ASIAN DEVELOPMENT BANK

PPA: LAO 27325

PROJECT PERFORMANCE AUDIT REPORT ON THE THEUN-HINBOUN HYDROPOWER PROJECT (Loan 1329-LAO[SF]) IN THE LAO PEOPLE’S DEMOCRATIC REPUBLIC

November 2002

CURRENCY EQUIVALENTS Currency Unit – kip (KN) At Appraisal (October 1994) $0.001389 KN720 At Project Completion (December 2000) $0.000122 KN8,218 ABBREVIATIONS ADB ADF EdL EGAT EIA EIRR EMCO EMD EMP FIRR LA Lao PDR MCP MDXL O&M OEM PCR PPA PPAR THPC − − − − − − − − − − − − − − − − − − − − Asian Development Bank Asian Development Fund Electricité du Laos Electricity Generating Authority of Thailand environmental impact assessment economic internal rate of return Environmental Management Committee Office Environmental Management Division environmental management plan financial internal rate of return Loan Agreement Lao People’s Democratic Republic mitigation and compensation program MDX Lao Public Company Limited operation and maintenance Operations Evaluation Mission project completion report power purchase agreement project performance audit report Theun-Hinboun Power Company WEIGHTS AND MEASURES GWh (gigawatt-hour) km kV (kilovolt) kWh m m 3/sec MW (megawatt) MWh NOTE (i) (ii) The fiscal year (FY) of the Government ends on 30 September. In this report, “$” refers to US dollars. Operations Evaluation Department, PE-610 − − − − − − − − 1,000,000,000 watt-hours kilometer 1,000 volts kilowatt-hour meter cubic meter per second 1,000,000 watts megawatt-hour At Operations Evaluation (August 2002) $0.000095 KN10,480

KN1.00 $1.00

= =

CONTENTS Page BASIC DATA EXECUTIVE SUMMARY MAP I. INTRODUCTION A. B. C. D. E. F. II. Rationale Formulation Purpose and Outputs Cost, Financing, and Executing Arrangements Completion and Self-Evaluation Operations Evaluation iii iv vii 1 1 1 2 2 3 3 4 4 6 7 7 7 8 8 9 10 11 12 12 15 15 16 16 16 16 16 17 17 17

PLANNING AND IMPLEMENTATION PERFORMANCE A. B. C D. E. Formulation and Design Achievement of Outputs Cost and Scheduling Procurement and Construction Organization and Management

III.

ACHIEVEMENT OF PROJECT PURPOSE A. B. C. D. Operational Performance Performance of the Operating Entity Financial and Economic Reevaluation Sustainability

IV.

ACHIEVEMENT OF DEVELOPMENT IMPACTS AND GOALS A. B. C. Environmental and Social Impacts Macroeconomic Impacts Impact on Institutions and Policy

V.

OVERALL ASSESSMENT A. B. C. D. E. F. G. Relevance Efficacy Efficiency Sustainability Institutional Development and Other Impacts Overall Project Rating Assessment of ADB and Borrower Performance

ii

VI.

ISSUES, LESSONS, AND FOLLOW -UP ACTIONS A. B. C. Key Issues Lessons Identified Follow-Up Actions and Recommendations

18 18 19 19

APPENDIXES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Technical Note on Project Design Operational Performance of the Project Project Cost Comparison Organizational Charts Financing and Ownership Structure Compliance with Loan Covenants Technical Note on Project Operation Financial Statements of the Theun-Hinboun Power Company Financial and Economic Internal Rates of Return Environmental Management Division Photographic Details Mitigation and Compensation Program and Its Implementation 21 26 28 29 31 32 33 37 40 44 45 51

BASIC DATA Loan 1329-LAO(SF): Theun-Hinboun Hydropower Project
Project Preparation/Institution Building TA No. TA Project Name Type 2054 Theun-Hinboun Power ADTA Person-Months 5.0 As per ADB Loan Documents 270.0 270.0 60.0 Amount ($) 100,000
1

Approval Date 4 Jan 1994

Key Project Data ($ million) Total Project Cost 2 Foreign Exchange Cost ADB Loan Amount/Utilization ADB Loan Amount/Cancellation Amount of Cofinancing Key Dates Fact-Finding Appraisal Loan Negotiations Board Approval Loan Agreement Loan Effectiveness First Disbursement Project Completion Loan Closing Months (effectiveness to completion) Key Performance Indicators (%) Financial Internal Rate of Return Economic Internal Rate of Return Internal Rate of Return to Government Borrower Executing Agency Mission Data Type of Mission Consultation Fact-Finding Reconnaissance Appraisal Project Administration Review Project Completion 3 Operations Evaluation

Actual 240.2 240.2 57.7 2.3 70.0 Actual 10–26 Jan 1994 27 Jun–12 Jul 1994 19–21 Sep 1994 8 Nov 1994 1 Dec 1994 19 Jan 1996 23 Jan 1996 31 Mar 1998 14 Oct 1998 26 PCR 19.5 — 30.8 PPAR 17.0 18.5 28.3

Expected

1 Mar 1995 31 Mar 1998 30 Jun 1998 37 Appraisal 18.7 — 23.6 Lao People’s Democratic Republic Theun-Hinboun Power Company Limited

No. of Missions 1 1 1 1 7 1 1

No. of Person-Days 16 70 20 52 62 38 36

— = not calculated, ADB = Asian Development Bank, ADTA = advisory technical assistance, PCR = project completion report, PPAR = project performance audit report, TA = technical assistance. 1 Represents approved amount of technical assistance. 2 Since most of the costs were incurred in foreign currency, local currency cost was not specified in the report and recommendation of the President. 3 The Operations Evaluation Mission comprised H. Hettige (Senior Evaluation Specialist/Mission Leader), V. BuhatRamos (Evaluation Analyst), W.M. Lewis (Staff Consultant/Power Sector Specialist), and K. Moua (Domestic Consultant/Environment and Social Specialist) from 5 to 15 August 2002. V. Lavongvilay (Assistant Project Analyst, ADB Lao Resident Mission) joined the team during discussions in Vientiane.

EXECUTIVE SUMMARY In 1994, the Asian Development Bank (ADB) approved a loan of $60 million from the Asian Development Fund (ADF) for the Lao People’s Democratic Republic (Lao PDR) to implement the first joint-venture hydropower project with foreign investors. The objective was to support economic growth by enhancing foreign exchange earnings through export of electricity to Thailand. A feasibility study of the Theun-Hinboun Hydropower Project (the Project) was completed in 1993 with a grant financing from the Norwegian Agency for International Corporation. The Project was designed as a transbasin hydropower scheme diverting the Nam Theun by means of a dam consisting of a combination of radial gates, flap gate, and a weir. The flow is diverted through an underground tunnel to a 210-megawatt surface powerhouse and is discharged to the Nam Hai, a tributary of the Nam Hinboun. An 86-kilometer transmission line to the border at Thakhek exports power to the Electricity Generating Authority of Thailand (EGAT). A public-private partnership, the Theun-Hinboun Power Company (THPC) Limited, was formed in 1993 to plan, finance, construct, own, and operate the Project. Electricité du Laos (EdL), the state-owned power utility, contributed 60% of the share capital, and two foreign investors, MDX Lao Public Company Limited and Nordic Hydropower AB, 20% each. Assisting the transition to a market economy by supporting such private sector participation, ADB acted as the lead coordination agency for the Government’s negotiations with the foreign investors and provided legal and financial advice in the form of a technical assistance grant. A power purchase agreement (PPA) was signed with EGAT in 1996, guaranteeing an offtake of 95% of THPC’s power generation estimated to average 1,645 gigawatt-hours per annum. Of the total estimated project cost of $270 million, $110 million (40%) was to be equity financing and $160 million (60%), debt financing. The Government relent $51.5 million of the ADB soft loan to EdL at 6.2% interest rate for its contribution to equity and the balance of $8.5 million directly to THPC at 10% interest rate. Commercial cofinancing was arranged for the remaining amount. The foreign exchange risk of the ADB loan was passed on to EdL and THPC, and the latter was appointed the Executing Agency. ADB financing played a major role in attracting private sector participation, as there had been previously no direct foreign investment of this magnitude in the country nor any commercial lending. The PPA between THPC and EGAT is based on the take-or-pay principle, has a term of 25 years from the start of commercial operation, and contains an option for renegotiating the tariff after 10 years. The tariff in the first year of operation was $0.0484 per kilowatt-hour, and increased by a fixed rate of 1% per annum after 1999. The payment is determined half in US dollars and half in baht at a fixed exchange rate of $1.00 = B25.35. Accordingly, the PPA has had both advantages and disadvantages for THPC. While the quantity of electricity sold is guaranteed, THPC’s revenues are affected by two risks. First, if the US inflation rate increases by more than 1%, the tariff will decrease in real terms. Second, the baht exchange rate fixed until 2008 means that revenue in US dollars depends on the fluctuations in this rate. To mitigate the latter risk, THPC has recently refinanced its commercial loans aligning the currency profiles of the debt payments with those of the revenues. Learning from the experience in the Asian financial crisis, future PPAs should balance considerations of the quantity sold with those of potential revenues and perhaps index the tariff at least partially to the inflation rate and/or provide a hedging mechanism against the foreign exchange risk.

v Despite a delay in loan effectiveness and several unforeseen construction problems, the Project began operation on schedule, in March 1998, due to efficient project management by THPC. As a result of significant cost savings in main civil works, mechanical works, and electrical equipment, the Project was completed at a cost of $240 million, 11% below the appraisal estimate. The Project has achieved its intended purpose. It is currently the largest foreign exchange source in the Lao PDR. THPC’s sales revenues increased from $42 million in 1998 to $58 million in 2001, and are expected to be maintained at this level in the future. The country’s current account deficit as a percentage of the gross domestic product improved from 16.5% in 1997 to 6.9% in 2001. THPC’s financial performance is very good. THPC has a healthy profit and maintains a comfortable debt-servicing capacity. The Project generated a net income of $116 million from 1998 to 2001, with an additional $156 million expected during 2002–2006. THPC’s dividend payments in the last 4 years amounted to $93 million, of which $56 million went to EdL. The use of ADF for an essentially commercial project was questioned within ADB during loan processing, but it was agreed that since the Lao PDR was eligible for ADF borrowing, such use would be appropriate provided that earnings from the Project were utilized to increase the social expenditure of the Government up to 20% in 2000. Although this was not stipulated as a covenant, the total share of education, health, and social welfare in the national development budget did increase from 3% in 1994 to 21% in 2001. In addition to the dividends to EdL, THPC pays annual royalties to the Government amounting to about $3 million. From 2004 onwards, THPC will pay annual taxes of about $5 million. The feasibility study included an environmental impact assessment that was completed in May 1993, but due to the lack of baseline data on environmental and social impacts, the extent of these impacts was not properly understood; this resulted in some design weaknesses. The Project was funded and constructed before ADB had fully developed its policies on environmental and social issues, and the lack of baseline information was dealt with by postponing the study of impacts to post-construction period. The Loan Agreement stipulated that the Government should complete a post-construction environmental audit of the Project, and implement an environmental management plan for the project-affected area satisfactory to ADB. During implementation and initial operation, it became apparent that the environmental and social impacts were more extensive than anticipated and various parties, including international nongovernment organizations, raised their concern (e.g., the number of villages affected by loss of river gardens, erosion, and impacts on fisheries increased from 21 to 57). A more detailed agreement regarding mitigation measures was signed between THPC and the Government, and THPC allocated more funds for such purpose. Additional independent studies provided better documentation of the baseline conditions and both THPC and EdL committed to mitigating impacts that were caused by the Project. However, at the time of the Project Completion Review Mission in March 2000, some impacts were not yet mitigated to the satisfaction of ADB, and the related loan covenants were not fully complied with. To remedy the environmental and social problems, a 10-year mitigation and compensation program (MCP) was agreed upon in June 2000, and a new Environmental Management Division was formed within THPC in 2001 to implement it. The MCP is comprehensive and ambitious, and tries to adopt best practices in terms of participation. Particular attention needs to be paid to implement it according to the agreed time frame, as well as to enhance ownership of the village-level projects, encourage more female participation in activities, and establish better collaboration with local government agencies to ensure sustainability of the MCP. Lessons learned from the Project in terms of environmental and social impacts indicate that implementation should not proceed without developing adequate baseline

vi data and designing a comprehensive mitigation plan. Sufficient time and staff should be allocated for this purpose. To summarize, the Project is well designed and its revenue contributes substantially toward the Lao PDR’s foreign exchange earnings. At less than 2 US cents per kilowatt-hour, the cost of generation is very low. The recalculated financial and economic internal rates of return are 17.0% and 18.5%, respectively. Dividends received by EdL have strengthened its financial health, and the royalties and taxes paid to the Government have allowed it to increase social expenditures significantly. The PPA with EGAT ensures financial sustainability. The Project is also physically sustainable, provided preventive maintenance is carried out. Important lessons have been learned in terms of timely and comprehensive mitigation of social and environmental impacts, and these are being addressed. The Project can serve as a model for effectively combining multilateral and bilateral aid, and establishing a successful public-private partnership that benefits the country. Consequently, the Project is rated successful, bordering on highly successful. The lessons learned indicate that key ingredients for success of such joint-venture power projects are (i) thorough technical and economic evaluation of a suitable hydropower site, (ii) choice of a group of developers with relevant experience, (iii) negotiation of a PPA that is advantageous to all parties involved, and (iv) the willingness to learn from mistakes made and take responsibility to mitigate them.

