Nam Theun 2 Trip Report and Project Update - BankTrack

Nam Theun 2 Trip Reportand Project UpdateMay 2007

Written by Shannon LawrencePublished by International Rivers Network1847 Berkeley Way, Berkeley CA 94702, USATel: +1 510 848 1155, Fax: +1 510 848 1008shannon@irn.orgwww.irn.orgMay 2007Design by Design Action CollectiveCover photo by Henrik Lindholm, SwedWatch

International Rivers NetworkTABLE OF CONTENTSExecutive Summary ..................................................................................................2Introduction..............................................................................................................8Xe Bang Fai Downstream Program ......................................................................11Biomass Clearance and Water Quality..................................................................17Project Lands Compensation ................................................................................19Nakai Plateau Resettlement ..................................................................................23Conclusion ..............................................................................................................29Endnotes ................................................................................................................30Appendix 1: Trip Itinerary......................................................................................32Appendix 2: Violations of the Concession Agreement,World Bank and ADB Policies ..........................................................33AbbreviationsADBEAMPGoLIRNMAFNGOAsian Development BankEnvironmental Assessment andManagement PlanGovernment of LaosInternational Rivers NetworkMinistry of Agriculture and ForestryNon-governmental organizationNT2 Nam Theun 2NTPC Nam Theun 2 Power CompanyPoE Panel of ExpertsRAP Resettlement Action PlanRMU Resettlement Management UnitSDP Social Development PlanVFA Village Forestry Association1

Nam Theun 2 Trip Report and Project UpdateWaiting for new houses in Sop Hia resettlement village. Photo by Shannon Lawrence, IRN.EXECUTIVE SUMMARYAn International Rivers Network (IRN) staff member visited the Nam Theun 2 hydropower project(NT2) in early March 2007 to gather first-hand information regarding NT2’s implementation. Thisreport summarizes information gathered on that visit from interviews with villagers and representativesof the Government of Laos, (GoL), the Nam Theun 2 Power Company (NTPC), the Asian Development Bank(ADB) and the World Bank. Information from the field was verified and supplemented by a review of recentproject documents.Nam Theun 2 is anothertwo-speed large infrastructureproject, where constructionproceeds apacewhile social and environmentalprograms lagof past dam mistakes.behind. Livelihood restorationprograms for resettled villagers on the NakaiPlateau, villagers along the Xe Bang Fai, and villagesaffected by downstream channel construction are all atrisk. Many NT2-affected villagers with whom IRNspoke were increasingly open in expressing their frustrationsand concerns about the future.The World Bank’s and the ADB’s“model” hydropower project is dangerouslyclose to becoming a replicaThe NT2 Panel of Experts(PoE) warns in its February2007 report:… the overall emphasis inproject planning and implementationcontinues, as inother large dam projects, to be on the relatively simplefunctions of civil works, physical relocation and buildingsocial infrastructure. A better balance in timingand more emphasis on livelihood development areessential now (PoE 11th Report, p. 9).2

International Rivers NetworkThe World Bank’s and the ADB’s “model” hydropowerproject is dangerously close to becoming a replica ofpast dam mistakes. Despite the stacks of NT2 studiesand the multitude of assurances, the gaps in planning,budget and political will surrounding NT2 are now evident.Prior to project approval, NGOs warned that theagricultural plans for the Nakai Plateau were inappropriate,the downstream program plans were inadequate,and the community forestry component was unrealistic.Regrettably, it seems these warnings have come true.In belated recognition of the plans’ shortcomings, someare being re-drafted midstream, while others—such asirrigation for downstream channel villagers—appear tohave been abandoned, as time runs short before reservoirfilling and power generation begin. NTPC’s Socialand Environmental Division seems to be understaffed,overworked, and unequipped with the resources andhigh-level buy-in necessary to address NT2’s massiveimpacts on affected villagers.Two years before power production begins, there havealready been numerous violations of NT2’s legal framework,including the Concession Agreement and WorldBank and ADB policies. The failure of NTPC, theGoL, the World Bank, the ADB, and other projectbackers to take action on these issues calls into questionthe accountability of all parties and the enforceabilityof these agreements.Urgent action is required if the GoL, NTPC, and theinternational financial institutions are to meet theircommitments to more than 100,000 affected Laotians,and to their shareholders.Summary of Major ConcernsLivelihood restoration programs are in jeopardy in allproject-affected areas. In their latest report, the Panelof Experts states that income targets for resettlers onthe Nakai Plateau are unlikely to be met. Livelihoodrestoration programs for Project Lands’ and Xe BangFai villagers have yet to effectively begin and face significanttime and budget constraints.Both the GoL and NTPC are backtracking on commitmentsthey made at project approval. The violationsinclude failing to provide irrigation for downstreamchannel villagers, ensuring biomass clearance ofthe reservoir, guaranteeing Nakai villagers’ rights totheir forest resources, and protecting the Nakai-NamTheun National Protected Area from logging andmining. 1Neither the GoL nor NTPC has committed to clearbiomass from the reservoir area before it is flooded,despite the Environmental Assessment andManagement Plan assertion that “Vegetation will beremoved before flooding the reservoir...” 2 Time is runningout, with only one dry season left to take action.Leaving biomass to decompose in the reservoir willlikely lead to fish kills in both the reservoir area anddownstream, and result in water that is unsuitable fordomestic use and irrigation in the downstream channeland along the Xe Bang Fai. Biomass clearance hasmajor implications for the success of mitigation andlivelihood restoration programs in all project-affectedareas.NTPC has failed to disclose resettlement plans inviolation of World Bank and Asian DevelopmentBank policies, as well as other key social and environmentaldocuments, such as wildlife surveys and managementplans. IRN has repeatedly requested thesedocuments from NTPC, the World Bank and theADB.3

Nam Theun 2 Trip Report and Project UpdateDetailed Concerns and RecommendationsXe Bang Fai Downstream Program■ Implementation of NTPC’s Downstream Livelihood and Asset Restoration Pilot Program has only recentlybeen initiated in 21 villages, which constitutes less than 10% of the downstream villages that will be affectedwhen NT2 operations begin in 2009.■ The Downstream Program plan has not been disclosed to the public, despite World Bank and ADB policyrequirements.■ NTPC says it is planning for the worst-case scenarioalong the Xe Bang Fai, which means 85% fish losses,increased high frequency floods, erosion, major waterquality problems, and transportation difficulties fordownstream villages. However, the DownstreamProgram budget is only $16 million, of which more than$1 million will be spent on consultants. 3 Using NTPC’sfigure of 75,000 affected people (versus the 120,000affected people identified by independent experts 4 ), only$200 per person is available to compensate and mitigatefor all these long-term livelihood impacts. Villagers toldIRN that their main priorities were flood protection andirrigation, but NTPC has reportedly told villagers thereis not enough money for these measures.■ The primary livelihood restoration pilot projects—livestockraising, fish ponds and cash crops using a microcreditvillage savings fund, as well as water and sanitationimprovements—are inadequate to deal with thescale of impacts that villagers will face. Some peoplewere having trouble selling their vegetables, the pigsthey purchased had died, and they couldn’t pay backtheir loans to the village savings fund. The reliance onthe micro-credit scheme to deliver compensation createsa cycle of debt if projects fail.Recommendations:■ NTPC should commit to develop andimplement an interim compensationscheme to address the impacts of NT2operations on downstream villagersuntil livelihood restoration programsyield sustainable results. Additionalfunding will be required, as the $16million budget is likely to be inadequateto deal with the scale of anticipateddownstream impacts.■ The GoL, World Bank and ADB shouldwork with villagers and donor partnersto develop an integrated rural developmentplan for the Xe Bang Fai region.■ NTPC, the GoL, the World Bank and theADB should ensure disclosure of: 1) theDownstream Livelihood and AssetRestoration Program Phase 1 in itsentirety; 2) marketing surveys for theXe Bang Fai; 3) biomass clearance plansand for the Nakai Plateau; and 4)hydraulics and water quality studies forthe downstream areas.4

