LAOS: PLANS FOR FIVE LARGE DAMS ON THE MEKONG

C O N F I D E N T I A L SECTION 01 OF 04 VIENTIANE 000111

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E.O. 12958: DECL: 02/14/2018
TAGS: EAGR ENRG EIND SENV BEXP LA VM CH CB
SUBJECT: LAOS: PLANS FOR FIVE LARGE DAMS ON THE MEKONG
MAINSTREAM ADVANCE

REF: A. 07 VIENTIANE 390

B. 07 VIENTIANE 351

C. 07 VIENTIANE 312

D. 07 PHNOM PENH 1189

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Classified By: AMBASSADOR RAVIC R. HUSO. REASON: 1.5 B AND D


1. (SBU) Summary: Over the past year the Government of Laos
has signed 5 Memoranda of Understanding with companies from
China, Vietnam, and Thailand to develop large dams on the
mainstream of the Mekong river where both banks are within
Laos. Four of the dams are estimated to individually produce
more megawatts (MW) than Nam Theun II, currently the largest
foreign investment and largest dam in Laos with an estimated
future output of 1070 MW. An additional mainstream dam is
estimated at between 600-1000 MW. A sixth dam, planned for a
"finger" of the mainstream as it flows into Cambodia, is
currently undergoing a review of its Environmental Impact
Assessment. This dam, the Don Sahong, has been criticized by
a number of NGOs for the negative effects it could have on
Mekong fisheries. As the number of planned dams on the
mainstream and its tributaries rises in Laos, the need for a
more comprehensive look at the environmental effects of
hydropower development becomes more apparent. Not to be
overlooked are the economic opportunities the increase in dam
construction offers U.S. companies. End Summary.


2. (SBU) Refs A,B, and C discuss efforts by U.S. based
independent power producer (IPP) AES to win the right to
carry out the feasibility study for a 1260 megawatt (MW) run
of the river dam in Xayaboury province. In March 2007 this
was the first potential dam site on the Mekong itself (as
opposed to its tributaries) that the Lao Government had
opened for development. All four planned mainstream Mekong
dam sites are now undergoing feasibility studies. Although
the winner of the feasibility study does not automatically
have the right to build the dam, in practical terms the
winner has the right of first refusal and controls the
process going forward.


3. (SBU) A useful list of current and proposed hydropower
projects can be found at www.poweringprogess.org/energy
sector. Although not exhaustive, it does list over seventy
current and planned dams for the Mekong and its tributaries
in Laos. The energy development plan for Laos currently
lists four large projects for the mainstream of the Mekong,
each of which would generate more electricity than the Nam
Theun II project in central Laos. In principle, these
projects should all be run of the river dams to avoid
large-scale flooding of central Laos. Run of the river dams
on the Mekong will likely span the entire river and create
small reservoirs behind them. As a number of companies have
promised to allow traditional boat traffic to continue, they
may also use locks, or create diversions for fish and/or boat
traffic.

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China Well Represented
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4. (C) Feasibility studies for three of the planned projects
were granted to Chinese firms. The proposed Pak Bang dam,
approximately 1300 MW in Oudomxay Province, was given to
Datang International of Hong Kong (www.dtpower.com/en) on
August 30, 2007. The company was given 30 months to carry
out the feasibility study, which is supposed to cover the
technical, economic, social, and environmental aspects of the
possible project. Datang also received permission on
December 12, 2007 to carry out a survey for a large
mainstream project which is not on the power development
plan. To be located about 250 kilometers north of the
capital in the Xanakham district of Vientiane Province, the
new project is purported to have an approximate capacity of
over 1000 MW. Alex Sanford (protect),the American citizen
General Manager of the Theun-Hinboun hydropower project, told
econoff on January 8 he had been approached by Datang to help

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them in their dealings with the Lao government. According to
Mr. Sanford, Datang controls over 20 gigawatts of energy
production in China, including nuclear power plants, and is
serious about expanding into Laos. Mr. Sanford also agreed
the planned Mekong dams should be run of the river, although
he does not believe Chinese companies are likely to see
environmental considerations as a large concern. (Comment:
Mr. Sanford, a former lawyer who has also assisted the
Electrical Generating Authority of Thailand (EGAT) in its
power purchase negotiations with Laos, wears a number of hats
within the regional hydropower community and has proven a
prescient source. End Comment.)


5. (SBU) Two other Chinese firms, Sino Hydro Corporation and
the China National Electronics Import and Export Corporation,
received approval June 12, 2007 to carry out a thirty month
feasibility study for the Pak Lay project, a projected 1320
MW dam in Xayaboury Province. The projected cost of the dam
is currently $1.7 billion. Sino Hydro stated they believe a
future concession, including construction, would last 30
years. A number of recent dam projects in Laos have noted an
expected 30 year concession period, to include time for
construction. In general, dams in Laos operate on a
Built-Operate-Transfer model, with the GOL taking full
ownership at the end of the concession period.

