ASIAN DEVELOPMENT BANK Operations Evaluation Department

PROJECT PERFORMANCE AUDIT REPORT

ON THE

NAM LEUK HYDROPOWER PROJECT IN LAO PEOPLE'S DEMOCRATIC REPUBLIC

In this electronic file, the report is followed by Management’s response, and the Board of Directors’ Development Effectiveness Committee (DEC) Chair’s summary of a discussion of the report by DEC.

ASIAN DEVELOPMENT BANK PPA: LAO 29163 Operations Evaluation Department (Final)

PROJECT PERFORMANCE AUDIT REPORT

ON THE

NAM LEUK HYDROPOWER PROJECT (Loan 1456-LAO[SF])

IN THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC

August 2004

CURRENCY EQUIVALENTS

Currency Unit – kip (KN)

At Appraisal At Completion At Operations Evaluation (May 1996) (August 2001) (February 2004)

KN1.00 = $0.0011 $0.00011 $0.00010 $1.00 = KN920 KN9,120 KN10,410

ABBREVIATIONS

ADB – Asian Development Bank ADF – Asian Development Fund DOE – Department of Electricity EA – Executing Agency ECR – environmental completion report EdL – Électricité du Laos EIA – environmental impact assessment EIRR – economic internal rate of return EMD – Environmental Management Division FIRR – financial internal rate of return FRP – financial recovery program GWh – gigawatt-hour kg – kilogram km – kilometer kV – kilovolt Lao PDR – Lao People’s Democratic Republic m3 – cubic meter MOU – memorandum of understanding MRM – management review meeting MW – megawatt NGO – nongovernment organization O&M – operation and maintenance OECF – Overseas Economic Cooperation Fund OEM – Operations Evaluation Mission PCR – project completion report PKK Park – Phou Khao Khouay National Biodiversity Conservation Area PPAR – project performance audit report RRP – report and recommendation of the President SCF – standard conversion factor SRC – staff review committee TA – technical assistance

NOTES

(i) The fiscal year (FY) for all government agencies ends on 30 September. FY before a calendar year denotes the year in which the fiscal year ends. For example, FY1997 begins on 1 October 1996 and ends on 30 September 1997.

(ii) In this report, “$” refers to US dollars.

Director General, Operations Evaluation Department : Eisuke Suzuki Director, Operations Evaluation Division 2 : David Edwards Evaluation Team Leader : Hemamala Hettige

Operations Evaluation Department, PE-647

CONTENTS

Page BASIC DATA iii EXECUTIVE SUMMARY iv MAP vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 3 D. Cost, Financing, and Executing Arrangements 3 E. Completion and Self-Evaluation 3 F. Operations Evaluation 4 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievement of Outputs 6 C. Cost and Scheduling 7 D. Procurement and Construction 8 E. Organization and Management 9 III. ACHIEVEMENT OF PROJECT PURPOSE 10 A. Operational Performance 10 B. Performance of the Operating Entity 13 C. Financial and Economic Reevaluation 13 D. Sustainability 14 IV. ACHIEVEMENT OF DEVELOPMENT IMPACTS 15 A. Environmental and Social Impacts 15 B. Impact on Capacity Building and Institutional Development 18 Hemamala Hettige, Principal Evaluation Specialist (Team Leader), was responsible for the preparation of this report, and conducted document reviews, key informant interviews, and guided the fieldwork undertaken by the consultants, Clifford Brown and Somsisouk Inthavong. Vivien Buhat-Ramos, Evaluation Officer, supported the team with research assistance, and Cristina Roldan, Senior Operations Evaluation Assistant, provided secretarial assistance from Manila.

Page

V. OVERALL ASSESSMENT 19 A. Relevance 19 B. Efficacy 19 C. Efficiency 19 D. Sustainability 19 E. Institutional Development and Other Impacts 20 F. Overall Project Rating 20 G. Assessment of ADB and Borrower Performance 20 VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 20 A. Key Issues 20 B. Lessons Identified 21 C. Follow-Up Actions 21 APPENDIXES 1. Power Sector Loans Approved by the Asian Development Bank to the 23 Lao People’s Democratic Republic 2. Engineering Details Regarding Project Formulation, Design, and Testing 24 3. Électricité du Laos’ Central Grid System 27 4. Project Cost Data 28 5. Status of Compliance with Key Conditions and Covenants 31 6. Economic and Financial Evaluation 34 7. Summary of Findings from Field Visits to the Villages Surrounding the 41 Nam Leuk Hydropower Project 8. Selected Photographs from the Nam Leuk Hydropower Project 56 Attachments: 1. Management Response on the Project Performance Audit Report on the Nam

Leuk Hydropower Project in the Lao People’s Democratic Republic (Loan 1456-LAO[SF])

2. Development Effectiveness Committee Chairperson’s Summary of the Committee’s Discussion on 27 October 2004

of the Project Performance Audit Report on the Nam Leuk Hydropower Project in the Lao People’s Democratic Republic (Loan 1456-LAO[SF])

BASIC DATA Loan 1456-LAO(SF): Nam Leuk Hydropower Project

Project Preparation/Institution Building TA No.

TA Project Name

Type Person- Months

Amount1 ($)

Approval Date

1221 Pre-Feasibility Study of the Nam Song-Nam Leuk Hydropower Development

PPTA 21 500,000 10 Nov 1989

1532 Feasibility Study of Nam Song-Nam Leuk Hydropower Development

PPTA 47 1,300,000 8 Jul 1991

As per ADB Key Project Data ($ million) Loan Documents Actual Total Project Cost 112.6 111.2 Foreign Exchange Cost 90.5 82.3 ADB Loan Amount/Utilization 52.02 48.7 ADB Loan Amount/Cancellation 0.4 Amount of Cofinancing 38.5 33.6 Key Dates Expected Actual Fact-Finding 22 Sep–11 Oct 1995 Extended Fact-Finding 22–29 Feb 1996 Appraisal 21–26 Apr 1996 Loan Negotiations 11–12 Jul 1996 Board Approval 10 Sep 1996 Loan Agreement 6 Nov 1996 Loan Effectiveness 4 Feb 1997 17 Jan 1997 First Disbursement 21 Feb 1997 Project Completion 30 Sep 1999 16 Mar 2000 Loan Closing 31 Mar 2000 13 Mar 20033

Months (effectiveness to completion) 32 38 Key Performance Indicators (%) Appraisal PCR PPAR Financial Internal Rate of Return 9.8 3.1 7.6 Economic Internal Rate of Return 13.5 10.5 11.8 Borrower Lao People’s Democratic Republic Executing Agency Électricité du Laos Mission Data Type of Mission Missions (no.) Person-Days Fact-Finding 2 143 Appraisal 1 6 Project Administration – Inception 1 35 – Consultation 1 4 – Review 12 81 – Special Project Administration 2 44 – Project Completion 1 42 Operations Evaluation 1 34

ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, SDR = special drawing rights, TA = technical assistance. 1 Represents approved amount of technical assistance. 2 The dollar equivalent of the SDR loan amount that was approved depreciated from $52.0 million at approval to

$49.1 million equivalent by 15 August 2001, a loss of $2.9 million equivalent. 3 The loan closing date was extended to accommodate the completion of environment and technical mitigation

measures. The loan was closed upon refund of the unused imprest account.

EXECUTIVE SUMMARY

In September 1996, the Asian Development Bank (ADB) approved a loan for $52 million equivalent from the Asian Development Fund to the Lao People’s Democratic Republic for the Nam Leuk Hydropower Project (the Project). In the report and recommendation of the President (RRP), the total project cost was estimated to be $112.6 million, of which 80% was in foreign exchange. The actual project cost was $111.2 million.

The Nam Leuk Hydropower Plant is a transbasin hydropower plant with an installed capacity of 60 megawatts located in the center of the country. The project area is within the Phou Khao Khouay National Biodiversity Conservation Area (the PKK Park), although not in its core area. A 51.5-meter high dam impounds a reservoir with a storage capacity of about 185 million cubic meters. The Nam Leuk Project also augments the Nam Ngum power plant output by 30 gigawatt-hours. The size and location of the Project fits well with the optimal development of the country's objectives for electric power expansion. The Project was to provide domestic power supply when the domestic demand exceeded the capacity of the existing Nam Ngum power plant. Until then, it was to export surplus power to Thailand.

The RRP identified four principal project objectives: (i) to support optimal development of the country’s power subsector; (ii) to provide generating capacity to meet domestic demand and increase electricity exports to Thailand; (iii) to strengthen the capabilities of Électricité du Laos (EdL) to prepare, design, and implement environmentally sustainable projects; and (iv) to strengthen the management and protection of the PKK Park by providing technical and financial support. EdL was the Project’s Executing Agency. The Department of Forestry, through the Ministry of Agriculture and Cooperatives, was the Implementing Agency for the PKK Park management component.

Project design had both positive and negative elements. Incorporating four principal objectives during project design was too ambitious. These objectives encompassed a broad scope of activities. Inadequate implementation plans, performance targets, and monitoring activities were associated with some of the principal objectives. For example, implementation arrangements were inadequate for the objectives of enhancing EdL’s capacity and strengthening the PKK Park management.

The civil works contractor was responsive in prequalification and tendering procedures, and submitted a well-prepared tender. But his performance in management, quality of work, and scheduling was extremely poor. After 9 months of construction, the Project was behind schedule and workmanship was poor. Active measures had to be taken by ADB, EdL, and the consultant engineer to get the contractor to perform and put the Project on schedule. Although performance of the construction contractor was not satisfactory, the quality control measures that the consultant engineer implemented at the time of acceleration led to an acceptable level of civil work on completion of construction. The major structures are of robust design and construction, and the generation equipment is of quality manufacture and installation. With diligent operation and maintenance, the Project can be sustained for more than the 40-year design life.

Since commercial operation began in March 2000, the Project has met dispatching demands, limited only by the availability of water. In the first 3 years of operation, the Nam Leuk power plant exceeded its expected average long-term generation capacity of 215 gigawatt-hour per year. The plant’s layout and engineering design is generally appropriate and in keeping with international standards. Therefore, the Project has achieved the first two objectives: producing

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targeted energy levels, and supporting optimal development of the power sector. Achievement was less for the other two main objectives of strengthening the PKK Park management and EdL capabilities.

Little was achieved on the capacity building objective due to the lack of preparation at the design stage and lack of monitoring during implementation. There was no assessment of EdL’s needs, no specific task or specific budget, and no monitoring provisions. There is little evidence of structured training.

The Project was expected to help revise and implement the management plan for PKK Park, which included tourism development plans and integrated conservation and development programs. Also, 1% of the annual revenue generated by exporting electricity was to be used to fund protection and management of the PKK Park. At the time of the Operations Evaluation Mission (OEM), the management of PKK Park was not achieving the Project’s objective, and the 1% electricity export funds were allocated to meet recurrent expenditures of PKK Park authorities. The OEM believed that to really enhance long-term protection, it would be useful to involve the villagers in and around the PKK Park for park management activities that provide them with supplementary income. A tripartite meeting should be held among ADB, EdL, and PKK Park authorities to discuss future management of the 1% fund. If a suitable mechanism cannot be agreed on, resolution at a higher level is warranted. The Project provided direct benefits in terms of employment of many unskilled laborers during construction, and provision of electricity to villages adjacent to the power plant. Mitigation measures were managed quite effectively until about the end of 2001, due to ADB’s periodic review missions, advice of the panel of experts appointed by ADB, the experience of the environmental consultants that EdL engaged, and efforts of EdL’s Environmental Management Division (EMD). Relocation of the 16 families living in Nam Leuk village before the Project was generally successful. Many of the families are much happier with their new lifestyle and facilities available at their new location. The environment and social mitigation consultants performed well during their contractual periods. They were experienced and took great effort to carry out the biomass clearing and resettlement in an environmentally and socially acceptable manner. But their contracts were not renewed after power plant completion. The EMD of EdL took over the ongoing environmental and social mitigation measures. After plant startup, mitigation measures relating to reduced water quantity and impact on quality of fisheries impacts in nearby villages were not fully addressed. Functioning water pumps and standpipes actually came into effect only after April 2003 (more than 3 years after dam closing), and some of the installed pumps did not function at the time of the OEM. Monitoring of water quality and fisheries has been inadequate to ascertain the project impacts, and mitigation measures have not been provided with respect to those impacts. EMD’s lack of staff, inexperience, and inadequacy of funds have led to incomplete mitigation measures in some surrounding villages. In hindsight, more attention should have been paid to the environmental and social mitigation measures that were needed after plant startup. EdL seems not to have provided a dedicated budget to EMD to continue monitoring the Project’s environmental and social impacts. Ad hoc mitigation arrangements are made when EdL cannot avoid project-related problems, or when funding from other projects is available.

The Project was designed for a long lifespan. Despite pressures on the EdL staff because of rapid power development in the country, EdL has demonstrated that it can maintain and operate the Project. Despite difficulties in implementation, project completion was not substantially delayed. The Project has operated efficiently since commissioning. Costs incurred

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were within the project budget. The project financial internal rate of return is estimated to be 7.6% and the economic internal rate of return, 11.8%. The Project supported optimal development of the power sector, but achieved little capacity building. But the PKK Park is not sustainable as a national park, and will not be unless project funds for the park are used more productively. In summary, the Project is relevant, efficacious, efficient, and with likely sustainability. It has moderate institutional development and other impacts. Based on the above considerations, the Project is rated successful.

Lessons identified include the need to provide funds for environmental and social mitigation after plant operation, to support the achievement of all objectives with a budget, and to specify clear and measurable performance indicators to evaluate achievement of all objectives. Follow-up actions include (i) monitoring impacts on fisheries and water quality, and providing mitigation measures, for affected villages; (ii) developing suitable mechanisms for managing funds designated for the PKK Park; and (iii) regular plant inspection.

Eisuke Suzuki Director General Operations Evaluation Department

I. BACKGROUND A. Rationale 1. In September 1996, the Asian Development Bank (ADB) approved a loan of $52 million equivalent from the Asian Development Fund (ADF) to the Lao People’s Democratic Republic (Lao PDR) for the Nam Leuk Hydropower Project (the Project). ADB had provided 11 loans to the power subsector before this loan, supporting six projects (Appendix 1). ADB’s operational strategy1 at project approval, in 1996, supported sustainable growth by investing in economic growth projects in infrastructure, particularly in the hydropower and transport sectors. The Project focused on infrastructure investments in the central region, including Vientiane Prefecture and Vientiane Province.2 The strategy also reflected the Government of the Lao PDR’s policy thrust to increase foreign exchange earnings. In approving the loan, ADB took into account both its own and the Executing Agency’s (EA) experience in project implementation in the country. The policy dialogue with the Government on the energy sector focused on cost recovery, financial operational efficiency of the power utility, and improving the legal framework and procedures to identify and evaluate potential private sector power projects. 2. Since 1972, the central Lao PDR had depended almost entirely on power from the Nam Ngum power plant. Exporting surplus power from Nam Ngum to Thailand has been a major earner of foreign exchange. But as load demand increased over the years, domestic consumption was using almost all of Nam Ngum’s capacity. Another power plant was needed to meet the growing demand. In 1993, the Lao PDR and Thailand signed a memorandum of understanding (MOU) that envisaged the export of 1,500 megawatts (MW) of electric power to Thailand by 2000. In October 1995, the Government signed a second MOU with the Government of Viet Nam to supply Viet Nam with 1,500–2,000 MW before 2010. The Project was, therefore, intended to export surplus power until domestic demand exceeded Nam Ngum’s supply capacity. It would then begin to meet the domestic demand and export only excess power supply. B. Formulation 3. International consultants conducted a prefeasibility study in 1990 under ADB technical assistance (TA) 1221-LAO.3 The study recommended that the Project proceed with a feasibility study. The same consultants were hired to conduct the feasibility study under TA 1532-LAO,4 including the environmental impact assessment (EIA). The final feasibility report, submitted in February 1993, recommended further site investigations to confirm feasibility of the Project and to provide additional subsurface data for the final design. 4. In late 1992, based on preliminary drafts of the feasibility study report, the Government requested ADB to finance, on a loan basis, further consulting services for supplementary site investigations to complete the engineering design and prepare tender documents for the Project. ADB approved this additional work in December 1992 under the Nam Song

1 ADB. 1996. Country Operational Strategy Study for Lao People’s Democratic Republic. Manila. 2 The Project also focused on Borikhamxay, Khammuane, and Xiengkhuang provinces. 3 ADB. 1989. Nam Song-Nam Leuk Hydropower Development. Manila (TA 1221-LAO, for $500,000, approved on

10 November 1989). 4 ADB. 1991. Feasibility Study of Nam Song-Nam Leuk Hydropower Development. Manila (TA 1532-LAO, for

$1,300,000, approved on 8 July 1991).

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Hydropower Development Project, which was completed in December 1995.5 The study concluded that the Project was technically and economically feasible, and recommended implementation, with further environmental studies (Appendix 2). The Operations Evaluation Mission (OEM) felt that arrangements for the prefeasibility and feasibility studies followed normal practice. The studies provided a sound basis for making a decision on project implementation, subject to the pending environmental work. 5. In January 1995, the Government requested ADB to take the lead role in arranging financing for construction of the proposed project. An ADB fact-finding mission visited the Lao PDR from 22 September to 11 October 1995. A management review meeting (MRM), held on 15 February 1996, concluded that additional work was needed to justify ADB’s involvement in the Project. This was based on the following factors: (i) proving that the Project was part of the least-cost option was difficult, in the absence of a national plan for energy development; the plan was expected to be ready by the end of 1997; (ii) the Project’s estimated economic internal rate of return (EIRR) was marginal (11.5% versus the 12% estimated opportunity cost of capital); and (iii) this was the first ADB-supported project to place a dam and reservoir inside a protected area, and environmental concerns were envisaged. But the Project planned to implement a mitigation action plan, plus provide long-term funds for better management of the protected area. The staff also presented the following additional reasons for ADB involvement in the Project: (i) the private sector was not attracted to the Project due to its relatively small size and the environmental and social concerns; (ii) there was more scope in this Project (compared with privately-owned power plants, geared for export) to provide electricity to the domestic market, because Électricité du Laos (EdL)6 would be the sole owner; and (iii) the cofinancing arrangement, through the Overseas Economic Cooperation Fund (OECF), was also firm. The MRM was followed by an extended fact-finding mission 22–29 February 1996. 6. A second MRM was held 18 April 1996. The mission provided the following information. First, this project was economically competitive and, overall, the best of the 18 potential hydropower projects to proceed with (para. 19). Second, the Project had a clear domestic orientation. Third, the staff believed that there was no need for massive relocation of indigenous people. A social action plan was being prepared to be included in the environmental management plan. Fourth, the Project’s EIRR was reestimated at 12.4% and the financial internal rate of return (FIRR), at 9.8%. Fifth, the Government had agreed to issue, prior to Board approval, revised approval and implementation procedures for awarding hydropower development to the private sector, which would increase transparency of the process for future projects.7 An appraisal mission was undertaken 21–26 April 1996. ADB approved advance procurement in April 1996 so civil works could commence at the beginning of the dry season in October 1996. This early start was also needed to firm up the cost estimates for loan approval. 7. Participants at the staff review committee meeting in June 1996 discussed the use of funds generated by the margin (about 5–6%) between the cost of ADF and the Government’s onlending to EdL at the ordinary capital resources rate. The committee recommended that the report and recommendation of the President (RRP) mention that part of those funds should go for social purposes.8 In the last week of August, ADB received a letter from an international nongovernment organization (NGO) raising concerns about potential impacts of the Project. The

5 ADB. 1992. Nam Song Hydropower Development Project. Manila (Loan 1214-LAO[SF], for $31.5 million, approved

on 21 December 1992). 6 The Theun-Hinboun power plant, a public-private joint venture, was being built in 1996. 7 Implementation and approval procedures for independent power producer projects were formalized in May 1996. 8 The RRP did not explicitly mention use of the margin generated funds by the Government. EdL was to bear the full

foreign exchange risk.