International Rivers NetworkBiomass Clearance and Water Quality■ Failure to clear biomass from the reservoir area will resultin water quality problems and fish kills in the reservoirand downstream. The Concession Agreement requires thata biomass survey be conducted and used to propose meansfor “maximising removal of biomass in high biomass areasof the Nakai Reservoir. The priority shall be to clear thevegetation in areas which will be permanently flooded”(Schedule 4, Part 2, Section 3a). The ConcessionAgreement also requires that “... water in the DownstreamChannel must at least be suitable for irrigation purposes”(Schedule 4, Part 2, Section 9.1f ).Recommendations:■ NTPC and the GoL should commit toclear biomass from at least all permanentlyflooded areas of the NT2reservoir.■ NTPC and the GoL should implement anindependently reviewed clearance planand impoundment strategy to minimizedownstream water quality problems inthe first years of NT2 operations.■ Despite these commitments, approved by the World Bank,the ADB and NT2’s other funders, neither the GoL norNTPC have plans to remove or ensure the maximum removal of biomass from the reservoir. NTPC is onlynow conducting a study on water quality optimization during reservoir impoundment and says that “biomassclearance may be part of the answer.”Project (Construction) Lands Compensation■ Compensation payments to Project Lands villagers havebeen unequal and insufficient, failing to compensate forthe full production value of land, fisheries losses and waterquality problems caused by project construction. Many villagersdo not understand what they are entitled to, whythey have received what they have, and if they will bereceiving more in the future. Compensation paymentsstarted a year after villagers’ land was taken and impactswere first felt, in violation of the Concession Agreementand World Bank policy.■ Resettlement Action Plans for Project Lands have notbeen disclosed, nearly two years after villagers lost landand assets, in violation of World Bank and ADB policies.Recommendations:■ The Independent Monitoring Agencyfor the Resettlement ManagementUnit (RMU) should urgently undertakea comprehensive review of ProjectLands compensation and mitigationmeasures and publicly disclose itsfindings.■ NTPC and the GoL should: 1) urgentlyfind comparable replacement land forProject Lands villagers, and 2) detailthe livelihood restoration options thatwill replace irrigation for significantlyaffected Project Lands villagers.5

Nam Theun 2 Trip Report and Project Update■ The livelihood restoration program for the downstreamchannel area has come undone. It is unclear if replacementland is available for villagers who lost more than10% of their incomes as a result of NT2, despite therequirements of the Concession Agreement and WorldBank policy. Similarly, using the downstream channel toprovide irrigation for affected villagers, as promised in the2005 NT2 Social Development Plan, no longer seems tobe a viable option.Recommendations, continued■ NTPC, the GoL, the World Bank andthe ADB should ensure immediate disclosureof the Resettlement ActionPlans (RAPs) for Project Lands. 5Villagers along the upper Xe Bang Fai. Photo by Henrik Lindholm, SwedWatch.6

International Rivers NetworkNam Theun 2 is governed by a variety of legal documentsthat outline the obligations of NTPC and theGoL. The NT2 legal framework includes theConcession Agreement between the Government ofLaos (GoL) and NTPC, and loan agreements withproject financiers, such as the World Bank and theADB. The World Bank and ADB loan and guaranteeagreements with the GoL and NTPC in turn requirecompliance with these institutions’ own policies.Essentially, these legal agreements constitute thepromises made to Lao villagers regarding compensationand mitigation measures, and the allocation ofresponsibility amongst NTPC and the GoL.About IRNInternational Rivers Network (IRN) is a non-governmentalorganization that protects rivers and defendsthe rights of communities that depend on them. IRNhas been monitoring the Nam Theun 2 hydropowerproject and other dams in Laos for over a decade,opposing destructive projects and advocating for bettercompensation and mitigation measures for affectedcommunities. IRN staff members visit the Nam Theun2 project site regularly.IRN was opposed to World Bank and ADB supportfor Nam Theun 2 because: a) the dam does not meetWorld Commission on Dams guidelines; b) NT2’srisks to affected communities far outweigh its potentialbenefits; and c) dams have not contributed to povertyreduction in Laos. IRN continues to monitor NT2’sdevelopment to ensure that commitments made byNTPC, the GoL and the international financial institutionsto affected communities and on the environmentare met.IRN’s March 2007 VisitAn IRN staff member visited the NT2 project site inearly March 2007, accompanied by a colleague from aSwedish NGO and an interpreter. The purpose of thetrip was to gather first-hand information regarding theimplementation of the NT2 project. Over a period ofeight days, the team traveled to the Nakai Plateau, thedownstream channel area of Gnommalat District, andthe Xe Bang Fai area to speak with villagers. Followingthe field visit, IRN met with representatives of theGoL, NTPC, the ADB, the World Bank and nongovernmentalorganizations (NGOs) in Vientiane.Although the project area is open to the public, IRNinformed NTPC and the GoL of its intentions to visitthe area before the trip. The team was not accompaniedby GoL or NTPC representatives.The information in this report was primarily collectedthrough field interviews with local people and formalmeeting discussions. To obtain as comprehensive anunderstanding of the situation as possible, IRN tried tovisit many villages and to interview more than onefamily representative in a given village. Informationfrom the field was verified and supplemented by areview of recent project documents. The responsesfrom NTPC, the World Bank and the ADB highlightedin the trip report were obtained during meetings onthe Nakai Plateau and in Vientiane the week of March5, 2007, as well as from subsequent email communicationwith NTPC.The trip report does not provide a comprehensiveoverview of the dam nor of its current or futureimpacts across all project areas. IRN primarily seeks tomonitor and report on NT2’ s environmental andsocial impacts and the implementation of mitigationand compensation programs. The trip report is dividedinto sections that correspond to the three main impactareas of the Nam Theun 2 project: the Xe Bang Faidownstream area, project construction lands, and theNakai Plateau resettlement area. A fourth sectionaddresses biomass clearance and water quality implications,which is a critical cross-cutting issue. The tripitinerary and a selected list of violations of NT2’sConcession Agreement and World Bank and ADBpolicies are included as appendices to the report.9

Nam Theun 2 Trip Report and Project UpdateNAM THEUN 2: At a GlanceLOCATION:Central Laos, primarily inKhammouane provinceNam KadingVIETNAMSTRUCTURE:• 39 meter high dam onthe Nam Theun• 450 square kilometerreservoir on the NakaiPlateau• After passing througha powerhouse belowthe Nakai Plateau,water from the reservoiris diverted to theXe Bang Fai via a 27kilometer downstreamchannelOUTPUT:• 1070 MW of power,more than 90% exportedto Thailand• Power productionscheduled to begin inDecember 2009THAILANDSPONSORS:Nam Theun 2 Power Company (NTPC): Electricitéde France International (35%), the ElectricityGenerating Company of Thailand (25%), LaoHolding State Enterprise (25%) and Ital-ThaiDevelopment (15%)HEAD CONSTRUCTION CONTRACTOR:Electricité de FranceNam Hinboun0 10 20 30 40 50kmMekong RiverTheunHinbounDamo ThakekNam TheunNamTheun 2Dampower stationdownstreamchannelXe Bang FaiNakai PlateaureservoirLAO PDRMAIN SOCIAL AND ENVIRONMENTAL IMPACTS:> 6,200 indigenous peoples forcibly resettledfrom reservoir area on Nakai Plateau; elephantand other wildlife and wetlands habitat flooded> 120,000 downstream villagers affected byincreased water flows in Xe Bang Fai, and dramaticallydecreased flows in Nam Theun; majorfisheries and aquatic resources losses, erosion,flooding, sedimentation along the Xe Bang Fai> 2,000 households affected by NT2 constructionactivities, losing land, assets, access to resources;water quality impacts, erosion, sedimentation,logging in construction areas10

International Rivers NetworkFish from the Xe Bang Fai, caught by a hinterlands' villager. Photo by Shannon Lawrence, IRN.XE BANG FAI DOWNSTREAM PROGRAMThe Xe Bang Fai river will receive large amounts of additional water from the Nakai Plateau reservoirafter it passes through the power station and the downstream channel. 6 More than 120,000 people 7 inthe Xe Bang Fai area will be negatively impacted by the Nam Theun 2 project. NTPC says 8 it is planningfor the worst-case scenario along the Xe Bang Fai, which means 85% fish losses, increased high frequencyfloods in the Xe Bang Fai and its tributaries, erosion of riverbanks and loss of riverbank gardens, major waterquality problems, and transportation difficulties for downstream villages.IRN visited 10 villages in the lower, middle and upperXe Bang Fai, six of which are part of NTPC’sDownstream Livelihood and Asset Restoration pilotprogram. As detailed in the 2001 independent study,The People and their River, villagers’ lives are intimatelyintertwined with the Xe Bang Fai and its wet and dryseason cycles.Most villagers with whom IRN spoke said that XeBang Fai fish and aquatic products are a critical sourceof food and income, despite the fact that fish catcheshad declined in recent years. A woman in Ban BouengXe explained, “We depend very much on fish. We go topaddy fields during the day and come back to fish everyevening.” In Vernsananh, villagers said they dependmostly on fish, snails, small crabs and vegetables fromthe river as their main source of food and income.Villagers have learned to anticipate the Xe Bang Fai’sflood cycles, moving their small livestock and otherassets to higher ground when possible. But Ban DongKa Sinh villagers said their buffalo still die after eatingthe grass that has been submerged under floodwaters.The main flood-related concern of Xe Bang Fai villagersis their wet season paddy. Villagers told IRN11