I. A. Rationale

INTRODUCTION

1. The Lao People’s Democratic Republic (Lao PDR) had been exporting surplus power to Thailand since 1972, and this was seen as a major source of foreign exchange for the country in the 1990s. Reflecting the objective of increasing foreign exchange earnings, the primary thrust of the Asian Development Bank’s (ADB’s) country operational strategy1 was to assist the Government in its transition to a market economy by supporting private sector activity and augmentation and diversification of exports, and addressing basic needs and human resource development. Based on its past experience in project implementation in the Lao PDR, ADB’s strategy in the energy sector was to help the Government (i) establish a policy and institutional framework conducive to private sector participation; and (ii) promote direct foreign investments, particularly in the development and export of hydropower. B. Formulation

2. The hydropower potential of the Nam Theun (river)2 had been recognized for a long time. Site investigations for the Theun-Hinboun Hydropower Project (the Project) were financed by a grant from the United Nations Development Programme. In 1992, the Ministry of Industry and Handicrafts awarded the contract for a feasibility study to consultants from Norway. The study, which was financed by a technical assistance grant from the Norwegian Agency for International Corporation, was completed in May 1993. During a consultation mission in February 1993, the Government requested ADB to act as the lead coordinating agency for its negotiations with foreign investors, and provide financial and legal advice.3 In June 1993, the Government signed a memorandum of understanding with two foreign investors, MDX Lao Public Company Limited (MDXL) and Nordic Hydropower AB, to jointly develop the Project. A joint-venture company, the Theun-Hinboun Power Company (THPC) Limited, was incorporated for this purpose under the foreign investment law of the Lao PDR. Electricité du Laos (EdL), the state-owned power utility, was to contribute 60% of the share capital, and the two foreign investors, 20% each. The license agreement with the Government, signed in October 1994, allowed THPC to plan, finance, construct, own, and operate the Project for 30 years from the start of commercial operation, with the provision to transfer it to the Government thereafter. The agreement included provisions for a 5 -year tax holiday and a 5% royalty payment to the Government, and limited THPC’s overall responsibility for the mitigation of environmental and social impacts to $1 million. ADB’s Fact-Finding Mission visited the Lao PDR in January 1994 and the Appraisal Mission, in July 1994. In November 1994, ADB approved a loan of $60 million equivalent from the Asian Development Fund (ADF) to the Lao PDR to finance its contribution to THPC. 3. The Project was designed as a transbasin hydropower scheme diverting the Nam Theun in the Borikhamxai Province by means of a dam consisting of a combination of radial gates, flap gate, and a weir (see Map). The flow was to be diverted through an underground tunnel and used for generating 210 megawatts (MW) in a surface powerhouse. The flow was to be

1

2 3

ADB. 1991. Country Operational Strategy in the Lao PDR Development Assistance in a Transition Economy. Manila. Nam means river in the local language, and this will be used throughout the report for consistency. Legal advice was provided under TA 2054-LAO: Theun-Hinboun Power, for $100,000, approved on 4 January 1994.

2 discharged to the Nam Hai in the Khammouan Province, a tributary of the Nam Hinboun. 4 An 86-kilometer (km) transmission line was to be built up to the border at Thakhek to export the major portion of the power output, estimated to average 1,645 gigawatt-hours (GWh) per annum, to the Electricity Generating Authority of Thailand (EGAT). The power purchase agreement (PPA) with EGAT was signed in June 1996. The Government and EdL were expected to receive annual foreign exchange revenues of about $25 million from the Project’s royalties, taxes, and dividends. C. Purpose and Outputs

4. The main objective of the Project was to support economic growth in the Lao PDR by enhancing foreign exchange earnings through export of electric power. The Project represented the new policy direction of the power sector by encouraging private sector investment. For the first time, the Government formed a joint venture with the private sector for financing, constructing, and operating a power plant. The physical outputs consisted of the following components: (i) civil works associated with the intake weir, waterways, powerhouse, and auxiliary structure; (ii) supply and installation of related facilities (turbines, generators, auxiliaries, switchgear, and metal structures); and (iii) construction of the transmission line, metering station, and switching station. D. Cost, Financing, and Executing Arrangements

5. Of the total estimated project cost of $270 million, $110 million (about 41%) was to be equity financing and $160 million, debt financing (Table 1). While the equity was provided by EdL and the two foreign investors, the balance of about 59% was to be met by commercial cofinancing, through a combination of US dollar loans from export credit agencies and multilateral-supported debt facilities and baht loans from a syndicate of Thai commercial banks. The two foreign investors indicated in the shareholders agreement that if all efforts for arranging commercial financing on a project-specific basis were unsuccessful, they would provide corporate guarantees with each assuming half the responsibility for remaining financing requirements. The initial risk of the Project was thus borne by the foreign shareholders. At the time, the legal framework in the country was inadequate for the Project to be commercially funded. Therefore, ADB financing played a major role in promoting private sector participation. Under two subsidiary loan agreements, the Government was to relend $51.5 million of the ADB soft loan of $60 million to EdL at 6.2% interest rate for its contribution as equity capital and the balance of $8.5 million directly to THPC at 10% interest rate. In addition, ADB, on an exceptional basis, approved in November 1996 a limited waiver of the negative pledge stipulated in the Loan Agreement (LA), waiving ADB’s first right to THPC’s assets (para. 10). This was intended to assist THPC in obtaining commercial loans against the creation of security for THPC’s assets, thereby promoting commercial financing of the Project. THPC was appointed the Executing Agency.

4

Both Nam Theun and Nam Hinboun flow west to join the Mekong River at the border with Thailand. Downstream of the weir, Nam Theun is also called Nam Kading.

3 Table 1: Summary of Estimated Costs and Proposed Financing ($ million)
Item Civil Works Mechanical and Steel Works Electrical Equipment Transmission Line Consulting Services Project Management and Training Contingencies Financing Fees Interest During Construction Preoperational Expenses Initial Working Capital Total
a

Cost 106.0 22.0 43.0 17.0 9.0 7.0 23.5 3.4 29.0 6.8 3.3 270.0

% of Total 39.3 8.2 15.9 6.3 3.3 2.6 8.7 1.3 10.7 2.5 1.2 100.0

Source Equity EdL NH MDXL Subtotal Debt Government Commercial Loans Export Credits Subtotal Total

Amount 66.0 22.0 22.0 110.0

% of Total 24.5 8.1 8.1 40.7

8.5 81.5 70.0 160.0 270.0

3.1 30.3 25.9 59.3 100.0

EdL = Electricité du Laos, MDXL = MDX Lao Public Company Limited, NH = Nordic Hydropower AB. a Including land acquisition and access roads.

E.

Completion and Self-Evaluation

6. Construction was completed in March 1998, and the Project began commercially operating and exporting at the end of the same month. The ADB loan was closed in October 1998, 3.5 months after the original closing date, and was 96% utilized. The project completion report (PCR) was circulated in December 2000, following the Project Completion Review Mission of March 2000. B ased on its timely completion, cost savings, high profitability, and comfortable debt-servicing capacity, the PCR rated the Project successful. The PCR also described the Project’s important impact on capacity building in the Lao PDR in terms of exposure to new concepts and skill building. It attributed the concerns that arose on environmental and social impacts during implementation to the lack of baseline information and limited capacity of the Environmental Management Committee Office (EMCO) established under the Project. It pointed out that EMCO failed to expand the environmental management plan (EMP) as expected, to meet the detailed design requirements. The PCR was comprehensive and objective, and the Operations Evaluation Mission (OEM) generally agrees with its findings. However, the PCR was not clear on the assumptions underlying the financial projections, and the financial and economic analysis. There was no discussion of the projected small increases in foreign energy sales and large increases in domestic sales. There was also no apparent adjustment for the predicted effects of Nam Theun 2, an upstream hydropower development, which was estimated to reduce the power generation capacity of the Project by 275 GWh per annum. The internal rate of return as calculated at the appraisal and PCR stages reflected the perspective of the Government, rather than that of the country. F. Operations Evaluation

7. This project performance audit report (PPAR) is based on a review of the project documents and the various relevant studies, discussions with ADB staff, and persons met by the OEM in the field. The OEM visited the Lao PDR, including the project site, in August 2002, inspected the power plant facilities, and met with relevant government officers, project implementation officers, and representatives of other international organizations. It held focus group interviews in five villages in the affected area. The PPAR assesses the relevance, efficacy, efficiency, sustainability, and institutional development impact of the Project to identify lessons and follow-up actions for future ADB operations. The evaluation also focuses on other

4 aspects, including project financing mechanisms, PPA, macroeconomic impacts, social and environmental impacts, and mitigation measures. The views of concerned ADB departments and offices, and those of the Government and THPC have been considered in finalizing the PPAR. II. A. PLANNING AND IMPLEMENTATION PERFORMANCE

Formulation and Design 1. Power Purchase Agreement

8. The PPA between THPC and EGAT was a key element of project formulation. 5 It guarantees the sale of 95% of the energy generated on a take-or-pay basis with half of the payment to be made in baht and half in US dollars, using the exchange rate of $1.00 = B25.35 prevailing on the execution date of the PPA. It has a term of 25 years from the start of commercial operation, and contains an option for renegotiating the tariff after 10 years. The tariff in the initial year of operation was $0.0484 per kilowatt-hour (kWh), with a fixed increase by 1% per annum after 1999. 6 Accordingly, there are three important aspects of the PPA. First, the bulk of the electricity produced has a guaranteed market. This has been a major advantage for THPC as there has been no other comparable market for its product. Second, the fact that the tariff determined in US dollars can escalate only by 1% per annum during the first 10 years of operation implies a decline in real terms if the annual US inflation rate is higher. Third, the fact that the exchange rate for baht payments is fixed results in decreasing revenues in US dollar terms if the baht depreciates. In hindsight, the last two factors have been quite risky to THPC although this was not much anticipated at the time of appraisal (para. 52). 9. The technical aspects of the PPA are comparable to similar agreements for the purchase and exchange of power currently in use in developed countries. The PPA includes provisions on the development of interconnection facilities, dispatch and sale of the generated energy, and supply of energy to the power plant by EGAT when needed; defines and provides examples as to the method of calculation of output and foregone generation; and sets standards for metering and confirmation of it. Daily confirmation statements of the amounts of generation, outgoing energy, spilled water, foregone generation, energy from EGAT to THPC, losses, etc., are required by the PPA. The completeness of the PPA requirements has contributed to transparency in the dealings between the parties involved and enhanced the sense of partnership in the Project. The PPA provides for liquidated damages in the event that THPC plant fails to deliver power quantities it projects and EGAT subsequently requests. Another PPA between THPC and EdL governs the sale of energy to EdL rural consumers near the project area. This agreement also covers the provision of energy by EGAT through the switching station of the power plant when the latter is not generating. The tariff for EdL purchases is set at 96.2% of the tariff with EGAT and payment terms are similar to EGAT’s PPA. 2. Financing Mechanisms

10. The financing mechanisms of the Project and the associated risks were carefully considered during project formulation. The foreign exchange risk on the ADB loan was passed by the Government on to EdL and THPC in the subsidiary LAs. The main risk associated with
5 6

Negotiations were initiated in November 1993 and an agreement was reached on the tariff in June 1994. The PPA was signed in June 1996 after the development of EGAT’s standard grid code for all its power purchases. If in the 11th year the parties cannot agree on modification, the tariff will continue to escalate at 1% per annum.

5 the Project at formulation was the possible reluctance of commercial banks to provide funding for a joint venture in the Lao PDR. As there had been no commercial lending to the country previously, several measures were taken to minimize the perceived political risk. First, THPC was to set up an offshore escrow account into which all payments from EGAT were to be made, and the account was to be pledged to project lenders throughout the term of the borrowing. Second, in the absence of a sufficiently developed market-oriented legal framework in the country, a technical assistance was provided by ADB (footnote 3) to advise the Government in the preparation of legal documents. Third, the shareholders and license agreements for the Project contained protection arrangements to private investors similar to those found in the legislation of other countries. Fourth, to help the private sector partners limit the sovereign risk, the Lao PDR agreed to join the World Bank Group’s Multilateral Investment Guaranteed Agency. Finally, during implementation in November 1996, ADB approved a limited waiver of the negative pledge clause to provide security for commercial loans (para. 5). These measures were very helpful in arranging financing of the joint venture, which was the first to attract private capital for an infrastructure project of this magnitude in the Lao PDR.7 11. During meetings with ADB management, the use of ADF for what was essentially a commercially viable project was questioned. Since the Lao PDR’s borrowings were all from ADF, the Appraisal Mission was instructed to request the Government to use the revenues generated from the Project to finance other development activities, particularly in social sectors. Staff confirmed that the Government had agreed to increase the development budget share for social sectors from about 3% in 1994 to 20% by 2000. However, there was no specific loan covenant regarding this. 3. Environmental and Social Concerns

12. Due to lack of baseline information, the environmental impact assessment (EIA) was inadequate in its coverage and depth of analysis of environmental and social impacts. Based on appraisal findings, strengthening of the analysis of environmental and social impacts and issues was recommended. As some of the impacts were difficult to determine at that stage, a monitoring program to commence immediately following ADB approval was outlined. Particular covenants were included in the LA for the Government to have a post-construction environmental audit prepared and an EMP implemented in the affected area. 4. Technical Features

13. The Project, as constructed, is generally well designed in that it makes efficient use of the available head and flow at the site (Appendix 1). The estimated levelized cost of generation at approval of $0.023 per kWh attested to the suitability of the site for construction and the Project’s feasibility. Given this, it appears that no cost benefit analysis was done for alternative locations. The construction of the powerhouse and substation made efficient use of the space; their layout is conducive to maintenance. Configuration of the diversion dam and associated headpond was based on physical model studies carried out in Norway. 14. The inclusion of the inflatable rubber gates along the weir section has allowed the crest of the dam to be adjusted by 3 meters (m). In high flow conditions, the lowered rubber gates would reduce the upstream elevation increase caused by the presence of the dam. As some
7

In early 1997, the Project and Trade Finance Journal, as well as the Asiamoney Magazine, selected THPC’s financing package as the project finance deal of the year for 1996. In September 2002, the Project Finance International selected THPC’s financing package as one of the top 10 financial deals made over the past 10 years.