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scheduled board meeting was postponed to allow time for some board members to review the issues raised. The Board was generally satisfied with ADB’s response to the NGO. But considering the importance of detailed environmental and social mitigation measures to be decided during implementation, the Board recommended hiring of a panel of experts to review project implementation. This would provide credible monitoring and review, and allow quick midcourse corrections if problems were identified. The Board approved the Project on 10 September 1996. C. Purpose and Outputs 8. The Nam Leuk Hydropower Plant is a transbasin hydropower plant, with an installed capacity of 60 MW, in the center of the Lao PDR. A dam, 51.5 meters (m) high, impounds a reservoir with a storage capacity of about 185 million cubic meters (m3). The generation capacity for domestic power supply and export earnings is about 215 gigawatt-hours (GWh)/year. The Project also provided an additional 30 GWh/year to Nam Ngum by diverting water from the Nam Leuk to the Nam Ngum reservoir.9 The project area is within, although not in the core area, of the Phou Khao Khouay National Biodiversity Conservation Area (PKK Park). The Project provides economic benefits to the country but also generates some adverse environmental and social impacts. The Project is also meant to enhance long-term protection of PKK Park. 9. The RRP identified four principal project objectives: (i) to support optimal development of the country’s power subsector; (ii) to provide generating capacity to meet domestic demand and increase electricity exports to Thailand; (iii) to strengthen EdL’s capabilities to prepare, design, and implement environmentally sustainable projects; and (iv) to provide technical and financial support to strengthen the management and protection of the PKK Park. D. Cost, Financing, and Executing Arrangements 10. ADB, OECF, and the Government funded the Project. At the time of the RRP, the total project cost was estimated at $112.6 million, of which 80% was in foreign exchange. EdL was the EA for the Project. The Department of Forestry, through the Ministry of Agriculture and Cooperatives, was the Implementing Agency for the protected area management component. E. Completion and Self-Evaluation 11. The Project Completion Review Mission was conducted in September 2001 and the project completion report (PCR) was circulated to the ADB Board in March 2002.10 The PCR indicated that, because of the proactive approach taken by EdL, the consultant, and ADB, the Project was completed in time to use part of the 1999 wet season flows as planned. The Project’s total costs were 4.5% less than at loan approval. That was despite 30% additional work that was caused by unforeseen geological conditions. The PCR also stated that environmental and social impacts were being mitigated, and that the impacts would be mitigated for as long as required. Based on these factors, the PCR considered the Project to be successful. According to the PCR, the Project’s FIRR dropped from 9.8% at appraisal to 3.1% at

9 Nam means river in the local language. 10 The PCR stated that the PCR Mission was originally scheduled for fielding after loan closure in 2002. But the PCR

Mission was held earlier to take advantage of the mission leader’s corporate knowledge before his retirement in December 2001. At the time of fielding the PCR Mission, the Project was essentially complete. The costs us ed to prepare the PCR comprised all substantial costs expected until project completion, including all expenditures for environmental and social mitigation and technical monitoring.

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PCR, due to overestimation of export and domestic tariffs assumed at appraisal. Although most costs were in US dollars, the domestic tariffs did not increase as much as expected in dollar terms, due to the significant depreciation of the kip. The PCR estimated that the Project’s FIRR was marginally above the weighted average cost of capital. The EIRR also decreased from 13.5% at appraisal to 10.5%, according to the PCR estimate. 12. The PCR highlighted several important lessons and recommendations. The PCR recommended that future monitoring focus on (i) completion of remaining project subcomponents, including revegetation; (ii) ongoing measurement of technical parameters; (iii) adherence to financial covenants; and (iv) compliance with environmental and social mitigation measures. It also recommended ADB follow-up action to ensure that funds allocated for the PKK Park would be disbursed as planned. 13. The PCR covered many aspects of the Project, and its authors tried to be objective in its self-evaluation. Significant findings and conclusions were well-documented. But looking back, the OEM would have adjusted three PCR findings. First, the PCR did not evaluate the Project directly against the four project objectives (para. 9). The OEM considered that no serious effort was put into design of the objectives for strengthening the EdL (para. 67) and providing assistance to the PKK Park, as discussed in this report (para. 51). Second, the additional interest during construction increased the project cost by about $3.5 million from the $107.7 million reported in the PCR. The OEM had the advantage of using audited financial statements. Third, the PCR discussed problems with the civil works contractor (para. 30), but did not seem to recognize the failure of all parties—the consultant engineer, the EA, and ADB—to take steps to counter the potential problems at the time of bid evaluation, award, and start of construction. F. Operations Evaluation 14. This project performance audit report (PPAR) is based on a review of project documents and other relevant studies, and discussions with knowledgeable persons that the OEM met at ADB, EdL, and in the field. The OEM visited the project site in January–February 2004; inspected the power plant facilities; and met with relevant government officers, project implementation officers, and representatives of other international organizations. The OEM held focus group interviews in 11 villages in the affected area, and discussed related issues with NGOs in the Lao PDR and abroad. The PPAR assessed the relevance, efficacy, efficiency, sustainability, and institutional and other development impacts of the Project, in order to identify follow-up actions and lessons for future ADB operations. The evaluation also focused on procurement issues, PKK Park protection, social and environmental impacts, and mitigation measures. The views of concerned ADB departments and those of the Government and the EA were considered in finalizing the PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design 15. Project formulation was over three decision-making periods: (i) the prefeasibility study, (ii) the feasibility study, and (iii) the detailed design and preparation of tender documents and construction. EdL executed the preparatory work well, and the consultants’ studies were appropriate. During the studies, there were concerns about changes in approaches on hydrology, selection of generating units, and environmental scopes. But such differences are normal during study stages of a project. The final design is considered almost optimal (Appendix 2).

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16. With the consultants’ assistance, the Project was packaged into four contracts: (i) C1, for civil works; (ii) H2, for hydromechanical equipment; (iii) E3, for electrical equipment; and (iv) T4, for transmission lines and substation extension. These are normal contract packages for international hydropower projects, and are considered the best arrangement for competitive bidding. Overall arrangements for project implementation were appropriate, except for award of contract C1 (para. 30). 17. The project design had both positive and negative elements. Incorporation of four principal objectives during project design was too ambitious; the activities were too broad in scope. The Project also included inadequate implementation plans, performance targets, and monitoring activities for some principal objectives. For example, implementation plans were not adequate to achieve the objectives of (i) enhancing EdL’s capacity to design and implement environmentally sustainable projects; and (ii) strengthening PKK Park management.11 Those objectives could have been addressed better with a TA or sector development program with appropriate implementation mechanisms and resources, rather than being included in a power generation project. Subsequent ADB projects in the sector are now addressing such weaknesses, in close collaboration with the World Bank.12 18. The central Lao PDR depends heavily on the Nam Ngum generating station, which now supplies power through 115-kilovolt (kV) transmission lines. Surplus power has been exported to Thailand. But EdL load forecasts indicated that Nam Ngum’s capacity to meet local needs would be fully utilized by 2003.13 Thus, at project preparation, there was already a need to plan for additional generating capacity by 2003. Excess power could be exported if the new plant was completed earlier. The size and location of the Project fits well with optimal development of the country's electric power expansion objectives. Nam Leuk is in a remote and underdeveloped area, about 70 kilometers north of Vientiane. 19. In addition to meeting the Lao PDR’s growing power demand, a basic objective was, and continues to be, to supply power to Borikhamxay and Xiengkhuang provinces. Thus, this Project was selected, not through a rigorous study of power generation planning, but on the following criteria: (i) it was competitive in price, within 10% of the lower-cost estimates of the 18 hydropower projects studied for power supply; (ii) it was the only power project with adequate feasibility studies done at the time and thus, ready for implementation; and (iii) it would have less environmental impact than other hydropower projects. Although the project selection was not made on strong economic grounds, the OEM agrees with the choice made to proceed with the Project because of the provision of power to impoverished provinces, and a reasonable cost of electricity generation. 20. According to the RRP, PKK Park management was less than satisfactory at the time of project design, despite the presence of field staff since 1993. Until 1993, a large part of the PKK Park had been logged commercially, and an external assessment had recommended a one-third reduction of the protected areas because the park was so heavily degraded. The

11 These objectives may have been included to accommodate the fact that the project site was inside the PKK Park.

Looking back, it would have been more effective to use an objective such as “ensure that environmental mitigation is carried out to international standards.”

12 ADB. 2003. Greater Mekong Subregion: Nam Theun 2 Hydropower Development. Manila (TA 4213-LAO, for $700,000, approved on 9 November 2003). ADB. 2001. Environment and Social Program . Manila (Loan 1867-LAO, for $20 million, approved on 6 December 2001).

13 Although the capacity was fully utilized during 2003 peak load demand, it can supply energy to meet the domestic demand until 2005.

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Government had noted widespread poaching of wildlife and other park products. Financial constraints hampered attempts to improve protection. Thus, the project design, which incorporated a twofold strategy for protected area management, was considered a positive development. First, the Project was to finance a protected area management advisor for 2 years to provide on-the-job training to PKK Park staff. Second, 1% of the annual export revenue from the project-generated electricity was to be diverted to the management fund for the protected area. But the activities for the 2-year technical advice subcomponent were inadequately developed. The details for the second subcomponent—the PKK Park fund—were not well specified either and caused problems during implementation (para. 49). Better specification of targets and fund management, and identification of monitoring indicators and parties responsible for monitoring, would have lessened weak implementation of this component. 21. A positive feature of the Project was that, deviating from past practices, funds for environmental and social mitigation were identified upfront as separate line items of the loan. This enabled the establishment of systematic baseline studies, and monitoring and mitigation of initial environmental impacts until the plant began operation and the loan was closed. The early funding of the panel of experts also contributed to better mitigation efforts. These were good design aspects but, looking back, more attention might have been paid to environment and social mitigation measures needed after loan closure (para. 66). B. Achievement of Outputs 22. The Project began commercial operation in March 2000. Since then, the Project has been fully operational, meeting dispatch demands and limited only by availability of water. The Project’s layout and engineering design are generally appropriate, and meet international practice. Although performance of the construction contractor was not satisfactory, the quality control measures that the consultant engineer implemented at the time of acceleration led to an acceptable level of civil work on completion of construction and handover to EdL (para. 55). The major structures are of robust design and construction. The generation equipment is of quality manufacture and installation. With diligent operation and maintenance (O&M), the Project can be sustained for more than its 40-year design life. 23. Other valuable project outputs are the 115-kV transmission lines, an 85-kilometer single circuit line to Paksane, and the second single circuit line to Nam Ngum (Appendix 3). They not only supply power from Nam Leuk, but also strengthen the overall power supply in the Lao PDR. In July 2003, Nam Leuk was also connected to Vientiane and other load centers in the area as EdL expanded its 115 kV system,14 thereby contributing to development of the national grid. Thus, the Project achieved its objective—to support the optimal development of the country’s power subsector, as well as provide generating capacity to meet domestic demand and increase electricity exports to Thailand. If one considers Vientiane, Nam Ngum, and Nam Leuk as apex points on a triangle, the Nam Ngum-Vientiane transmission line is one side, and Nam Leuk-Nam Ngum is a second side. 24. Achievement has been less for the other two principal outputs: strengthening the management and protection of PKK Park, and strengthening EdL’s capabilities to design and implement environmentally sustainable projects (paras. 49 and 67).

14 ADB. 1997. Power Transmission and Distribution. Manila (Loan 1558-LAO[SF], for $30 million, approved on

30 September 1997).

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C. Cost and Scheduling 25. The OEM estimated15 the actual total project cost to be $111.2 million, compared with the RRP estimate of $112.6 million and the PCR estimate of $107.7 million (Appendix 4). The main differences between the OEM and PCR estimates resulted from the PCR’s omission of some of the interest during construction, and the costs of the project management unit. The lower actual cost in the OEM estimate compared with the RRP estimate reflects overestimation of the service charges and interest during construction, and local taxes at the loan approval stage. In contrast, costs for the actual civil works and transmission line exceeded the RRP estimates. Due to the exchange rate fluctuation, the original financing plan, in terms of special drawing rights and the Japanese yen, fell short of the anticipated amount in dollar terms. 26. The Government requested ADB for supplementary financing to cover potential project cost overruns. ADB indicated that it would provide a supplementary loan only, as the lender of last resort. TA 3225-LAO was approved to provide a consultant to analyze various financing options and help the Government negotiate suitable financing options.16 The TA report was submitted in May 2000. Having explored a number of options for financing the cost overruns, the TA final report also concluded that a supplementary loan should be considered. 27. ADB decided not to provide a supplementary loan. The decision was based on reasons external to the construction cost overrun: progress in implementation of social and environmental impacts, illegal logging, EdL’s unsatisfactory financial situation, inadequate tariffs, and the Project’s marginal economic viability. Because completion of the dam was critical, EdL funded $8 million from revenue earned from the Theun-Hinboun Hydropower Project. The dam was completed in time to catch a significant part of the 1999 rainy season flows. ADB subsequently approved Loan 1867-LAO (footnote 12) to improve the environmental and social management capabilities of the Lao PDR, including mitigation measures needed for this Project. As part of his scope of work, the consultant assessed the contracts, variation orders, addenda, and other documentation. The consultant found that most overruns of the Nam Leuk Project seemed reasonable and necessary to complete its construction under the circumstances. The report stated, "The circumstances are not specifically stated in the TA report but apparently refer to the conditions arising from the delay and other problems arising from the civil works contract” (para. 30). The report also stated, "Further, it appears that the overall project was constructed for a reasonably low cost given the necessary additional works." 28. Although the OEM generally agreed with the TA report, it believed that some delays in the civil works contract could have been avoided. Problems with the civil works contract, and acceleration costs, should have been addressed earlier and differently. This would probably have lowered overall costs. That would also have avoided the costs incurred on other contracts due to delays caused by the civil works contractor (para. 84 gives recommendations on addressing the problem of noncapable contractors with extremely low bids). The need to construct two transmission lines to Nam Ngum and Paksane, with the increased cost of the transmission line contract, should also have been avoided. Appendix 4 gives a breakdown of construction cost overruns by contract.

15 All of the total project costs are audited costs, except the EdL project management unit costs, which OEM

estimated. 16 ADB. 1999. Analyzing and Negotiating Financing Options for the Nam Leuk Hydropower Project Cost Overruns.

Manila (TA 3225-LAO, for $140,000, approved on 16 July 1999).

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D. Procurement and Construction 29. Procurement of goods and services was carried out in accordance with ADB’s Guidelines for Procurement. Following are discussions of the different types of contract packages, how they varied, and lessons learned. 30. Civil Works Contract. The civil works contractor was responsive in prequalification and tendering procedures—but his performance did not match his well-prepared tender. The contractor performed extremely poorly in management, quality of work, and scheduling, as the PCR reported. The first 6 months of construction was a disaster. All activities were behind schedule, and workmanship was poor. ADB, EdL, and the consultant engineer had to take strong measures to make the contractor perform, and put the Project back on schedule.17 These measures included incentives for the contractor to accelerate the Project and for the consultant engineer to build up his staff, at a significant project cost increase. Even so, the continuing quality of work was far less than satisfactory, and required continuous intervention of the consultant engineer. As reported in the EdL’s completion report, numerous deficiencies in the work and in support facilities continued until the contract ended.18 31. As indicated above, problems arise when noncapable contractors are prequalified and their low tenders are accepted. Prequalification and bidding are separate stages of the procurement process. Competitive bidding requires acceptance of bids from all prequalified contractors, who should have been determined to have financial and technical capability to undertake the contact based on past experience and financial soundness. The PCR states that the contractor's bid of $35.9 million was about 28% lower than the consultant engineer's estimate, and 25% lower the second-lowest bidder. It would have been prudent, when the contractor submitted such an extremely low bid, if all parties had become more concerned with the associated risks and conducted a thorough post-qualification. The OEM is of the opinion that such problems are more common in the tendering process, and that more action is required in the bid evaluation than in the prequalification stage. 32. It is not surprising that the EAs and governments find it difficult to turn down significant cost savings—about $12 million less than the next-lowest bid, in this case. Nor should they always turn down such bids, because qualified bidders sometimes submit attractive but low bids. But such a low price should have raised alarms about potential problems. In such situations, it would be prudent to recognize the risks and act accordingly. ADB should review how all parties could better address this problem (para. 84). 33. Electrical and Mechanical Contracts. The H2 and E3 contracts were evaluated and negotiated during the first year of construction and were awarded in April 1997, about 5 months late. The T4 contract was awarded at the end of the first year of construction. The contractors agreed to carry out the work in the shortened time frame, however, to meet the C1 contractor’s revised schedule. Due to the cooperation of these contractors and the consultant engineer, all contracts were eventually completed to meet the revised schedule. The electrical and mechanical contracts were conducted satisfactorily, providing equipment of high quality.

17 ADB started taking action after 6 months, but it took 3 more months to develop an acceleration plan and finalize

negotiations. 18 Deficiencies included survey errors, poor formwork and concrete finishing, lack of or inappropriate equipment, poor

quality control, irresponsibility regarding safety, poor handling of materials, a filthy camp, and unnecessary environmental degradation. The contractor had no project management team, no foreperson, and few skills and little experience in software for project planning and management. His payments within the contracting company did not meet standards. It took some time for the consultant engineer to understand the contractor’s approach.

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34. Consulting Services Contract. Consultants were recruited in accordance with ADB’s Guidelines on the Use of Consultants. From review of the documents and the site visit, the OEM concluded that the Project’s engineering design was appropriate. Two design issues arose during construction that increased costs and caused delays in the schedule: (i) providing the full tunnel lining for the power tunnel, and (ii) deepening of the dam excavation. What transpired is not unusual in the construction of large dams and tunnels. What is important is that the consultant engineer responded to the situations and redesigned the structures, practically and in accordance with good international practice. The initial weak handling of the civil works contractor reflects on all parties. The consultant engineer is believed to have properly assessed the conditions during tender evaluation, and gave good advice. He was also diligent in supervising the difficult acceleration program. Thus, the consulting services contract was completed satisfactorily. Engaging an independent consultant engineer to support the EA was necessary, and a valuable asset for project implementation. E. Organization and Management 35. The EA management was efficient and satisfactory in preparing the power project, implementing construction, and subsequent O&M, despite the poor performance of the civil works contractor. However, the EA’s implementation of environmental and social mitigation measures after power plant completion was inadequate (para. 66). The EA acted efficiently on mitigation measures only when external consultants were contracted to undertake them. After project completion, the EA took over the remaining mitigation measures, but the implementation was lacking in some aspects. ADB also could have provided better post-completion monitoring of environment and social mitigation measures, particularly because the PCR specifically recommended it as a follow-up action. 36. The OEM found the procurement process (prequalification and tender evaluation) for the civil works contract lacking in items required for international tendering (para. 31). It was difficult for the EA to pass up $12 million savings in bid price with no guarantee that the second-lowest bidder would perform any better. But more should have been done to evaluate the low bidder's capabilities, and the availability and condition of his construction equipment. The EA later, with support of ADB and the consultant engineer, addressed the problems and took appropriate management measures to successfully complete the Project within a reasonable time, and at reasonable cost. 37. The consultants for the initial environment and social mitigation were experienced, and performed well. They took great effort to carry out the biomass clearing and resettlement in an environmentally and socially acceptable manner. But their contracts were not renewed after completion of the power plant, and EdL hired no other consultants to implement environmental and social mitigation measures. The ongoing work was taken over by EdL’s Environmental Management Division (EMD). Mitigation measures in some surrounding villages were incomplete due to EMD’s lack of staff, experience, outside pressure, funds, and political will (paras. 61–64). 38. Technology transfer and capacity building was a main project objective, but little was achieved to fulfill it (para. 68). The main reasons were a lack of preparation during design, and inadequate monitoring during implementation. Valuable lessons can be learned from this experience about programs needed to effectively transfer technology and build capacity. 39. Compliance with Covenants. The loan and project agreements included 10 key covenants (Appendix 5). At the time of the PPAR, seven of the covenants were complied with,

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two were partly complied with, and one not complied with. At PCR, three financial covenants had not been fulfilled. In 1999, EdL adopted a comprehensive financial recovery program (FRP) to restore its financial viability (para. 52). After FRP, which included revaluation of assets in 2002, the latest EdL information indicated that the financial ratios had reached covenant levels and that other financial indicators were improving. The covenant requiring that EdL’s accounts receivable be less than 3 months of equivalent sales has not yet been complied with, but available information indicated that accounts receivable was at 5–6 months at OEM. But EdL is taking steps to reduce accounts receivable from the Government by offsetting them with accounts receivable from EdL to the Government.