Nam Theun 2 Trip Report and Project Updatethey lose most or all of their rice crop every few yearswhen it is submerged by floodwaters before it can beharvested.The Xe Bang Fai and its tributaries are also an importantmeans of transportation and major source of watersupply. A villager in Ban Hat Xaisung Neua said thecompany told them that after the dam is built therewill be more flooding and that travel along the riverwill be different. “But the company told us not toworry. They promised bank protection and fish pondsfor us. Sometimes we are worried and sometimes weare not because the company told us not to be scared.”Downstream program shortcomingsIn an attempt to mitigate NT2’s impacts and compensateXe Bang Fai villagers, NTPC has developed aDownstream Livelihood and Asset RestorationProgram. The Downstream Program report was finalizedin 2006, although NTPC says it is still awaitingGoL endorsement.In violation of World Bank and ADB involuntaryresettlement and information disclosure policies, 10 theDownstream Program report has not been publiclydisclosed.IRN is concerned that the $16 million DownstreamProgram budget and the proposed compensation andmitigation measures are inadequate to deal with thescale and severity of NT2’s downstream impacts.Additionally, the short time remaining before damoperation means that villagers are likely to experience asignificant drop in their incomes and major impactsbefore new livelihood programs yield any results.According to NTPC, the Downstream Program focuseson micro-credit funds to support agriculture, aquacultureand livestock projects, water and sanitationimprovements, and mini-polder flood protection. Pilotlivelihood restoration projects were initiated in adownstream demonstration village, Boeung Xe, in2005. NTPC is now implementing the program in 20additional pilot villages in the upper, lower and middleXe Bang Fai.Concerns of Xe Bang Fai villagers■ Villagers would like flood protection,improved irrigation and a drinking water system,but the company has reportedly saidthere is not enough money to provide these■ Pig farming failed last year in some villagesand villagers still have to pay loans back to villagesavings funds■ Village savings fund is not accessible to thepoorest villagers and the interest rate is toohigh■ Some people were not able to pay back loansand have had to sell their assets■ Some villagers do not understand how decisionsare taken on what projects the villagesavings fund will support■ There is a lack of easily accessible markets fortheir vegetables/fruits■ Prices decline when more people are growingand selling the same vegetables/fruitsBenefits noted by Xe Bang Fai villagers■ NTPC will provide 2 million to 2.5 million kip(US$200 to US$250) per family to the villagesavings fund■ NTPC will develop a sanitation program■ NTPC provides technical assistance for aquaculture,pig raising, agriculture and weaving■ NTPC initially provides fish fry for fish pondand fertilizer for growing corn and othervegetables■ NTPC has promised some flood protectionDetailed notes from village visits are available at:http://www.irn.org/programs/mekong/namtheun.html.12

International Rivers NetworkReliance on village savings fundsIn the pilot villages, NTPC has deposited between 2and 2.5 million kip (approximately US$200 to $250)per household into village savings funds to use for variouslivelihood projects, including pig farming, watermelonand corn cultivation, and fish ponds. Familiesare expected to contribute 5,000 kip per month to bemembers. Villagers did not know how the 2 millionkip figure was determined, and NTPC has not yetclarified why that amount was chosen and if morecompensation will be forthcoming.NTPC says it is “paying the initial funds, but [it is] nottelling villagers what to do” with those funds. NTPC isproviding villagers with technical assistance and certaininputs, such as fertilizer and fish seed, for some of theprojects mentioned above. According to NTPC, thecommunity analyzes the proposals and decides foritself which projects to support with loans from the villagesavings fund.In Mahaxai Tai and Boueng Xe, villagers expressedconcerns about the rate of interest charged for villagesavings fund loans (between 1 and 3% per month).NTPC says the rate is very low compared to locallenders, but villagers in Mahaxai Tai said they had difficultymaking the interest payments and paying backthe loans in six months, as required. When projectsfailed, villagers complained that they still had to paythe money back, and some said they were unable to doso. In Mahaxai Tai, it was reported that certain villagershad to sell land or their motorbike to repay theloans. Mahaxai Tai villagers also objected to therequirement that collateral be provided in order toreceive loans from the village savings fund, whichexcludes the participation of the poorest villagers.People in other villages reported general confusionabout how the fund works, which prevented some ofthem from becoming members.It is not clear how the terms of the village savings fundsare being set and by whom (the communities and/orNTPC). However, the current NTPC contribution tovillage savings fund is inadequate to compensate for thelong-term loss of fisheries, assets and other impactsfrom Nam Theun 2. Furthermore, the reliance on aVillager along the upper Xe Bang Fai showinglast year's flood level. Photo by Shannon Lawrence, IRN.micro-credit scheme to deliver compensation creates acycle of debt if projects fail or if re-payment terms aretoo demanding.Villagers bearing riskIn most of the pilot villages, livelihood projects supportedby village savings fund loans were only just gettingunderway and had yet to deliver results. But somepeople in the Boeung Xe demonstration village, whohave had the most experience with these schemes,expressed frustration with the agriculture and livestockprojects. For example, families bought approximatelytwo to three pigs each to raise, but most of the pigsdied within a couple of months. Now the families haveto pay back money for the pigs and find this very diffi-13

Nam Theun 2 Trip Report and Project Updatecult to manage. As one villagerexplained, “Maybe it wouldhave worked if we had donelike the company told us, butwe don’t have the time becausewe are working in the fields allday.”One Boueng Xe watermelon farmer complained thatthe price had dropped this year now that so many peoplewere growing watermelon. She also had troublefinding a market for the watermelon, and getting herharvest there before it rotted. As a result, she wasunable to repay the loan to the village savings fund.Aquaculture ponds were also starting in some villages.While some villagers were enthusiastic about fishponds, there was also confusion amongst villagersabout how to culture fish. At present, villagers use naturalfish ponds in which fish are trapped from the XeBang Fai and harvested at the end of the wet season.Villagers have little to no experience with NTPC’ssuggested aquaculture activities which require inputssuch as fish seed and fertilizer.NTPC’s $16 million DownstreamProgram budget leaves only $200per affected person to compensatefor long-term fisheries losses,flooding, and other impacts.NTPC notes, “Some programs work and others don’t.This is largely trial and error which is why we have arange of options. Results so far indicate that aquacultureis promising, horticulture is promising, but livestockcan be problematic.”Aquaculture is a new activityfor most Xe Bang Fai villages,and NTPC has not disclosedany information about how productiveand sustainable fishponds are likely to be. NTPChas also failed to identify marketsfor the fruit and vegetables that Xe Bang Fai villagerswould grow and sell as part of the DownstreamProgram. Furthermore, as more villages begin growingand supplying the same markets with the same produce,prices will continue to fall, hurting the producersthe program is designed to help. NTPC has notexplained how it plans to address this problem.Villagers request flood protection and irrigationIn almost every Xe Bang Fai village that IRN visited,people expressed their strong desire for flood protectionand irrigation systems as the primary mitigationand compensation measure. According to people in atleast three villages, the company said it did not havethe budget to support the flood protection or irrigationsystems villagers were requesting.Mahaxai Tai villagers said the company told them theycould develop a fish pond using a loan from the villagesavings fund. Villagers said they did not like the ideabecause now they get fish for free from the river.NTPC said they would provide fish seed, but the villagerswould have to purchase the fish feed for onemillion kip. NTPC promised to buy the fish from villagersin six months. The project has just started, sovillagers still do not know if it will work.One woman in Ban Boueng Xe says she would like toask the company, “What compensation will you give usfor flooding if we stay in the village?” She said villagershave to buy seed, fertilizer and everything [using thevillage savings funds, which they have to pay back] andthat nothing is given to them by NTPC.Some villagers reported that the company had promisedto build mini-polders or flood protection dikes,and villagers were waiting for that work to begin.NTPC explained that three mini-polders covering fivevillages are currently under construction. The companyhopes to have them at least partially constructed beforethe wet season to see how they work.A major selling point for the NT2 project was thathigher water levels in the Xe Bang Fai would improveirrigation potential and boost dry-season rice production.The 2005 NT2 Social Development Plan notes:“The NT2 project will improve the potential and economicsof irrigated agriculture development throughthe provision of a reliable water source in the Xe BangFai during the dry season” (SDP, Volume 3, p. 9).NTPC now says that large-scale irrigation is not beingconsidered for Xe Bang Fai villagers because of costissues, arguing that villages will pay more to cover electricitycosts and inputs than they would earn from adry-season rice crop, as NGOs pointed out in 2005.14