6 problems with operation and maintenance (O&M) of the rubber gates have occurred, they are planned to be replaced with concrete in the coming dry season. The replacement will fix the weir crest at 400 m, which is the nominal operational elevation of the Project. It will also enable the operators to maintain the headpond at a uniform level during low flows, which has not been possible due to the frequent failures of the rubber gates. The headrace tunnel appears to have been well designed. The number of radial gates (two) and their placement tend to draw flow across the intake, which results in a gradient of the flow to be diverted to generation. In addition, large floating and submerged debris such as trees are also brought within the draw of the intake. This leads to the debris impinging on the trash racks and obstructs the flow to the intake. The computerized system for plant operation requires various inputs, including rating curves for gates. According to operational personnel, the original rating curves were inaccurate and have been replaced with upgraded versions recently. 15. The powerhouse and the turbine-generators are well designed and adapted to the site. The use of computer control and digital solid-state instrumentation and sensors in a country without adequate computer maintenance and repair skills may have been questionable at the outset. However, the OEM was informed that the power plant staff includes one engineer trained in maintenance of this system. The system has generally performed well to date. A design flaw corrected after initial operation was the lack of adequate airconditioning throughout the facility to sufficiently cool the equipment. The double-circuit transmission line is well designed in terms of capacity and configuration, but evidence indicates that there have been problems with respect to shielding of lightning. In the period January 1999–June 2002, there have been eight incidents of both circuits being simultaneously interrupted by lightning strikes. The 86 km route of the transmission line was selected for cost-effectiveness following practically a straight line through the limestone-protected area to Thakhek substation. If, as can be suspected, the majority of the two-circuit outages due to lightning have been along the line segment traversing the limestone ridge, an alternative, slightly longer, routing may have been better. B. Achievement of Outputs

16. The Project is operated from a computerized control facility. Once the potential generation is determined by the water level, the actual generation level is set by EGAT’s energy dispatch schedule, based on a nominal take of 95% of the available energy at the site. 8 Although their nominal capacity is 210 MW, the two units have been operating at as high as 220 MW on numerous occasions. Of the electricity generated, 95–98% has actually been exported to EGAT since March 1998. The Project also supplies electricity to the nearby villages as per the PPA with EdL. Since the sales to EdL are often less than 1% of the generation potential, the excess water is released downstream to Nam Theun (Nam Kading). To date, the highest sum of dispatched and foregone generation was recorded in 2000 at 1,589 GWh, or 97% of the feasibility study estimate of 1,645 GWh. The increase in the initially stipulated minimum flow release of 2 cubic meters per second (m3/sec) to 5 m3/sec minimum flow and a plant availability factor of about 96%, as against 98% expected for this type of power plants, may have contributed to the slightly lower-than-expected annual output. Nevertheless, it is too early to draw firm conclusions on the basis of only about 4 years of operation (Appendix 2).

8

During several months, EGAT dispatches all available energy.

7 C. Cost and Scheduling

17. The actual project cost was $240 million, 11% below the appraisal estimate of $270 million (Appendix 3). In fact, cost savings were even higher, but part of them (about $15 million) was allocated to reserves for debt service and O&M. The cost per installed kilowatt, excluding the transmission line, was $1,069, which compares well with typical run-of-river hydropower plants and illustrates the high cost efficiency of the Project. Major cost savings were experienced on the main civil works, hydraulic steelworks, mechanical and electrical equipment, and the transmission line (despite the difficulties of crossing the limestone ridge). The savings may have partly resulted from the elimination of one gate in the weir, but additional expenses were incurred for redesign of the powerhouse foundation due to unexpected subsurface conditions, changes in weir height, increased preoperational expenses, and the addition of the re-regulating pond downstream of the powerhouse. 18. The loan effectiveness was delayed by over 10 months until the PPA was finalized with EGAT. According to the PCR, several construction activities experienced delays of a few months, some of which could be attributed to the rather short period for planning, final design, preparing documentation for the construction and procurement contracts, and bidding. These activities had to be accommodated between the completion of the feasibility study in May 1993 and award of the first contract in late 1994. Since the PPA with EGAT was not finalized until mid-1996 and contained design requirements not known at the time of contract award, a number of design variations became necessary. THPC’s project management efficiently handled implementation and met the PPA target date. Testing began in January 1998, and commercial operation in March 1998, as scheduled. D. Procurement and Construction

19. International competitive bidding procedures were used for all goods procured under the Project, and ADB-financed items were procured in accordance with ADB’s Guidelines for Procurement. The construction work followed a very tight schedule. The PCR describes in detail the challenges that had to be faced to complete the construction of civil works. The problems encountered included (i) lack of good roads in the area, (ii) onset of the rainy season from midMay to mid-October, (iii) lack of adequate equipment, (iv) unavailability of skilled operators of equipment, and (v) complicated ground conditions. To expedite the transmission line construction, especially over the limestone ridge, THPC split the contract and awarded a supplementary contract for the most demanding area over the ridge. As a result, construction of the transmission line was completed with a 6-month delay, but the electrical works contract was completed on time to meet the target for commercial operation. Despite the problems encountered, timely interventions by THPC and the good performance by most contractors enabled the Project to meet its schedule. E. Organization and Management

20. THPC was able to react to the delays that occurred in an efficient manner and make alternative decisions to continue project implementation. Implementation was overseen by an executive committee of three persons each representing a shareholder. The day-to-day execution of implementation responsibilities was allocated to the two foreign partners. MDXL was in charge of financial management. Nordic Hydropower AB, which was given the responsibility for physical implementation, assigned the project management part to Statkraft SF, and awarded the contract for consulting services to Norconsult International AS, and the contract for training, project operation, and maintenance, to Vattenfall AB. EdL seconded a

8 majority of the technical inspectors during construction. The diverse experience of the shareholders in terms of construction and operation of hydropower plants (Nordic Hydropower AB) and financial management (MDXL) enabled them to respond quickly and appropriately to the challenges of site-specific construction and the Asian financial crisis. The ability to meet the implementation schedule and achieve significant cost savings indicate also good cooperation from the Government and EdL, and good performance by the consultants. Organizational charts of THPC and the power plant are shown in Appendix 4. 21. Although the ownership of THPC has remained the same since 1994, there has recently been a change in the ownership structure of one of the shareholders (Appendix 5). Until 2001, Statkraft SF of Norway and Vattenfall AB of Sweden jointly owned Nordic Hydropower AB, which in turn owned 20% of THPC shares. Following the recent sale of shares by Vattenfall AB, Statkraft now is the sole owner of Nordic Hydropower AB. THPC awards a separate O&M contract every 3 years. Vattenfall AB has held this contract to date. The power plant is managed by a plant manager who is responsible for the day-to-day operations. The OEM observed that the power plant and its premises are very well managed in terms of allocation and performance of duties, maintenance, general housekeeping, availability of facilities to employees, and environmental friendliness. Following the expiration of the latest O&M contract, Statkraft will assume this responsibility from January 2003 onward. 22. Compliance with Covenants. The Project required a multitude of agreements, including shareholders agreement among the owners, license agreement with the Government, PPAs with the EGAT and EdL, LA with ADB, and several subsidiary agreements between different parties. ADB legal advice (footnote 3) was helpful in terms of drawing up the different provisions that were important to these agreements. The LA between the Government and ADB comprised covenants on engagement of local staff, amendment of legal agreements, entering into suitable O&M agreements, and environmental and social mitigation obligations. The Project Agreement between ADB and THPC included particular covenants on financial obligations, submission of progress reports, and financial statements. By project completion, all the covenants were fully complied with except for the two covenants relating to environmental and social impacts (Appendix 6). While one of these was substantially complied with at the time of PCR preparation in 2000, the other on preparing the EMP was still under implementation at the time. These covenants were generally complied with at the time of the OEM. THPC established EMCO in 1996 to oversee the implementation of environmental and social mitigation measures and the monitoring program. The effectiveness of these measures and the program is discussed in paras. 33–39. III. A. ACHIEVEMENT OF PROJECT PURPOSE

Operational Performance 1. Operations

23. The Project has achieved its intended purpose. It is currently the largest foreign exchange source in the Lao PDR. The actual power output is decided according to the water availability and EGAT’s needs. The operators inform the EGAT dispatcher of the projected generation available, and the EGAT dispatcher advises the level of generation required for the following day. The operators then can control the generation level by the computer or manually. Available energy not dispatched by EGAT is calculated and the result is provided to both parties. If the required dispatch schedule cannot be met because of equipment outage or operational difficulties, liquidated damages for the shortfall are paid by THPC as per the PPA.

9 The operators are well trained and competent in their assigned responsibilities. While there are some problems with cooling systems, software, and trash handling in day-to-day operations, most have been handled well. From January 1999 to June 2002, the average availability of the generating units was about 96% (Appendix 2). The recorded descriptions of the various forced outages indicate that simultaneous tripping of the 230 kilovolts transmission circuits caused a loss of about 2.0 GWh or 16% of the liquidated damages (Appendix 7). Other causes included component failures, cooling water problems that caused overheating of bearings, oil leaks of various kinds, and one incident of operator error. Total forced outage time was 54 hours in 2000, less than 4 hours in 2001, and 14 hours in the first half of 2002 (mainly as a result of an oil leak in a circuit breaker). It appears that a significant improvement has been achieved in this regard.9 Elimination of the outages of both transmission circuits by lightning will further improve the power plant reliability. 2. Maintenance

24. O&M has been exemplary to date. A review of the operators’ activities indicates a wellorganized program of maintenance that is performed by trained personnel and appears to be of very high quality. The operators are diligent in their daily inspection. Preventive maintenance of the transformers and circuit breakers is adequate. The spare parts inventory is adequate as well. Specialty repairs and periodic preventive maintenance actions are performed by outside vendors on scheduled or as-needed basis. The control and supervisory control and data acquisition software is maintained in-house by a vendor-trained engineer. To further improve preventive maintenance, the trash rack rake could be operated every 8 hours to ensure debris does not accumulate at the rake. In addition, it is essential to do periodic mapping of sediment accumulation in the headpond and re-regulating pond. Maintenance in the form of housekeeping and general upkeep of the facilities is very good and reflects a managerial commitment to high standards in that regard. Maintenance of the transmission line has been light to date. There were insulator failures at start-up. Discussion with the maintenance engineer indicates awareness of the need for periodic attention to tower grounds and foundations and for maintaining the right-of-way. Due to flooding conditions along the right-of-way at the time of the OEM, only the portion of the line from the substation to about 2 km past the re-regulating pond could be observed. Both the tower foundations and the steel lattice members were found to be in good condition. B. Performance of the Operating Entity

25. THPC faced temporary financing problems during implementation because of the Asian financial crisis. The planned financing was a blend of US dollar loans from export credit agencies and multilateral supported debt facilities, and baht loans from a syndicate of Thai commercial banks, structured to parallel the 50:50 US dollar/baht currency profile of the PPA. The flotation of the baht in July 1997, coupled with the subsequent major devaluation and financial crisis, had a dual impact on THPC’s financing. First, the planned baht funds were insufficient to pay for the costs that were incurred in US dollars. Second, the inability to drawdown the expected baht loans and their increasing cost compelled THPC to borrow about $10 million at a higher cost. Nevertheless, as a result of the construction cost savings, the actual debt portion at project completion was $130 million (54%), well below the appraisal estimate of $160 million (59%).

9

In addition to the forced outages, periodic inspections entail planned outages. Although these outages do not result in liquidated damages, they are included in availability calculations.