III. ACHIEVEMENT OF PROJECT PURPOSE A. Operational Performance

1. Power Plant 40. The Project achieved its first two objectives: to support optimal development of the Lao PDR's power subsector, and to provide generating capacity to meet domestic demand and increase electricity exports to Thailand. The Nam Leuk power plant’s operational performance has been excellent since commissioning of the 60-MW hydropower generating station. The plant provides power to a central grid19 connected with the Nam Ngum hydropower plant (150 MW) and two smaller plants.20 Through interconnections, Nam Leuk can also export power to Thailand. 41. In its first 3 years of operation, the Project exceeded its expected average long-term capacity to generate 215 GWh/year. This is attributed to favorable hydrology, and gives confidence in the Project’s capacity. From the Project’s performance so far, and considering the hydrological database that went into the hydrology study, the OEM is confident that the power output is strongly renewable and reliable, and will sustain the Project over its life. With diligent operation and appropriate maintenance, the Project can be sustained for more than the 40-year design life. All structures seem in good operating condition, and well maintained. The Project's catchment area is mostly in the PKK Park, which improves hydrological sustainability—if the catchment area remains protected.21 42. EdL is mainly a power generating company that is quite conscientious of O&M of power facilities, including the monitoring of instrumentation and the condition of structures. EdL is quite effective in this function, with many competent staff. The plant is in good operating condition and well-run. However, there is a need to strengthen some EdL operational areas such as (i) understanding the reason for monitoring of the structures at Nam Leuk; (ii) the need to use expert consultants (geotechnical and/or structural engineers) to help inspect and evaluate the major structures, especially the dam and its foundations and tunnel; and (iii) public safety and public access. EdL has used consultants on an “as required” basis when problems arose, but for the long term, EdL should initiate a program of periodic, expert inspection and evaluation of the major structures.

19 For this PPAR, the central grid is defined as the 115-kV transmission system that connects Nam Ngum and Nam

Leuk to the major load stations in the central 1 and northern regions of the Lao PDR, including connections to the Thailand system (Appendix 3).

20 The Nam Dong hydropower station (1 MW) that connects to Luangprabang district, and the Sokpaluang diesel generating station (8 MW) that connects to the Vientiane municipality.

21 Although cultivation of upland or hill rice, which would be most damaging has been prohibited, some logging, harvesting of small trees and bamboo, and grazing still takes place in the catchment reservoir.

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43. Maintenance and Safety. The OEM was able to review O&M practices at the site and to inspect all structures except the bottom outlet valve. EdL had arranged earlier for experts to inspect the bottom outlet to look for leakage. The experts informed the OEM that leakage was not a concern; this was confirmed by the consultant engineer's project manager. Based on the organization and staffing provided for O&M and a broad review of the accounts, the OEM concluded that maintenance arrangements were effective and the costs were in keeping with normal practice. EdL staff diligently carried out the monitoring that the designer recommended. But design limits for the parameters being monitored were not available at the site. EdL should request the designer to provide the measurable limits for these parameters, and to hold a staff seminar on the bases of design for the limits to make the staff more effective in their monitoring roles. Also, safety precautions should be evaluated in the surge tank area, the diversion tunnel (Nam Poun) intake, and the tailrace canal. 44. The Project’s generating units are among the most efficient in the hydropower manufacturing field. Turbine efficiency was substantiated by model tests performed under the contract. The generators and transformers were tested in the field. Operational experience at Nam Leuk provides proof of the Project’s operating efficiency and reliability.22 45. Transmission and Distribution. The Project’s transmission lines are of high technical standard and, reportedly, operate appropriately. But the OEM felt that the country’s transmission and, particularly, distribution systems are over-extended and not economically driven. The over-extension leads to low voltage supply, brownouts, power outages, and increased losses, and markedly reduces the economics of the power system. This is not uncommon in developing countries, and sometimes even necessary for rural electrification. EdL is aware of the over-extension of the transmission and distribution systems, and states its commitment to reduce these problems through its loss reduction program. But with the Government’s policy of reaching 90% electrification by 2020, there will be continuing pressure for over-extension of the rural transmission and distribution systems. ADB’s strong support and monitoring of the EdL loss reduction program is appropriate.

2. Protected Area Management 46. The Project was expected to help revise and implement the management plan for PKK Park, which included development plans for tourism and integrated conservation and development programs. Also, about 1% of the annual export revenue generated by exporting electricity was to fund the protection and management of the PKK Park. 47. The Ministry of Defense administers the PKK Park. About 70% of its staff have military backgrounds; others have forestry backgrounds. Under the Project, a protected area adviser was approved for 2 years, from 1997 to 1999. The adviser’s term was extended for a third year under bilateral funding. The consultant’s report indicated that some key staff lacked understanding in protected area management and biological conservation. Thus, this first plan suggested the establishment of a park advisory committee comprising key PKK Park personnel, district forestry and agricultural officials, and representatives from the Ministry of Defense. The plan also proposed the use of a trust fund for long-term management of the PKK Park. Components of the first management plan included the establishment of a legal and policy 22 A weir in the tailrace was provided to raise the backwater level to meet the turbine operating guarantees for

cavitation. Design information on the turbine setting was not available until after commitment of the powerhouse foundation block for construction. But the weir reduces the head on the plant, and results in a small production loss. Although not urgent, EdL should evaluate the need for the weir after the guarantee period for the turbines.

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framework, strengthening capabilities of PKK Park management authorities, EIAs, public awareness, community development, and natural resource research and management. The EdL project management considered this plan neither pragmatic nor strategically oriented, and did not adopt it. 48. EdL requested another consultant23 to prepare a second management plan to develop a more focused and practical set of measures that would interest both EdL and the PKK Park authorities. Its main components included management of the Nam Leuk reservoir, conservation of its catchment area, management of access roads, rehabilitation of the Nam Leuk site, recreational use of the project and reservoir sites, and support for project impact monitoring and management. This plan was more focused on the Project compared with the first plan’s focus on the entire PKK Park. It also suggested EdL review PKK Park activities more closely. PKK Park officials say they had already begun implementing the first plan, and did not want to adopt the second because of its limited scope. Because of this difference in opinion, the PKK Park management plan was not implemented effectively.24 At the time of the PCR, it recommended that fund disbursements to the PKK Park had not yet been adequately institutionalized, and ADB should ensure that funds are reserved for the stipulated purposes. Disbursement of PKK Park funds were included as a conditionality in the Environmental Program Loan (footnote 12), and funds were disbursed from 2001. 49. At OEM, neither plan had been adopted, due to conflicting interests. But funds from the 1% of estimated export revenue are being disbursed to PKK Park authorities upon submission of periodic expenditure statements. According to PKK Park authorities, the income expenditure of the PKK Park was about $13,000 for 2001, $75,000 for 2002, and $80,000 for 2003.25 Most expenditures were for transportation, office expenses, and per diems for PKK Park staff to conduct village-level awareness building. Minor expenditures were for tree plantations, release of fish, and surveys of animals and vegetation. 50. The OEM felt that funding allocated for the PKK Park was not achieving its intended goal: to support ecotourism and village-based integrated conservation and development programs. Simultaneously, there is anecdotal evidence that the PKK Park is being further deteriorated by parties that have found illegal access. The present system seems to lack the desired planning, management, accountability, and performance indicators (see recommendations in para. 90). 51. Following are ideas for implementing a PKK Park management plan, derived from discussions during the OEM: (i) a multiparty committee might be established to approve activities related to PKK Park improvement; the committee might comprise relevant experts, including NGOs working in related fields such as the World Wildlife Fund, Wildlife Conservation Authority, and World Conservation Union; and representatives from the Forestry Department; PKK Park; EdL; the Science, Technology, and Environment Agency; and ADB. Another suggestion was that the 1% fund could be managed similar to a “window” under the proposed Lao Environment Fund, subject to its principles of disbursement, management, and accountability. A committee could allocate funds for PKK Park conservation. Such a management plan would need clear objectives, a business plan, and a budget. Development proposals would also require clear objectives and specific budgets. These proposals for sustainable PKK Park management and development programs may come from many 23 This was the same consultant who implemented the environmental and social mitigation measures. 24 If the PKK management proposal had been studied well in advance, arrangements might have been better for

political and institutional support for an effective conservation approach. 25 The 2003 expenditure is an estimate.

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stakeholders, including EdL, PKK Park authorities, and village associations working with NGOs. Each proposal should be accompanied by monitoring indicators and be subject to performance and financial audits. The OEM believed that to really enhance long-term protection, it is essential to consult and collaborate with villagers within and around PKK Park. They should be involved in sustainable park management activities that also provide supplementary income. B. Performance of the Operating Entity 52. The Asian financial crisis, especially the tenfold currency depreciation against the dollar, severely affected EdL’s financial performance. Since 1998, EdL accounts have been compiled with assistance of an international accountant who is conversant with international accounting standards and practices. In 1999, EdL adopted an FRP, designed with ADB and World Bank help, and approved by the Government. The FRP included the most critical action for financial recovery: approval of an increase in domestic retail tariffs for electricity by about 3.5%/month from January 1999, then to 2.3%/month from May 2002 to April 2005. Other significant measures included converting the EdL debt to the Government to equity, revaluing EdL’s fixed assets, and implementing payment arrears from government agencies. The FRP, asset revaluation, and other special transactions26 have helped make EdL more stable in recent years. Table 1 shows EdL’s recent financial ratios, indicating that full compliance with the covenants is within reach.

Table 1: EdL’s Key Financial Indicators

Audited Financial Results RRP Covenants 1998 1999 2000 2001 2002a

Accounts Receivable (no. of months) 3.0 3.9 2.5 3.8 3.3 — Self-Financing Ratio (%) min of 22% (34) (9) (33) (18) 38 Debt: Service Coverage Ratio min of 1.1 0.5 0.9 0.9 1.3 2.1 Debt: Equity Ratio max of 1.5 7.3 10.1 6.1 3.2 0.5

— = not available, EdL = Électricité du Laos, RRP = report and recommendation of the President. a Estimates provided by EdL. Source: Audited EdL financial statements. C. Financial and Economic Reevaluation 53. In calculating the FIRR for the 40-year life of the Project, the actual investment cost (total project cost, excluding interest during construction) was converted to 2003 prices (Appendix 6). The actual energy generated and the related tariffs were used in calculations to 2003. The financial and economic analyses were built on the model adopted at RRP and PCR, but improved approaches in two aspects: (i) energy generated by the Project, and (ii) export benefits attributable to the Project. Although actual energy generated in Nam Leuk in recent years has been higher than the long-term average of 215 GWh/year, the OEM conservatively assumed that from 2004 onward, the total energy generated would be 245 GWh/year.27 Because Nam Ngum was already providing electricity to the domestic and export markets at the time of project construction, the PPAR assumed that the additional energy generated would be fully exported through the central grid in its first years of operation. This would continue until the 26 The proceeds ($33 million) EdL received in 2002 from refinancing of the Theun-Hinboun Power Project were set off

against the Government’s outstanding liabilities to EdL. 27 This is based on a hydrology study done by the engineering consultants in 1995, and consists of 215 GWh from

Nam Leuk and 30 GWh from the augmentation of power supply in Nam Ngum.

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domestic market totally consumes the Nam Ngum energy generation, and Nam Leuk is also needed to supply the domestic market, thus reducing its export capacity. In contrast, the PCR assumed that a fixed proportion of Nam Leuk energy would be exported throughout its life. Export tariffs are based on the actual average export tariffs of the central grid. An annual nominal 5% increase was assumed from 2004 to 2009, settling at $0.0420 from 2010. On this basis, the FIRR was recalculated at 7.6% versus 3.1% in the PCR and 9.8% in the RRP. The discrepancy with the PCR is mainly due to (i) higher actual domestic tariffs for both historical and future operating periods, and (ii) the treatment of exports attributable to Nam Leuk. Discrepancies with the RRP are due to depreciation of the kip and lower tariffs in dollars. The FIRR is higher than the weighted average cost of capital, calculated at 2.8%. If the PCR assumption about exports were maintained, the FIRR at PPAR would be 7.2%. 54. The economic costs excluded interest during construction, taxes, and duties. Economic benefits were (i) revenue from electricity exports, as in the financial analysis; and (ii) cost savings and willingness-to-pay for the domestic supply. The treatment of the standard conversion factor (SCF) for PPAR costs differed from that in the PCR. In the PCR, total costs were converted using an SCF of 0.9. The PPAR believes that this is not correct, because most of those were foreign costs, valued at border prices. Only a few civil works and environmental mitigation costs were converted to border prices, using an SCF of 0.9. The PCR also—erroneously—included taxes. Based on these changes, the EIRR of the Project is 11.8% versus 10.5% in the PCR and 13.5% in the RRP. The RRP overestimate is because of higher assumed tariffs.

Table 2: Financial and Economic Rates of Return (%)

Item RRP PCR PPAR

FIRR 9.8 3.1 7.6 EIRR 13.5 10.5 11.8

EIRR = economic internal rate of return, FIRR = financial internal rate of return, PCR = project completion report, PPAR = project performance audit report, RRP = report and recommendation of the President. Source: Operations Evaluation Mission. D. Sustainability 55. The Project was developed for a long lifespan. Based on the hydrological analysis, the OEM was confident that the river flows will meet the long-term design flows. EdL has demonstrated its effectiveness and stability in operating large hydropower projects, thus assuring future performance of quality. The Project’s sustainability also depends on its O&M. EdL, despite pressures on its staff because of the rapid power development in the Lao PDR, has shown that it can maintain and operate the Project. But continuing this O&M level depends on training staff at all levels. All concerned parties agree that EdL can do this. But OEM could not find documentation that plans EdL’s long-term staffing requirements. The OEM does not question EdL’s ability to meet those staffing requirements, but raise the need for EdL to systematically plan for the use of human resources. On the other hand, unless PKK Park management is strengthened, its long-term sustainability is not assured.

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IV. ACHIEVEMENT OF DEVELOPMENT IMPACTS

A. Environmental and Social Impacts 56. A detailed project EIA was completed in November 1995, and a summary EIA was circulated to the ADB Board in April 1996. Project documents included arrangements for mitigation and compensation. During implementation, payments to the civil works contractor were stopped until he implemented appropriate environmental mitigation measures relating to construction. An imprest account was established to speed mitigation of impacts, but reportedly, was not used effectively. An environmental consultant was hired to implement mitigation measures during construction. 57. The Nam Leuk environmental completion report (ECR),28 covering from the start of construction in December 1996 to February 2002, is comprehensive. The ECR describes, in detail, environmental and social mitigation measures taken during construction and the first 2 years of operation. EMD of EdL established a good baseline of pre-project conditions, but did little follow-up monitoring of water quality and fisheries. Mitigation measures discussed in the ECR covered the careful efforts to minimize the impact of reservoir inundation, management of relocation and resettlement of the Nam Leuk villagers, inadequate monitoring of impacts on fish and water quality, and inadequate attention to conditions of the contractors’ worker camps. Also, the EMD successfully managed issues that arose due to crop damage. It appears that mitigation measures were managed more effectively until late 2001 because of the existence of a separate budget for mitigation work, ADB’s periodic review missions, advice of panel of experts, and the experience of the EdL’s environmental consultants.29 58. Area Adjacent to the Power Plant. During inspection of the area covering the power plant and related structures, as well as access roads, the OEM did not note disturbed areas or nonvegetated areas that were reported earlier in the ECR. The appearance of these sites seems to have improved because of rehabilitation and natural regrowth.30 The EIA draft did not envisage construction of a power transmission line from the powerhouse to the dam, but its impact has been allowing access to large vehicles to the PKK Park. The operators’ village is maintained well, and has adapted its original design to suit the Lao lifestyle, with small-scale poultry farms, vegetable gardens, and a fishpond. The operators’ village now uses water from an irrigation canal for its fishpond. Farmers from Kensang and Thamdin villages have had exclusive rights to this canal water since before the Project began.31 The ECR has noted that it may become a future source of conflict if local villagers also decide to use the water for alternative activities in the dry season. The OEM endorses the ECR recommendation to amicably negotiate water rights before it becomes an issue of confrontation.32

28 Prepared by international environment and social consultants based in the Lao PDR. 29 By focusing on internationally acceptable environmental and social outcomes, the consultants tried to ensure that

no irreversible damage was inflicted on the PKK Park during project construction. 30 But regrowth does not restore previous vegetation. It would have been better to restore the previous vegetation

through mitigation measures. 31 The irrigation canal was damaged by the contractor in March 1997. EdL replaced it with a permanent and higher-

quality canal during the 1999 cropping season. The canal was further improved in 2000. Compensation was paid in lieu of the lost harvest. The canal was again damaged during the 2003 rainy season. The villagers provided the barrels and EdL provided the technical expertise to repair the canal.

32 These villages comprise Hmong people—an ethnic minority in Vientiane Province—so negotiations between EdL and the villagers should comply with the ADB Policy on Indigenous People.

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59. Direct Benefits. The Project hired more than 16,000 person-months of unskilled local workers from the surrounding areas for about 3–6 months each to do pre-inundation work during the dry season, when there were few farm activities. The power plant also supplied electricity directly to the northern villages in 2000. But the southern villages did not receive electricity until April 2003, when the distribution network reached that area. Electricity has significantly improved the quality of life in surrounding villages, and enabled night-time work, especially for women who make handicrafts. EdL helped establish a school in one village, and provided substantial school supplies to Thangdeng village, where 10 families from Nam Leuk village had relocated. A medical worker manages the local health center, which is usually open once a week unless there is a specific demand for its services. 60. Resettlement. Resettlement of Nam Leuk families was, generally, considered successful. The OEM visited 15 of the 16 relocated families. Many families are far happier with their new life styles and facilities (Appendix 7). The improved hygienic conditions and availability of transport (to get to health facilities) have reportedly improved health conditions. All families have used compensation funds from EdL to buy new land and build new houses (Appendix 8). The relocated families seem satisfied that they had a choice of where to move. The 16 households have moved to five villages; most wanted to live near relatives. Some families have bought tractors and other assets, and now have access to electricity, water wells, and toilets. Most have used the new land and assets to develop income-generating activities. Several families indicated that improved water supplies will enhance income generation. But a few households have become vulnerable due to sickness, inadequate labor to work the land, and bad decisions in acquiring agricultural property.33 The Project is not responsible for these problems. These vulnerable households should be monitored periodically to determine if circumstances deteriorate further. The many positive impacts of the resettlement should be documented as good examples for similar projects. 61. Fish. The ECR noted that monitoring of the aquatic system, and fish and sediment, on the Nam Leuk, downstream from the dam, has been inadequate to detect impacts on water quality and fish populations. In fact, the ECR report showed that this monitoring declined substantially after 1999. An analysis of fish monitoring data34 indicates, “There is little doubt that the southern villages fishery has declined over the period December 1996 to December 2001.” But the report concluded that, despite circumstantial evidence that the Project has had a significant impact on fish, its true contribution to the problem cannot be quantified, considering the system’s complexity and the lack of monitoring data. Up to the OEM, no mitigation efforts on fish impact had been conducted under the Project. Residents of three of the southern villages that the OEM visited claimed that the fish harvest had declined dramatically, and they could no longer fish for a living. Those with sufficient funds have changed to raising livestock or maintaining fishponds. Some of those who found temporary work at the project site have used the income to start such alternative activities to generate income. But there has been neither a systematic effort to compensate for the loss of fish, nor to monitor how the villagers have coped, so some households lack alternative income sources and adequate protein. 62. Water Quality and Quantity. The possible impacts of the transbasin diversion of the Nam Leuk to the Nam Xan were identified in the EIA for the Project. Water quality was monitored during construction. According to the ECR, this monitoring was reduced substantially after 2001. But EdL has engaged the National University of Laos and an international fishery 33 In one case, the OEM was informed that the district (not the Project) had acquired part of the land bought by a

female-headed household. At the time of the OEM, no compensation is known to have been paid for that land. 34 Resource Management Research. 2002. Fisheries Monitoring Programme Review and Data Analysis Report.