International Rivers NetworkNTPC says that there are opportunities for a donorfundeddevelopment scheme to consider flood protectionand irrigation systems for Xe Bang Fai villages.The GoL has reportedly expressed an interest in abroader Xe Bang Fai program and donors such as theWorld Bank and the ADB are evaluating variousoptions. The question remains, however, how muchflood protection and livelihood restoration should beNTPC’s direct responsibility to compensate for andmitigate NT2’s impacts.Time running short for downstream programThe Downstream Livelihood and Asset RestorationProgram for the Xe Bang Fai is still being piloted inless than 10% of the affected villages with two yearsleft until commercial operations begin, with all thefisheries losses, flooding, erosion, and water qualityproblems that will accompany power production.NTPC’s aim is to scale up the programs to all 221affected villages before impacts from Nam Theun 2 arefelt in 2008 or 2009. 11The Xe Bang Fai near Mahaxai Tai.Photo by Henrik Lindholm, SwedWatch.Instead, NTPC is proposing small-scale irrigation tubewells shared by groups of families, presumably for dryseasonvegetable production. The company plans toinstall approximately 175 to 200 tube wells by the endof 2009 in all riparian villages and some hinterlandsvillages. As the Downstream Program plan has notbeen disclosed, it is unclear how many families willshare these systems, how they will be managed, and ifthe number of tube wells is sufficient. NTPC has notprovided any information regarding how the waterwould be pumped from the wells to the farmers’ fields,and whether or not this would entail additional electricitycosts.Although NTPC has not disclosed an implementationplan for the Downstream Program, the time remainingbefore NT2 operation seems to be extremely short tolearn from the pilot projects, fix problems or introducenew approaches, and replicate initiatives in more than200 villages. As the Panel of Experts notes in itsFebruary 2007 report, “Where there are delays [indownstream program implementation], an undesirablegap will emerge between impacts and mitigation/compensation.Such delays seem likely at this point” (PoE,11th Report, p. 21).The uptake of new and untested livelihood systems toreplace traditional fishing and farming activities is along-term venture. As noted above, there are a numberof shortcomings with the livelihood projects and moretime should have been allocated to learn from thesepilots before scaling them up across hundreds of villages.NTPC should provide interim compensation todownstream villagers until livelihood projects restoretheir incomes to pre-NT2 levels.Inadequate budget to mitigate and compensatefor downstream impactsNTPC has committed to providing $16 million toimplement the downstream program over eight years15

Nam Theun 2 Trip Report and Project Updateand increased flooding cause major income losses forvillagers that multiply sometimes exponentially yearafter year. 13Recommendations:Boys fishing in the Xe Bang Fai. Photo by Shannon Lawrence, IRN.(2005-2014). It is not clear how that amount wasdetermined. According to the Panel of Experts 11 , morethan $1 million of the $16 million will be spent onconsultants. Using NTPC’s figure of 75,000 affectedpeople (versus the 120,000 affected people identifiedby independent experts 12 ), that leaves only $200 perperson for compensation and mitigation.Considering the scale of Nam Theun 2’s projectedimpacts on the Xe Bang Fai region and the number ofaffected villages, NTPC’s Downstream Program budgetseems to be entirely inadequate to compensate morethan 120,000 villagers for a lifetime loss of the fisheriesthey depend on, let alone to provide livelihood alternativesand flood and erosion protection. Experience atthe nearby Theun-Hinboun Hydropower Project hasproven that fisheries declines, erosion, sedimentation,■ Because NTPC’s livelihood programs are not likelyto be successful for at least several years, NTPC mustprovide interim compensation to ensure that villagersare not left stranded once power production startsand their incomes plummet. NTPC should committo develop and implement an interim compensationscheme to address the impacts of NT2 operations ondownstream villagers until livelihood restoration programsyield sustainable results. Additional fundingwill be required, as the $16 million budget is likely tobe inadequate to deal with the scale of anticipateddownstream impacts.■ The GoL, the World Bank and the ADB shouldwork with villagers and donor partners to develop anintegrated rural development plan for the Xe BangFai region.■ NTPC, the GoL, the World Bank and the ADBshould ensure disclosure of: 1) the DownstreamLivelihood and Asset Restoration Program Phase 1in its entirety; 2) marketing surveys for the Xe BangFai; 3) biomass clearance plans and for the NakaiPlateau; and 4) hydraulics and water quality studiesfor the downstream areas.16

International Rivers NetworkVillagers near the Xe Bang Fai. Photo by Shannon Lawrence, IRN.BIOMASS CLEARANCE AND WATERQUALITYOne of the major threats to downstream villages once NT2 starts operation is the quality of water thatwill pass from the massive reservoir down through the power station, into the downstream channel andthen to the Xe Bang Fai, before eventually reaching the Mekong. Experience with tropical reservoirs,including some in Laos and Thailand, indicates that biomass should be removed before the area is flooded toprevent the rotting vegetation from polluting the stored water. Without taking this preventative step, reservoirwaters become toxic and turn rivers into sewers downstream. The failure to address this issue will likely lead tofish kills in both the reservoir and downstream rivers, and result in water that is unsuitable for drinking and irrigationin the downstream channel and along the Xe Bang Fai. 15As IRN noted in our previous trip report, the NT2Environmental Assessment and Management Planstates that:To help improve water quality in the Nakai Reservoirin the initial years after inundation, NTPC willencourage the removal of biomass from the inundationarea prior to flooding through firewood collection andthe salvage of timber (EAMP, Chapter 3, p. 92).The EAMP goes on to state:Vegetation will be removed before flooding the reservoir...The priority shall be to clear the vegetation inareas which will be permanently flooded. The results ofthe ongoing biomass survey of the inundation area willbe used as a means for maximizing removal in areas ofhigh biomass (EAMP, Chapter 3, p. 107).17

Nam Theun 2 Trip Report and Project UpdateThe Concession Agreement signed by NTPC and theGoL requires that a biomass survey be conducted andused to propose means for “maximising removal of biomassin high biomass areas of the Nakai Reservoir. Thepriority shall be to clear the vegetation in areas whichwill be permanently flooded” (Schedule 4, Part 2,Section 3a). The Concession Agreement also requiresthat “... water in the Downstream Channel must atleast be suitable for irrigation purposes” (Schedule 4,Part 2, Section 9.1f ).Despite these Failure to clear biomasscommitments,will cause water qualityapproved by theWorld Bank, problems downstream.the ADB andNT2’s otherfunders, neither the GoL nor NTPC has plans toremove or ensure the maximum removal of biomassfrom the reservoir. NTPC says it is conducting a studyon water quality optimization during reservoirimpoundment and that “biomass clearance may be partof the answer.” According to NTPC, it has no obligationto clear biomass except where it may impact itsprograms.There is one dry season remaining before reservoirimpoundment and it is unclear what options are leftfor maximizing biomass clearance from such a largearea in such a short period of time. The time for studiesand debate is over, and action must be takenurgently to avoid downstream disaster.Recommendations:■ NTPC and the GoL should commit to clear biomassfrom at least all permanently flooded areas of theNT2 reservoir.■ NTPC and the GoL should implement an independentlyreviewed clearance plan and impoundmentstrategy to minimize downstream water quality problemsin the first years of NT2 operations.NT2 downstream channel. Photo by Henrik Lindholm, SwedWatch.18

International Rivers NetworkVillagers along the NT2 downstream channel. Photo by Henrik Lindholm, SwedWatch.PROJECT LANDS COMPENSATIONMore than 2,500 households are affected by Nam Theun 2 construction activities, including constructionof transmission lines, roads, and project facilities. Households in Gnommalat and Mahaxai nearthe NT2 power station, regulating pond and downstream channel are most severely affected, wheremany households have lost more than 10% of their annual income as a result of land and assets taken by theproject.The downstream channel is27-kilometers long andapproximately 100-meterswide, with access roads oneither side, cutting throughsignificant areas of paddyresources.fields and other village land.The channel also blocksaccess to the forest and villagers’ gardens and rice paddieson the other side. Villagers have lost paddy land,houses, gardens, fruit trees, fisheries, irrigation watersupply and other assets to varying degrees.Disbursement of compensation paymentsbegan only in mid-2006, a yearafter NT2 construction activities startedto impact villagers’ land andDisbursement of compensationpayments began only inmid-2006, a year after NT2construction activities startedto impact villagers’ landand resources, which violatesthe Concession Agreementand the World Bank involuntaryresettlement policy. Two years after constructionactivities started to affect villagers, and also in violationof World Bank and ADB policies and the ConcessionAgreement, Resettlement Action Plans have still notbeen disclosed for Project Lands.19

Nam Theun 2 Trip Report and Project UpdatePrimary concerns of Project Lands villagers:• Unequal compensation for land and confusing compensation system• Not able to find affordable replacement land• No compensation for fish losses (Houay Lok, Nam Kathang, Nam Gnom rivers)• Water quality problems in the Nam Kathang and Nam Gnom leading to shortage of drinking water,livestock sickness/death, and skin problems from bathing in the river for which no compensation hasbeen provided• Lack of access to paddy land and gardens on the opposite side of the downstream channel• Less irrigation water as a result of a canal blocked by the project• Delayed construction of replacement houses and promised electricityIRN visited five Project Lands villages affected by NT2 downstream channel or transmission line construction. Detailed notes fromvillage visits are available at: http://www.irn.org/programs/mekong/namtheun.html.Cash compensation confusing andinadequateProject Lands villagers expressed significant confusionabout the compensation system, as they had duringIRN’s previous visit in June 2006. Villagers complainedthat compensation payments for the same lost assetsvaried significantly. In Tham Phuang, a villager said hereceived 7 million kip (US$700) for the four hectaresof paddy land he lost, whereas another villager received97 million kip (US$9,700) for less than four hectares.Some villagers said they were given this money to buyland in other areas, but the company had not providedassistance and they have not been able to find affordableland on their own. None of the villagers withwhom IRN met understood the compensation systemenough to explain what they had received and why, forhow long compensation had been paid, and if moreassistance was forthcoming.Another villager in Tham Phuang mentioned 30 hardwoodtrees on her land for which she had not beencompensated, and others complained of fish losses inthe Houay Lok from construction activities. One villagerstated, “Don’t think about compensation for thefish. Even [the compensation] received for my land isnot enough.” Villagers in Sangkeo, Phone Lad Khuayand Nong Ping reported that the Nam Kathang andthe Nam Gnom have been polluted and diverted, causingdrinking water problems, irrigation water shortagesand fish losses. They have not received compensationfor these impacts. However, some village headmen(Sangkeo and Phone Lat Khuay) did report receivingcompensation for common property resources, such asforest products. In Sangkeo, $15 per person will beprovided.Villagers wanted the company to address their compensationcomplaints, many of which had been submittedto the Grievance Committee, and to help themfind affordable replacement land. They asked for morebridges across the channel to reach their land on theother side. And they urged the company to fulfill itspromises to provide drinking water systems, irrigationand electricity.NTPC, the World Bank and the ADB note that theentitlement matrix for Project Lands villages isextremely complex and that even project and governmentstaff have had difficulty understanding andimplementing it. They insist that the situation hasimproved since IRN’s last visit. The inclusion ofMakong team members to better communicate withvillagers was noted, and NTPC asserted that all cashpayments had been disbursed. Nonetheless, IRN’s villageinterviews indicate ongoing and widespread frustrationwith the compensation system and uncertaintyabout how villagers’ paddy fields, gardens, fish andother income sources will be replaced in the long term.Clearly, from the villagers’ perspectives, the situationhas not significantly improved.20