10 26. In April 2002, THPC entered into a refinancing scheme that extended the existing US dollar facilities of $42.7 million provided by a group of Nordic-based lenders and raised a new 3 billion baht facility with a 10-year term.10 This replaced the existing more expensive baht loans that had a remaining term of 6 years. Another $30 million tranche was provided by the Thai Export-Import Bank for a 10-year term and an interest rate floating at London interbank offered rate plus 2.375%. This facility replaced the existing Thai Export-Import Bank loan, which had 8 years remaining, and a US dollar subordinated loan with 11.75% fixed interest rate. The refinancing resulted in substantial cost savings in terms of interest payable, enabled a capital reduction of $55 million by the shareholders of THPC (half of the original equity), and realigned the payment profile of the debt enabling better risk management. Together with the previous dividends, the refinancing resulted in the shareholders recovering their original investment in nominal terms within 4 years from the start of the commercial operation in 1998 and 8 years since the initial investment. 27. THPC’s financial performance is very good (Table 2 and Appendix 8). THPC generates a healthy profit and maintains a comfortable debt-servicing capacity. The refinancing with less expensive loans for a longer term has extended the debt service period. As such, the debt service ratio is projected to be lower in 2006 than estimated at appraisal when a majority of the loans were expected to be repaid by that time. In 2002, the ratios are somewhat different from the trend due to the refinancing and paying off half the equity back to the shareholders. The Project generated a net income of $115.8 million from 1998 to 2001 and is expected to generate an additional $155.7 million from 2002 to 2006. Dividend payments in the last 4 years totaled $93.4 million, of which $56.0 million (60%) went to EdL. THPC had retained earnings of $13.6 million in 2001 and this is expected to increase to $47.5 million in 2006. Table 2: Theun-Hinboun Power Company’s Key Financial Indicators
Item 1999 Appraisal Actual Estimate 2.2 45.2 30.0 2.0 2.2 49.6 27.2 1.8 2000 Actual 2.4 49.6 31.2 2.0 2001 Actual 2.4 44.4 27.2 2.6 2002 Projected 2.8 63.9 49.4 2.2 2003 Projected 2.1 58.5 37.6 2.2 2006 Projected Appraisal Estimate 2.1 41.4 28.3 2.1 3.1 7.4 19.6 2.8

Debt Service Ratio (times) Debt/(Debt + Equity) Ratio (%) Rate of Return on Equity (%) Current Ratio (times)

C.

Financial and Economic Reevaluation

28. In calculating the financial internal rate of return (FIRR), the actual base capital costs are converted to 2002 prices. The actual energy generated and the related tariff is used in the calculation up to 2001. The energy generated is assumed to remain at the 2002 level through 2008. In 2009, when the Nam Theun 2 Project is expected to become operational, it is assumed that there will be a 275 GWh drop in the electricity generated. A 1% annual increase in the tariff is assumed as per the PPA. Since half the electricity sold is valued at the fixed exchange rate of $1.00 = B25.35, the revenue is calculated taking into account the baht depreciation. On this basis, the recalculated FIRR is 17.0%, well above the weighted average cost of capital of 8.3% and close to the appraisal and PCR estimates (Table 3 and Appendix 9).
10

At a fixed interes t rate of 8% for the first 3 years and a floating rate of minimum lending rate plus 1.25% thereafter.

11

Table 3: Summary of Financial and Economic Reevaluation (%)
Item
FIRR EIRR IRR to Government

Appraisal
18.7 — 23.6

PCR
19.5 — 30.8

PPAR
17.0 18.5 28.3

— = not calculated, EIRR = economic internal rate of return, FIRR = financial internal rate of return, IRR = internal rate of return, PCR = project completion report, PPAR = project performance audit report.

29. Economic costs exclude interest during construction, taxes, duties, and royalties. The economic benefits to the country are the revenues from sales to Thailand plus the economic value of the domestic sales. The reevaluation does not capture the environmental and social costs and benefits that may have been generated. It is not possible to quantify such cost and benefits without baseline data and extensive research. While there may have been costs to the environment because of the impact on fisheries and biodiversity, there have been both positive and negative socioeconomic impacts such as better employment opportunities and increased economic activity and reduced yields from river gardens and fisheries in the project area. The ongoing work on environmental and social mitigation measures may bring about significant additional positive impacts, but these cannot be quantified as yet either. Taking into account the quantifiable costs and benefits, the recalculated economic internal rate of return (EIRR) is 18.5% (Appendix 9). This figure cannot be compared with the appraisal and PCR estimates as it reflects the viewpoint of the country as a whole, while the appraisal and PCR estimates considered only the costs and benefits to the Government. If the viewpoint of the Government is taken (including the benefits to EdL), the internal rate of return is 28.3%, compared to the appraisal and PCR estimates of 23.6% and 30.8%, respectively. D. Sustainability

30. The Project is financially sustainable as shown by the margin of revenue over cost of about $0.03 per kWh sold and the financial analysis presented so far. The PPA with EGAT ensures the revenue flow. The sustainability depends on the generation efficiency, optimal system management, and financial management, all of which seem adequate. The sedimentation of the headpond and intake facilities could have some impact on generating capacity and flow storage, but this can be mitigated by a well-planned program of sediment mapping and the acquisition of appropriate removal equipment. THPC is protected by the license agreement, which does not allow the development of other upstream hydropower projects except for Nam Theun 2, the impact of which h been taken into account in the as financial analysis. With the high quality of civil works and equipment, the service life can be expected to go beyond 25 years. Sensitivity analysis of the impact of a further baht depreciation to $1.00 = B50.00 by 2005 shows that the FIRR would decrease only marginally from 17.0% to 16.4%. If Nam Theun 2 does not start operating in 2009, the impact will be a marginal increase in the FIRR to 17.5%. Reduced availability of water because of insufficient rainfall in the catchm ent area is the only risk that would have a substantial impact. This highlights the need to prevent excessive logging there.

12 IV. A. ACHIEVEMENT OF DEVELOPMENT IMPACTS AND GOALS

Environmental and Social Impacts 1. Background

31. The feasibility study included an EIA that was completed in May 1993. A summary EIA was prepared in March 1994 before appraisal. ADB was not directly involved in financing or specifying the scope of the feasibility study. Due to the lack of baseline data on environmental and social impacts, issues like fish passage and yield, riverbank erosion and sedimentation, and the potential number of affected villages were not properly understood. This resulted in design weaknesses in terms of the environmental and social mitigation, although impacts on the limestone protected area through which the transmission line passes were reviewed quite well. The Project was funded and constructed before ADB had fully developed its policies on environmental and social issues, and the lack of baseline information was dealt with by postponing the study of impacts to post-construction period. The LA between ADB and the Borrower (the Government) called for a post-construction environmental audit of the Project, including a study on the impact on downstream fisheries, and appropriate mitigation measures. The LA further stipulated that the Borrower would implement, or cause to implement, an EMP for the project-affected area satisfactory to ADB.11 However, funds or parties that would implement the EMP, other than the Borrower, were not specified. 32. The EIA had expected that during operation, the headpond water level would be within the previous high water level of the Nam Theun, but the post-construction water level inundated vegetable gardens near the riverbanks and a road crossing across the headpond. Physical relocation of persons was not anticipated, as the communities living in the project area mostly consisted of shifting cultivators. Therefore, the Project did not have a resettlement plan to systematically address income restoration and other social impacts. However, the EIA did propose several community programs in the project area. The impact zone was initially considered to be about 21 villages, mainly in the headpond area and on the upper Nam Hai plain. None of the villages downstream of the weir, where the water flow would be reduced after diversion, were included in the impact zone at project preparation. 33. Due to concerns raised by various parties, including international nongovernment organizations, several studies were prepared during implementation, and a more detailed agreement was signed by THPC and the Government in 1996 regarding environmental and social impacts, increasing the funds available for mitigation from $1.0 million to $2.6 million. Additional independent studies provided better documentation of the baseline conditions and revealed some additional social impacts. Although THPC and EdL were not legally bound to take mitigation measures proposed by such later studies, both of them verbally committed to mitigating impacts caused by the Project. 34. During implementation, THPC made reasonable efforts to remedy environmental and social problems as they became apparent. EMCO was established and staffed by local personnel to implement the mitigation measures and oversee the monitoring program. However, EMCO did not have a clear channel of authority, and the measures were designed reactively rather than in a strategically planned manner. With the onset of operations, significant
11

The mitigation measures were to include (i) environmental protection; (ii) site rehabilitation; (iii) management of protected areas; (iv) fishery management; (v) compensation of local residents; (vi) community safety, health, and education; (vii) worker health/safety; and (viii) monitoring.

13 environmental and social impacts became evident. This was attributable to a combination of factors, including higher water level in the headpond area, low water flow downstream of the weir, and higher water flow fluctuations downstream of the powerhouse. During the ADB Special Review Mission in November 1998, THPC agreed to redefine the project-impact zone to include affected villages in the Nam Theun area downstream of the weir, as well as affected villages in the Nam Hinboun area beyond the Nam Hai confluence. It was also agreed that EMCO’s capacity was insufficient to fully execute its responsibilities, and that a comprehensive 10-year mitigation and compensation program (MCP) should be developed. As a result of the larger impact zone, the number of affected villages increased from 21 to 57. According to THPC estimates, about 3,000 households were affected. There was no involuntary relocation of households, but riverbank vegetable gardens had to be relocated due to the increased water level or erosion of the banks. At the time of the PCR Mission in March 2000, some impacts in the villages were still not mitigated to the satisfaction of ADB. 35. The preparation of the 10-year MCP was completed in June 2000. The principal environmental impacts identified were increased erosion and sediment loads, reduced downstream flows on the Nam Theun, and impact on fishery and transportation in the headpond area. The main socioeconomic impacts identified were a loss of some land for construction and dry-season river gardens, as well as the impact on common property resources (water supply and fishery). Following the MCP recommendations, a new Environmental Management Division (EMD) was formed within THPC and an expatriate manager was appointed in March 2001. EMD reports directly to THPC’s general manager and is mandated to execute the measures specified in the MCP. In February 2002, EMD developed a logical framework that compressed implementation of the 10-year MCP between 2001 and 2006, taking into account ADB’s policy on, and experience in, involuntary resettlement. 12 EMD is currently staffed with 12 regular staff and engages short-term consultants and field assistants for its various special activities (Appendix 10). A qualified local person is working with and learning from the current manager to take over EMD management in 2003. 2. Mitigation

36. The initial design of the discharge facilities did not include a re-regulating (surge) pond downstream of the powerhouse. During implementation, it became apparent that in the absence of a pond, the Nam Hai would be subject to bank erosion and substantial flow fluctuations. The subsequent addition of a re-regulating pond dampened these fluctuations and reduced their impacts. Another important mitigation measure was related to water flow downstream of the weir. The project documents stipulated a minimum flow release of 2 m 3/sec, but it was decided to increase this flow to 5 m3/sec to reduce the impact on aquatic life, despite the fact that this would entail financial losses to THPC during the dry season. 37. Several positive social impacts have resulted from the Project. Construction and improvement of roads leading to the project site have increased people’s mobility and access to market centers, opening opportunities for new commercial activities. At the request of local authorities, THPC built new all-weather bridges in some downstream villages, allowing access to large vehicles. The temporary employment opportunities at the dam and powerhouse area provided attractive additional income for local people during the construction period. The construction activities also led to the establishment of several roadside settlements. River navigation has become easier in the upstream area since small rapids at several locations were submerged by the increased water level. Bridges and culverts have also facilitated
12

ADB. 1995. Involuntary Resettlement. Policy Paper. Manila.

14 transportation in that area. To mitigate the impact of the inundated road crossing across the headpond, THPC provided a ferry. THPC also constructed a first-aid station near the power plant and gave the local people access to it as needed. In addition, it built two new schools and refurbished another. 38. On the negative side, the higher water levels and the collapse of dry s eason river crossings in the Nam Hai area restricted communication and transportation in some locations. Increased and fluctuating water levels damaged some existing vegetable gardens on riverbanks and also deprived livestock of grazing lands in some locations. In addition, some villages lost landing areas for boats and bathing places. EMCO provided floating docking areas or steps to landing areas, and community drinking water wells were constructed in many villages. Due to the frequent fluctuation of water level in the rivers, the villagers had to move their gardens further inland. Water level fluctuations may also have changed the nature of the fishery, both in terms of species composition and the quantity. Most communities report that their fish catches have significantly dropped, although a few report temporary increases, especially during inundation. The drop in yield could be a result of flow fluctuations, higher flows, increased turbidity, inappropriate use of traditional technology under the new conditions, and possibly reduced fish numbers.13 Although THPC attempted various mitigation measures, there were delays in compensation to some local villagers and also in organizing fisheries management efforts. Initial compensation payments made by THPC were quite generous, but the determination of payment amounts lacked clear objectives, detailed procedures, and fixed rates. 39. EMD is now implementing the MCP. During a survey conducted in 1999, it was established that some of the 57 villages wanted immediate compensation, others desired mitigation measures, and the rest sought a combination. To the 10 villages that sought immediate compensation, THPC, after deliberations with ADB and independent reviewers, gave the equivalent in the form of rice. As there was inadequate baseline data regarding losses, indicative estimates were made. THPC established that the procedures for payments were adhered to and the rice was successfully delivered to the expected recipients. Following this, 11 other villages were prioritized for implementing the mitigation plans and the others were informed about the phased program of implementation in the subsequent years.14 The social mitigation activities in the first 11 villages include restoration of water supply for consumption and dry season gardens, provision of protein replacement through improved fishery management, and creation of income generation opportunities to supplement loss of livelihood opportunities. In terms of the environmental mitigation activities, most of the construction-related environmental impacts have been taken care of and minor mitigation measures such as revegetation of sites are to be completed within a year. To address some other environmental impacts, EMD has initiated several studies that will review the effectiveness of the methodologies and the quality of monitoring done up to date and provide guidance for follow-up actions. In addition, THPC is concerned about the impact of activities in the upstream watershed on the plant operating efficiency and utilization, and is undertaking conservation awareness programs in villages in collaboration with the provincial authorities. ADB has, in the recent years, provided a program loan and technical assistance to enhance the capacity of the Lao PDR in terms of undertaking EIAs, as well as designing and implementing mitigation

13

There is very little systematic evidence on fishery resources. An EMD-sponsored fisheries study is under way, with villagers monitoring the fishery data. 14 The logical framework envisaged implementation of such activities in 10 villages initially, followed by up to 16 villages each in the subsequent 3 years. In reality, EMD is currently working with 11 villages and is expected to start working with 6–7 more by the end of 2002 due to the severe flood damage that has occurred in the area in the rainy season.