Vientiane (completed by the environmental and social consultant in January 2002).

17

consultant to monitor water quality, mainly for Nam Mang 3, from October 2003 to January 2005. This monitoring includes the Nam Leuk reservoir and tailraces of the Nam Leuk and Nam Xan projects.35 Although extensive water analysis data are available, the OEM could not find a report that definitively addresses the water quality impacts of the Nam Leuk Project. 63. From general information and anecdotal reports, the OEM noted that the reservoir water shortly after impounding was toxic and smelled of sulphur when released from the depths to the atmosphere—mainly after passing through the powerhouse. The reservoir water also corroded concrete, iron, and steel products, including steel wire on the gabions in the tailrace. This was obviously due to biological decay in the reservoir and, probably, the lack of seasonal turnover. Immediate mitigation measures were provided for downstream effects by providing water dispensers and canned fish to the affected population. Subsequently, EdL developed water supply systems for the villages of Thamdin and Thaheua. Thamdin villagers report that damage to the system that EdL provided in 2000 resulted in insufficient water supply. 64. The OEM was informed of poor water quality in three of the southern villages visited. The villagers reported foul-smelling water and skin irritations, which they associated with use of Nam Leuk river water, particularly in the dry season. But whether these problems are attributable to the Project’s diversion of the Nam Leuk is not clear, as there is no water release from the Project toward the southern villages. Although identified in the social action plan, mitigation measures for reduced water flows in terms of functioning water pumps and standpipes actually came into effect only after April 2003 (more than 3 years after the dam closed). A private contractor supplied and installed water pumps, but they laid idle for about 8 months because of no electricity. Until April–May 2003, some villagers continued to use the poor-quality river water. Others walked long distances to get drinking water from a few hand pumps provided through a health and sanitation project that was not related to ADB. At OEM, two of the five water pumps provided for about 280 households in the three villages did not function, and another pump reportedly provided inadequate water flow because of faulty design. The electricity supply to the water pump in Phongyam village was disconnected, villagers had been able to use it for only about 2 months. 65. Compensation Flow. Hydrological studies conducted during the EIA indicated that during the dry season, Nam Leuk would be almost dry, with a discharge of only 0.2–0.5 m3/second, originating from underground flows and intermittent tributary flows. The EIA concluded that flows would probably improve during the dry season because of unavoidable leakage below the dam. Therefore, no compensatory flows were planned or provided. The OEM found no report to confirm the quality of expected flows downstream of the dam. Upon reviewing some data on leakage flow past the dam (the amount that is collected at the surface), the OEM noted that these flows are comparatively low, about 0.06 to 0.14 m3/second. But these flows are only part of the leakage past the dam, so these data alone cannot conclusively determine the downstream conditions.36 66. Mitigation Budget. The OEM agreed with the ECR that since the construction was completed, project-specific activities of the EMD of EdL appear to have been under-funded. There appears to be no dedicated EdL budget allocation for continued monitoring of the Project’s environmental and social impacts. Ad hoc arrangements for mitigation are made when problems cannot be avoided, or when funding from other projects is available. 35 The Nam Mang 3 Aquatic Ecology and Water Quality Monitoring Programme. 36 The quality of water for a riparian release would sometimes be low. Considering the risk of managing a riparian

outlet to avoid damaging downstream ecosystems, the environmental consultants recommended against downstream riparian releases.

18

B. Impact on Capacity Building and Institutional Development 67. EdL Staff Capacity Building. One of four principal project objectives was to strengthen EdL capabilities to prepare, design, and implement environmentally sustainable projects. The definition of this objective in the RRP was vague, and did not specify expected achievements. It appeared to be an “add-on” objective, with no specific goals, especially goals that could be monitored.37 There was no assessment of EdL’s needs, specific tasks, budget, or provisions for monitoring. There is little evidence of structured training. 68. The Project provided only nominal building of technical capacity, which was considered essential training. That included (i) training provided by the contractor on O&M of the equipment, (ii) training by the consultant engineer on station operation, and (iii) experience gained in project execution. But any operating authority in hydropower construction projects should take advantage of invaluable opportunities for experience in capacity building and technology transfer. Such training can expose staff to specialists and their skills at a reasonable cost. Such opportunities are seldom available. 69. There is neither an organization-wide capacity study for EdL, nor a needs assessment.38 Thus, there is no quantitative assessment, or baseline, of EdL’s strengths and weaknesses by which to monitor progress in capacity building. The OEM felt that a capacity study should have been a first step, if strengthening of EdL’s capabilities were to be a main objective. The study should define both the needs for—and indicators to monitor—capacity building achievements, both quantitatively and qualitatively. 70. The EMD of EdL was established in 1996 to coincide with project implementation. The initial staff of three had increased to eight by 2004. Five staff are professional engineers and two are forestry graduates. The staff have recently gained practical experience and training in environmental and social issues through nonproject-related assistance. But staff numbers and resources are insufficient to effectively implement environmental and social mitigation measures at all the power plants with the increased number of hydropower projects under EdL management. 71. Private Power Development. The Government has pursued private power development, particularly hydropower generation projects, for more than 15 years.39 But the lack of an effective policy and legal framework has hindered those efforts. Addressing the issues, the Ministry of Industries and Handicraft published a "power sector policy statement" in March 2001. This was followed by a workshop on Options for Power Sector Reform in November 2002, from which came a brief but comprehensive power sector policy implementation plan. The OEM found that key stakeholders, including the Government, ADB, and the World Bank, have accepted the plan and actively participate in actions for its implementation which, if followed, will speak well for private power development in the Lao PDR. 72. To strengthen institutional arrangements for private power development, the Government has created a Department of Electricity (DOE) within the Ministry of Industries and Handicraft. The Government and some stakeholders see this step as necessary and positive, 37 The terms of reference for the consultants included the scope of work for training in four lines. 38 Note that the OEM did not make an issue of whether there should be a capacity building study for EdL, although

any organization can benefit from an organizational study from time to time. 39 ADB. 2002. Project Performance Audit Report on the Theun-Hinboun Hydropower Project in the Lao People’s

Democratic Republic. Manila. This report shows the evaluation of one successful joint venture.

19

and OEM takes no issue with it. But this organization is parallel to EdL, and will compete for qualified staff in a country with limited resources. Thus, there are now two system planning offices in the same sector, with large overlapping interests in power development. This is an area of potential conflicts in the future development of an optimal power sector.

V. OVERALL ASSESSMENT A. Relevance 73. The key project objective was to generate hydropower energy for domestic consumption. The Project supported ADB’s operational strategy for the Lao PDR, and reflected the Government’s policy to increase foreign exchange earnings. Of four principal objectives, those of hydropower generation and support for optimal development of the power subsector were particularly relevant and well designed. But implementation plans, performance targets, and monitoring were inadequate for the other two objectives (capacity building and PKK Park management). Therefore, the Project is assessed as relevant. B. Efficacy 74. Despite construction problems, the acceleration program enabled the completion of project construction by October 1999—6 months behind schedule. In the first 3 years of operation, the Project exceeded its expected average long-term capacity for power generation. Thus, the Project achieved its objectives for power generation and support of optimal power development. Although EdL was disbursing the 1% of the estimated annual export revenue to the PKK Park authorities, the OEM believed that the goal of supporting ecotourism and village-based integrated conservation and development programs was not being achieved (para. 49). Little structured capacity building has been achieved. Based on the status of those objectives, the Project is assessed efficacious. C. Efficiency 75. Despite difficulties in implementation, project completion was not delayed substantially. Since commissioning, the power plant has operated efficiently with optimal power development. Costs incurred were within the project budget. The project FIRR is estimated as 7.6% and the EIRR, as 11.8%. Funds allocated to PKK Park management are not being used efficiently, but that can be corrected. The Project is assessed as efficient.40 D. Sustainability 76. The OEM is confident that the project hydrology is a reliable resource that will sustain the Project over its life. EdL has demonstrated that it can maintain and operate the Project with high efficacy. But the PKK Park is not sustainable as a national park. Immediate efforts should be made to channel the 1% funds more productively. Based on the high sustainability of the power generation objective, and the poor performance so far with the PKK Park objective, sustainability of the Project is assessed as likely.

40 Capacity building is not assessed in terms of efficiency and sustainability because expected tasks were not

specified.

20

E. Institutional Development and Other Impacts 77. The Project provided direct benefits in employment of many unskilled laborers during construction, and in providing electricity to villages near the power plant. Relocation of 16 families from Nam Leuk village was generally successful. Many families are far happier with lifestyles and facilities at their new location. But mitigation measures relating to reduced water quantity and quality, and impact on fisheries, have not been fully addressed. Water pumps and standpipes actually started functioning only after April 2003—more than 3 years after dam closing. Some installed pumps were not functioning at the time of OEM. Monitoring of water quality and fisheries has been inadequate. Thus, institutional developments and other impacts are assessed as moderate. F. Overall Project Rating 78. The Project is relevant, efficacious, and efficient, with likely sustainability. Its institutional development and other impacts have been moderate. Therefore, the Project is rated successful. G. Assessment of ADB and Borrower Performance 79. ADB performed well in project preparation, providing timely and effective TA for the pre-feasibility and feasibility studies, and arranging a loan from ADF. When problems began with the civil works contractor, ADB acted quickly and positively, fielding a high-level special review mission, initiating an acceleration program, and adding a specialist for construction management to the panel of experts. It took 3 months to negotiate who would pay for the acceleration program. 80. ADB fielded 15 missions during implementation. The composition of the missions varied according to need. Social and environmental specialists participated in two missions. ADB also appointed a panel of experts to oversee implementation of the environmental and social mitigation plan during construction. ADB suspended disbursements when environmental and social impacts became unmanageable. But this supervision and monitoring declined substantially after the power plant was built and the loan was closed. ADB’s performance is rated as satisfactory. 81. The Borrower and the EA performed well in enabling construction and maintenance of the power plant. But the EA awarded the major civil works contract without thoroughly reviewing the contractor’s resources and ability to meet the schedule and quality of work on environmental and social issues. The EA successfully contracted a capable consultant to implement the mitigation plans. But after plant completion, the EA was not diligent in monitoring and completing the mitigation measures. The EA was also unsuccessful in effectively implementing the PKK management plan in collaboration with the Implementing Agency. Performance of the Borrower and EA is, therefore, rated as partly satisfactory.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues 82. Power System Planning. In EdL, the power system plan is developed manually. In this age, EdL should be using computer models for such planning. But a power system development plan is being prepared within DOE, with World Bank funding. The computer models used for planning in that study, as well as training in their use, will be available to both DOE and EdL.

21

The EdL staff is aware of this study, and should take advantage of the availability of these models, and of the training.41 83. Monitoring and Mitigation. The OEM recommended further mitigation in affected villages to find ways to replace fishing opportunities that are no longer possible, and to improve the quality and quantity of water. This should be accompanied by a defined monitoring program. A systematic, participatory, and equitable approach should be used to find appropriate and sustainable activities to substitute for lost fishing opportunities. EdL should also evaluate the water supply of affected villages and ensure that adequate potable water is available. Malfunctioning water systems should be fixed immediately. 84. Construction. To address the problem of unrealistically low bids by noncapable contractors, the reenforcement of post-qualification evaluation of bids is recommended. The OEM does not recommend changes to principles and provisions in ADB guidelines. It considered prequalification and bidding procedures important steps in the bidding process, and that the guidelines serve the requirement well. But application of the guidelines could be improved. The OEM recommended that ADB engage both internal and external experts who are knowledgeable in international construction contracting to address the problems of awards to noncapable contractors because of low bids. B. Lessons Identified 85. Environmental and Social. Unfortunately, environmental and social impacts do not end when the power plant begins operation and the project loan closes. In fact, additional impacts often begin at this stage. Given the ADB guidelines and OEM findings, the allocation of about 0.5% of project revenues specifically to continue the environmental and social mitigation measures associated with a project is recommended for the first 10 years of operation. Management of the fund should be monitored periodically. 86. Performance Indicators. ADB and the Borrower should carefully consider “add-on” objectives when preparing RRPs. Generally, add-ons should not be stated as principal objectives. Also, any objective should clearly state performance indicators that can be measured and evaluated in terms of achievement, and they should be supported by a budget. C. Follow-Up Actions 87. Fish. The OEM endorsed the ECR recommendation that EdL monitor fishery resources, and that mitigation be carried out by December 2004 in the affected villages. A systematic, participatory, and equitable approach should be used to find sustainable activities to substitute for lost fishing opportunities. Implementation should be monitored for at least the first 5 years. 88. Water Quality. The EA should provide a technical assessment of current and future water quality in the Nam Leuk project area to complete the environmental and engineering assessments. The assessment should be initiated by February 2005 using current data and data that will become available during the Nam Mang 3 Aquatic Ecology and Water Quality Monitoring Program.

41 The OEM noted EdL’s lack of enthusiasm in participating in the development and use of this model. One reason

seems to be that previous models prepared by consultants have not been user friendly. An agreement should be reached regarding developing a user-friendly model applicable to EdL’s and DOE’s needs.

22

89. Water Supply. EdL should, by December 2004, evaluate the water supply conditions of the affected villages, and ensure the availability of adequate potable water as envisaged in the 1999 social action plan. Defective water systems and pumps should be fixed immediately. One or two persons in each village should be trained and given authority for management of the water supply. A liaison officer, who is easily accessible to the surrounding villages, should be identified to exchange information regarding emergencies that village water maintenance personnel cannot deal with. 90. Park Management. The OEM recommended an investigation by February 2005 by qualified experts to evaluate the impact of EdL funds and PKK activities on the PKK Park in the past 4 years. Available baseline data, species surveys, satellite imagery, and other relevant monitoring techniques can be used. A tripartite meeting should be held subsequently among ADB, EdL, and the PKK Park authorities to discuss future management of the 1% fund42 (para. 51). Selection of a suitable mechanism for managing this fund is crucial, not only for its effective future use, but also to determine appropriate management mechanisms for future hydropower projects in the Lao PDR. If an agreement cannot be reached, resolution at a higher level is warranted. 91. Plant Inspection. EdL should arrange for a competent consultant to regularly inspect the main dam, saddle dam, and related structures. Such inspections should stress preventive maintenance. The inspections should begin by December 2004, and their frequency should depend on the condition of the structures. EdL can determine details, in conjunction with the consultant.

42 The agreement should also consider that the 1% export revenue will cease as Nam Leuk starts supplying entirely

to the domestic market from 2006.

Appendix 1 23

Date ofLoan Project Approval

1. 65-LAO(SF) Vientiane Power Distribution 3,370,000 6 May 19712. 128-LAO(SF) Vientiane Power Distribution (supplementary) 1,350,100 3 May 19733. 501-LAO(SF) Vientiane Plain Rural Electrification 4,300,000 19 Dec 19804. 642-LAO(SF) Vientiane Plain Rural Electrification (phase II) 6,300,000 11 Oct 19835. 698-LAO(SF) Xeset Hydropower (TA loan) 1,000,000 23 Oct 19846. 846-LAO(SF) Xeset Hydropower 15,500,000 27 Oct 19877. 928-LAO(SF) Nam Ngum-Luang Prabang Power Transmission 11,000,000 6 Dec 19888. 1063-LAO(SF) Xeset Hydropower (supplementary) 3,000,000 11 Dec 19909. 1214-LAO(SF) Nam Song Hydropower Development 31,500,000 21 Dec 199210. 1308-LAO(SF) Nam Ngum-Luang Prabang Power Transmission 4,000,000 30 Aug 1994

(supplementary)11. 1329-LAO(SF) Theun-Hinboun Hydropower 60,000,000 8 Nov 1994

Total 141,320,100

SF = special fund, TA = technical assistance.

Source: Asian Development Bank.

POWER SECTOR LOANS APPROVED BY THE ASIAN DEVELOPMENT BANK TO THE

Amount($)

LAO PEOPLE'S DEMOCRATIC REPUBLIC

24 Appendix 2

ENGINEERING DETAILS REGARDING PROJECT FORMULATION, DESIGN, AND TESTING A. Project Formulation Details 1. Development of the Nam Leuk Hydropower Project was first investigated in a pre-feasibility study completed in December 1990, and was then confirmed in a 1993 feasibility study. The Project is a transbasin diversion utilizing the head difference of about 180 meters (m) between the Nam Leuk and the Nam Xan rivers. The geography of the project area dictated the location of the powerhouse and power tunnel; the diversion of the river and location of the powerhouse was set at the point where the two rivers are closest. The site selection, general layout, and approximate dimensions of the components of the preferred scheme were adopted after evaluation of a number of alternatives for the dam site, and evaluation of the maximum water level of the reservoir. 2. Seven possible dam sites were investigated along the river from the power tunnel intake to 20 kilometers downstream. According to the environmental impact assessment at the time of the feasibility study, construction of a dam at any of the sites would have the same environmental impacts. Thus, the final site selection was determined after a comparison of the geological conditions, costs , and benefits for each site. The dam site selected was about 10 kilometers downstream of the intake. The environmental impact assessment concluded that, “Overall, the reservoir is of small size, the reservoir will flood no more than 15 km2 out of a watershed area of 274 km2. This will limit the extent of the environmental impacts. Considering the considerable benefits, which will accrue to the country as a whole and the adjacent community, it is recommended that the project proceed with the environmental safeguards that have been outlined in the report.” 3. There is no report in the feasibility study that an underground powerhouse was investigated for economic or for environmental considerations. But considering the rock conditions that were found at the tunnel and at the dam site, selection of the surface powerhouse was most appropriate. 4. Supplementary sites were recommended in the feasibility study. These 1993 investigations confirmed the feasibility of the Project. The engineering design and tender documents were then completed in December 1995. 5. During the supplementary site investigations, it was determined that further environmental work was necessary. The objective of this work was threefold: (i) to gather additional information and undertake an analysis to confirm earlier findings that the Project could be undertaken without unacceptable impacts on biological resources and social conditions; (ii) to revise the project design so it would improve protection and management of the Phou Khao Khouay National Biodiversity Conservation Area; and (iii) to hold public consultations with people living in the area covered by the Project, to ensure their participation and support. 6. At project preparation, the feasibility study and engineering design substantiated (i) the technical feasibility of the Project, (ii) its economics and cost, (iii) environmental impacts and necessary mitigation measures, and (iv) making a decision to implement the Project. Thus, the preparation and submission of the report and recommendation of the President in July 1996 was appropriate and timely.

Appendix 2 25

B. Magnitude of Design and Construction Technology 7. From review of the documents and site inspection of the project structures, the Operations Evaluation Mission concluded that the Project’s engineering design was appropriate. 8. The sizes of the major structures and equipment (Table A2.1) were well within the experience of the designer and the contractors. There were no new, unproven technologies or abnormal features to deal with. Therefore, construction was expected to proceed normally. State-of-the-art technologies were used for instrumentation and control equipment, where technology is always advancing. 9. Table A2.1 shows the size of the major structures and the magnitude of technology needed for their design and construction.

Table A2.1: Magnitude of Technology Needed for Design and Construction of Major Structures

Size of Major Project Components

Relative Size for Hydropower

Projects

Magnitude of Technology for Design

and Construction Large Dam (51.5 m high rock fill) High Head (191.6 m) Tunnel (3.5 to 4.9 m diameter) Penstock (3.4 m diameter) Generating Units (2 x 30 MW)

Large High Head Nominal Nominal Medium Capacity

Normal Normal Normal Normal Normal: Standard Design

m = meter, MW = megawatt. Source: Électricité du Laos. 2000. Nam Leuk Hydropower Completion Report. 10. Several design modifications during construction required extra work, and increased project costs. Two major design problems were:

(i) During excavation of the dam foundation in the riverbed, a soft clay layer, 30–50 centimeter thick, was identified, continuous across the excavation. Because of this unforeseen geological condition, the engineer had to adjust the design for the rock fill dam. Furthermore, when the excavation of the spillway was cleaned during the 1998 wet season, soft clay layers were found in the foundation of the spillway, threatening the structure’s overall stability. The spillway structure was then redesigned, with special foundation treatment. Special riser berms of fill, 100 m wide and 18 m high, were provided on the upstream and downstream of the dam for stability. The final designs of the structures meet international standards of safety, and are appropriate for the site conditions.

