POWER COMPANY RESPONDS TO CRITICAL REPORT AT THE

C O N F I D E N T I A L SECTION 01 OF 02 VIENTIANE 000567

SIPDIS

SIPDIS

STATE FOR EAP/MLS
STATE FOR OES ANN COVINGTON
STATE FOR OES/ENV BRONSON GRISCOM
STATE FOR EEB/IFD/ODF JOHNATHAN WEYER
STATE PASS TO USED WORLD BANK
MANILA FOR USED ADB
BANGKOK FOR JIM WALLER
BANGKOK FOR USAID/ANE
BANGKOK FOR USAID/RDMA
TREASURY FOR DIRK JOLDERSMA
TREASURY FOR KEITH KOZLOFF

E.O. 12958: DECL: 07/10/2017
TAGS: EAID ENRG EWWT ECON PREL LA
SUBJECT: POWER COMPANY RESPONDS TO CRITICAL REPORT AT THE
NAM THEUN II STAKEHOLDER'S MEETING

VIENTIANE 00000567 001.2 OF 002


Classified By: Mary Grace McGeehan, Charge d'Affaires a.i. Reason: 1.4
b and d.


1. (C) SUMMARY: On June 27-28 the Government of Laos (GOL)
and the Nam Theun Power Company (NTPC) held the second annual
Nam Theun II (NT II) stakeholders' meeting in Thakek, Laos to
discuss the situation at the World Bank funded project. The
GOL and NTPC provided a large amount of information, much of
it directed at refuting or replying to questions raised in a
May 2007 report by the International Rivers Network (IRN).
NTPC addressed worries over resettlement of villagers on the
Nakai Plateau and stated the new villages would be completed
by the 2008 wet season. The new Sop On village, while not
completed, offered a better standard of living than many
rural Lao villages. NTPC also discussed previous biomass
clearance considerations, noting the design of the downstream
channel included measures to oxygenate water prior to it
flowing into the Xe Bang Fai river, and suggested the
uncleared biomass could lead to a boom in the fish population
after the reservoir is filled. Downstream livelihood
retraining remains a concern--although NTPC was confident in
the long-term success of the program, the quality of the
water that will come out of the reservoir is unclear and
might not be suitable for irrigation during the initial
years. Overall, while the project is experiencing some
slowdowns it continues to meet high standards, especially
when viewed in the context of other projects undertaken in
the Lao People's Democratic Republic. END SUMMARY.


2. (C) Econoff attended the NTPC and GOL-sponsored Nam
Theun II Stakeholder's meeting June 27-28 in Thakek Laos.
Attendees, who included inter alia GOL Minister of Energy and
Mines Dr. Bosaikham Vongdara, Embassy representatives, NGOs,
employees of international financial institutions, business
people, and journalists, who listened to a lengthy update on
various aspects of NT II on the first day. Of note were the
responses obviously keyed to the May 2007 report by Shannon
Lawrence of the International Rivers Network, which
criticized the NTPC, GOL, World Bank, and Asian Development
Bank for not living up to the NT II concession agreement.
IRN's Bangkok-based representative Carl Middleton did a
credible job in trying to make IRN,s points while portraying
IRN as an organization interested in constructive criticism,
not criticism for its own sake.


3. (C) One of the more contentious issues raised by IRN's
report was the status of temporary and permanent housing for
villagers being resettled from the Nakai Plateau. The NTPC
resettlement manager acknowledged that some villagers would
have to spend a second rainy season in temporary housing,
noted that three of the resettlement villages will be
finished by the middle of this wet season, and stated that
all temporary houses were inspected prior to the 2007 wet
season and found to be acceptable and, in his words, better
than the occupants' previous homes. Econoff never saw the
original villages; however the temporary dwellings appeared
similar to other homes in rural Laos--not designed to western
standards, but not unusual for Laos. The new permanent homes
in contrast are well designed, sturdily built traditional
raised wooden Lao homes. NTPC personnel stated one of the
delays in finishing the houses was a lack of hardwood; this
was blamed on a misunderstanding with the government, since
corrected, which had resulted in delivery of an incorrect
lumber variety.


4. (C) NTPC also addressed the IRN's contention that it was
not adequately addressing biomass clearance and came out
strongly against the accusation that this had not been
previously studied. NTPC pointed out there had been numerous
studies which had led NTPC to make design changes to improve
downstream water quality--such as a weir to oxygenate the
water in the channel to the Xe Bang Fai river. NTPC also
prepared the downstream livelihood plan based on a worst case
85% fish mortality rate due to unclean water from the
resevoir. NTPC claimed that 1/3 of the biomass is above
ground and thus reachable if necessary. Econoff spoke with a
number of delegates on the issue. An ADB water engineer was
the most straightforward*he told Econoff that the first two

VIENTIANE 00000567 002.2 OF 002


years are uncertain and that it is anyones guess as to
initial water quality. NTPC argued that other similar
tropical reservoirs have seen a boom in the fish population
due to nutrients in the degrading biomass, although no
specific examples were offered. The company also stated a
study on the effect of additional above-ground biomass
clearance on downstream water quality is currently in
process. An interesting aspect of the NT II reservoir is
that it is expected to shrink by about 80% every year from
its peak water level during the wet season. If it becomes
clearly necessary, it will be possibile to remove additional
above-ground biomass in later years.


5. (C) On the meetings' second day delegates travelled
around the project area, viewing the power station,
downstream channel, and other areas of the dam. Included was
a stop at one of the new villages, Sop On. Although not yet
completed, the village appeared to offer a clear improvement
in living standards. The housing looked excellent; there was
plenty of potable water; electricity will be provided; and
each home had a cement outhouse. Econoff spoke with a number
of people who had been resettled. They were uniformly
positive about the change*nicer houses, better road access,
and overall a better lifestyle. One gentleman who was being
interviewed by the press offered a somewhat contrary opinion,
stating there was less food in the new village than the old,
but that he was still happier with his partially constructed
new house. Judging his overall credibility was difficult, as
he appeared intoxicated at 2:00 pm, an unusual situation if
he was truly going hungry. (Comment: Expectation management
is key to seeing the resettlement villages in the Lao
context. If visitors look and think "It does not look like
Fairfax", as one visitor reportedly told a senior World Bank
official, then they will likely leave disappointed in the
project's resettlement benefits. No, the village does not
look like the United States, but it does look like a nice
rural Lao village. End Comment)


6. (C) Comment: The overall impression--taking into account
that this was a company-sponsored event--was of a project
that is proceeding well, with some hiccups on the
social/relocation side, but with at least one serious
question that needs to be addressed and monitored over the
long term--what happens to the affected downstream
communities? Continued international, financial institution,
and NGO monitoring should ensure that the downstream affected
people receive the help to which they are entitled under the
NT II concession agreement. Downstream communities are
beginning to receive new livelihood training now, and the
downstream water quality is likely to improve fairly quickly
after the first few years, which should help mitigate the
need for new livelihoods. However, this issue appears to be
the most serious challenge facing NTPC and the GOL.


7. (C) IRN's May 2007 report criticizing NTPC, the World
Bank, the Asian Development Bank, and the GOL clearly hit a
nerve. Many delegates representing parties to the project
spoke in unflattering terms about IRN and its propensity to
exaggerate and misstate information, unlike other NGOs whose
comments are aimed at truly helping NT II succeed. Based on
these comments, IRN might receive a cool welcome the next
time it returns to Vientiane to discuss NT II. This is
unlikely to alter the actual monitoring of the project, which
reportedly averages about two monitoring missions a month.
End Comment
MCGEEHAN