15 measures.15 Pictures of the Project and some MCP activities are shown in Appendix 11, while more details about the status of MCP implementation and the OEM’s suggestions on its improvement are given in Appendix 12. B. Macroeconomic Impacts

40. In the past few years, THPC has been generating the expected foreign exchange revenue to the country. THPC’s energy sales revenues increased from $42 million in 1998 to $58 million in 2001, and are expected to remain at this level in the future. THPC’s net income increased from $16 million to $34 million during the same period. As a result of THPC’s exports, total energy exports of the Lao PDR increased from $21 million in 1997 to $106 million in 2001. This helped reduce the current account deficit as a percentage of gross domestic product from 16.5% in 1997 to 6.9% in 2001. 41. In 2001, THPC’s dividends to EdL reached $18 million and its royalty payments to the Government amounted to $3 million. With the 5-year tax holiday ending in 2003, THPC is expected to contribute an additional $5 million in income taxes from 2004 onward. Thus, the appraisal target of $25 million in annual foreign exchange revenues for the country will be exceeded. The national development budget more than doubled in nominal terms between 1998 and 2001. The combined share of education, health, and social welfare increased from 3% in 1994 to 10% in 1998 to 21% in 2001. The expectation that the lending of ADF to the Lao PDR to finance the Project would indirectly lead to increased expenditures in the social sectors has thus been met. Furthermore, EdL receives 60% of THPC’s dividends, which amounted to $56.0 million between 1998 and 2001. This contributed to financing further joint-venture power generation projects in collaboration with foreign investors, expanding rural electrification, and subsidizing the low domestic tariffs. Available data indicates that while total power generation increased by 38% from 1996 to 1999, domestic consumption increased during the same period by 68%, and the number of domestic consumers by 84%.16 C. Impact on Institutions and Policy

42. The financing of the Project was a pioneering effort in promoting private sector participation and the largest commercial financing package arranged so far in the Lao PDR. ADB, as the lead coordinating agency, provided financial and legal advice (footnote 3). ADB also helped develop the policy framework, including the methodology for evaluating private sector proposals. The Government and EdL benefited by preparing and negotiating the license agreement and the PPA. This has been useful for other projects and the utility operation as a whole. Subsequent to the Project, similar agreements were processed for Houay-Ho (150 MW) and Nam Theun 2 (1,080 MW). The creation of a private company for the Project has provided experience in working with private sector partners to EdL personnel who serve on its Board. The Project can serve as a model for effectively combining multilateral and bilateral aid, and establishing a successful public-private partnership that significantly benefits the country. 43. The Project has made a moderate contribution in terms of capacity building and technology transfer in the sector. The power plant staff have received training in the
15

Loan 1867-LAO: Environment and Social Program , for $20 million, approved on 6 December 2001. In addition, TA 3535-LAO: Energy and Transport Socio-Environmental Management, for $150,000, approved on 10 November 2000, and TA 3746-LAO: Capacity Building for Environment and Social Management in Energy and Transport, for $600,000, approved on 22 October 2001. 16 The Government targets electrification of 90% of households by 2020. For 2005, the target is 60% of households and 40% of villages, as against the 2001 levels of 34% and 20%, respectively.

16 implementation and operation of a hydropower facility and in the maintenance of the related equipment. Similarly, the training received for EMD’s activities has been of high quality and the experience gained by the staff has augmented the capacity within the country. However, it is onthe-job training and limited to those who are currently employed by THPC. If EdL desires to expand this training to its own staff as the majority stockholder of THPC, it can make arrangements for such. In a perverse sense, the unforeseen negative environmental and social effects of implementing the Project without adequate baseline data and the resulting scrutiny by many were valuable lessons to EdL and the Government, which will serve them well in future developments if heeded. V. A. Relevance OVERALL ASSESSMENT

44. The Project is assessed as highly relevant. It taps the hydropower potential of the Lao PDR and is currently one of its main foreign exchange earners. The Project is well designed in engineering terms to achieve the required output. The low average cost of generation attests to its feasibility and the suitability of the site for hydropower development. The only drawback was the lack of baseline data at the formulation stage that hampered the proper design of environmental and social mitigation measures and resulted in unanticipated impacts. B. Efficacy

45. Since commissioning, the Project has operated at a 96% plant factor and e xported slightly more than 95% of available power to EGAT, as planned. THPC’s sales revenues increased from about $42 million in 1998 to $58 million in 2001. The foreign exchange revenue target of $25 million a year for the Government and EdL will be exceeded once THPC starts paying income taxes. The earnings, distributed in the form of dividends among the shareholders, have substantially strengthened EdL’s financial health and contributed to the expansion of the domestic electrification program. The royalties, and the taxes to be paid to the Government from 2004 onward, allow it to increase social expenditures. The Project is considered highly efficacious. C. Efficiency

46. The Project was completed on schedule and 11% below the cost estimate. The construction cost compares well with other similar power plants. At less than $0.02 per kWh, the cost of generation is low. Excluding the unquantifiable environmental and social impacts, the EIRR from the country’s perspective is 18.5%. The FIRR is 17.0%, well above the weighted average cost of capital of 8.3%. In 2002, THPC refinanced its debts, replacing the more expensive commercial loans. This also enabled a capital reduction of $55 million by the shareholders. The Project is assessed as highly efficient. D. Sustainability

47. Given the quality of construction and maintenance, the Project should be physically sustainable throughout its expected service life and beyond. The issues of sedimentation need to be addressed by periodic inspection and maintenance. The PPA with EGAT, in its present form, ensures financial sustainability provided that future baht devaluations, if any, are not of extreme magnitudes and the US inflation remains low. The PPA will be renegotiated in 2008. The impact of Nam Theun 2 upstream of the Project is expected to be limited. The sustainability

17 of the MCP and the enhanced livelihood programs is not fully assured, but EMD is working toward this goal. Overall, the sustainability of the Project is assessed as likely. E. Institutional Development and Other Impacts

48. The pioneering effort, in terms of promoting private sector participation in the power sector and the technology transfer through on-the-job training, had a beneficial impact. The Project can serve as a model for effectively combining multilateral and bilateral aid, and establishing a successful public-private partnership. Its macroeconomic impact has been substantial. On the negative side, considerable environmental and social impacts became apparent with the start of operations in 1998. At the time of the PCR mission, some impacts were not mitigated to the satisfaction of ADB and the related loan covenants were not fully complied with. To rectify the situation, the 10-year MCP was formulated, and its implementation is under way. F. Overall Project Rating

49. Had adequate mitigation measures been taken at the outset, the Project would have been highly successful, given its high relevance, efficacy, and efficiency, its likely sustainability, and its substantial institutional development and macroeconomic impacts. Because of the initial negative environmental and social impacts, the OEM rates the Project successful, bordering on highly successful. G. Assessment of ADB and Borrower Performance

50. The initial EIA was prepared under the bilaterally financed feasibility study. In hindsight, it may have been prudent to have had it reviewed by environmental and social specialists. When the environmental and social concerns emerged, ADB did act in a decisive and responsible manner to encourage THPC to formulate and implement the comprehensive MCP. ADB rightly made the loan to the Government, enabling it to relend it to EdL to finance its equity in THPC. Given the professional capacity of THPC to manage procurement, construction, and financial matters, ADB’s oversight role during implementation was appropriately minor. There were seven missions, two of which included environmental and social specialists. In addition, the ADB staff concerned requested the Operations Evaluation Department to include the Project in its thematic evaluation of environmental and social impacts to derive lessons for the future.17 ADB did the right thing in giving a limited waiver for the negative pledge of the loan to facilitate commercial financing. Without this waiver, the financing would certainly have been more costly or even unavailable to THPC. This indirectly has led to higher dividends to EdL and tax receivables to the Government, positively affecting the amount of funds available for social development. ADB’s performance is rated satisfactory. 51. THPC’s performance has been satisfactory as well. During construction, THPC acted responsibly and efficiently to meet the Project’s timing and cost targets. Despite the Asian financial crisis and the ensuing financial problems, THPC was effective in accessing the necessary funds. The significant construction cost savings helped ease the financial problems. By project completion, THPC complied with all loan covenants, except the two related to the EMP, and has now fulfilled also these in a satisfactory manner through the ongoing implementation of the MCP. Although there were some delays in developing a comprehensive
17

ADB. 1999. Special Evaluation Study on the Social and Environmental Impacts of Selected Hydropower Projects. Manila.

18 EMP during implementation and in the early years of operation, when environmental and social impacts emerged, THPC acted in a responsible manner addressing the problems as they happened or undertaking to address them in the near future. VI. A. Key Issues ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

52. Power Purchase Agreement. The PPA has both positive and negative features for THPC. While the quantity of electricity sold is guaranteed, the sales revenues depend on two key factors. First, the annual tariff increase of only 1% in nominal terms implies a decrease in real terms if the US inflation rate is higher. Second, the Asian financial crisis has drawn attention to fluctuations in exchange rates. A baht rate set in 1996 and valid for 10 years after commissioning has resulted in a significant drop in revenues in US dollar terms. The recent refinancing has aligned debt service payments with the currency profiles of EGAT payments building a natural hedge against such foreign exchange risk. Learning from these experiences, future PPAs should balance considerations of the quantity sold with those of potential revenues and perhaps index the tariff at least partially to the inflation rate, and/or provide a hedging mechanism against the foreign exchange risk. 53. Use of an ADF Loan. The use of ADF for an essentially commercial project was questioned within ADB at the formulation stage, but it was agreed that since the Lao PDR was eligible for ADF borrowing, it would be appropriate to approve a soft loan provided earnings from the Project were used to increase the social expenditure allocation in the national budget. Although it was targeted that the share of social spending would increase to 20% in 2000, there was no specific monitoring mechanism for this, nor was it stipulated as a covenant. It was fortunate that the target was achieved as expected. If ADF is used for future projects of this nature, which are essentially private sector commercially sustainable projects, a covenant should be included to direct at least part of the government earnings to poverty reduction activities. 54. Impact from Other Plants. Through its license agreement, THPC is protected against upstream developments except the construction of Nam Theun 2 at 600 MW. Originally, Nam Theun 2 was expected to reduce THPC’s generation by 275 GWh per year from 2001 onward when it was supposed to commence operations, but there has been a substantial delay. The feasibility study for a 1,080 MW power plant has now been completed, a PPA with EGAT has been prepared, and financing is being sought, with a view to completing Nam Theun 2 in 2009. Although its capacity has increased, this change may not have an additional impact on THPC because at the request of EGAT, Nam Theun 2 is now proposed to operate as a 10-hour peaking facility instead of a 24-hour base load facility. The water flow to THPC would, therefore, not be reduced more than what was envisaged at appraisal. However, this has to be carefully monitored by THPC. In addition to changes in the water flow, Nam Theun 2’s effect on sediment load and other environmental impacts should also be closely monitored by THPC. 55. Mitigation and Compensation Program. EMD’s MCP is very comprehensive and ambitious and adopts best practices in terms of participation and building ownership. Particular attention needs to be paid to sustainability of the various programs. Specific recommendations are made in Appendix 12. These include (i) building more ownership of the village-level projects, (ii) taking steps to make the savings and credit schemes more sustainable, (iii) encouraging increased female participation in the livelihood activities and their management, (iv) establishing participatory benefit monitoring and evaluation, (v) improving collaboration with local

19 government agencies, and (vi) disseminating more proactively results of the work being done for the affected villages. B. Lessons Identified