(ii) During excavation of the power tunnel, some of the rock mucking exposed to the open air outside the tunnel had disintegrated within a relatively short time, indicating that the rock was weaker than anticipated during design. Originally, the tunnel was to be mostly lined with shotcrete with only 400 m lined with reinforced or unreinforced concrete. After closer inspection of the tunnel and tests of the different rock types, the engineer recommended that the entire length of the tunnel be lined with concrete.

11. The problems arose from these unforeseen geological conditions. Why these conditions were not discovered in the original field investigations is not known. However, what transpired is

26 Appendix 2

not unusual in large dam and tunnel construction. The more important point is that the engineer responded to the situations and redesigned the structures, practically and in accordance with good international practice. C. Results of Commissioning and Performance Testing 12. Field stage tests of equipment were conducted during the erection of the equipment. Specialists of the equipment contractors were brought to the site during the commissioning and performance tests. Tests were:

(i) Dry tests, which are mostly electrical tests for excitation, control systems, protection, and governing of the units, started in September 1999 before completion of the civil works. Dry tests were completed in December 1999. But completion of the entire project was postponed due to the delay in the tunnel because of the need for the concrete lining. Also, the transmission line from Nam Ngum (essential to energize the Nam Leuk bus for power operation of the units) was not completed until 7 February 2000.

(ii) Start of wet tests for the first run of the units was delayed until 28 January 2000. (iii) Commissioning was completed in March 2000, and reliability test runs were

carried out on both units from 1 April to 2 May 2000. No major problems occurred on the two units during that time.

13. As expected, there were a number of problems during commissioning with synchronization, control systems, balancing of the units, water treatment, bypass valves on the turbine guard valves, and hydraulic controls for the intake and bottom outlet gates. These faults were corrected as part of the commissioning and acceptance procedures.

Local Distribution

Luangprabang Substation

Paksane Substation

Local Distribution

Xiengkhuang Substation

Bunkane Substation

Phonthong Substation

LAO PDR

THAILAND

Nonghai Substation/ Oudone Substation

Substation

Generating Station

115 kilovolts (kV) Transmission Line

22 kV and 34.5 kV Lines

Distribution System

Legend

Local Distribution

Vientiane

G

G

G

G

G

SS

SS

SS

SS

SS

SS

SS

Appendix 3 27

ELECTRICITE DU LAOS’ CENTRAL GRID SYSTEM

Schematic Diagram

28 Appendix 4

PROJECT COST DATA

Table A4.1: Estimated and Actual Project Costs ($ million)

Item RRP PCR PPAR Construction Costs Civil Works 49.0 54.7 54.9 Hydromechanical 16.4 11.4 11.3 Electrical Equipment 14.4 14.2 14.2 Transmission Line 7.4 8.5 8.5 Subtotal 87.2 88.8 88.9 Project Management Costs Mitigation Measures 1.1 1.6 1.6 Engineering Contract 6.7 9.4 9.3 Project Management Unit 0.0 0.0 0.5 Subtotal 95.0 99.8 100.3 Service Charges and IDC 12.5 7.9 10.9 Local Taxesa 5.1 0.0 0.0 Total Project Cost 112.6 107.7 111.2

IDC = interest during construction, PCR = project completion report, PPAR = project performance audit report, RRP = report and recommendation of the President. a In the project performance audit report, any local taxes would be included in the contract price

and not identified separately in the contracts. Sources: Asian Development Bank and Électricité du Laos.

Appendix 4 29

A. Civil Works Contract C1Original Contract Amount 35.981. Costs "Bonuses" for the Acceleration Agreement

a. Increased/Improved Road Building Plant and Resources 1.33b. Increased/Improved Plant at Dam Site 1.30c. Increased/Improved Plant, Resources at Powerhouse, and Tunnel 0.33

2. Variation Ordersa. Additional Facilities for Engineer and EdL, Upgrade and Maintain Roads,

Maintenance of Recruitment Center, Additional Environment and SafetyImprovements, Upgrade Operator's Village 3.10

3. Claims for Unforeseen Conditionsa. Additional Excavation due to Presence of Clay Seams under Riverbed,

Additional Clearing of Overburden at the Quarry and Borrow Site 2.33b. Additional Excavations at the Spillway, Stilling Basin, Addition of

Riser Beams and Filter Blankets at the Dam, and Tunnel Lining 0.654. Bill of Quantities Overrun

a. Headrace Tunnel Lininga 1.03b. Dam and Spillwayb 5.76c. Valve Chamber and Penstock 0.50Final Contract Amount 54.87 52

B. Hydromechanical Contract H2Original Contract Amount 12.761. Variation Orders

a. Motorize Guard Valve, Repair Damages by Others 0.172. Claims

a. Delays for Penstock Erection and Tunnel Filling and Commissioning 0.25Final Contract Amount 11.32 (11)

C. Electrical Contract E3Original Contract Amount 15.531. Variation Orders

a. Provide Smaller Crane (cost savings)b. Additional Concrete Blocks for Future Lines from Nam Leukc. Additional Minor Equipment and Modifications to Direct Current

Equipment, Current Transformer for Local Transformer, Lights for Dam,Reroute Cables at Penstock, Additional 22 kV Cable for LocalDistribution 0.05

2. Claims for Delaysa. Late Handover of Working Areas by Civil Contractor 0.25Final Contract Amount 14.23 (8)

EdL = Électricité du Laos, kV = kilovolt.Note: Original contract amount plus cost overruns do not equal final contract amount because of variations in exchange

rates and other factors.a The excavation of the power tunnel showed a weaker behavior of the rock than anticipated during detailed design.

Originally, the tunnel was to be mostly lined with shotcrete with only 400 meters to be lined with reinforced or unreinforced concrete. After the tests and inspection of the tunnel for rock types, the engineer recommended that the tunnel be concrete lined over its entire length, which is about 2,000 meters.

b During excavation of the dam foundation in the riverbed, a continuous soft clay layer, 30–50 centimeters, was identifiedcontinuous across the excavation. This unforeseen geological condition led the engineer to adjust the design andprovide special foundation treatment for the rockfill dam and the spillway. The final design of the structures meetsinternational standards of safety and are appropriate for the site conditions.

($ million)AmountItem

Table A4.2: Cost Overrun Details

Increase from

Amount (%)Original Contract

30 Appendix 4

Item

D. Transmission Line Contract T4Original Contract Amount 9.631. Negotiated Price

a. Construction of Transmission Linec to Nam Ngum and Changes to Lineto Paksane Negotiated at Time of Award and Included in OriginalContract Price 1.62

2. Variation Ordersa. Additional Equipment and Modifications to Original Equipmentb. Downleads at Substation, Additional Concrete at the Office Building,

Swinging Doors, Repair of Damaged Counterpose 0.073. Claims

a. Late Advance Payment for Acceleration, Disruption for Cutting Trees,Benching at Pylons, 22-kV Crossings, Work in Floodplains,Reimbursement of Local Taxes, Negotiated Settlement of Claims 0.48

Final Contract Amount 8.54 (11)

E. Consulting ServicesOriginal Contract Amount 6.031. Variation Orders

a. Additional Supervisory, Engineering, and Expert Personnel to WorkDirectly with the C1 Contractor for Additional Design and EngineeringWork Associated with the Acceleration and Deficiencies of the CivilWorks Contractor

b. Provision of Advisors for the Environmental Unit and National Park 3.50Final Contract Amount 9.53 58

F. Environmental Management PlanOriginal Contract Amount 1.061. Cost Increases

a. Biomass Clearance (60%), Ban Nam Leuk Relocation (21%),Community Development (6%), Consulting Services (4%), FisherySurveys and Intendification Studies (4%), and the Phou Khao Khouay 0.57Staff Equipment (3%)

Final Contract Amount 1.63 54c The original transmission line at time of project approval was a double circuit 115-kV line from Nam Leuk to Paksane

with interconnection to the Thai system. The cost overrun relates to the decision to construct a single circuit 115-kVtransmission line to Nam Ngum and a single circuit line to Paksane, instead of the double circuit line to Paksane. Thisbecame necessary because Thailand postponed the 115 kV connection with Paksane (eventually connected). Thischange arose after the bids were received for the double circuit line to Paksane, but before award of contract. Thus, thecontract changes were negotiated. At the time of project approval, the sale of power should have been secured, say bya formal agreement with the Electricity Generating Authority of Thailand.

Sources: Électricité du Laos and Operations Evaluation Mission.

Amount (%)Amount

Table A4.2: Cost Overrun Details—Continued

Increase fromOriginal Contract

($ million)

Appendix 5 31

STATUS OF COMPLIANCE WITH KEY CONDITIONS AND COVENANTS Item As per PCR As per PPAR

1. The Électricité du Laos (EdL) will increase the average tariff by 20% annually from FY1996 through 2000.

Not complied with in 1996 to 1998. The average tariff in 1999 was KN113.4/kilowatt-hour (kWh); in 2000, the average tariff was KN169.0/kWh—a 49.1% increase. During the first 6 months of 2001, the tariff increased to KN224.2/kWh, or 32.6%. But in dollar value, the 1999 increase was $0.0149/kWh; the 2000 increase was $0.0205/kWh, or 37.0%; and the 2001 increase was $0.0258/kWh, or 26.0%. The 2001 tariff was still below cost recovery.

Partly complied with. Tariffs were increased 3.5%/month from January 1999, and are being increased 2.3%/month from May 2002 to April 2005.

2. EdL will ensure that the following conditions are met: (i) a debt: service ratio of at least 1: 1. Not fully complied with. Based on unaudited

financial statements, the debt service coverage ratio (DSCR) was 0.92: 1 in 2001, based on operating income. The EdL financial forecast shows negative operating results for 2001–2004. In 2005, the planned DSCR is 1.01: 1.

Complied with

(ii) a debt: equity ratio of at least 60: 40. Not complied with. The debt: equity ratio for 2000 was 85: 15.

Complied with

(iii) internal fund generation to self-finance at least 20% of average annual capital expenditure based on the previous, current, and following financial years.

Not complied with. The average sales tariff after the first 6 months of 2001 was lower than the import tariff and average generation cost of EdL.

Complied with

3. EdL will, by 31 December 1996, reduce and maintain its accounts receivable for domestic electricity sales at the equivalent of 3 months or less of sales.

Not fully complied with. The actual accounts receivable for FY2000 was 3.8 months.

Not complied with. Accounts receivable were up to 5–6 months at the time of the Operations Evaluation Mission.

4. EdL will progressively reduce distribution losses in its domestic network to 21% by December 1996, 20% by December 1998, 19% by December 1999, and 18% by December 2000.

Complied with. Distribution losses were: 1998 = 18.5%, 1999 = 18.6%, 2000 = 18.6%, 2001 = 18.4%.

Complied with

PCR = project completion report, PPAR = project performance audit report.

32 Appendix 5

Item As per PCR As per PPAR

5. EdL, as the Executing Agency, will be responsible for

implementing the Project. The general manager of EdL will be responsible for overall management of the Project. The day-to-day implementation of all components of the Project other than the protected area management component will be carried out by a project team established for this purpose, headed by a project manager under the supervision of the deputy general manager for projects of EdL. For the protected area management component of the Project, the Ministry of Agriculture and Cooperatives, through its Department of Forestry, will be the Implementing Agency responsible for day-to-day implementation during construction and operation of the project facilities.

Complied with Complied with

6. EdL and the Government will ensure that the mitigation measures identified by the consultants during the feasibility study and the environmental impact assessment study are implemented to the satisfaction of the Asian Development Bank (ADB), and that ADB’s Environmental Guidelines for Selected Industrial and Power Development Project are observed during implementation and operation of the Project.

Not reported Partly complied with

7. The Government will ensure that the management plan for Phou Khao Khouay is revised and implemented to ADB’s satisfaction. To finance implementation of the management plan, the Government will establish a fund with revenues from electricity sales.

Complied with Complied with

8. The Government and EdL will ensure that people losing land that is required permanently for the Project are compensated in the form of comparable alternative land sites and monetary compensation for any loss of crop production. For the land that is required for project construction, the Government and EdL will ensure that compensation is made to people

Not reported Complied with

Appendix 5 33

Item As per PCR As per PPAR

who temporarily lose the use of such land and for

crop losses during construction, and that the land is rehabilitated and restored and returned to the same people after completion of construction.

9. The Government and EdL will ensure that a consultative committee be established during implementation of the environmental management plan, and be maintained for 5 years to provide a mechanism for dialogue between villagers and project representatives.

Complied with Complied with

10. EdL will ensure that local communities are involved in the Project, particularly in the selection of construction labor, and that facilities and services provided to workers such as community school and health center are made available to residents in the communities nearby and are maintained after the completion of the Project.

Complied with Complied with

Source: Asian Development Bank.

34 Appendix 6

ECONOMIC AND FINANCIAL EVALUATION A. Methodology Used 1. The financial and economic analysis of the Nam Leuk Hydropower Project (the Project) is carried out for its expected life of 40 years or more. Power generated from the Project is fed to the central grid power system and is the basis for exports and domestic consumption derived from it (Appendix 3). The central grid comprises the interconnection of several plant facilities together with that of Thailand to allow both the export and import of power. The financial and economic analysis of the Project builds upon the model adopted in the report and recommendation of the President (RRP) and the project completion report (PCR) but with different approaches on two major aspects: (i) energy generation by the Project (para. 3), and (ii) export benefits attributable to the Project (para. 5). The main parameters used in the analysis are discussed below. 2. Using actual project costs and currency conversions at actual rates from 1997 to 2001, the Project’s investment cost (total project costs without interest during construction and loan service charges) was established at $100.3 million in the financial analysis and $90.3 in the economic analysis, at constant 2003 prices. 3. The financial internal rate of return (FIRR) and the economic internal rate of return (EIRR) are calculated in US dollars, because most of the costs, and much of the revenues, are in dollars. The values are converted to 2003 constant prices using the World Bank manufacturers’ unit value index. At the time of the project performance audit report (PPAR), the Project had operated for 4 years, from 2000 to 2003. Data from the Électricité du Laos (EdL) during this period on energy generation, water availability, and domestic and export energy sales show that actual energy generation was higher than the long-term average of 230 gigawatt-hour (GWh)/year at Nam Leuk assumed at PCR. A review of the Project’s 1995 hydrology study, conducted in the detailed design stage by engineering consultants, shows that there is not enough water to generate 230 GWh of energy at Nam Leuk. Therefore, the Operations Evaluation Mission (OEM) maintained that for 2005 and beyond, Nam Leuk’s long-term average generation should remain at 215 GWh/year. Assuming that an additional average annual output of 30 GWh at the Nam Ngum power plant results from the additional water from Nam Leuk, the total project benefit is 245 GWh/year. 4. Transmission losses were assumed at 3.6% in 2000, then gradually decreasing to 3.5% in 2001, and finally settling at 1.0% in 2003 and after. This is lower than the PCR estimates, and is based on OEM verification of actual data. Based on actual operational data, the distribution loss, representing the percentage of energy received at substations plus the local energy supply, was set at 22.2% in 2000 and 19.2% in 2003. Transmission losses are projected to decrease to 16.5% in 2004 and settle down to 12% by 2020. The operation and maintenance cost is assumed to be 1% of the total construction cost, with a small provision for annual environmental mitigation costs. 5. Export tariffs for 2000 to 2003 are based on the average actual export tariffs set at Nam Ngum for the peak, partial peak, and off-peak periods. An annual nominal increase of 5% was assumed from 2004 to 2009, then settling at $0.0420 from 2010 onward. Actual domestic tariffs for 2000 to 2003 were obtained from the average tariffs of the different consumer classification groups comprising residential, business, government, irrigation, entertainment, embassies, and industry. Nominal tariffs were expected to increase 2.3%/month per the EdL financial recovery program to take depreciation of the kip into account.

Appendix 6 35

6. In the PCR, it was assumed that Nam Leuk’s share of exports is always a fixed proportion of total exports from the central grid. This was not the approach taken in the PPAR (para. 10). The PPAR assumed that Nam Leuk would provide its total capacity to the export market until the electricity is needed for domestic use, when domestic demand totally consumes the energy generated at Nam Ngum. Nam Leuk exports are also assumed to cease in 2007 as the growing domestic load consumes all of the energy it generates. B. Results 7. Based on the above, the FIRR of the Project at PPAR is recalculated at 7.6% (Table A6.1) compared with 3.1% at PCR and 9.8% at appraisal. The discrepancy with the PCR is mainly due to higher actual domestic tariffs for 2000 to 2003, and higher exports attributed to Nam Leuk.

Year

1997 12.738 0 0.0 0.000 0.000 0.0000 0.000 0.000 (12.738)1998 25.914 0 0.0 0.000 0.000 0.0000 0.000 0.000 (25.914)1999 33.756 0 0.0 0.000 0.000 0.0000 0.000 0.000 (33.756)2000 19.645 286.600 276.3 0.029 7.988 0.000 0.0213 0.000 7.988 (11.657)2001 4.241 262.800 253.6 0.028 7.118 0.000 0.0280 0.000 7.118 2.8772002 0.994 243.800 238.6 0.030 7.045 0.000 0.0323 0.000 7.045 6.0512003 0.955 256.700 254.0 0.029 7.345 0.000 0.0381 0.000 7.345 6.3902004 0.959 245.000 242.5 0.030 7.385 0.000 0.0511 0.000 7.385 6.4262005 0.944 245.000 242.5 0.032 7.676 0.000 0.0617 0.000 7.676 6.7312006 2.208 245.000 130.9 0.033 4.308 94.241 0.0622 5.860 10.168 7.9602007 3.760 245.000 0.0 0.034 0.000 205.357 0.0622 12.769 12.769 9.0092008 3.808 245.000 0.0 0.035 0.000 205.842 0.0622 12.799 12.799 8.9912009 3.881 245.000 0.0 0.037 0.000 206.569 0.0622 12.845 12.845 8.9632010 3.889 245.000 0.0 0.040 0.000 207.054 0.0595 12.317 12.317 8.4282011 3.769 245.000 0.0 0.040 0.000 207.539 0.0595 12.346 12.346 8.5772012 3.779 245.000 0.0 0.040 0.000 208.266 0.0595 12.389 12.389 8.6102013 3.786 245.000 0.0 0.040 0.000 208.751 0.0595 12.418 12.418 8.6322014 3.705 245.000 0.0 0.040 0.000 202.932 0.0595 12.072 12.072 8.3672015 3.639 245.000 0.0 0.036 0.000 209.963 0.0569 11.952 11.952 8.3132016 3.648 245.000 0.0 0.036 0.000 210.691 0.0569 11.993 11.993 8.3452017 3.655 245.000 0.0 0.036 0.000 211.176 0.0569 12.021 12.021 8.3662018 3.664 245.000 0.0 0.036 0.000 211.903 0.0569 12.062 12.062 8.3982019 3.671 245.000 0.0 0.036 0.000 212.388 0.0569 12.090 12.090 8.4192020 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512021 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512022 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512023 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512024 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512025 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512026 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512027 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512028 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512029 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512030 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512031 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512032 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512033 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512034 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512035 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512036 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512037 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512038 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512039 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.4512040 3.680 245.000 0.0 0.036 0.000 213.115 0.0569 12.131 12.131 8.451

FIRR = 7.63%

FIRR = financial internal rate of return, GWh = gigawatt-hour, kWh = kilowatt-hour.a Includes capital costs, operation and maintenance, and distribution costs.Source: Operations Evaluation Mission.