International Rivers NetworkLivelihood restoration failuresNTPC and the GoL are failing to meet commitmentsmade in the Concession Agreement and the 2005 NT2Social Development Plan concerning replacement landand irrigation for Project Lands villagers. No alternativestrategies to restore the livelihoods of significantlyaffected villagers have been disclosed. Once again, amajor mid-stream change to project plans has leftaffected people in the lurch.According to the Concession Agreement, ProjectLands villagers who lose 10% or more of their productiveland assets are entitled to replacement land of thesame type and of at least equal productivity unless noreplacement land is available. The World Bank’s involuntaryresettlement policy requires:Preference should be given to land-based resettlementstrategies for displaced persons whose livelihoods areland-based…. If land is not the preferred option of thedisplaced person… or sufficient land is not available ata reasonable price, non-land-based options builtaround opportunities for employment or self-employmentshould be provided in addition to cash compensationfor land and other assets lost. The lack of adequateland must be demonstrated and documented to the satisfactionof the Bank (World Bank InvoluntaryResettlement Policy, OP 4.12).NTPC said that “livelihood restoration is in progress,but it cannot always be land-for-land.” The WorldBank said that many people preferred cash and hesitatedwith land replacement. It is not clear if any replacementland has been provided to villagers who desire it,or what alternative livelihood restoration measures arebeing implemented in other cases.The Panel of Experts reported that there was a “dearthof land and water available for conversion to [paddyfield] to replace the considerable acreage absorbed bythe building of the large downstream channel in particular”(PoE, 11th Report, p. 23). Land-for-landreplacement is critical, especially given the importanceof paddy to villagers’ livelihoods. The GoL and NTPCshould document and publicly report any cases inProject Lands CompensationEntitlementsAccording to the Concession Agreement,Project Lands affected people are entitled tocash or replacement land for loss of residentialor business land, compensation for temporaryimpacts during construction, compensation forfixed structures, fruit trees, timber trees, fishponds, garden and field crops, common propertystructures (electricity, roads, irrigationchannels, water supply, school, etc.) and commonproperty resources (loss of forest productsand firewood gathering areas and loss of fishand aquatic products). For permanent losses ofland that constitute less than 10% of a person’sproductive assets, affected people areentitled to cash compensation for the marketvalue of the land, the cash equivalent of sevenyears’ gross production or the actual replacementcost of the land.For permanent losses of agricultural land, significantlyaffected farmers (those who lose10% or more of their productive land assets)are entitled to land of the same type and productivityof the land that was lost, as well asproduction assistance for at least two years. Ifno replacement land is available, NTPC mustprovide assistance to develop alternative nonlandbased livelihood activities that generateat least as much income. If villagers prefer alump sum cash payout, the amount is based onthe market value of the land, the cash equivalentof seven years’ gross production or theactual replacement cost of the land.Significantly affected villagers are also entitledto disturbance allowance, transitional foodassistance and transitional income assistance.21

Nam Theun 2 Trip Report and Project UpdateThe primary compensation strategy in and aroundthe Gnommalath Plain is the provision of replacementland by using the Regulating Pond andDownstream Channel as the source of irrigationwater for: (i) transforming rainfed paddy into irrigatedpaddy; (ii) bringing new land into irrigated production;(iii) resorting irrigation facilities directlyimpacted by the project; and (iv) the development offish ponds (SDP, Vol 4, Ch. 7, p.16, emphasis added).In its October 2006 report, the Panel of Experts citedthe 2006 Resettlement Action Plan’s belated conclusionthat NT2’s power production regime results in anunpredictable downstream channel flow, “making planningfor irrigation difficult and unreliable” (PoE, 10thReport, p. 28).Furthermore, considering the absence of any biomassclearance plans for the reservoir area, the water in thedownstream channel is likely to be of extremely poorquality and unsuitable for irrigation for at least severalyears beyond 2009. As mentioned previously, this violatesthe Concession Agreement which requires that“... water in the Downstream Channel must at least besuitable for irrigation purposes” (Schedule 4, Part 2,Section 9.1f ).Recommendations:NT2 transmission lines. Photo by Shannon Lawrence, IRN.which they determine that no replacement land isavailable for Project Lands villagers.Additionally, the 2005 NT2 Social Development Planincludes seven pages that detail plans for using thedownstream channel and regulating pond to provideirrigation to affected villages in the area. Downstreamchannel irrigation was a key benefit of the Nam Theun2 project touted at the time of its approval by funderssuch as the World Bank and the ADB. The SocialDevelopment Plan states:■ The Independent Monitoring Agency for theResettlement Management Unit (RMU) shouldurgently undertake a comprehensive review ofProject Lands compensation and mitigation measuresand publicly disclose its findings.■ NTPC and the GoL should: 1) urgently find comparablereplacement land for Project Lands villagers,and 2) detail the livelihood restoration options thatwill replace irrigation for significantly affectedProject Lands villagers.■ NTPC, the GoL, the World Bank and the ADBshould ensure immediate disclosure of theResettlement Action Plans (RAPs) for ProjectLands. 1522

International Rivers NetworkResettled villagers discussing their concerns on the Nakai Plateau. Photo by Henrik Lindholm, SwedWatch.NAKAI PLATEAU RESETTLEMENTProblems with transitional resettlementSeventeen villages of more than 6,200 indigenous peoples on the Nakai Plateau are being resettled to makeway for the Nam Theun 2 reservoir. In May 2008, the NT2 dam is supposed to be closed so that reservoirfilling can begin, and all villagers must be established in their new resettlement sites by then.The resettlement program has been fraught withdelays, missing its original deadline to have all villagesresettled by the 2006-2007 dry season. As a result ofthese delays, NTPC began moving people to temporaryhouses in their new villages in April 2006 underwhat has been called “transitional resettlement.” 16At the time of IRN’s visit, the more than 550 familiesthat had been moved were still in temporary houses.According to NTPC 17 , only 20 to 30 permanent houseshad been finished due to a shortage of timber. 18NTPC says the problems with timber supply have nowbeen solved and all permanent houses are expected tobe completed early in the 2007-2008 dry season.Many villagers complained that their temporary homes—built to last for just a few months—are falling apart.Villagers are concerned about facing the coming wetseason in substandard housing. NTPC says it willensure that “resettlers who will need to spend part ofthe 2007 wet season in their temporary houses willreceive necessary tools, materials and assistance toensure that their houses are secure.”Resettled villagers depend on fooddistributionFor now, villagers in the resettlement sites are survivingon rice and protein supports from the company,23