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Vietnam and Thailand round out the concessionaires
-------------- --------------


6. (SBU) On October 17, 2007, PetroVietnam signed a
Memorandum of Understanding with the GOL to build a 1,410 MW,
$1.7 billion dam on the mainstream of the Mekong, near the
confluence with the Pak Ou river, in Luang Prabang province.
The feasibility study is under way and expected to be
completed by April 2008. According to GOL officials,
PetroVietnam will need at least an additional two years to
negotiate the entire concession package with the government.
Expected construction start date is 2010, with completion in

2015. Current plans are for the power to be transmitted to
Nghe An Province in northern Vietnam. This will likely
require construction of new power transmission lines as well.
A number of dams currently under consideration/construction
have power lines that are financed by the Asian Development
Bank (ADB). With ADB funding comes the requirement to adhere
to enhanced environmental standards. (This is also the case
with World Bank/International Finance Corporation financing
as well.)


7. (SBU) A Thai construction company, CH Karnchang (see ref
A, B, C),won the first concession in 2007 to carry out a
feasibility study on the Mekong. Its projected 1260 MW
project is located in Xayabury province on the main stream of
the Mekong. Following the 30-month feasibility study the
company will be well positioned to secure concessions for the
building and operation of the dam. Here as well the GOL
currently plans a thirty year Build-Operate-Transfer
concession. CH Karnchang is also a partner in a number of
other dams in Laos, including the 615 MW Nam Ngum II project
in Vientiane Province and the Nam Bak I and II projects in
Vientiane Province (via its subsidiary Southeast Asia Energy
or SEAN).

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Don Sahong Dam Could Severely Impact Mekong Fishery
-------------- --------------


8. (SBU) In addition to the five large dams planned for the
mainstream of the Mekong in the north/central region of Laos,
a sixth smaller project, the Don Sahong, is planned for a
channel of the mainstream where it splits into "fingers"
before entering Cambodia. The GOL and the Malaysian
engineering company Mega First Corporation Berhad (MFCB)
signed a Memorandum of Understanding in March of 2006 about
the Don Sahong hydropower project, estimated at 240 MW. The
projected dam is located in the Khone Falls area, where the

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Mekong River drops 20-30 meters from a plateau to the Mekong
plain. In June 2007 the World Fish Center published an
analysis of the dam indicating its siting along a particular
channel of the Mekong, the Hoo Sahong, would block the only
deep channel that allows fish to migrate through the falls
year round. According to the analysis, this would
"effectively block dry season fish movements between the
Lower Mekong plains and the Mekong Basin upstream." This is
important because seasonal migration between riverine
ecosystems is an essential part of the life and reproductive
cycle of Mekong River fish.


9. (SBU) The World Conservation Union (IUCN),a conservation
network uniquely composed of states, government agencies,
NGOs, and individual scientists, prepared a report commenting
on a draft Environmental Impact Assessment for the Don Sahong
project. The IUCN report was largely critical of the draft
EIA, pointing out the project was a serious threat to
migration and breeding patterns of Mekong River fish. In
particular, the Giant Mekong Catfish, which can only use the
Hoo Sahong during the dry season, would have this key access
route blocked. IUCN also criticized the lack of transparency
in the EIA process. According to the GOL's National
Hydropower Policy, promulgated in 2006, project owners are
legally required to release information including "project
consultation reports, impact assessments, mitigation plans,
and monitoring reports." A number of NGOs have previously
complained about the government's refusal to abide by its own
policy. When questioned about the policy, Mr. Seumkham
Thoummavongsa, the Deputy Chief of Social and Environmental
Management at the Ministry of Energy and Mines, appeared
unaware of the national policy promoting hydropower
transparency, and claimed the EIAs were private company
documents. (Note: Post has previously secured EIA
information unavailable to NGOs by approaching the GOL with
requests for information and pointing out the information
should, under Lao law, be public. End note.) Mr. Seumkham
also noted the Ministry was currently reviewing the Don
Sahong EIA.


10. (C) Comment: A recent Lao newspaper article quoted the
Deputy Director General of the Lao Department of Electricity
stating that Laos is aiming for 30,000 MW of installed
capacity along the Mekong and its tributaries by 2029.
Considering that Laos currently produces under 1000 MW of
electricity a year from hydropower, the government plans a
rapid and significant construction of hydropower projects on
the Mekong and its tributaries. As Laos provides more water
to the Mekong than any other country in the basin, dams here
will also have a significant effect on the overall health of
the basin and its fisheries. Post concurs with ref D, which
makes a number of useful suggestions on engaging regional
governments and suggests OES take the lead in organizing
inter-agency discussion on Washington on regional hydropower
development to develop USG policy. The Regional
Environmental Officer and USAID Bangkok will soon publish a
regionally coordinated cable containing additional
information on the challenges facing the Mekong River Basin
and discussing the need to examine these issues in more
detail.


11. (C) Comment continued: The expected rise in dam
construction in Laos brings increased economic opportunities
as well as environmental challenges. The GOL has stressed
that Laos is "open for business" and would like to see more
U.S. trade and investment. Informing U.S. companies of the
export and service opportunities available in Laos stemming
from the increase in dam construction and rapid GDP growth
should also be considered when developing a U.S. approach to
the Mekong River Basin. The Ambassador recently attended a
blessing ceremony for $30 million of Caterpillar equipment
being leased by Phu Bia Mining, an Australian firm with a
minimum thirty year concession covering over 1% of Laos.
According to Robert Allen, Phu Bia's Country Affairs Manager,
future mines in the concession will also use Caterpillar
equipment, with an expected minimum value of $10 million per

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mine. End Comment
Huso