Cash Flow(kWh) Tariffs Revenues Revenues

Table A6.1: Financial Internal Rate of Return($ million)

NetTotalDomesticDomesticTotalCosta

Total Generation(GWh)

Export(GWh)

ExportTariff

ExportRevenues

Domestic Sales

36 Appendix 6

Appendix 6 37

8. The EIRR of the Project is 11.8% (Table A6.2) compared with 10.5% at PCR and 13.5% in RRP. The total economic investment cost in the PCR was derived by multiplying all components of the capital costs by the standard conversion factor of 0.9. The OEM did not consider that correct, because most of those costs are foreign and valued at border prices. Only a small portion of the civil works and environmental and mitigation measures pertaining to local costs were converted to border prices by using the standard conversion factor of 0.9. Taxes were also excluded to derive the economic investment cost at OEM. 9. Diverted and generated market benefits were determined by maintaining the assumptions at PCR. Five percent of domestic consumption was assumed to have replaced energy previously used from other sources.1 The remaining 95% was assumed to be induced by the Project. To determine cost savings for the diverted market, the economic cost of using alternative energy sources were considered, including small kerosene or diesel lamps for lighting, car batteries for televisions, dry cell batteries for lighting and radios, and small diesel generators for most household and many commercial activities. The generated market was valued at willingness to pay.

1 Data from the most recent power project in the Northern Area Rural Power Distribution Project were used to

determine the replacement portion of the energy for households and non-households.

NetYear Cash

Flow1997 12.672 0.000 12.672 0.000 0.0 0.000 0.000 0.000 0.000 0.000 (12.672)1998 25.781 0.000 25.781 0.000 0.0 0.000 0.000 0.000 0.000 0.000 (25.781)1999 33.618 0.000 33.618 0.000 0.0 0.000 0.000 0.000 0.000 0.000 (33.618)2000 18.606 0.903 19.509 286.600 10.289 100.0 276.311 7.988 22.2 0.000 0.012 0.000 0.000 (11.534)2001 3.267 0.915 4.182 262.800 9.198 100.0 253.602 7.118 20.4 0.000 0.012 0.000 0.000 2.9232002 0.944 0.944 243.800 5.217 100.0 238.583 7.045 21.9 0.000 0.013 0.000 0.000 6.0882003 0.907 0.907 256.700 2.670 100.0 254.030 7.345 19.2 0.000 0.013 0.000 0.000 6.4252004 0.911 0.911 245.000 2.548 100.0 242.452 7.385 16.5 0.000 0.013 0.000 0.000 6.4612005 0.897 0.897 245.000 2.548 100.0 242.452 7.676 15.8 0.000 0.013 0.000 0.000 6.7662006 0.897 0.897 245.000 2.548 54.0 130.924 4.308 15.5 94.241 0.013 0.506 7.757 11.6612007 0.897 0.897 245.000 2.548 0.0 0.000 0.000 15.3 205.357 0.014 1.104 16.902 17.0952008 0.897 0.897 245.000 2.548 0.0 0.000 0.000 15.1 205.842 0.014 1.106 16.942 17.1372009 0.897 0.897 245.000 2.548 0.0 0.000 0.000 14.8 206.569 0.014 1.110 17.002 17.2012010 0.897 0.897 245.000 2.548 0.0 0.000 0.000 14.6 207.054 0.014 1.141 16.777 17.0062011 0.897 0.897 245.000 2.548 0.0 0.000 0.000 14.4 207.539 0.014 1.143 16.816 17.0492012 0.897 0.897 245.000 2.548 0.0 0.000 0.000 14.1 208.266 0.014 1.147 16.875 17.1122013 0.897 0.897 245.000 2.548 0.0 0.000 0.000 13.9 208.751 0.014 1.150 16.915 17.1542014 0.897 0.897 245.000 2.548 0.0 0.000 0.000 13.6 209.479 0.014 1.118 16.443 16.6502015 0.897 0.897 245.000 2.548 0.0 0.000 0.000 13.4 209.963 0.013 1.184 16.757 17.0302016 0.897 0.897 245.000 2.548 0.0 0.000 0.000 13.1 210.691 0.013 1.188 16.815 17.0922017 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.9 211.176 0.013 1.190 16.854 17.1342018 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.6 211.903 0.013 1.194 16.912 17.1962019 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.4 212.388 0.013 1.197 16.950 17.2372020 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002021 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002022 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002023 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002024 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002025 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002026 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002027 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002028 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002029 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002030 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002031 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002032 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002033 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002034 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002035 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002036 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002037 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002038 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002039 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.3002040 0.897 0.897 245.000 2.548 0.0 0.000 0.000 12.1 213.115 0.013 1.201 17.009 17.300

EIRR 11.77%EIRR = economic internal rate of return, GWh = gigawatt-hour, O&M = operation and maintenance.Source: Operations Evaluation Mission.

($ million)

DistributionTotal Transmission Export Export Distribution Domestic Cost

Losses Share Supply ExportInvestment O&M Total Generation(%)

Losses Supply (constant(GWh) (%) (GWh) RevenuesCost Cost Cost (GWh)

38 Appendix 6(GWh) 2003) Benefits Benefits

MarketMarketDiverted Generated

Table A6.2: Economic Internal Rate of Return

Appendix 6 39

C. Justification for the Methodology Used in the PPAR 10. Figure A6.1 shows the EdL generation planning for the domestic load for the Lao People’s Democratic Republic (Lao PDR).2 The energy supply for Nam Leuk is superimposed on the EdL graph. 11. In the economic and financial evaluation of the Project, the OEM took a different approach on several criteria than that of the PCR and the RRP. The major issues were (i) how much energy to expect the Project to generate each year, and (ii) the export benefits that can be attributed to the Project. Those two issues are discussed below:

(i) In the economic and financial analysis of the PCR, Appendix 17.1, the long-term average generation at Nam Leuk is 230 GWh/year, and additional generation at Nam Ngum is 27 GWh/year. The 230 GWh/year for Nam Leuk is higher than the energy supply, as determined by the consultants’ original 1995 detailed design hydrology study.3 That study indicated that the long-term average generation at Nam Ngum would be about 215 GWh/year and the additional generation, about 30 GWh. This was a detailed hydrology study, conducted specifically for the Nam Leuk Project, that established water availability for the Project. The capacity of the generating station, 60 megawatts, was also established on the basis of the study. The explanation for the increased energy as provided in Appendix 17, para. C.1.7 in the PCR is that, "This (230 GWh/year) is in line with projections by the plant operation department of EdL up to 2005." A footnote adds, "The water discharged by Nam Leuk into the Nam Ngum reservoir enabled Nam Ngum hydropower station to produce additional electric energy, which according to calculations…has been projected at 27.0 GWh per year…" No analysis or reference to an analysis is provided for the study indicating the higher generation value at Nam Leuk. It is also noted that the RRP used generation values of 215 GWh/year and 30 GWh/year for its studies. For this PPAR, the long-term energy values of 215 GWh and 30 GWh/year were selected for the analysis.

(ii) In the PCR, all projects connected to the grid are considered to contribute energy to the grid, which supplies both domestic demand and export surplus energy. Export benefits are accrued in proportion to energy supplied to the grid. Thus, the Nam Leuk Project accrues benefits for export energy over the life of the Project. In this PPAR, the Project is considered to be brought on line to meet increasing domestic demand. As long as domestic demand is low, the Project can supply surplus energy to export. But when the domestic load fully consumes the Project’s capacity, it will no longer accrue the export benefits. This approach to the analysis is in Figure A6.1, where the shaded areas indicate Nam Leuk’s energy contribution to the system. The dark shaded area indicates the domestic supply and the light shaded area, the surplus export supply.

2 This graph, prepared by EdL, shows the planning for the entire Lao PDR, not just the central grid. But conditions

indicated on the graph apply to the central grid because it is so much larger than the other grids, and dominates planning considerations.

3 Consultant report for the study financed under ADB. 1992. Nam Song Hydropower Development Project. Manila (Loan 1214-LAO[SF], for $31.5 million, approved on 21 December 1992).

40 Appendix 6

Appendix 7 41

SUMMARY OF FINDINGS FROM FIELD VISITS TO THE VILLAGES SURROUNDING THE NAM LEUK HYDROPOWER PROJECT

A. Focus Group Discussions in the Northern Villages 1. Ban1 Kengsan. This village was established 20 years ago and now comprises 70 households. Two families from Ban Nam Leuk have moved to Ban Kengsan. More than 80% of the population worked with the Nam Leuk Hydropower Project (the Project) during construction. Workers earned about $3/day.

B = Ban (village), NN = Nam Ngum. 2. The Électricité du Laos (EdL) renovated the village irrigation scheme, which was damaged by the Project. As the villagers could not cultivate rice during project construction, EdL compensated them for 3 years, based on previous yearly production. After project completion in 2000, rice production and yields returned to normal. Strong rains recently damaged the irrigation canal. It was repaired with the help of EdL technical staff. There is not enough irrigation water to enable villagers to grow a second rice crop in the dry season. Therefore, the plant operators’ village use canal water for fishponds during the dry season. 3. Deep wells dug by the villagers provide water. They believe the scarcity of water in the dry season is caused by forest depletion. The villagers have proposed to the district that a water supply system be built, but funds are not available. 4. Before electricity came in 2000, the villagers used lanterns, which consumed 5 liters of kerosene/month at KN3,000/liter. Electricity brought several benefits: women can embroider, children can study at night, and all can watch television. Children go to school regularly. There are a few permanent teachers in the village. As the student population grows, teacher shortage is expected. Other improvements since the Project include better roads and bridges.

1 Ban means “village” in the Lao People’s Democratic Republic.

42 Appendix 7

5. Ban Thamdin. During the Nam Leuk construction, about 50 families worked for the construction company as biomass clearing workers. The villagers indicated that they now have less land and water, and fishing is not satisfactory. Their main livelihoods are now from livestock. 6. The villagers stated that water did not smell badly before the Project, but it does now. Rashes appear when villagers take baths, and ducks and hens have died. Initially, EdL distributed water from a mobile tank for 2 months. Realizing that water distribution was insufficient, the villagers dug wells, but the well water was not good. In 2000, EdL provided a water supply scheme. It provided sufficient water flow initially, but the system has been damaged and the water flow is now weak. The villagers think the pipes should be bigger. 7. Electricity was provided in 2000. A few families use electricity not only for lighting, but also for refrigerators and televisions. They pay an average of KN2,000/month. In general, there is no problem with the electricity supply, which is cut off only during storms in the rainy season. Before electricity was provided, the villagers used lanterns, consuming 10 liters of diesel/month. Few families still use lanterns. 8. Ban Thaheua. Ban Thaheua is a Lao Loum village with 30 households. Previously, it had more than 50 households, but people left because of difficult living conditions. There were no schools nor income-generating activities. Those who left had families in the cities and were able to start new lives. Rice farming is the main livelihood. Four households have about 5 hectares (ha). Rice fields are generally away from the village. Only one or two households practice slash-and-burn farming. Seventy percent of the households raise animals and each household has at least one animal. About five households are very poor, with no land or livestock. Every household has additional activities such as fishing or collecting forestry products in the Phou Khao Khouay National Biodiversity Conservation Area (PKK Park). PKK technical staff organizes a village meeting twice yearly to advise and explain the purpose of PKK Park conservation, including environmental conservation and issues of water resources and logging. Almost all households attend these meetings. 9. Few villagers were interested in working as project laborers because they had better income-generating activities such as fishing. Only one person went to work for a daily salary of KN20,000 until the Project ended. Getting a project job was easy.2 10. Water was clean before the Project, but not anymore. Water is reddish in color, smells badly, and is not potable. Villagers get rashes and develop pimples after bathing. The villagers believe that the Project might have used chemicals, or that rotten wood may lie at the bottom of the lake. 11. Cattle and buffalo died when the water was first released. Those remaining have lost weight. When there was no water in the dry season, EdL provided a tanker for 2–3 months to provide water for drinking and cooking. Villagers dug small wells, about 1 meter (m) deep, along the river while waiting for access to the gravity water system provided by EdL. The system proved weak. Like in Ban Thamdin, the pipes were too small, and those that connected to the village had to pass a 2-kilometer (km) trail from the mountain down the valley. The village’s gravity water system now has nine standpipes. EdL initially provided three standpipes and the villagers provided the other six. The village has no orderly water management system. There is

2 People now report that to work at the Nam Mang dam, one must pay KN250,000/person to a broker in order to get

his or her name on the worker list.

Appendix 7 43

now an attempt to use a new water source, about 2.5 km away, which has water year-round. The villagers believe it would be better to have a pool like what Ban Don Hom Village has, or to have two separate pools: one for the upstream villagers and another for downstream villagers. 12. Fish abounded 5 years ago, but fishing has become difficult and villagers can catch only enough fish for personal consumption. When the river water became bad, villagers received three cans of fish/person and KN10,000 cash subsidy/family. 13. The village still does not have electricity. Households still use kerosene lanterns, who use an average of 3 liters/month at KN5,000/liter. Today, about 12 households use solar batteries, for lighting only. The monthly payment depends on the contract, but ranges from an installation cost of KN250,000 and a monthly charge of KN25,000 for 50 watts to an installation cost of KN50,000 and a monthly charge of KN10,000 for 20 watts. Monthly payments are contracted for 10 years. This system works when sunshine is sufficient, but not when the weather is cloudy or rainy. Five households use large batteries that must be recharged weekly for KN5,000/recharge. 14. EdL was expected to provide electricity to this village by May 2004. EdL policy is to supply electricity only if a village has more than 100 households. At Operations Evaluation Mission (OEM), Ban Thaheua awaited settlement of more interested households from the surrounding villages of Ban Don Hom, Ban Saguek, and Ban Tou. The village started compiling a list of families who may move there. Thaheua village is en route to Thalath. People go there to take boats. The village can be a trading center and marketplace in the future, and small businesses, such as shops and restaurants, can be developed. Currently, the village has no school and the children have to go to Ban Don Hom Village 1 km away, but Thaheua expects a school in the future. 15. Ban Don Hom. This is a Lao Soung village with about 75 households. Some families have moved out but others have settled there, so the number of families has remained about the same. Families average about five children. Few villagers worked in project construction. 16. After dam construction, the water became dirty. It causes rashes when used for bathing, and has become coffee colored. The water smells badly, and the water level is low. During construction, fish died and the villagers could not catch enough fish for consumption. They initially received three cans of fish/person, then a cash payment of KN6,000/person. Before dam construction, villagers caught 2–3 kilograms (kg)/night, but now they barely catch 1 kg/night. 17. The villagers have started other activities such as fishponds (about 60% of the families), rice farming (50% of the families), shifting cultivation (50% of the families), and livestock raising (almost all families), but the villagers still produce insufficient rice for consumption. According to the village chief, the village has 20 poor families who must work for other families, but they feel the village is developing. The villagers do not go to PKK Park because it is forbidden, and the park is guarded. Villagers could receive fines for violations. The village has a primary school, but no permanent teachers. Children from four surrounding villages attend the Don Hom school. A vaccination program is available semi-annually for children and pregnant women. 18. The village has a gravity water system built years ago with assistance of a Christian nongovernment organization. The nongovernment organization initially helped build the water supply system and reservoir, then later 13 standpipes. Water flow in the village is good, and water is sufficient for all the families.

44 Appendix 7

19. Don Hom village has no electricity and uses solar cells like in Ban Thaheua. There are 30 solar cell systems in the village. Installation costs and monthly payments are the same as in Thaheua village, each household using electricity batteries must recharge two batteries every 10 days at KN4,000/recharge. Households that do not use solar cells or electric batteries still use lanterns that consume 4 liters/month of kerosene at KN5,000/liter. B. Focus Group Discussions in the Southern Villages 20. Ban Pakleuk. This village has 204 households with no resettlers from Ban Nam Leuk. The main livelihood activities are rice cultivation (70 households have 34 ha of paddy fields); livestock; fish for personal consumption; and gathering of forest products such as mushrooms, bamboo, and gum. Almost all villagers were employed during the Nam Leuk construction, for short or long periods. 21. Before the Project, some villagers could go to PKK Park, but were no longer allowed in when it was declared a protected area after the Project. PKK Park technical staff formerly visited the village every 3 months and held 3-hour meetings to explain the park’s purpose. About 100 villagers participated resulting in better understanding of the park’s policy. However, nontimber forest product gathering, especially gum gathering, has increased in response to orders that come from outside traders. 22. EdL provided electricity in April 2003. Several positive impacts could be noted. Women can now weave and work at night; children can study; all can use electrical equipment such as refrigerators and watch television. Before the Project, some villagers had to pay KN30,000/month for electric generators in order to watch television. 23. The population still used the Nam Leuk River for bathing and washing, but not for drinking because it is unsafe. The water is not as smelly as it was 4 years ago, but the color is darker. That may be caused by the decomposition of leaves, and the low level of water in the dry season. 24. Between 2000 and 2003, two thirds of the village used individual hand-dug wells. The village has two deep wells and two deep hand-pumped wells that provide adequate water. Even though the wells malfunctioned at times, the villagers could repair them. EdL provided three pumps, three tanks, and 20 standpipes. They started working in April 2003 when the electricity was connected. At OEM, one pump was broken but the other two were working. The broken pump was sent to the contractor for repair in November 2003, but had not been returned by end January 2004. A water supply manager is responsible for rationing and releasing water to households at different times of the day, as the quantity of water is not sufficient to serve the entire village. 25. Because the village is quite far from the Nam Leuk reservoir, the villagers fished there only occasionally before the Project. Now, they are forbidden to fish in the new reservoir. Therefore, villagers fish in the river near the village, but only for home consumption. Fish have become fewer and smaller. Fishing techniques and equipment are the same as before. The district has fish protection areas to allow fish to grow for the next 2–3 years. Many fishponds have been built over the past few years. Because fishing in the river is not profitable, the villagers have resorted to alternative income-generating activities such as livestock. 26. Ban Phongnam. The village comprises 37 households. There are no resettlers from Ban Nam Leuk. The main livelihoods in the village are paddy rice cultivation (38 ha), livestock,

Appendix 7 45

fish for home consumption, and gathering of nontimber forest products, like in Ban Pakleuk. Only three or four people from the village did clearing work for the Project for 1 year for KN15,000/day. 27. EdL provided electricity in April 2003. About 37 households have electricity, but supply cuts are frequent. The electricity cost for lighting is from KN2,000 to KN6,000 for families using electrical equipment (televisions and refrigerators). Before, the households used kerosene at an average of 1 liter per month for KN3,000/liter. 28. Rice fields are often flooded.3 The water in the Nam Leuk River is now bad, and a darker color than 4 years ago. The villagers believe this is caused by decomposition of leaves and the low water level, like in Ban Pakleuk. EdL has provided a water supply since April 2003. The village has one pump, one tank, and four taps. After only 2 months of use, the pump broke down. The water supply manager for Ban Pakleuk and Ban Phongnam took defective parts for repair in May 2003, but by February 2004 the pump remained unrepaired. The villagers also complained that the tank capacity is too small. They had expected to get 1,500 liters/household, as the mitigation consultants described, but only receive 30–50 liters/household. They think the village should be responsible for water supply system management because someone from the village has already been trained for that duty. But at the time of the OEM, the authority for management remained with the Ban Pakleuk water supply manager. The village has one hand-pumped well which was donated by an unidentified organization (perhaps the Red Cross), which is still in use. The hand pump often breaks down, but the villagers repair it themselves. 29. The villagers fish only for their own consumption. During the dry season, the water level is too low to travel by boat. Fishing activities are worsening. Before, a single gill net could produce 10 kg of fish/night. Now the catch is less than 1 kg, and the fish are smaller. 30. Ban Gnangkhua. This village comprises 37 households, with no resettlers from Ban Nam Leuk. The main livelihood activities are cultivation of hill or dryland rice, and of paddy; livestock raising; fisheries; and gathering of nontimber forest products. A few villagers worked on the Project, receiving KN3 million for clearing 1 ha. Water quality problems are similar to those of Ban Pakleuk and Ban Phongnam. Previously, the villagers went to PKK Park, but have not been allowed there since it became a protected area. PKK Park technical staff have conducted 2- to 3-hour meetings in the village three or four times a year to explain the purpose of PKK Park conservation, including issues of environmental conservation, water resource management, and logging. Almost all households attended the meetings. 31. EdL provided electricity in April 2003. The electricity cost is from KN3,000 to KN10,000/month, depending on the household electrical appliances. All households have electricity, but the supply is irregular. During the rainy season, there are three or four 1-hour disruptions a month. Disruptions sometimes last throughout the night. In the dry season, the electricity supply is cut off about once a month for 30 minutes to 1 hour. Kerosene is used when electricity is not available. Before, one household normally used 4 liters/month for KN4,000/liter. Now, the kerosene cost is KN5,000/liter. 32. EdL has provided a water supply since April 2003. The village has one pump, one tank, and six taps. The water supply works, but the water flow is low and insufficient to serve all households. The villagers believe that this is due to low water pressure. The tank recently cracked because of poor-quality construction material. Now the material has been replaced and

