reasonably diverse, although some have experienced reductions. The priority is to strengthen the enforcement of fisheries regulations, which involves both affected communities and local government.

  • Water quality monitoring on the reservoir is functioning well, allowing a quick response to any emerging issues if they arise. Water is sampled by NTPC regularly at multiple locations and certain water quality monitoring data is now publicly available on NTPC’s website. All parameters of water quality are closely monitored and thus far remain within applicable standards.

Xe Bang Fai Downstream Program

  • Xe Bang Fai Downstream impacts are in line with or less than levels anticipated.  The onset of commercial operations in 2010 broughtwith it significant new flows of water into the Xe Bang Fai River. While downstream impacts have so far been in line with or less than those anticipated, it is likely that impacts will continue to evolve over the medium-term and need to be closely monitored.

    • An extensive water quality monitoring program is in place and indicates that, in general, water quality has been better than anticipated. Monitoring results indicate that water quality in the Xe Bang Fai downstream of the Downstream Channel meets national water quality standards, as well as recognized criteria for supporting aquatic life.

    • The skin rash among some Xe Bang Fai residents noted in previous Board Updates continues to be monitored and investigated. Only a few new cases were reported in 2011. The rash has been under investigation by NTPC, local health authorities, as well as by international experts. Some cases have been discovered upstream of the Xe Bang Fai in the areas where the problem is clearly unrelated to NT2 operations.

    • Riverbank garden impacts have been consistent with predictions, with some additional impacts in tributaries due to backwater effects. The compensation process for 3,180 eligible households is complete, and the project is now working through the grievances that have been filed.  The extent of reduced use of the riverbank gardens varies between households.

    • Impacts on fish-catch have varied along the river. Emergent losses after the first year of operation of average household fish catch in the Xe Bank Fai mainstream were broadly within the anticipated maximum impact range stated in the SDP.  Mainstream catches have been down along the Xe Bang Fai with a stronger decrease near the Downstream Channel confluence, and there are still no fish kills reported.

    • All boreholes planned for riparian villages have been provided. A monitoring and maintenance process is in place to deal with mechanical or water quality problems as they arise.

  • A joint World Bank and ADB Mid-Term Review of the Nam Theun 2 Downstream Program took place in February 2011. The review was undertaken in early 2011 for two main reasons:

    • Significant impacts from the project on the Xe Bang Fai area only started with the onset of commercial operations in March 2010, providing a first opportunity to review the downstream program while taking actual impacts into account;

    • NTPC indicated to Government and the International Financial Institutions (IFIs) that their US$16m downstream budget was expected to be fully utilized by late 2011 or early 2012. The IFIs therefore need to agree with Government and NTPC about how their mutual obligations should be best addressed and coordinated in the future.

  • In line with the Concession Agreement and the Financing Agreements with the IFIs, responsibility for managing the ongoing downstream program will transition from NTPC to Government management.  NTPC, Government and the IFIs have all begun to contribute to a handover process. The NTPC Board approved additional budget to enable the extension of key parts of the NTPC downstream program until the end of 2012, including complete coverage of all agreed villages and an orderly handover process to Government. National government created an NT2 Handover Committee to guide the process, while local government has developed a detailed plan and clarified implementation arrangements to guide their own role. The IFIs have extended current projects (for the World Bank, the Khammouane Development Project, and for the ADB, the Smallholder Development Project) that help to strengthen capacity at the provincial and district levels as part of broader programs.

Watershed

  • Balancing the conservation and socioeconomic development needs in the Watershed will remain a key long-term challenge for NT2. The Government issued Prime Minister’s Decree 471 that strengthens the authorizing environment for the Watershed Management Protection Authority (WMPA), clarifies its boundaries, and more closely aligns it with the administrative systems of government in Lao PDR. The WMPA is also currently finalizing the second Social and Environmental Management Framework and Operational Plan (SEMFOP II), which once approved by its Board, provides a five-year planning framework for the authority.

  • NTPC’senvironmental programs in the watershed are being handed over to government. The fourth and final wildlife monitoring survey, conducted over the past 2 years, has been completed. The wetlands that were developed above the full supply level of the reservoir have developed well, and the salt licks built by NTPC, now maintained by WMPA, are being used by elephants and other wildlife.

The NT2 project continues to be very closely monitored

  • The Environmental and Social Panel of Experts (POE) finished its 18th visit in late 2011, and released its report with the number of recommendations aimed at strengthening the Watershed Management and Protection Authority. The Dam Safety Review Panel, Government Engineer, and the Lenders Technical Advisors also undertook oversight visits during 2011.

  • The International Advisory Group (IAG) undertook its tenth and final visit in April 2011. The social and environmental monitoring role of the IAG will be continued by the Panel of Experts, while oversight of the Revenue Management Arrangements will be continued by the relevant member of the IAG as an individual consultant to the World Bank. During the preparations for the final IAG mission, the Project asked for feedback concerning the governance and institutional arrangements for NT2, sustainability, and potential lessons for hydropower elsewhere. The IAG 10th Report addresses each of these issues.

  • NT2 implementation to date has proceeded satisfactorily, but the ultimate success of the Project will only be known when the full set of environmental and social programs are complete and the results measured.  Although some short-term impacts are to be expected, the project is determined to deliver sustained poverty reduction and development benefits over the long-term.  The World Bank and ADB remain committed to working closely with the Government, NTPC and local communities to ensure that the country as a whole continues to benefit from the project’s revenues, and that resettlers and other local project affected people continue to benefit from the project.



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