56. The successful financing, implementation, and operation of the Project can serve as a model for such public-private partnerships in the power sector. The ingredients for success are (i) through technical and economic evaluation of a suitable hydropower site, (ii) choice of a group of developers that has the necessary financial and technical experience, (iii) negotiation of a PPA that is advantageous to all parties involved, and (iv) the willingness to learn from mistakes made and take responsibility to mitigate them. 57. Transbasin hydropower projects, even if quasi-run-of-river in design and operation, can have significant environmental and social impacts. Their implementation should not proceed without gathering adequate baseline data and designing a comprehensive mitigation program. Sufficient time and resources should be allocated for this prior to implementation. Any postapproval mitigation measures need to be supervised closely for timely implementation by parties responsible. 58. A qualified and adequately staffed environmental and social monitoring unit should be in place prior to and during project implementation to monitor the impacts and take proactive mitigation actions in a timely manner. The responsible authority in the country should build capacity to fulfill its oversight function and ensure appropriate supervision of similar projects in the future. 59. Given the importance of PPAs and their intrinsically complex nature from technical, commercial, and legal points of view, ADB should, if requested, provide assistance to its developing member countries in drafting and negotiating such PPAs. C. Follow-Up Actions and Recommendations

60. The Government (through the Science, Technology, and Environment Agency), as well as ADB, should continue to monitor the environmental mitigation efforts agreed to by THPC until these have been completed, and offer whatever support possible. 61. EMD should document the baseline information within 4 months of initiating the activities in a particular village and monitor the socioeconomic data for a sample of beneficiaries on an annual basis until the completion of the MCP. 62. Studies of erosion, sedimentation, fishery, and other impacts of THPC should be completed and documented in the next few years before Nam Theun 2 is commissioned to ensure that any effects detrimental to THPC operations and any negative environmental impacts are not attributed to THPC. This is to avoid any future cost of mitigation that is attributable to the actions of others. 63. Although power plant performance, O&M, and site management are satisfactory, preventive maintenance should be carried out periodically to ensure sustainability. For this purpose, it would be useful for THPC to procure some items such as depth finders, sediment removal equipment, and differential pressure measuring equipment for the trash racks, and a grappling hook within the next year. Appendix 7 gives more detailed recommendations on plant O&M. In addition, making the model tests available to the new operator who takes over at the

20 beginning of 2003 would enable appropriate monitoring of the headpond operation and gate schedule. The correction of existing software “glitches” by April 2003 would allow the power plant to respond during unforeseen circumstances. 64. The number of trained staff for some special operations (i.e., maintenance of the supervisory control and data acquisition system and control system management) is limited. THPC should get more staff trained in these areas by December 2004 and also establish an online connection to the vendor as soon as possible for diagnostics, upgrades, and restoration in the event of a system crash. 65. Local government authorities, together with THPC and the villagers in the project area, should develop a watershed management plan by December 2004 for the upstream areas and assign its supervision to an agency with adequate funding and authority.

Appendix 1

21

TECHNICAL NOTE ON PROJECT DESIGN A. Project Description

1. The Theun-Hinboun Hydropower Project is located in the central highlands of the Lao People’s Democratic Republic (Lao PDR). The Project is of transbasin configuration, diverting a portion of the flow of the Nam Theun to the Nam Hai, which is a tributary of the Nam Hinboun. Both flow westward from the project site and discharge into the Mekong River. The difference in elevation of the two basins is about 245 meters (m). The diversion was accomplished by the construction of a concrete diversion dam on the Nam Theun, consisting of a combination of a flap gate, two radial gates, and a fixed overflow weir section on the right bank. 1 The weir is equipped with adjustable rubber gates 2 to provide a 3-m variance in crest elevation. The dam is also equipped with sand flushing gates installed along its base. The intake is gated and equipped with trash racks and situated along the left bank of the created headpond (forebay). The diverted flow passes through the narrow ridge separating the basins through an underground tunnel and steel penstock to a surface powerhouse. The annual average production was estimated at design at 1,645 gigawatt-hours (GWh) prior to the operation of Nam Theun 2 3 and 1,360 GWh afterwards. 2. The powerhouse accommodates two turbine-generator units. The turbines are vertical Francis units with nominal rating of 105 megawatts at a design head of 230 m (net). The two generators are rated 126 megavolt-amperes (MVA) at 0.83 power factor, 16 kilovolts (kV), 50 hertz. The unit cooling is by water-air heat exchangers. There are cranes for generator and turbine repair. The generated power is transformed by three single-phase 16 kV–230 kV, 42 MVA transformers for each generator. These main power transformers are located at the powerhouse. A 230 kV/22 kV outdoor substation is located about 100 m from the powerhouse. The substation contains two 230 kV buses, a 230 kV–22 kV transformer of 50 MVA capacity for the supply of auxiliary power, site power, and two rural electric circuits that supply the surrounding consumers of the Electricité du Laos. In addition, a standby diesel generator is provided for the essential circuits. The discharge of the turbines flows to the Nam Hai via a 3,400-m tailrace canal that includes a re-regulating pond at its end. The discharge to the Nam Hai from the re-regulating pond is controlled by a regulating structure with radial gates. The rated capacity of the pond is about 520,000 cubic meters. 3. Power is transmitted to its contractual delivery point at the Thakhek substation,4 at the Mekong River border of the Lao PDR and Thailand, by means of a 230 kV double-circuit transmission line of about 86 kilometers. The line consists of steel lattice towers and suspension insulators with one circuit on each tower side.

1

2

3

4

Stop logs sufficient for the radial gates and flap gate were provided along with a gantry crane for setting and removing these. This was the first instance where inflatable rubber gates were installed on a curved weir. The rubber gates are planned for replacement with concrete in the coming dry season. The replacement concrete will fix the weir crest at 400 m above sea level, which is the nominal operational elevation of the Project. This upstream hydropower project would divert some of the flow of the Nam Hinboun. Original design was for 600 megawatts (MW). The installed capacity is now to be 1,080 MW but for peaking operation which should not have any additional effect beyond that of the original design. Metering of delivered energy takes place at this substation. The contractual delivery point is at midstream of the Mekong River. Losses to this point from the substation are calculated and deducted from the amount of energy metered to determine the amount of energy purchased by the Electricity Generating Authority of Thailand.

22 B.

Appendix 1

Project Design

4. The Project, as implemented, reflects good design practice in that it makes efficient use of the available head and flow of the site. However, some minor features of the design and equipment specification can be questioned. 5. The diversion dam and associated headpond configuration are based on physical model studies that were not available in the Lao PDR for the Operations Evaluation Mission review. As a result, assumed sedimentation patterns and intake flow patterns are not known. The number of radial gates (two) and their placement tend to draw flow across the intake, which results in a gradient of the flow to be diverted to generation. In addition, large floating and submerged debris, i.e., trees, is also brought within the draw of the intake. This leads to the debris impinging on the trash racks of the intake, creates a danger to the racks, and obstructs flow to the intake. Similar low-head diversion dams have incorporated additional gates somewhat removed from the intake axis to aid in redirecting debris away from the intake structure.5 Similarly, sedimentation in the area immediately in front of the intake can be reduced. The type and placement of the head measuring instrumentation can be of concern as it is placed in a similar gradient that can cause fluctuations in its measurement. 6. The inclusion of the inflatable rubber gates along the weir section allowed the crest of the dam to be adjusted by some 3 m. The gates would be inflated (raised) during low flow conditions to maintain the 400-m elevation nominal generating head and lowered during high flow as necessary. In high flow conditions, the lowered rubber gates would tend to reduce the upstream elevation increase caused by the presence of the dam. During design review, it was thought that given the narrow river channel downstream, the dam would have no effect on flood elevation. However, observation indicates that the additional 3 m in crest elevation that will result from replacing the rubber gates with a fixed weir extension will result in minor level increases upstream during high flows. Some problems with operation of the rubber gates have occurred, and they have proven to be a cause of maintenance and outages. The replacement with concrete will enable the operators to maintain the headpond at a uniform level during low flows, which was not done previously due to the frequent failures of the rubber gates. 7. The intake is equipped with trash racks and a trash rack rake to effect periodic cleaning of the racks. This rake has proven to be of limited effectiveness.6 Observation indicates that a design failing may be in the mode of operation. The rake appears to function with the cleaning jaws open on descent. Descent with closed jaws has been shown to be preferable, as open jaws tend to cause the rake to be thrown off its tracks if it encounters a large object while descending. The intake racks appear to be of less inclination than might be expected. A steeper angle away from the intake has been shown to increase the effectiveness of rakes in general. The presence of large floating and partially submerged debris in the Nam Theun indicates that the intake structure and/or the trash rack rake should have been equipped with a grappling hook of sufficient lift capacity to remove such debris. This could have been included on the jib crane or as a part of the rake or as a self-propelled item of equipment. This would enable the operators to remove large logs impinging on the racks without a loss-of-production or risk to the racks. The trash racks are not equipped with differential pressure monitors to indicate blockages and the accompanying loss-of-head across the intake racks.7 Similar installations use such
5 6 7

There is space for an additional gate, which may have been considered during the feasibility study. Trash rack rakes are a common disappointment and source of maintenance problems at a majority of hydropower installations. The operators were not sure of this. Their confusion may have been due to translation problems. Differential readings do not appear on the daily logs.

Appendix 1

23

monitors to raise alarm when the racks are blocked and to start an automatic cleaning cycle. The Theun-Hinboun Power Company should consider installing such a system during the next intake inspection period. 8. The gates are provided with stop logs for dewatering the bay in the event that some repair is required. It may also be possible to insert these stop logs into flow through the gate in the event that a gate would fail to operate. However, the stop logs are stored in sections some distance from the dam.8 No equipment or other means of moving the sections to a point where the gantry crane can attach to them was provided. In the event that it is necessary to insert a stop log, a mobile crane must be brought to the site. This could result in long delays if required in an emergency event. The design could have provided for stop log storage within the travel of the gantry crane. 9. The tunnel appears to have been well designed. Sufficient capacity for above-nominal water flow has been provided to the extent that additional generation capacity may be possible in the future. An initial inspection of the tunnel by the operational staff revealed only minor lining loss. While this is not enough to assure design integrity, the observations indicate no cause for concern at present. Annual inspections of the turbine blades for any sign of concrete impingement and the tunnel for deterioration should be adequate to assure the sustainability of the tunnel. The tunnel includes a stone trap that appears to have been functioning within its design parameters. The results of the initial turbine blade inspection indicate little, if any, contact with stones. 10. The powerhouse is well designed and adapted to the site. Equipment is arranged for efficient operation and maintenance. The turbine-generators and the major auxiliary equipment are well designed and have produced power in excess of their nominal rating.9 The cooling system design could have been enhanced with the inclusion of parallel pre-strainers so that cooling flow could be maintained while cleaning sediment and other debris build-ups in the filters. The available filters have required frequent cleaning. Vibration monitoring and alarm systems should have been included as a part of the design of the monitoring system. 11. Control systems are redundant with local and computerized functions. There are adequate local (manual) controls and back-up analog metering at the equipment levels. The use of computer control and digital solid-state instrumentation and sensors in a country without a large base of computer maintenance and repair skills might be questionable at the onset. However, the Operations Evaluation Mission was informed that the plant maintenance includes one engineer trained in maintenance of this system.10 The system has performed well to date albeit with a number of errors in the software routines that have not been corrected by the vendor. These errors are not of a type that impairs the generation but do interfere with the planned report generation and with several of the screens available to the operators. 12. The main substation is of competent design and arrangement as are the main and auxiliary transformers and circuit breakers. The steelworks and buses are of adequate capacity for the maximum generation and fault currents. The necessary clearances required for safety and operations have been provided. The transmission line with two 230 kV circuits is well
8

This is common practice as it allows the use of cranes of reduced capacity as compared to cranes required to lift a complete stop log. 9 The turbines have a nominal rating of 105 MW. Both units have produced more than 112 MW on frequent occasions. 10 This is insufficient for the future. More trained personnel and/or an online connection to the vendor for diagnostics, upgrades, and restoration in the event of a system crash should be provided.

24

Appendix 1

designed as regards capacity and configuration. The capacity of either circuit is adequate to transmit the design output of the Project at the expected power factor. The double-circuit design should result in a contingency for many common sources of line outages 11 and under normal operation, with both circuits in service, results in a 50% line loss reduction.12 A tower failure would negate the redundancy of the double circuit, but the single tower with double circuit is a cost-effective design given the low probability of such a failure. 13. Evidence indicates that the transmission line is not well designed in respect to shielding of lightning. In the period of January 1999–June 2002, there were eight incidents of both circuits being simultaneously interrupted by lightning strikes. This is indicative of poor shielding, inadequate conductor clearances, and/or ineffective grounding of the towers or the shieldwire(s).13 If, as can be suspected, the majority of the two-circuit outages due to lightning are along the line segment traversing the limestone ridge, an alternative route would have been preferable. Proper grounding of the towers is known to be difficult and requires special design in areas where rock is prevalent. The tripping of both circuits under lightning strike conditions may also be a problem of the coordination of the various over-current and ground current relays. These should be investigated for proper coordination and trip delay. 14. For cost-effectiveness reasons, the transmission line was designed to follow practically a straight-line route. This resulted in negotiating a limestone range, which increased the difficulty of construction and surveying. While alternative routes would have been longer, it is not clear from a review of design documents and the project completion report if alternatives were evaluated. The line, as installed on and through the limestone formations, will require the use of helicopters for the prompt repair of a tower failure. 14 The limestone has poor grounding conditions that can cause the line to be susceptible to lightning outages of both circuits. The tripping of both circuits usually results in both generating units tripping due to excess speed. Automatic reclosing is not recommended with hydropower equipment due to the risk of losing synchronism. Tripping the turbines and generators under load increases the wear on many systems and can cause major damage to the equipment. The outages also subject the TheunHinboun Power Company to liquidated damages for failure to deliver scheduled energy, calculated at $10,000/GWh of shortfall escalated at the same rate as the tariff. However, for outages with a prior notice of at least 22 hours, no liquidated damages are paid. 15. At conceptual or initial design, certain baseline data is required for plant operational considerations after completion. Such data was lacking in several aspects. The plant is controlled and operated primarily with a computerized system. This system requires various inputs, including rating curves for the various gates. These were inaccurate and had to be replaced with upgraded versions. The exact effect of these inaccuracies on plant performance during the initial operation is unknown but is believed to be minor and restricted to possible errors in the calculation of foregone production by the computerized control system. The fact that the physical model test results are not available to the operators have a more significant effect. Such tests demonstrate the assumptions used in the design of the intake a gate nd placement along the dam and the expected sedimentation patterns. Review of the model test

11

The most common outage causes are lightning and insulator failure. Neither of these would cause both circuits to be taken out of service in most situations. 12 As compared to utilizing only one circuit for transmitting the output of both generating units. 13 It could not be determined if the unusually high number of two-circuit outages is due to the initial design, inadequate maintenance of the shielding, or grounding. 14 Towers suitable for transport by helicopter for temporary use during permanent tower repair are available at the site.