3 However, the dam’s ungated spillway generally reduces the peak flood even when the reservoir is full.

46 Appendix 7

water is available. Three villagers are responsible for management of the water supply, but they have not begun to collect water fees as the supply system is still being tested since it was handed over by the construction company. The village also has two hand-pumped wells provided by an unidentified organization (perhaps the Red Cross). Villagers fix the hand pump when it breaks down. 33. Before the Project, the fishers could catch about 8 kg of fish/night. Now they catch only about 1 kg, and the fish are smaller. They are allowed to fish only along 3 km of the Nam Leuk reservoir. The fishing methods and equipment are the same as before. The conditions are similar to those at Ban Pakleuk and Ban Phongnam. 34. Ban Hatkai. The village has about 84 households and is about 3 km from Nam Leuk. About 80% of the population grows rice, and all practice shifting cultivation. In the rainy season, about 86 ha of rice are farmed, and production is 0.8 tons/ha. This is not sufficient; people lack rice for about 5 months a year. Currently, almost all villagers grow a type of wild tomato called mak eurk. They produce more than 1 ton/rai (0.16 ha), which they can sell for KN5,000/kg. The average income is more than KN2,000,000/year. An old woman first planted mak eurk, and found a high market demand. The plant is sown twice yearly: in the 3rd or 4th month and in the 10th or 11th month, and harvested every 6 months. Mak eurk are exported to Thailand, and sold in Vientiane and Paksane. Total sales from the village are about 200 tons/year. 35. Since 2003, PKK Park technical staff have come to the village every month for site and tourism development purposes. The technical staff explain the prohibition of hunting wild animals, and how to attract tourist by keeping a clean village and nice surroundings. Ten villagers have been trained as paid tourist guides. Ban Hatkai and Ban Na have been chosen as tourism villages because they are near the waterfall. 36. Five or six persons worked for the Project for 5 to 6 months during construction. They were mostly workers paid KN400,000/month. The money was used to build new houses. That was the first time that villagers were employed outside their village. Today, about 20 villagers have jobs as construction workers or in a garment factory in the region. Most are 20 to 26 years old. They send salaries home so their parents can hire daily workers for rice cultivation. 37. In the past few years, the water level of the Nam Mang has lowered significantly. Wells now must be dug about 12 m deep to get water; before, wells were 8–9 m deep. During the dry season, the wells dry up. Even when there is some water, it is of bad quality. Several families living near the Nam Mang drink this water, but only after boiling it. 38. Before the Project, there were several ponds in the Nam Mang River where fish proliferated during the dry season. At that time, people could harvest 2 to 3 kg of fish in 2 or 3 hours with nets. One person could catch an average of 40 to 50 kg of fish/day, which they sold for KN8,000/kg. Once a year, during a special village festival, they fished at the reservoir, but that is no longer allowed. They still fish in Nam Mang, but only for consumption. Villagers often must spend an entire days to get barely 1 kg of fish. Sometimes, they catch nothing. 39. EdL provided electricity in April 2003, about the same time as in Ban Pakleuk. Currently, 80% of households have electricity; the remaining 20% have not yet raised KN1 million for the connection. The villagers pay KN2,000 to KN3,000/month for electricity. Before getting electricity, the villagers used 2 liters of kerosene/month at KN6,000/liter.

Appendix 7 47

40. Ban Palai. The village has 293 households, with no resettlers from Ban Nam Leuk. The villagers did not ask to be employed during the construction phase. The main occupation is rice cultivation, ranging from 40 to 90 sacks per ha yield, depending on the season. The yield is lower in the rainy season because rain and Mekong River flooding often inundate the area. The villagers grow rice mostly in the dry season. About 5% of the villagers practice shifting cultivation, grow vegetables for home consumption, and fish occasionally. Any surplus of fish harvested is sold. 41. Before the Project, villagers could fish in Nam Leuk, Nam Yong, and Nam Hee. Now, it is not possible to fish in the area of Nam Leuk and Nam Yong. Fish were previously plentiful in Nam Leuk. Income from fishing, using both nets and hooks, was about KN500,000 to KN600,000. Fishing is now possible only in Nam Hee. Seven neighboring villages fish in Nam Hee. These are Ban Palai, Ban Oudomxay, Ban Xaysavanh, Ban Thouay Beng, Ban Thang Beng, Ban Somsaat, and Ban Na. People of Ban Tha Bok would fish in the area of Nam Mang. Previously, they caught about 10 kg of fish/day but since dam construction, no more than 1–2 kg/day. They believe that fish harvest, comprising catfish, pakouan, and pachad, has decreased by 80%, and the fish are now much smaller. 42. Before the Project, there was a lot of water even in the dry season. But after the dam construction, the water level at Nam Mang was significantly reduced. Now there is too much water in the rainy season (footnote 3), and a real lack of water in the dry season. Villagers would like the water issues to be resolved. Wells must be dug deeply, about 18 m, instead of 8 m as before. Villagers now use Nam Mang water to wash clothes and bath, but it is not potable. After dam construction, EdL forbade drinking from the Nam Mang because the water is unclean and not safe. The village priorities are to construct an overflowing dike in Nam Hee to make a natural fishpond that will also provide irrigation water for rice farming in the dry season. They also would like to increase the level of water in the wells, as well as to keep away elephants that destroy the produce. According to their plans, this natural fishpond project would cover about 600 ha, at a cost of about KN600 million. The seven surrounding villages would benefit from the fishpond too. The community can contribute about 30% of its costs. The village head has prepared a proposal for the pond, and will submit it to the authorities. 43. The villagers have used electricity for 7 to 8 years. The village has a complete primary school. Both the secondary school and district hospital are in Ban Thabok, which is a 10-minute walk from the village. The telephone system works well, and 90% of the population has toilets. 44. Ban Thabok. The village comprises about 400 households. More than 10 villagers were employed as workers from 1998 to1999, earning KN35,000/day, or about KN1,050,000/month. Rice cultivation is the main occupation. Eight percent of the population practices shifting cultivation, and 90% has livestock. Women mostly engage in trading and small businesses. The village has three main fishponds: (i) Nong Malatsa is a communal natural fishpond (800 x 200 m) that generates an annual income of KN40 million/year from fish sales; (ii) Nong Sam Kha is a communal natural fishpond that generates KN15 million/year; and (iii) Say Khouhouayman, a natural fishpond (100 m x 600 m), that generates KN10 million/year. 45. The water quality has not changed since dam construction, and no illnesses associated with water have been reported. Before the dam, villagers used Nam Mang for washing clothes and bathing. They still use Nam Mang water, but also use well water for convenience. A fisher of 30 years said that many fish had died for unknown reasons during the past 2 to 3 years. Before, there was plentiful pa sout, pa pak (a carp), pa kot (a catfish), and pa khilam. From 5 to 10 kg/day could be caught with fishing nets, compared with only 1–2 kg/day now. Fishers now

48 Appendix 7

use nets with smaller meshes, especially during the 4th to 5th months. Before the dam, fishers would fish nearby and catch enough to eat. Now, they must go far because there are too many people and fewer fish nearby. A fisher, before the dam, could expect KN4 to KN5 million/year from fish sales. Now it is about KN400,000 to KN500,000. 46. The village has used electricity for 6 to 7 years. Only 26 houses outside the village lack electricity. Before, the villagers used lanterns. Now, kerosene costs KN4,800/liter versus KN400–500/liter only 7 years ago. Lighting with lanterns required 4 liters/month per family costing about KN20,000/month. The payment for electricity is now about KN10,000/month. Kerosene is still used occasionally, but is obviously more expensive. All households have wells and toilets. The village has primary and secondary schools. The district hospital is in this village, with more than 30 health staff. C. Interviews with Resettled Households4 47. Household 1: Mr. Xay Tou Heu’s (Sai Ton Vue) Family in Ban Kengsan. This family of nine resettled from Ban Nam Leuk to Ban Kengsan after the Project inundated their village (Ban Nam Leuk). The family has two houses: the old house is now the kitchen, and the new house is still being built. The family grows rice, but barely enough to feed itself, on its 1.32 ha of paddy land.5 A vegetable garden earns about KN200,000/year. 48. The family used the cash compensation from the Project to buy a house (EdL allocated land for housing), new paddy land, and a tractor. Relatives found the land for the family before it moved. The family head has been village chief since 2003. The family rents out its tractor, earning KN2–3 million/year. The family would like to build a fishpond near its garden, where there is natural water year-round, but lacks the funds. 49. No family member was employed for project construction. But the family’s life in Ban Kengsan is far better than before. Previously, family members had to carry rice on their backs, and travel was difficult because their village (Ban Nam Leuk) was on a hill. Now, the family has the tractor as a vehicle. The family misses fishing, which was easy in Ban Nam Leuk. Now, they must buy fish. The Project has given the family the following benefits: (i) life is far more convenient now, (ii) electricity is available, (iii) they pump water to the house from shallow wells, and (iv) the two children can attend secondary school. 50. Household 2: Mr. Cheu Heu Vang (Jue Her Wang) and Wife in Ban Kensang. The household has only two members: Mr. Che Heu Vang and his wife. They are old, frail, and poor—living day-to-day in a hut with a straw roof. They have a small garden near the hut and a well. They grow upland or hill rice on 0.8 ha. The family’s annual harvest averages about seven sacks of rice, but this year’s harvest was only four sacks.6 Mr. Cheu Heu Vang and his wife must work in other farmers’ rice fields to buy five additional sacks—but the nine sacks cover only 5–6 months of food supply. After that, they work for other people in the village for which they are paid in kind: 12 kg of paddy/day, enough food for 10 days. Every 10 days, they must find another job. When there is no work to do, they must beg. They grow some vegetables and raise ducks and hens.

4 Households are numbered by the order of interview, not the identification used in the environmental completion

report. The names used in the environmental completion report, with slightly different spellings, are in parenthesis. 5 The mitigation consultants report that the family owns 2.3 ha of land. 6 One sack of rice weighs about 70 kg.

Appendix 7 49

51. The couple used their cash compensation to buy its land (KN100,000), to build the hut (KN500,000), and for daily living expenses. Someone cheated them of KN2 million when the wife was ill.7 Their earning capability is extremely poor, and they cannot improve their situation. The couple had expected to live with a nephew in Samneua, but that did not work out. The couple has no electricity, and uses lanterns for lighting. They dug a 2.5-m well, which took 2 days, at the time of the OEM. They previously shared a water supply with three families, but that supply became unusable when a cow fell into the well. But the water supply situation was considerably worse at Ban Nam Leuk, where they had to carry water uphill. 52. Households 3 and 4: Mr. Yuong (Mo Yang) and Mr. Xay Seu (Sai Ser Yang) and Families in Ban Longxan. These two families resettled in Ban Longxan. Mr. Yuong’s family consists of 11 persons with 8 children; Mr. Xay Seu’s family comprises 9 people. They relocated to Ban Nam Khui, near Longxan. 53. Mr. Yuong’s cash compensation was used to build a house, and buy land and a tractor.8 Mr. Xay Seu’s funds were used to build two houses (one for the family and another that he rents EdL), land, and a tractor. The family planned its move only after receiving the cash compensation. The two families now have two houses each, and use the old houses as kitchens. 54. Mr. Yuong farms 2 ha of rice paddy; the yield is 250 kg/year. He also farms on other land downhill, harvesting 750 kg/year. He gathers and sells yellow roots, a natural dye, earning KN500/kg, or about KN50,000 each season. Mr. Yuong sometimes works at a brick factory for KN15,000/day. Mr. Xay Seu’s income-generating activities are similar, and his wife also embroiders and sells textiles. 55. Both families say they are now better off in terms of earning capability because they know how to improve their conditions. Mr. Yuong has another revenue source: rental of his tractor. He earns about KN720,000 per year. Mr. Xay Seu has leased a house for an EdL office for KN150,000 per month for the past 2 years. 56. Both families describe their previous life as difficult. They had to climb and carry rice uphill, where their village was. Mrs. Xay Seu is satisfied with her new life, and said, “Even if you paid me, I wouldn’t go back.” Their new benefits include (i) the school is close, so their children attend school regularly; (ii) doctors and nurses are stationed permanently in the nearby hospital; and (iii) they have electricity. Mr. Xay Seu’s household pays KN8,000/month for electricity. Mr. No Yuong has not asked for an electricity connection to his house. He still uses lanterns, which consume 3 liters of benzene, at a total cost of KN12,000 per month. No family members of either households sought employment in project construction. 57. Household 5: Mr. Leu Yang and Family in Ban Thamdin. Mr. Leu Yang’s family of 10 is the only one that moved from Ban Nam Leuk to Ban Thamdin in 2000. Eight of the family are children. The family now has two houses. The old house now serves as a kitchen; the new house has a tile roof, plywood walls, and is painted. The family has a new well, a family garden, and a tractor. The cash compensation was used to buy a 0.48-ha rice field, tractor, land to build a house, house, and a refrigerator. 7 The mitigation consultants report that compensation ($2,940) was mostly used as a noninvested pension; only 19%

was spent on the land and house. The money the couple was cheated of was 7% of the total. The couple moved to Ban Kensang mainly to get support from clan members (relatives). They had negotiated—unsuccesssfully—with other families to join them, pledging compensation money to the resource pool.

8 According to the mitigation consultants, Mr. Yuong owns 8.4 ha of land, of which 1.67 ha is rice paddy.

50 Appendix 7

58. The family grows rice, using rice field cultivation. But production is sufficient for only 6 months of rice consumption for the large family. From shifting cultivation, they get 40 sacks of rice. Mr. Leu Yang also plows fields for other farmers, earning KN500,000–600,000/year. The shifting cultivation harvest is now better than before. Mr. Leu Yang also grows manioc, or cassava, to feed to ducks and pigs that he raises and markets. The family occasionally fishes at Nam Xan, but catch only enough for home consumption. 59. The family’s lives are better now. Mrs. Leu Yang pointed out that they no longer must climb mountains or walk long distances, because the rice field is closer. In Ban Nam Leuk, the family had more land, but neither a hospital nor a road was nearby. The children had to walk a long distance to school. Other benefits of the move include electricity, which the family got 4 years ago, and a conveniently located school, hospital, and roads. Before electricity, the family used about 8 liters of kerosene/month for lanterns. 60. Household 6: Mrs. Che Xong’s (Ser Song) Family in Ban Thangdeng. Mrs. Che Xong’s family consists of eight people, but her son and his wife will soon move to their own home. The family used $200 of its cash compensation to buy land and a house, $350 to buy a rice field, $150 to clear the land, and $50 for a toilet. Mrs. Che Xong divided the cash compensation into three parts: for herself, for her son, and for her mother. Her son has spent all of his part, but Mrs. Che Xong and her mother deposited their portions of the money in a bank, for emergencies.9 61. Mrs. Che Xong now rents land to grow rice, because her own land cannot be cultivated. In 2003, a new district-sponsored irrigation canal split her land into two parts.10 She grew rice and expected her son to help on the remaining land, but he did nothing. The field is now heavily infested with weeds, but she lacks the $200 that weeding would cost. Her niece now helps her, and she complains about her own son’s reluctance to help. 62. Mrs. Che Xong has encountered many difficulties in improving the family’s living conditions because she has not received the support she expected from her son. She is no better off in earning a monthly income. In Ban Nam Leuk, she had more land, which had been partly cleared, but then her husband died. After his death, she changed to shifting cultivation. She will stay in Ban Thangdeng because she has nowhere else to go. She needs drugs to treat an eye problem, and more land. Her only hope is in her son. 63. There are two wells near Mrs. Che Xong’s house: one is communal; the other one is the family’s, which they dug themselves. She has one 6-year-old child who attends school. Two of her children left primary school (grades two and four) to help because they feel sorry for her. She has had electricity for 3 years, and pays KN1,000–2,000/month. She used $50 of the grant money to install a toilet. 64. Household 7: Mr. Khoua Moua Yang (Khoua Moa Yang) in Ban Thangdeng. This family consists of nine persons. One daughter and her husband live in the United States. During construction, Mr. Yang worked for the Project for 1 month, earning KN24,000/day. The family house and garden are clean and well-maintained. The family used its cash compensation to buy 9 According to the mitigation consultants, Mrs. Xong received $4,180 in cash compensation. The family’s two

productive members are Mrs. Xong’s son and his wife. Mrs. Xong and her mother are partially blind. The son does not get along with his mother, and plans to start a new household elsewhere. Mrs. Xong invited another female-headed family to join her household. That family has built a house on the same land.

10 She had not been compensated by the district at the time of the OEM.

Appendix 7 51

a rice field, land and a house, and a toilet.11 The family has a tractor, bought by the daughter who lives in the US. Rice farming is the family’s livelihood. The first year after buying the rice field, Mr. Khoua harvested 28 sacks of rice (50 kg each); then 50 sacks the second year, and 70 sacks the third year. He has a vegetable garden where he grows vegetables and fruit trees for family consumption. He now has more than 20 mango trees, 6 cows, 50 ducks and hens, and 2 pigs. His wife sews and embroiders. The family moved to Ban Thangdeng because there were no paddy fields in the Longxan area, where they previously lived. The family learned about Ban Thangdeng from a contact and EdL photos. 65. Mr. Yang knows how to improve his family’s living conditions. He plans to sell mangoes in 3–4 years in the Vientiane market, and to grow other types of fruit trees. He wants to expand his rice field. The field is in a low-lying area, and is often flooded. Mr. Yang wants to build dikes around the field to allow water to flow in and out. He thinks the dikes would increase his rice harvest to 100 sacks. He was formerly the Ban Nam Leuk village chief, and had a 3-ha field that yielded about 100 sacks of rice/year. His house and surrounding land covered 1 rai (0.16 ha). Mr. Yang feels that he is better off in terms of earning capacity and improving his family’s living conditions in Ban Thangdeng. 66. The family has had many benefits since moving to Ban Thangdeng. All children go to a school near the village; before, they had to walk a long distance to school. The hospital is more convenient. Water in Ban Thangdeng is generally drawn from wells, but the wells dry up in the dry season so the family must walk 30 minutes to draw water—but the water situation in Ban Nam Leuk was worse. The family recently built a new pit well on its house plot, which may improve the water supply in the dry months. 67. Household 8: Mr. Cha Xeng Lo (Jai Seng Lo) in Ban Thangdeng. Mr. Cha Xeng Lo’s family consists of 19 persons living in the same house. He has two wives: the first wife has borne nine children and the second, six children. Two daughters were employed briefly by the Project. With its cash compensation, the family built a house in Ban Thangdeng, and bought a rice field and a tractor. The family farms more than 1 ha of rice. If the fields are not inundated by floods, the field can produce 20 sacks of rice. The field is now flooded from a stream. Mr. Lo’s son has blocked the water flow, but the field remains flooded most of the year.12 The family also practices shifting cultivation, which produces 10 sacks of rice/year. The family raises pigs, ducks, and hens; fruit trees; and sugar cane. Mr. Lo does not plan to rent out his tractor; he needs it too much. 68. In Ban Nam Leuk, the family practiced shifting cultivation on about 3 ha that could also be used as rice fields, and harvested only enough rice for home consumption. Finding food was easier in Ban Nam Leuk, but Ban Thangdeng offers many other conveniences. The children do not have to walk far to attend school regularly. A nearby hospital can treat light illnesses, but for serious diseases the family goes to Vientiane. The family has no problem with the Lao Loum people. He has not yet applied for electricity, but he has a connection through his son’s house since 2002. The family uses lanterns when the electricity is off, consuming about 1 liter of kerosene/month at KN4,000/liter. 11 Mitigation consultants report that Mr. Yang owns 2 ha of land, of which 0.7 ha is rice paddy. 12 According to the mitigation consultants, Mr. Cha Xeng Lo owns 2.7 ha, of which 1.8 ha is rice paddy. He tried to

improve the land, using a development grant that the Project provided in 2001. Unfortunately, his effort actually worsened drainage problems on his land, but improved drainage of his son’s land. The result was only 1 ha of the 1.8 ha being productive. At the previous village, Mr. Lo farmed 1 ha of hill rice, and harvested about 1 ton of unmilled rice annually. At the new site, he harvests about 4 tons from lands planted with paddy and hill rice.