International Rivers NetworkWater supply concernsSome resettled villages alsoreported problems with watersupply. In Sop Phene, theyare waiting for a well sincethe water tank pump oftenbreaks and it does not provideenough water for bathing.Villagers in Done said only 8of 20 boreholes were working,leaving them with insufficientdrinking water. Villagers from Sop Hia and Boua Maalso complained about not having enough water.NTPC responded that nearly 1,000 boreholes need tobe drilled across the NT2 project and some delays haveoccurred. But, NTPC says, the water supply situationcontinues to improve: “It is expected that while theborehole coverage is still relatively low, and especiallywhen water needs to be delivered from outside, thathouseholds are inconvenienced from time to time.However… water has always been provided and hasbeen good quality clean drinking water.” The failure toensure adequate water supply for resettlers prior torelocation is a violation of the Concession Agreement.Promises broken over Vietic resettlementThe Vietic villagers on the Nakai Plateau, the mostvulnerable group of indigenous peoples to be resettled,are especially stuck. Sop Hia and Nam Nian villagers(including Vietics and other ethnic groups) were originallygoing to move, by their choice, to KhemkheutDistrict, until the river there was found to be polluted.Now villagers have been or reportedly will be movedwith other villages to Resettlement Area 7 and 8A.The Panel of Experts’ February 2007 report notes:After elaborate consultations, the majority of Vietichouseholds in Ban Sop Hia have emphasized first, thatthey want to be resettled within their current spiritterritory, second, that they want their own Vietic village,third that temporary or permanent resettlementin either Area 8 or Area 7 on the Nakai Plateau isThe Panel of Experts notes that“lower priority continues to be givento livelihood development to theextent that it is unlikely that theHousehold Income Target will bereached by the beginning of year 5 ofthe Resettlement Period, as requiredby the Concession Agreement.”unacceptable to them, andfourth, that temporary resettlementabove their current housesin Sop Hia to avoid dam-relatedflooding during 2007 isacceptable (PoE, 11th Report, p.19).During our visit, Vietic villagersin old Sop Hiaexplained that first a foreignertold them they could choosewhere to move, but then aLao man came and said they would be moving toResettlement Area 7. The villagers were extremelyangry and said, “The new place is very dry and wedon’t want to go at all. They are taking us there to killus.” The villagers explained that here they grow vegetablesand rice, catch frogs and fish and bathe in theriver. In the new site (where some of their relatives arealready living), the soil is poorer and they will have tolearn how to do new things like operate a water pump.Their relatives can’t find enough food at the new siteand have to rely on rice provided by the company.The Vietic villagers in old Sop Hia with whom IRNspoke said they wanted to move to Ban Kamphon 20next to a tributary of the Nam Theun. At first NTPCreported that all of old Sop Hia will be moved toResettlement Area 7, but now notes that “18 householdsat the old Sop Hia have not yet decided on arelocation site.” According to the ConcessionAgreement, the Vietics should have the option offorming their own village. To comply with World Bankand ADB indigenous peoples’ policies, and theConcession Agreement, resettlement must have thebroad support of the community and all villagers mustagree on the site.Livelihood programs in transitionRedoing agricultural plansLike the resettled villagers, NTPC’s livelihood plansare also in transition. The Panel of Experts notes that“lower priority continues to be given to livelihooddevelopment to the extent that it is unlikely that the25

Nam Theun 2 Trip Report and Project UpdateHousehold Income Target will be reached by thebeginning of year 5 of the Resettlement Period, asrequired by the Concession Agreement” (PoE, 11thReport , p. 11). The Panel of Experts also warns that“for a range of reasons, the forestry and agriculturallivelihood programs are unlikely to meet their originallyplanned targets before impoundment” (PoE, 11thReport, p. 9).Due to the poor quality of soil on the Plateau, NTPChas had to abandon the agriculture plans for resettlersthat were outlined in the 2005 NT2 SocialDevelopment Plan. NTPC is working on an agro-ecologicalapproach for the .66 hectare plot allocated toeach household which “involves 2-3 years of soilimprovement activities, such as planting only one-thirdof the agricultural plots (preferably with vegetables butrice is also an option) and the other two-thirds in pastureand selected cover plants. This is then rotated.”NTPC says it is also testing borehole irrigation systemsfor groups of farmers and will consider differenttypes of irrigation systems depending on the featuresof each resettlement site.According to NTPC, villagers will now have an additionalthree hectares per family allocated (and titled)for rain-fed direct mulch cropping in the communityforest area. Another five hectares per family would beavailable as a combined forestry/forage area. NTPCsays, “This combination has already been trialed andhas found to be beneficial both for forage productionand forestry plantation.” However, the Panel ofExperts notes:While the switch during 2006 from the Pilot Villagesystem to the New System is more likely to be culturally,economically, institutionally, and environmentally sustainable,sufficient income from the crop agriculturalcomponent can not be expected until 2009 and beyonddue to the time required to improve soil productivitythrough a mulch based cropping system (DMC) andbecause of less emphasis on irrigation than intended inthe Social Development Plan (PoE, 11th Report, p. 11).While the allocation of additional land and the introductionof a more sustainable approach are welcome,concerns and questions remain about the new agriculturalplans. How does the land allocation affect otheruses of the community forest area? How long will ittake for the system to provide villagers with income?What is the marketing strategy for the products villagerswill grow? Will all unexploded ordinance (UXO)be cleared from the areas of the drawdown zone thatvillagers are expected to cultivate? NTPC should disclosethe agricultural plans and marketing studies thatanswer these questions.Buffalo reductionVillager guarding his buffalo on the Nakai Plateau.Photo by Henrik Lindholm, SwedWatch.Buffaloes are critical assets for villagers. As a Done villagernoted, “The most important thing in our life isbuffalo. If we want to buy something, we can sell buffalo.If we need to buy rice, we can sell buffalo.” Fornow, many villagers keep buffalo in their old villages26

International Rivers Networkwhere there is more grazing land and fodder. A numberof villagers expressed concern and confusion abouthaving to sell some of their cattle and buffalo “whenthe flood comes.”NTPC admits that there is not enough land for the allof the resettlers’ buffalo and cattle, so families withlarge numbers will be “encouraged” to sell some oftheir animals. According to the Panel of Experts, theNakai Plateau cattle and buffalo population will needto be reduced from approximately 5,000 to 2,000, withvillages such as Nakai Tai, Nong Boua, Done and BouaMa having to sell the largest number of animals (PoE,11th Report, p. 11). NTPC has not disclosed anystrategies for buffalo reduction, including measures todeal with falling prices when villagers begin to selltheir buffalo at the same time.Village Forestry AssociationThe Village Forestry Association (VFA), one ofNTPC’s primary livelihood options for resettled villagers,is also under threat. According to theConcession Agreement, the VFA is an ambitious program“developed for the purpose of providing employmentand other economic returns to the Resettlers andwill be based on the principle of community ownershipof the forest resource, allowing the Resettlers to participatedirectly in the financial benefits from sustainablecommercial logging of these forests” (Schedule 4, Part2, Section 9.6.1).The VFA was established at the beginning of the NamTheun 2 project with three to four members from eachvillage receiving training in logging and sawmilling,wood processing, charcoal making, and other activities.Ultimately, all resettler households are members of theVFA and are supposed to receive US$100 in annualdividends per family. These dividends make up a keypart of the resettlers’ future income sources.The 2005 NT2 Social Development Plan assignsresponsibility to the VFA for harvesting, selling andprocessing timber from the resettlement area (such ashousing plots and agricultural land). 21 This timber wassupposed to be used to construct the 1,000+ permanenthouses for resettlers. According to the World Bank, theVFA was also not required to pay taxes: “To encouragethe profitability of forestry activities, the GovernmentLogging on the Nakai Plateau. Photo by Shannon Lawrence, IRN.27

International Rivers NetworkVillagers living in temporary houses in Ban Done resettlement village. Photo by Shannon Lawrence, IRN.CONCLUSIONNam Theun 2 has reached a critical stage. Will the commitments made by NTPC, the GoL, the WorldBank and the ADB be kept? Or will villagers once again bear all the costs of misguided hydropowerdevelopment in Laos?The World Bank and the ADB assured their shareholdersthat Nam Theun 2 would reduce poverty, thataffected villagers’ livelihoods would be restored, andthat the project would bring development to Laos. TheWorld Bank and the ADB have so far failed to ensurecompliance with their safeguard policies and deliver ontheir promises. At the time of project approval, theWorld Bank and the ADB committed to enforcingtheir loan and guarantee agreements with the GoL andNTPC and to take action when these agreements areviolated. Now is the time for action.NTPC and the GoL have also backtracked on thecommitments they made at project approval. Some ofthese broken promises constitute violations of theConcession Agreement. The gaps in planning, budget,and political will surrounding NT2 are now evident,and are threatening the livelihoods of more than 1 in50 Laotians. NTPC and the GoL should clear biomassand address water quality threats, deal with budget andplanning failures in livelihood restoration programs, anddisclose social and environmental documents. Urgentaction is required if NTPC, the GoL and Nam Theun2’s funders hope to avoid a repeat of past dam disasters.29