Appendix 1

25

data could allow the operation to set the gates in combinations of openings for more desirable intake flow and sediment flushing. 16. A design flaw corrected after initial operation was the lack of adequate air-conditioning throughout the facility to sufficiently cool the equipment. This was especially noted where solidstate electronic devices were in use. Additional air-conditioning equipment was, t erefore, h installed where needed. The initial design of the discharge facilities did not include a reregulating pond. This subjected the banks of the Nam Hai at the point where the discharge canal intersected its channel to severe bank erosion and wide flow changes during periods of low flow in the Nam Theun due to changes in power generation levels. The subsequent addition of a re-regulating pond dampened these changes and resulted in reduced bank erosion and flow fluctuation in Nam Hai. The pond also reduced the temperature difference between the diverted Nam Theun flow and the ambient of the Nam Hai.

OPERATIONAL PERFORMANCE OF THE PROJECT Table A2.1: Generation Performancea
Generation Potential Actual (MWh) (MWh) 96,367 94,069 53,037 53,037 51,951 51,951 73,190 67,666 159,745 158,275 155,293 153,654 161,673 159,946 162,635 155,074 156,736 139,812 153,678 130,612 157,070 154,886 156,508 146,376 1,537,883 1,465,358 98,614 61,754 74,182 93,202 152,601 155,887 162,640 160,418 156,860 160,239 155,482 156,738 1,588,617 125,628 78,680 90,990 61,562 113,810 156,826 160,216 162,298 149,558 161,693 157,058 159,658 1,577,977 121,681 70,578 48,289 68,390 127,522 154,906 591,366 1,513,098 94,296 61,667 73,954 85,855 152,593 155,062 162,032 157,111 152,877 149,273 128,386 138,107 1,511,213 122,438 78,665 90,959 59,284 109,365 153,195 159,382 160,809 147,257 148,962 150,674 126,509 1,507,499 115,485 70,575 48,289 68,375 126,887 153,386 582,997 1,447,733 Sales To EGAT (MWh) 92,215 53,944 50,911 66,250 155,054 150,658 156,889 152,151 137,159 128,179 151,878 143,478 1,438,766 93,232 61,062 73,687 84,770 149,505 152,147 159,023 154,310 150,155 146,613 126,205 135,942 1,486,651 120,506 77,471 89,543 58,288 107,666 151,024 157,132 158,515 145,188 146,693 148,502 124,731 1,485,259 113,862 69,608 47,540 67,443 125,240 151,311 575,004 1,424,480 EGAT Usage Dispatched Received (%) (%) 97.62 95.7 100.00 101.7 100.00 98.0 92.45 90.5 99.08 97.1 98.94 97.0 98.93 97.0 95.35 93.6 89.20 87.5 84.99 83.4 98.61 96.7 93.53 91.7 95.28 93.6 95.62 99.86 99.69 92.12 99.99 99.47 99.63 97.94 97.46 93.16 82.57 88.11 95.13 97.46 99.98 99.97 96.30 96.09 97.68 99.48 99.08 98.46 92.13 95.94 79.24 95.53 94.91 100.00 100.00 99.98 99.50 99.02 98.58 96.13 94.5 98.9 99.3 91.0 98.0 97.6 97.8 96.2 95.7 91.5 81.2 86.7 93.6 95.9 98.5 98.4 94.7 94.6 96.3 98.1 97.7 97.1 90.7 94.6 78.1 94.1 93.6 98.6 98.4 98.6 98.2 97.7 97.2 94.6 Online Hours Unit 1 Unit 2 495 64 293 63 289 76 353 67 722 65 698 75 731 60 710 72 618 70 608 75 720 56 678 49 6,915 792 537 268 385 376 679 707 744 723 704 686 591 647 7,047 636 409 490 342 521 702 730 735 675 688 689 580 7,197 563 399 282 380 613 700 2,937 54 51 64 66 67 72 65 69 66 66 53 56 749 54 50 64 76 68 61 56 59 60 59 52 50 709 50 52 64 65 67 58 356

26

Month Jan 1999 Feb 1999 Mar 1999 Apr 1999 May 1999 Jun 1999 Jul 1999 Aug 1999 Sep 1999 Oct 1999 Nov 1999 Dec 1999 1999 Jan 2000 Feb 2000 Mar 2000 Apr 2000 May 2000 Jun 2000 Jul 2000 Aug 2000 Sep 2000 Oct 2000 Nov 2000 Dec 2000 2000 Jan 2001 Feb 2001 Mar 2001 Apr 2001 May 2001 Jun 2001 Jul 2001 Aug 2001 Sep 2001 Oct 2001 Nov 2001 Dec 2001 2001 Jan 2002 Feb 2002 Mar 2002 Apr 2002 May 2002 Jun 2002 6 Months 2002 Average (Jan 1999–Jun 2002)

Local Useb (MWh) 498 446 510 457 445 458 488 452 494 467 484 552 5,751 488 465 426 528 559 590 672 642 541 564 513 517 6,505 531 459 548 577 566 557 559 572 565 515 540 517 6,506 529 482 557 569 624 597 3,358 6,320

FNEO (MWh) 2,298 0 0 5,524 1,470 1,639 1,727 7,561 16,924 23,066 2,184 10,132 72,525 4,318 87 228 7,347 8 825 608 3,307 3,983 10,966 27,096 18,631 77,404 3,190 15 31 2,278 4,445 3,631 834 1,489 2,301 12,731 6,384 33,149 70,478 6,196 3 0 15 635 1,520 8,369 65,365

To EdL (MWh) 43 27 30 33 63 73 59 69 60 61 56 45 618 39 20 33 34 61 71 65 67 65 61 44 49 608 46 30 42 36 48 59 55 58 56 55 50 39 575 38 31 24 34 55 56 239 583

Transmission Loss (MWh) (%) 1,313 1.40 (1,380) (2.63) 500 0.97 926 1.38 2,713 1.72 2,465 1.61 2,510 1.57 2,402 1.55 2,099 1.51 1,905 1.46 2,468 1.60 2,301 1.58 20,223 1.39 537 120 (192) 523 2,468 2,254 2,272 2,092 2,116 2,035 1,624 1,599 17,449 1,355 705 826 383 1,085 1,555 1,636 1,664 1,448 1,699 1,582 1,222 15,159 1,056 454 168 329 968 1,422 4,396 16,351 0.57 0.20 (0.26) 0.61 1.62 1.46 1.41 1.34 1.39 1.37 1.27 1.16 1.16 1.11 0.90 0.91 0.65 1.00 1.02 1.03 1.04 0.99 1.15 1.05 0.97 1.01 0.92 0.65 0.35 0.49 0.77 0.93 0.76 1.08

Appendix 2

EdL = Electricité du Laos, EGAT = Electricity Generating Authority of Thailand, FNEO = foregone net electric output, MWh = megawatt-hour. Note: Some monthly data received in contradictory form—sales higher than generation—shown in italics. a Although data provided is from January 1999, the power plant began commercial operations in March 1998. b Includes auxiliary losses and usage by support facilities at site. Source: General Manager of the Theun-Hinboun Power Company.

Appendix 2

27

Table A2.2: Availability and Plant Factor
Availability (hours) Unit 1 Unit 2
744 664 623 720 737 709 740 742 720 703 720 734 8,557 576 594 738 654 692 711 774 737 720 736 720 729 8,381 743 662 712 516 743 720 736 744 685 744 720 734 8,459 712 568 562 720 744 710 4,016 29,413 8,404 744 659 598 720 734 708 734 743 720 702 720 738 8,521 506 596 676 659 744 711 744 735 720 736 720 727 8,274 744 661 740 653 743 720 736 742 686 744 720 736 8,625 744 547 462 720 744 709 3,926 29,346 8,385

Month
Jan 1999 Feb 1999 Mar 1999 Apr 1999 May 1999 Jun 1999 Jul 1999 Aug 1999 Sep 1999 Oct 1999 Nov 1999 Dec 1999

Availability (%) Unit 1 Unit 2
100.0 98.8 83.7 100.0 99.1 98.5 99.5 99.8 100.0 94.5 100.0 98.7 97.7 77.4 88.4 99.2 90.8 93.0 98.8 104.0 99.1 100.0 98.9 100.0 98.0 95.7 99.9 98.5 95.7 71.7 99.9 100.0 98.9 100.0 95.1 100.0 100.0 98.7 96.6 95.7 84.5 75.5 100.0 100.0 98.6 92.4 96.0 95.9 100.0 98.1 80.4 100.0 98.7 98.3 98.7 99.9 100.0 94.4 100.0 99.2 97.3 68.0 88.7 90.9 91.5 100.0 98.8 100.0 98.8 100.0 98.9 100.0 97.7 94.5 100.0 98.4 99.5 90.7 99.9 100.0 98.9 99.7 95.3 100.0 100.0 98.9 98.5 100.0 81.4 62.1 100.0 100.0 98.5 90.4 95.8 95.7

Online (hours) Unit 1 Unit 2
495 293 289 353 722 698 731 710 618 608 720 678 6,915 537 268 385 376 679 707 744 723 704 686 591 647 7,047 622 429 481 260 545 702 730 735 675 688 689 576 7,132 563 399 282 380 613 700 2,937 24,031 6,866 480 288 258 347 720 700 726 710 618 608 720 679 6,854 345 368 368 462 720 707 743 722 703 686 591 626 7,041 636 409 490 342 521 702 730 735 675 688 689 580 7,197 628 345 228 331 613 704 2,849 23,941 6,840

Online (%) Unit 1 Unit 2
66.5 43.6 38.8 49.0 97.0 96.9 98.3 95.4 85.8 81.7 100.0 91.1 78.9 72.2 39.9 51.7 52.2 91.3 98.2 100.0 97.2 97.8 92.2 82.1 87.0 80.4 83.6 63.8 64.7 36.1 73.3 97.5 98.1 98.8 93.8 92.5 95.7 77.4 81.4 75.7 59.4 37.9 52.8 82.4 97.2 67.6 78.5 78.4 64.5 42.9 34.7 48.2 96.8 97.2 97.6 95.4 85.8 81.7 100.0 91.3 78.2 46.4 54.8 49.5 64.2 96.8 98.2 99.9 97.0 97.6 92.2 82.1 84.1 80.4 85.5 60.9 65.9 47.5 70.0 97.5 98.1 98.8 93.8 92.5 95.7 78.0 82.2 84.4 51.3 30.6 46.0 82.4 97.8 65.6 78.2 78.1

1999
Jan 2000 Feb 2000 Mar 2000 Apr 2000 May 2000 Jun 2000 Jul 2000 Aug 2000 Sep 2000 Oct 2000 Nov 2000 Dec 2000

2000
Jan 2001 Feb 2001 Mar 2001 Apr 2001 May 2001 Jun 2001 Jul 2001 Aug 2001 Sep 2001 Oct 2001 Nov 2001 Dec 2001

2001
Jan 2002 Feb 2002 Mar 2002 Apr 2002 May 2002 Jun 2002

2002
42 Months (total) Average (Jan 1999–Jun 2002)

28

Appendix 3

PROJECT COST COMPARISON ($ million)
Item Appraisala Estimate Actual Savings (Overruns)

Base Cost Preparatory Civil Works Main Civil and Hydraulic Steelworks Mechanical Works Electrical Equipment Transmission Line Environmental Mitigation Project Management Construction Supervision Operation and Management Training Financial Management Services Subtotalb Financial Costs Preparatory Costs Feasibility Study Final Design and Tender Documents Subtotal Preoperational Expenses Initial Working Capital Financial Allocationc Total Project Cost
a

11.2 105.9 24.5 48.0 19.0 1.1 3.3 10.0 4.5 227.5 32.4

12.7 83.0 13.6 36.7 15.8 1.9 2.6 11.5 2.9 0.1 180.8 20.2

(1.5) 22.9 10.9 11.3 3.2 (0.8) 0.7 (1.5) 1.6 (0.1) 46.7 12.2

0.0 0.0 0.0 6.8 3.3 0.0 270.0

2.0 5.5 7.5 17.0 0.0 14.7 240.2

(2.0) (5.5) (7.5) (10.2) 3.3 (14.7) 29.8

Although a small percentage of the project costs was in local currency, the appraisal estimate did not provide a local and foreign currency breakdown. Including contingencies totaling $23.5 million. Reserves for debt service, operation and maintenance, etc.

b c

ORGANIZATIONAL CHARTS Figure A4.1: Theun-Hinboun Power Company Limited

Board of Directors

General Manager Vientiane, Lao PDR

Financial Manager
provided by MDX Power International BVI Limited Bangkok, Thailand

Head Office
Vientiane, Lao PDR

Environmental Management Division
THPC Site Khammouan Province Lao PDR

Operation and Maintenance
provided by Nordic Hydropower THPC Site, Khammouan Province, Lao PDR
Appendix 4

Lao PDR = Lao People’s Democratic Republic, THPC = Theun- Hinboun Power Company.