52 Appendix 7

69. Household 9: Mr. Po Lo in Ban Thangdeng. Mr. Po Lo, 27, has an eight-member family: his parents and six young children. The eldest child is age 12. His wife is pregnant again. Mr. Po Lo married at age 15; his wife was 14. Mr. Po Lo did not look for work during project construction, because he was too busy with the children. The family moved to Ban Thangdeng after Mr. Po Lo’s father moved to Ban Thangdeng. The family used the cash compensation to buy a 1-ha rice field, a house on 2 ha of land that EdL allocated for housing, and a tractor. 70. Mr. Po Lo grows rice, harvesting about 50 sacks/year. Work on his own farm does not permit him to work as a daily laborer like other farmers. The family has 9 cows and 10 ducks and hens. Mr. Po Lo sells poultry to buy clothes for the children. He has planted six mango trees, but must wait until 2005 to harvest the fruits. He also has six banana trees. His wife embroiders textiles. The family receives no financial support from relatives abroad. Mr. Po Lo plans to grow dryland rice when his children are old enough to help. 71. Mr. Po Lo feels that life was easier in Ban Nam Leuk. There, he could fish and sell the surplus. In Ban Thangdeng, the family can only grow paddy rice, or practice shifting cultivation, or seek employment as workers. In Ban Nam Leuk, the family had a rice field, land for shifting cultivation, and a vegetable garden where they grew fruits such as banana and pineapple. But the family would not go back to Ban Nam Leuk because the children can go to school so much easier in Ban Thangdeng. Consultation at a nearby dispensary is free, but patients must buy the drugs. The family has had electricity for 2 years. Mr. Po Lo and his father share a well that they dug together.13 During the dry season, the water dries up and the family must haul water from a site 2 km away. Mr. Po Lo plans to build a toilet soon. He chose to move to Ban Thangdeng because he was advised to do so, and his family has no problem with the local Lao Loum people. 72. Household 10: Mr. Ko No Yang (Koa Noa Yang) in Ban Thangdeng. Mr. Ko No Yang’s family consists of three persons: the parents and a son, 18. He was employed for 2 weeks during project construction, earning KN90,000. He moved to Ban Thangdeng where he used the cash compensation to buy a house and a field of more than 1 ha which cost KN15 million. The land purchase was a mistake because it cannot be farmed.14 He owns a television, a gift from relatives living in the US. Mr. Yang says nothing is left from the cash compensation. The house and garden seem neglected. Mr. Yang farms a rented rice field because he cannot cultivate the land he bought. Production from the rented field was sufficient to feed his small family earlier. The family harvested 30 sacks of rice the first 2 years, but only 10 sacks in 2003. This is not enough for the family so Mr. Yang must find other work. He has no livestock because no one is available to care for them. If his son marries, Mr. Yang and his wife will live with the son and his wife. Mr. Yang has no plans for the future. 73. In Ban Nam Leuk, Mr. Yang had 2 ha of shifting cultivation land. When yields were good, the family would have enough rice to last through the year. But usually, production was enough to support the family for only 7–8 months. Mr. Yang’s wife misses their former house and garden, where she grew vegetables. But robbers steal her vegetables in Ban Thangdeng, so she must maintain only a small garden, near the house. The family has had electricity since 2001, at a cost of KN3,000/month. The family uses lanterns when the electricity is off, consuming about 1 liter of kerosene/month. 13 The mitigation consultants report that the Project provided concrete rings, cement, and polyvinylchloride (PVC)

pipes to improve the well. The water supply situation in Ban Nam Leuk was worse. 14 Mitigation consultants report that Mr. Yang owns 2 ha of land, none of which has been planted to paddy rice. Rice

production would require a canal to channel the water. Mr. Yang has identified a water source, but he is reluctant to initiate the necessary improvements, presumably because of his lack of experience in rice paddy farming. This may also have led to his poor selection of land.

Appendix 7 53

74. Household 11: Mr. Thou Maya in Ban Thangdeng. Mr. Thou Maya’s household consists of 17 persons. During project construc tion, he worked as a cleaner, earning about KN600,000/month. When the family moved to Ban Thangdeng, the friendly Mr. Thou Maya had no problems integrating into the existing community. He used the cash compensation to buy a new house on 80 x 25 m of land along the main village road, plus rice fields and a tractor. His main livelihood is rice farming in the rainy season. Mr. Thou Maya rents out the tractor, earning about KN80,000/rai (0.16 ha). His total income is KN1,500,000/year. He also does some gardening in the nearby field. His elder son also earns income working as mechanic in a Vientiane car repair shop. Mr. Maya owns 3 cows, 20 buffalos, 1 pig, and 20 ducks and hens. He plans to grow more rice, and start new fishponds, in the future. He needs more irrigation water because the dikes are damaged and water does not flow freely into the rice field. He now has neither the land nor budget to build a fishpond. 75. Mr. Thou Maya farmed rice for 2 years in Ban Nam Leuk. He misses the natural life there. But Ban Thangdeng has facilities like roads and markets, and transportation is easy. His son has a job in Vientiane. The children attend school regularly, only 2 km from the house. A hospital is only 5 km away. 76. Household 12: Mr. Pa Chi Ya in Ban Thangdeng. Mr. Pa Chi Ya’s family consists of 14 people, including 2 married sons (1 son has 2 wives). No family members worked on the Project, because they had other occupations. The family had no problems when moving to Ban Thangdeng with neighbors, both Lao Loum and Lao Soung. They used the cash compensation to build a house along the main village road; a toilet, which cost KN60,000; a 4-ha rice field; and a tractor. 77. Mr. Pa Chi Ya farms 1.44 ha of rice. Production is about 88 sacks, which barely meets the family’s home consumption. In some years, before moving to Ban Thangdeng, the family lacked rice for about 2 months.15 Mr. Pa Chi’s two sons work in Vientiane. One son is a construction worker; the other is a driver who delivers construction materials. The two sons come to Ban Thangdeng, when needed, to help plant vegetables and to harvest rice. Mr. Pa Chi Ya does not rent out his tractor. He grows fruit trees and vegetables. Mr. Ya plans to improve his family’s living conditions by growing more mango trees and others crops. He plans to sell fruit in the market. 78. Ban Thangdeng has no place to fish, so Mr. Ya misses fishing in Ban Nam Leuk. The family must buy meat in the market, but life in Ban Thangdeng is more convenient and easier. The district hospital is nearby. All of the family’s school-age children attend school regularly. EdL gave KN2.9 million to renovate the old school facilities at Ban Kokhai. There is a communal well, funded by EdL, for KN300,000. The water is clear and abundant. The family has electricity; the installation cost was KN610,000 and the monthly payment, KN5,000. The family no longer uses lanterns. But before the Project, the family used 5 liters of kerosene/month, at KN3,000/liter. 79. Household 13: Mr. Da Seu Xan in Ban Thangdeng. Mr. Da Seu Xan, 74, has a family of five, including his wife, and his son’s wife and child. The family has two houses; one is of concrete. The son worked on project construction, but for only 3 or 4 days to earn some spending money. When the family moved to Ban Thangdeng, it used the cash compensation to

15 Mitigation consultants report that Mr. Ya was formerly a soldier and now receives a pension of $20/month.

54 Appendix 7

buy a 1-ha rice field and a tractor, and to build a house on the land that EdL allocated. EdL provided toilets bowls, and the family provided labor to build a toilet.16 80. The mother and father are too old to farm rice; the son and his wife attend to that. The 2004 rice crop yielded less than the 2003 crop because it was not weeded sufficiently. The 1-ha field yielded 29 sacks (1.45 tons). The family leased additional land for slash-and-burn cultivation, which produced another 70 sacks (3.50 tons). The tractor is only for personal use. The family has 3 buffalo, 2 cows, 6 pigs, and about 60 ducks and chickens. The son plans to grow fruit trees near the house and to build a 20- x 50-m fishpond. The son’s wife does embroidery for export to the US for additional income. In 2003, she earned $200. Mr. Da Seu Xan’s family is also partly supported by parents living in the US who once sent $1,500 (part was used to build the new house). 81. In Ban Nam Leuk, the family had more land (more than 3 ha), and living was easier. In Ban Thangdeng they have only 1 ha of rice field, and it cannot be expanded. But they are near a hospital and school, and they can move around easily. Food is available, but they must buy it. They have no problems with the Lao Loum people. The family has had electricity since 2000, for a monthly payment of KN2,500. They use lanterns when the electricity is out. At Ban Nam Leuk, they also used lanterns, and used 2 liters of kerosene/month at KN3,000/liter. 82. Household 14: Mr. Neng Thong Song in Ban Thangdeng. Mr. Neng Thong Song‘s family consists of nine members: the parents and seven children. Mr. Neng was employed as a biomass clearing worker on the Project for 4 months. He was paid a fixed rate of KN48,000 for clearing 100 m x 35 m. The family earned more than KN2,000,000. They had no problems in moving to Ban Thangdeng because they already had relatives there. In response to a question about social integration, Mr. Neng said, “The village chief is Lao Loum and he is a good man. His first deputy is a Lao Soung man. Both Lao Loum and Lao Soung people have difficulties. There are Lao Loum families who are poorer than them” (Lao Soung). 83. Their cash compensation was used to buy a 1-ha paddy rice field, a house (EdL allocated the land on which the house sits), a tractor, and a toilet. He built a private well with KN400,000 that relatives in the US sent. Mr. Neng Thong Song farms the rice. He harvested 50 sacks in 2004—which made the family self-sufficient in rice. He harvested 40 sacks in 2003, and 30 sacks in 2002. He has five cows, two pigs, and five hens bought with the money sent from the US. The family does not rent out its tractor. The family grows vegetable for home consumption. 84. Mr. Neng Thong Song’s daughters earn additional income by working on other families’ rice fields. They also make and sell Hmong clothes. In 2003, the daughters earned KN450,000 (nine suits at KN50,000 each). The family also received $160 from the wife’s relatives living in the US. This money was used to buy clothing and to dig a well. Mr. Neng Thong Song plans to plant mango trees, mainly for home consumption but he will sell the excess. His land is too small to grow anything else.17 85. In Ban Nam Leuk, the family had to carry rice on their backs from a field across a mountain and far from their house. It was hard when someone was sick, because they had to carry the sick person through the forest and across mountains for many hours before reaching

16 According to the mitigation consultants, each family was provided a $50 grant to purchase materials and pay for

labor to build a toilet. 17 The mitigation consultants report that family has 2 ha of land, of which 1 ha is paddy land.

Appendix 7 55

Thalath, where they could take a vehicle to the Mahosoth Hospital. Besides paddy rice farming, the family also practices shifting cultivation. In Ban Nam Leuk, there was ample land for raising livestock, but raising animals is difficult in Ban Thangdeng. 86. The children go to school regularly. When ill, they go to the Mahosoth Hospital in Vientiane, only about an hour from the village. Transportation is easier in Ban Thangdeng. Drawing water from the well is convenient, but during the dry months (April–May), they lack well water and must bring water from distant wells. The family would like to have a gravity water system, or running water, as in the proposal that the village chief prepared. The households have had electricity since 2002 for a monthly payment of KN1,000. During May, the hottest month, the family uses more electricity for fans, and the bill increases to KN6,000/month. Before, Mr. Neng Thong Song’s family used lanterns, consuming 5 liters of kerosene/year. 87. Household 15: Mr. Thai Song in Ban Thangdeng. Mr. Thai Song’s family consists of nine members: he and his wife, and their five children. Mr. Thai Song is the brother of Mr. Neng Thong Song (household 14). He was employed as a biomass clearing worker at a fixed rate of KN48,000 to clear areas 100 x 35 m. The family cleared the land in 3 months, earning KN2 million. When the family moved to Ban Thangdeng, it used the cash compensation to buy a 1-ha rice field adjacent to his brother’s rice field, a tractor that the two brothers bought jointly, and to build a house. Mr. Thai Song hired workers to saw timber for house construction, and bought corrugated metal roofing. He bought 50 hens, 3 ducks, 4 pigs, 8 cows, and 4 buffalo. EdL provided the capital for the wells shared with his brother’s family, and he made a private well. They have no problems with the Lao Loum people. Mr. Thai Song had relatives in Ban Thangdeng when he moved there. 88. Mr. Thai Song farms 1 ha of rice, which produces about 50 sacks. He also practices shifting cultivation. His wife and children earn additional income by clearing land for shifting cultivation for others. They are paid KN15,000/day, and earn a total of about KN2 million/year. In Ban Thangdeng, Mr. Thai Song has a 0.16-ha plot of land, which he has cleared and could expand to 0.48 ha as another rice field. Like his brother Mr. Neng Thong Song, he plans to plant mango trees. 89. Rice cultivation in Ban Thangdeng is not much different from rice farming in Ban Nam Leuk. The main difference in life in the two villages is that getting to a hospital was so much more difficult in Ban Nam Leuk. If a person were ill, he or she had to be carried many hours through forests and across mountains to reach the Mahosoth Hospital in Vientiane. Mr. Thai Song’s family is now near the hospital, and all of his children go to school except for the oldest child who left the school. Mr. Thai Song’s household has had electricity since 2001, and usually pays about KN3,000/month. Before that, the family used lanterns, which consumed 5 liters of kerosene/year at a cost of KN2,500/liter.

56 Appendix 8

SELECTED PHOTOGRAPHS FROM THE NAM LEUK HYDROPOWER PROJECT

Photo 1: Relocated families.

Photo 2: Relocated families.

Appendix 8 57

Photo 3: Relocated families.

Photo 4: Relocated families.

58 Appendix 8

Photo 5: New houses built.

Photo 6: New houses built.

Appendix 8 59

Photo 7: Relocated families.

Photo 8: Relocated families.

60 Appendix 8

Photo 9: A latrine built by a relocated family.

Photo 10: A well constructed by a relocated family.

Appendix 8 61

Photo 11: House and garden of a relocated family.

Photo 12: A tractor bought by a relocated family.

62 Appendix 8

Photo 14: Water supply to Ban Kensang.

Photo 13: Relocated families.

Appendix 8 63

Photo 15: A water pump that is not working.

Photo 16: A disconnected electricity box leading to the water pump.

64 Appendix 8

Photo 17: Water tank built as part of the mitigation measures.

Photo 18: A standpipe built as part of the mitigation measures.

Appendix 8 65

Photo 20: Nam Leuk River below the dam in January 2004.

Photo 19: A functional water pump.

66 Appendix 8

Photo 21: Operator’s village.

Photo 22: Phou Khao Khouay Park guardhouse.

Appendix 8 67

Photo 23: Nam Leuk reservoir.

Photo 24: Penstock.

68 Appendix 8

Photo 26: Transmission lines.

Photo 25: Nam Leuk powerhouse.

MANAGEMENT RESPONSE ON THE PROJECT PERFORMANCE AUDIT REPORT (PPAR) ON THE NAM LEUK HYDROPOWER PROJECT IN THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC (LOAN 1456-LAO[SF]) On 4 October 2004, the Director General, Operations Evaluation Department, received the following response from the Managing Director General on behalf of Management: 1. The 10 September 2004 OED memo on the above mentioned report requested Management’s response. We have reviewed the report with great interest and found it very well written. The report highlights some important lessons learned from the hydropower development initiatives in Lao PDR, which would be very valuable for future endeavors. 2. The Operations Evaluation Mission (OEM) has been in contact with MKRD during the preparation of the report and provided opportunities to review and comment on the earlier draft report. We appreciate that our comments have been appropriately reflected in the report. The Mission’s consultative approach in preparing the report is commendable. The findings and follow-up actions recommended in the report are supported. In fact, they are in line of the follow-up actions that the Bank has been taking since the completion of the Project. 3. One of the most important lessons learned from the Nam Leuk Project is that “environmental and social impacts and their mitigation measures do not end when the power plant begins operation and the project loan closes. In fact, additional impacts often begin at this stage” (para. 85 of the report). In this context, the Environmental and Social Management Program Loan (Loan No. 1867-LAO)1 has been instrumental in providing an effective vehicle to dialogue with the Government in addressing the existing hydropower development projects such as the Nam Leuk Project. The Program covers five closely linked priority areas for policy action: (i) strengthening national policy and regulatory framework for environmental management and social safeguards; (ii) enhancing policy implementation measures and capacity at sectoral and provincial levels; (iii) improving compliance and enforcement; (iv) promoting river basin management as a multisectoral and integrated planning framework for energy and transport development; and (v) establishing sustainable financing mechanisms. 4. Under the aegis of the Environmental and Social Management Program Loan, MKRD has been in discussion with the relevant Government agencies including the Science Technology and Environment Agency, Électricité du Laos, and the Ministry of Industry and Handicraft to assess the issues arising from the existing hydropower development projects and recommend appropriate actions. Since May 2002, MKRD staff have been visiting the project sites and discussing with the Government authorities to assess the magnitude of social and environmental impacts and identifying areas for follow-up action. Most recently in June 2004, a Mission was fielded to work with the Government to agree on concrete steps to address the remaining issues in the Nam Leuk Project. The Government has agreed to prepare an action plan, which will be reviewed and followed-up by MKRD. Regarding the specific follow-up actions recommended in the report, we will work closely with the Government to ensure that these recommendations are duly reflected in the action plan and properly implemented. 5. Finally, there are several important lessons learned from implementation of past hydropower development projects, including the Nam Leuk Project. Specifically, it is important to (i) thoroughly assess and prepare mitigation measures for downstream impacts; (ii) secure

1 Loan No. 1867-LAO: Environmental and Social Program Loan, for $20 million, approved on 6 December 2001.

2

financing of the social and environmental mitigation and conservation measures as part of the project cost; and (iii) design realistic and effective implementation arrangements including those addressing social and environmental mitigation and conservation measures. We would like to emphasize that these lessons learned are being incorporated in the design of new hydropower development projects in the region.

BOARD OF DIRECTORS

DEVELOPMENT EFFECTIVENESS COMMITTEE

Chairperson’s Summary of the Committee’s Discussion on 27 October 2004

of the Project Performance Audit Report on the Nam Leuk Hydropower Project in the Lao People’s Democratic Republic

1. The Development Effectiveness Committee (DEC) appreciated the timeliness and frankness of the report, and generally endorsed the key issues and lessons identified and the recommended follow-up actions, especially as these related to the social and environmental impacts of hydropower projects during, and after, implementation. This evaluation would be an important input in the processing and Board consideration of a loan proposal in the lending program for another hydropower project in Lao PDR, Nam Theun II. 2. The DEC agreed that this was a successful project from the technical point of view and commended the innovative approaches used such as choice of resettlement location and allocation of project revenues for the protected area. Nevertheless, the committee noted the unintended negative side effects of the project, and problems of governance, livelihood, and capacity building. 3. The DEC recognized the value derived from OED and the Mekong Department (MKRD) working together on the follow-up actions of the report. Judging from the response and views of the Director General, MKRD at the meeting, such interaction had served to make the feedback loop more efficient. 4. The DEC wished the follow-up actions recommended in the evaluation report had gone into greater detail so as to be monitorable, including how the actions would be funded and what the timeframe was. In this context, the DEC acknowledged the specific response from Management, which highlighted that a recent mission had been fielded by MKRD to work with the Government to agree on concrete steps to address the remaining issues in the Nam Leuk project and that the Government had agreed to prepare an action plan, which would be reviewed and followed up by MKRD. The DEC was informed at its meeting that the action plan would be available before 2005 and the Board would be informed of it. The DEC expected Management to ensure timely completion of such an action plan, which should include continuous monitoring of post-project impacts and any necessary mitigation steps. The DEC asked OED to monitor progress in the implementation of the action plan and report on this to the committee. 5. Prior to the meeting, members of the DEC had received a letter on the project and its evaluation from the International River Network. The DEC asked that Management provide the response to the letter and considered this to be important.

Ashok Saikia Chairperson Development Effectiveness Committee 3 November 2004