Nam Theun 2 Trip Report and Project UpdateENDNOTES1. For more information concerning the Nakai-Nam TheunNational Protected Area, illegal logging and mining, seethe Eleventh Report of the International Environmental andSocial Panel of Experts (PoE) for NT2, 23 February 2007,pp. 25-38, available at:http://go.worldbank.org/XO1YWANPH0.2. Nam Theun 2 Environmental Assessment and ManagementPlan (EAMP), March 2005, Chapter 3, p. 107.3. The PoE also raises concerns about the DownstreamProgram budget and notes that “over $1 million… will bedevoted to consultants” (PoE 11th Report, p. 23).4. Shoemaker, Baird and Baird, The People and their River: ASurvey of River-Based Livelihoods in the Xe Bang Fai RiverBasin in Central Lao PDR, November 2001, p. xi.5. NTPC says that the plans contain confidential informationregarding household assets. In March, the WorldBank and the ADB told IRN that NTPC was asked toremove the household asset information and disclose therest. The RAPs have not yet been disclosed.6. There will be downstream impacts in other areas, such ason the Nam Theun downstream of the dam site wherewater flows will sharply decrease. However, the IRN fieldvisit focused on the Xe Bang Fai area where there is thelargest number of affected people.7. These numbers are based on a survey conducted by independentexperts (Shoemaker, Baird and Baird, The Peopleand their River, 2001). NTPC asserts that only 75,000people in 221 downstream villages will be affected byNT2, which includes the Khamkeut district downstreamof the Nam Theun. NTPC’s downstream livelihoodrestoration program targets 75,000 villagers.8. NTPC responses to issues raised here were obtained in ameeting with Olivier Salignat, Social and EnvironmentalDeputy Director of NTPC, on March 8, 2007. DetailedXe Bang Fai village notes from IRN’s visit were sent toNTPC in mid-May 2007.9. According to World Bank and ADB definitions, involuntaryresettlement includes not only physical relocation, butalso loss of land, assets and/or access to natural resources.As such, the Downstream Livelihood and AssetRestoration Program is a resettlement action plan andshould be disclosed in accordance with ADB and WorldBank involuntary resettlement and information disclosurepolicies.10. It is not clear yet when the first transfers of water fromthe reservoir will be—during reservoir impoundment in2008 or 2009 or once power production commences at theend of 2009. NTPC is developing a reservoir impoundmentstrategy which should address this question.11. The PoE also raises concerns about the DownstreamProgram budget and notes that “over $1 million… willbe devoted to consultants” (PoE 11th Report, p. 23).12. Shoemaker, Baird and Baird, The People and their River:A Survey of River-Based Livelihoods in the Xe Bang FaiRiver Basin in Central Lao PDR, November 2001, p. xi.13. See Barney, K. (forthcoming). Power, Progress, andImpoverishment: Plantations, Hydropower, EcologicalChange and Community Transformation in HinbounDistrict, Lao PDR. Working Paper No 1, York Centrefor Asian Research (YCAR). York University, Torontoand draft chapters of Theun-Hinboun Expansion ProjectEIA submitted by consultant to THPC and available at:http://www.rmruk.com/eia_files/Chapters/Chapters.html.14. NT2 EAMP, 2005, Chapter 3; Lanza, “Review of theWater Quality Assessment (EAMP), Proposed NamTheun 2 Hydroelectric Project,” 2005, and Theiss,“Reservoir Fisheries Predictions for the Nam Theun 2Hydroelectric Project”, 2005, available at:http://www.irn.org/programs/mekong/namtheun.php?id=namtheuntech.html.15. NTPC says that the plans contain confidential informationregarding household assets. In March, the WorldBank and the ADB told IRN that NTPC was asked toremove the household asset information and disclose therest. The RAPs have not yet been disclosed.16. For more details regarding the transitional resettlementprocess, see the IRN NT2 Trip Report September 2006,available at:http://www.irn.org/programs/mekong/namtheun.html.17. NTPC responses to issues raised in this section wereobtained in a meeting with Michael Beauchamp, NTPCResettlement Manager, on March 5, 2007 and in subsequentemail correspondence.18. NTPC says that the GOL overestimated the quality andquantity of timber available for resettlement housing, andthat villagers have been too selective about the type ofwood they want to be used in housing construction.30

International Rivers Network19. According to NTPC, in the first year after resettlement,most households can earn up to $762 from land clearance,fence building, fertilizer application and otheractivities associated with preparing the resettlement sites.NTPC says that sometimes small delays occur, but thatthe company tries to pay as quickly as possible.20. The spelling of the village is unclear and there was confusionabout whether or not villagers were referring tothe original Nam Pan site in the Khemkheut District.21. The logging in these areas is separate from the GoL’ssalvage logging operation which is supposed to clear thereservoir area of valuable timber. Salvage logging will netapproximately US$50-70 million for the GoL.31

Nam Theun 2 Trip Report and Project UpdateAppendix 1: IRN NT2 TRIP ITINERARYMarch 1, 2007• Visit villages in the lower Xe Bang Fai(Gnangkham, Hadkhamhieng, Dong Ka Sinh)March 2, 2007• Visit villages in the lower and middle XeBang Fai (Hat Xaisung Neua, Boeung Xe, TonHaen, Beungboatong, Vernsananh)• Visit villages along the transmission lines (NaThong)March 3, 2007• Visit villages in the upper Xe Bang Fai(Mahaxai Tai, Kham Phare Dong)March 4, 2007• Visit villages on the Nakai Plateau (NongBoua, Nakai Tai, old Sop Hia, Sop Phene)March 5, 2007• Visit villages on the Nakai Plateau (Done, SopOn, Boua Ma)• Meeting with NTPC (Michael Beauchamp,Nakai Plateau Resettlement Manager)March 6, 2007• Visit villages on the Nakai Plateau (New SopHia/Resettlement Area 7)• Visit villages along the downstream channel(Sangkeo, Phone Lat Khuay)March 7, 2007• Visit villages along the downstream channel(Nong Ping, Tham Phuang)March 8, 2007• Meeting with World Bank (PatchamuthuIllangovan, Stephen Ling, Chaohua Zhang)• Meeting with NTPC (Olivier Salignat, Socialand Environmental Division Deputy Director)March 9, 2007• Meeting with Asian Development Bank (JohnCooney, Ed Baardsen, Marla Huddleston)March 12, 2007• Meeting with GoL [Dr. Somboune Manolom,Lao Holding State Enterprise (LHSE), and Mr.Xaypaseuth Phomsoupha, Lao NationalCommittee for Energy (LNCE)]32

International Rivers NetworkAppendix 2: VIOLATIONS OF NT2 LEGAL FRAMEWORKThe following section highlights key violations of theConcession Agreement and of World Bank and ADB policies,but does not provide a comprehensive analysis of allcontract breaches.• Three of the eight resettled villages on the Plateauthat IRN visited complained of water supplyshortages.Concession AgreementSchedule 4, Part 17.8.2 The Company must ensure that the following requirementsare satisfied prior to confirmation of the sites in paragraph 7.8.1:• all villagers have visited the site and been provided with technicalinformation (in an easily understood form);• all villagers have agreed on the site;9.1.4 The GOL and the Company shall ensure that at all timesduring the Resettlement Implementation Period, appropriatesteps are taken to mitigate against the additional risks to ethnicminority groups and vulnerable households and will ensure thatplans addressing the issue of culturally sensitive development ofProject Affected People (“Ethnic Minorities Development Plans”)are implemented, having due regard to the SDP. This willinclude the following:• relocation of Vietic or other vulnerable groups into separateadministrative village units with clearly demarked boundariesand rights to resources,…;• Vietic villagers in Sop Hia have not all agreed tomove with other villagers to Resettlement Area 7.8.5.5 Irrigation and household water supply and distribution toeach house and farm lotThe Company shall provide good quality year-round water supplyto Resettlers for household use (in accordance with nationalstandards) for the duration of the Resettlement ImplementationPeriod from, as close as reasonably possible to each of their houses(at a minimum of 1 outlet per five houses….)8.7.1 Relocation of Resettlers shall not be commenced until afterthe Resettler housing and essential community infrastructure andservices are complete (including, without limitation, the villageaccess road, allocated farm plots, schools, housing and clinics andavailability of water for Resettlers households and as far aspossible, water for gardening).9.1.2 The GOL will take appropriate steps to ensure that:• the forest resources in the Resettlement Area are for the exclusiveuse and benefit of the plateau Resettlers for seventy (70)years from the establishment of the NPVFA; and9.6.1 The RO, with assistance from the RMU will procure thata plan for sustainable forestry …will be developed immediatelyafter the Resettlers have been relocated and land allocation hasbeen completed. The plan will be developed for the purpose ofproviding employment and other economic returns to theResettlers and will be based on the principle of community ownershipof the forest resource, allowing the Resettlers to participatedirectly in the financial benefits from sustainable commerciallogging of these forests.9.6.7 The RO, with assistance from the RMU shall ensure that:• the stated components of the Community Forestry Program(institutional development, natural resource management,forestry business and enterprise development and forestimprovement with local species) are implemented in a mannerwhich shall achieve the objectives referred to in 9.6.1above; and• appropriate steps are taken to mitigate against the risks of theCommunity Forestry Program.10.6.1 The GOL will hand over the community forest to theNakai Forest Association after theAssociation has been established, and the Forest ManagementPlan has been prepared by theCompany and approved by the GOL and the forest managementcontract has been signed asprovided in clause 9.7.• Forest resources in the resettlement area have reportedlynot been transferred for the VFA’s exclusive useand benefit.33

Nam Theun 2 Trip Report and Project Update12.3.1 The RMU shall coordinate the provision of income supportincorporating the following key principles:• during the Resettlement Implementation Period, the Companywill provide to the RMU (for distribution in accordance withregulations made under the NT2 Resettlement Policy) rice andprotein supplements for vulnerable households through therice bank modality until they attain and sustain theHousehold Income Target.• Nong Boua villagers are no longer receiving rice supportsand have reported selling buffalo and otherassets to buy rice. NTPC and the GoL plan to endprotein support 37 weeks after relocation.13.1 Preparation of detailed resettlement plans for Project Lands(c) The Company’s exact requirements for Project Lands willbe identified at or around the time of Financial Close afterwhich time the Company will finalise the compensation agreementsfor Project Affected Persons (on a household by householdbasis). …(d) The Company shall ensure that compensation in the form ofcash and replacement housing applicable to each household is providedto each affected household and that compensation paymentand relocation is satisfactorily completed prior to the handoverof land to the Company in accordance with the updated resettlementplans.(e) The Company shall ensure that compensation in the form oflivelihood restoration is provided to eligible Project AffectedPersons prior to hand over of land where reasonably possible.(g) The Company agrees that it will prepare the updated resettlementplans in accordance with applicable World Bank andAsian Development Bank Safeguard Policies and in consultationwith GOL and the Project Affected Persons and/or Projectaffected villages in question.• Project Lands compensation agreements were notdeveloped until the year after Financial Close.Compensation payments and livelihood restorationwere not provided prior to the handover of land.World Bank and ADB Safeguard Policies have notbeen complied with (see next section).Schedule 4, Part 29 Detailed description of Environmental Measures1 Water quality monitoring and maintenance of beneficial uses(f )… Water in the Downstream Channel must at least be suitablefor irrigation purposes.3 Water quality improvements through reduction of biomass inReservoir Area by salvage logging during construction(a) The Company shall ensure that a survey of present biomass inthe inundation area based on a satellite image of the NakaiPlateau shall be completed by suitably competent and expert personsprior to the Construction Phase.Such survey will update thebiomass estimate in the area to be inundated. The results shall beused to propose means for maximising removal of biomass inhigh biomass areas of the Nakai Reservoir. The priority shallbe to clear the vegetation in areas which will be permanentlyflooded. The vegetation along the Nam Theun will be removedat the last moment in order to reduce the stress to the aquaticcommunity.• There are no plans to maximize biomass removal inhigh biomass areas of the reservoir and predictionsare that water in the downstream channel will not besuitable for irrigation purposes.19. Wildlife program Element E—Adaptive managementprogramThe Company and the GOL will develop and implement anadaptive management program for the wildlife program byestablishing a committee, comprising suitably competent andexpert persons, to oversee the implementation and review theeffectiveness of the wildlife program.The adaptive management committee will meet regularly toreview the findings of the wildlife studies and the experimentalapproach to wildlife management and to make recommendationsfor improving the effectiveness of the wildlife program.• No committee has been established and none of therequired wildlife plans have been finalized ordisclosed.3.1 Mitigation of Project Impacts by Head ConstructionContractor during the Construction Phase(a) Without limiting clause 9, the Company agrees that, by theHead Construction Contract it will ensure that theHCCEMMP:(ii) adequately addresses each of the following activities in orderto avoid, alleviate, mitigate or remedy or otherwise address theProject Impacts within the Construction Areas:(A) meeting effluent standards and water quality requirementsfor discharges into surface waters and groundwater;(B) controlling drainage, erosion and sedimentation;(E) landscaping, rehabilitating and revegetating theConstruction Areas;34

International Rivers Network(F) managing on-site waste;(G) managing use and storage of chemicals, preventing anddeveloping emergency plans for chemical pollution incidents;(H) controlling noise, emissions and dust;28 Road construction and operationThe Monitoring Program shall be such as will enable theCompany to monitor and ensure compliance by the HCC withthe provisions in the HCCEMMP relating to road design, constructionstandards and applicable mitigation measures prior toand during the construction of those roads by the HCC. In thatregard the HCCEMMP shall provide for:(a) the alignment of roads to be designed to:(i) avoid large trees to the greatest extent reasonably practicableand otherwise so as to minimise damage to vegetation;(b) construction management to ensure that disturbance is limitedto the road easement;(c) the restriction of construction to the dry season when possible;(d) protection of susceptible soil surfaces with seeding and/ormulch;(e) protection of drainage channels with berms or fabric barriers;(f ) construction of sedimentation ponds and implementation ofother sediment control measures as necessary;(p) road quality and stability standards to be implemented;(q) erosion mitigation measures to be implemented;• The Lender’s Engineer and the Panel of Experts haveraised concerns about the Head ConstructionContractor and the subcontractors’ impacts in theseareas.World Bank and Asian Development BankPoliciesInvoluntary Resettlement PolicyWorld Bank OP 4.12: “Displaced persons should be meaningfullyconsulted and should have opportunities to participate in planningand implementing resettlement programs.” The policy coversthose people who suffer “direct economic and social impacts”including “loss of income sources or means of livelihood, whetheror not the affected persons must move to another location”.ADB OM Secton F2/BP: “Affected people are to be consulted oncompensation and/or resettlement options, including relocationsites, and socioeconomic rehabilitation. Pertinent resettlementinformation is to be disclosed to the affected people at key points,and specific opportunities provided for them to participate inchoosing, planning, and implementation options. Grievanceredress mechanisms for affected people are to be established. Whereadversely affected people are particularly vulnerable groups, resettlementplanning decisions will be preceded by a social preparationphase to enhance their participation in negotiation, planning,and implementation.”• The failure to ensure a meaningful consultationprocess has contributed to the confusion with theProject Lands compensation and livelihood restorationprocess.World Bank OP 4.12 requires that “taking of land and relatedassets may only take place after compensation has been paid”.• Compensation was not paid to Project Lands villagersbefore their lands and assets were taken.World Bank OP 4.12: “Preference should be given to land-basedresettlement strategies for displaced persons whose livelihoods areland-based…. If land is not the preferred option of the displacedpersons, the provision of land would adversely affect the sustainabilityof a park or protected area, or sufficient land is not availableat a reasonable price, non-land-based options built aroundopportunities for employment or self-employment should be providedin addition to cash compensation for land and other assetslost. The lack of adequate land must be demonstrated and documentedto the satisfaction of the Bank.”• It does not seem that sufficient replacement land hasbeen found for Project Lands villagers.World Bank OP 4.12: As a condition of appraisal of projectsinvolving resettlement, the borrower provides the Bank with therelevant draft resettlement instrument which conforms to thispolicy, and makes it available at a place accessible to displacedpersons and local NGOs, in a form, manner, and language thatare understandable to them. Once the Bank accepts this instrumentas providing an adequate basis for project appraisal, theBank makes it available to the public through its InfoShop. Afterthe Bank has approved the final resettlement instrument, theBank and the borrower disclose it again in the same manner.ADB OM Section F2/BP: “A satisfactory resettlementplan/framework must be submitted by the EA or the projectsponsors to ADB, preferably together with the project feasibilitystudy, but in any case, before project appraisal.”35

Nam Theun 2 Trip Report and Project Update• Resettlement Action Plans for Project Lands havestill not been disclosed although villagers’ land wastaken more than one year ago, even before compensationwas paid. Additionally, the DownstreamLivelihood and Asset Restoration Program has notbeen disclosed.Indigenous Peoples PolicyWorld Bank OP 4.10: “ Because physical relocation of IndigenousPeoples is particularly complex and may have significant adverseimpacts on their identity, culture, and customary livelihoods, theBank requires the borrower to explore alternative project designsto avoid physical relocation of Indigenous Peoples. In exceptionalcircumstances, when it is not feasible to avoid relocation, the borrowerwill not carry out such relocation without obtaining broadsupport for it from the affected Indigenous Peoples’ communitiesas part of the free, prior, and informed consultation process.”• Vietic villagers in Sop Hia have not all agreed tomove with other villagers to Resettlement Area 7.Information Disclosure PolicyWorld Bank Policy on Disclosure of Information: “Whenever theBank requires a Resettlement Instrument (RI) or IndigenousPeoples’ Development Plan (IPDP) for an operation, the proposedborrower prepares an RI or IPDP as a separate, freestandingdocument. As a condition of appraisal of the operation,the borrower provides the draft RI or IPDP, which conforms tothe relevant policy, and makes it available at a place accessible to,and in a form, manner and language understandable to the displacedor affected people and local NGOs. Once the Bank acceptsthe draft RI or IPDP as providing an adequate basis for projectappraisal, and before the Bank begins formal appraisal of theproject, the Bank makes it publicly available. After the Bankhas approved the final RI or IPDP, the borrower again makes itavailable at a place accessible to, and in a form, manner and languageunderstandable to the displaced or affected people and localNGOs. When the borrower officially transmits the final RI orIPDP to the Bank, it is publicly available.”ADB Public Communications Policy: The borrower or privatesector sponsor and ADB shall make available to affected peopleand to the public a draft resettlement plan and indigenous peoplesplan before appraisal, a final resettlement plan and final indigenouspeoples plan upon completion of the plan, and a revisedresettlement plan and indigenous peoples plan following changesin detailed technical design or scope of the project.• Resettlement Action Plans for Project Lands havestill not been disclosed although villagers’ land wastaken more than one year ago, even before compensationwas paid. Additionally, the DownstreamLivelihood and Asset Restoration Program has notbeen disclosed.36

1847 Berkeley Way,Berkeley CA 94702, USATel: +1 510 848 1155Fax: +1 510 848 1008www.irn.org