29

30
Appendix 4

Figure A4.2: Theun-Hinboun Power Plant

PLANT MANAGER

Operation Division

Maintenance Division

Administration Division

Shift Charge Engineers

Technical Support

Finance and Personnel

Electrical Department Operators Electrical Group

Transmission Department Warehouse and Transportation Transmission Group

Clinic Department Cleaning
Civil Works Department Mechanical Department

Civil Works Group

Mechanical Group

Canteen and GH

Site Security
Fire Fighters

FINANCING AND OWNERSHIP STRUCTURE ($ million)

57.7 ADB LA (ADF) Ministry of Finance Lao PDR

6.9 THPC SLA
Commercial Banks

Export Credit Agencies 58.6

7.3 Nordic Dev’t Fund

6.9

64.7 130.2 (Loans)

72.5
Electricité du Laos

THPC Project Cost 240.2 SLA

0.4 UNDP Grant

110 (Equity)

Norwegian Agency for Dev’t Corp.

7.1

65.6

Equity 60% 66.0

Equity 20% 22.0 Nordic Hydropower 2 Board Members

Equity 20% 22.0 MDXL 2 Board Members

Electricité du Laos 5 Board Members

Appendix 5

ADB = Asian Development Bank, ADF = Asian Development Fund, LA = Loan Agreement, Lao PDR = Lao People’s Democratic Republic, MDXL = MDX Lao Public Company Limited, SLA = subsidiary loan agreement, THPC = TheunHinboun Power Company, UNDP = United Nations Development Programme.

Statkraft SF Norway

Vattenfall AB Sweden

GMS Power Public Co. Ltd. (MDXL)

Thailand Crown Agents

31

32

Appendix 6

COMPLIANCE WITH LOAN COVENANTS Covenant
1. THPC shall be responsible for the execution of the Project and shall engage an adequate number of qualified staff to supervise project implementation. All local professional staff to be engaged by THPC shall be recruited in consultation with EdL. The Borrower shall consult with the Bank concerning any proposal to amend materially the Investment License, Shareholders Agreement, License Agreement, or Power Sale Agreement. Prior to the commissioning of the project facilities, THPC shall enter into the Operators Agreement on terms and conditions satisfactory to the Bank. The Borrower shall prepare, or cause to be prepared, a postconstruction environmental audit of the Project, including a study of the Project’s impact on downstream fisheries. The Borrower shall consult with the Bank on the results of such audit and shall ensure that appropriate measures are undertaken to mitigate any negative environmental impact the Project may have on such fisheries. The Borrower shall implement, or cause to be implemented, an environmental management program satisfactory to the Bank for the area affected by the construction and operation of the hydropower station under the Project. Such program shall include measures for (i) environmental protection; (ii) site rehabilitation; (iii) management of protected areas; (iv) fishery management; (v) compensation of local residents; (vi) community safety, health, and education; (vii) worker health and safety; and (viii) monitoring. THPC shall furnish financial information on the loan and expenditure of the proceeds to the Bank on request. THPC will submit quarterly reports to the Bank.

Reference
LA, Schedule 5, para. 1

At PCR Stage At PPAR Stage
Complied with Complied with

2.

LA, Schedule 5, para. 2 LA, Schedule 5, para. 3 LA, Schedule 5, para. 4

Complied with

Complied with

3.

Complied with

Complied with

4.

An environmental audit report prepared; fisheries report incomplete Under implementation

Complied with; fisheries study is being implemented

5.

LA, Schedule 5, para. 5

Complied with

6. 7.

PA, Section 2.08(a) PA, Section 2.08(b) PA, Section 2.08(c) PA, Section 2.09(a)

Complied with Complied with

Complied with Complied with

8.

Three months after physical completion of the Project, THPC will submit a project completion report to the Bank. THPC will submit audited financial statements within 6 months after the end of the fiscal year.

Complied with

Complied with

9.

Complied with

Complied with

EdL = Electricité du Laos, LA = Loan Agreement, PA = Project Agreement, PCR = project completion report, PPAR = project performance audit report, THPC = Theun-Hinboun Power Company.

Appendix 7

33

TECHNICAL NOTE ON PROJECT OPERATION 1. The Project is operated from a control facility located in the powerhouse. Control of the generation and monitoring of plant parameters and alarms is by a computer-based system with manual control available at the equipment local level. Generation level is set by the energy dispatch schedule of the power purchaser (Electricity Generating Authority of Thailand [EGAT]), based on a take-or-pay quantity of 95% of the available energy at the site. 1 The available energy is dependent upon the flow in the Nam Theun. While the nominal capacity of the Project is 210 megawatts, the units have been operating at as high as 220 megawatts on numerous occasions. Energy dispatched is scheduled daily for the following day. The plant operators inform the EGAT dispatcher of the projected generation available. The EGAT dispatcher then informs the plant operators of the level of generation required for the following day. The operators can control the generation level by a set point in the computer control or manually by controlling the flow by gate position and guide vane opening. 2 The various instrumentation of the Project, which indicates the energy available and the metering of the output power, is available to EGAT as well as the operators by means of a supervisory control and data acquisition (SCADA) system. Available energy not dispatched by EGAT is calculated by the system and the result is provided to both parties. In the event that the Project does not meet the dispatch schedule for reasons of equipment outage or operational difficulties, EGAT charges the Theun-Hinboun Power Company Limited liquidated damages for each gigawatt-hour (GWh) not delivered as per the power purchase agreement. The Project also supplies the rural electric services of the Electricité du Laos (EdL) in the nearby villages. 2. The generating head is monitored by the SCADA system by means of a water level gauge in the headpond. Water level is maintained by control of the diversion dam gates. Gate openings are also monitored by the control system. These are set and maintained by dam operating personnel by radio control and are not remotely operated from the control facility. 3 The control facility is manned continually on a three-shift basis with two operators and a shift engineer. The shift schedule was observed to function well with good overlap and communication between the incoming and outgoing shift personnel as to plant conditions and schedules. The operators are well trained and competent in their assigned responsibilities.4 The operators perform a complete check daily of the major equipment instrumentation and status by walking through the powerhouse and substation. Readings are taken and entered on a weekly log. The log indicates trends and the operators are sufficiently knowledgeable to detect abnormal readings. 3. The Project’s performance data, including generation, sales, losses and auxiliary use, and online time, is presented in Appendix 2, Table A2.1. For sales to EdL, the data does not distinguish between energy provided by the Project and by EGAT. Energy is provided by EGAT during times that the power plant is out of operation. Transmission losses are estimated from a sample of the daily calculations of energy sales confirmations. During 1999–2001, the total potential generation averaged 1,568 GWh, dispatched generation 1,495 GWh, and sales
1 2 3 4

This is a nominal value. During several months, EGAT dispatches all available energy. Guide vanes are devices that control the flow at the turbine level. This is not an issue except during a storm when the communication may be compromised. Operation and maintenance training was provided to local staff during construction of the Project and during startup activities. The staff selected for employment were primarily EdL employees with technical training and included engineering university graduates. Theory and technical details were presented in classroom settings in the Lao People’s Democratic Republic and Sweden. The trainees participated in equipment installation and in start-up of the Project. Training was enhanced by visits to hydropower installations in Nordic locations. The training was the responsibility of Nordic Hydropower.

34

Appendix 7

1,471 GWh. The feasibility study estimated the annual generation at 1,645 GWh. To date, the actual generation has not reached this level. The highest sum of dispatched and foregone generation was recorded in 2000 at 1,589 GWh, or 97% of the feasibility study estimate. The release of 5 cubic meters per second minimum flow that reduces generation during the dry season of January to April, and an availability of about 96% 5 have both contributed to the slightly lower-than-expected annual generation. 4. The annual unit availability and machine online time are listed in Appendix 2, Table A2.2. The 42-month average availability for the two generating units is 96.0% and 95.8%, respectively. The ratio of hours of operation to the annual number of hours is 78.5% and 78.2%, respectively. Lack of availability is defined as the period of time a generating unit is not capable of operating. Forced outages and maintenance downtime is included but outage time due to lack of water is not. Forced outages are the result of failures or unplanned equipment shutdown while operating. The resulting outage duration is included in the calculation of availability. Data from the operational records indicates that the Project had 36 outages from January 1999 to June 2002. The total time of operation foregone was only 81 hours, lost production totaled 0.5 GWh,6 and liquidated damages had to be paid for 12.2 GWh of scheduled energy that was not delivered because of the outages (at a rate of about $10,000 per GWh). 5. The recorded descriptions of the various forced outages indicate that simultaneous tripping of the 230 kilovolts transmission circuits was the cause of about 2.0 GWh, or 16% of the liquidated damages. Other causes included component failures, cooling water problems that caused overheating of bearings, oil leaks of various kinds, and one incident of operator error. A significant pair of outages was due to a failure of a 16 kilovolts busbar bushing. The total liquidated damages for these failures were 4.5 GWh, or 37% of the total. The failure of the busbar bushing was rectified and all similar bushing checked as a result. The forced outage time peaked during 2000 at 54 hours, to decline to less than 4 hours in 2001 and to 14 hours in the first half of 2002. One incident, an oil leak in a circuit breaker, was the cause of 12 hours of the 2002 outage duration as well as 1.1 GWh of liquidated damages. It appears that a significant improvement in reducing forced outages has been made. Elimination of the outages of both transmission circuits by lightning will further improve the reliability of the Project. 6. In addition to the forced outages discussed above, various maintenance activities, including periodic inspections, entail planned outages. While these outages do not result in liquidated damages, they are included in availability calculations. Planned outages amounted to 30 hours in 1999, 21 hours in 2000, and 40 hours in 2001. There were no planned outages in the first half of 2002. The durations is comparable to similar hydropower facilities. Many required inspections and maintenance items should be performed on a one-unit basis during flow conditions that lack sufficient volume for two-unit operation. The operators have made good use of this practice. 7. Maintenance is performed by trained personnel and appears to be of very high quality. Specialty repairs and periodic preventive maintenance actions are performed by outside vendors on scheduled or as-needed basis. The control and SCADA software are maintained inhouse by a vendor-trained engineer. Maintenance is under the responsibility and direction of the operating company. Preventive maintenance is given adequate priority. Maintenance in the form of housekeeping and general upkeep of the facilities is exemplary. Observations at the diversion works including the dam and intake indicate that these facilities are well maintained with minor
5 6

Availability of 98% would be an expected value for power plants of this type. If no water is spilled during the forced outage, no lost production is assigned.

Appendix 7

35

faults. Some expansion material in the dam joints has deteriorated and certain parts of the crane and trash rack rake steel members are in need of some minor repairs including paint touch-up. None of these items would indicate any condition that would prevent the proper operation in the near term. 8. During periods of time when the Nam Theun carries large amounts of debris, the trash rack rake should be operated at least once per 8 -hour shift to ensure that debris is not accumulating on the racks. This is a preventive maintenance action as well as an operational consideration. At present, the rake is operated on perceived need rather than as a preventive measure. Preventive maintenance includes the periodic mapping of sediment accumulation in the headpond and re-regulating pond. This is planned but not implemented. This should be initiated at the earliest opportunity. Permanent markers along the banks of both ponds and the diversion dam should be erected so as to aid in creating a grid pattern by which depth readings can be taken at specific repeatable locations. Ultrasonic depth finders should be procured and utilized for sedimentation mapping. 9. Preventive maintenance of the main power transformers and the substation equipment appears adequate. The operators and maintenance personnel are aware of the need for periodic cleaning of insulators, bolt tightness checks, and assuring that proper grounding is maintained. Periodic oil sampling and testing is performed by EdL personnel and the results are reviewed by the plant operators. Maintenance of the transmission line has been light to date. There were insulator failures at start-up and these were replaced. Transmission outages due to structural element failure or suspension insulator problems have been few. The transmission line maintenance personnel are aware of the need to ensure that the tower foundations are not adversely affected by the annual flooding due to erosion of the surrounding soil. This is a check performed during the periodic inspection along the line route. 10. The report generation by the plant control software is known to have several errors, as does some of the output presented to the operators on the control room monitors. These were noted at plant start-up. The vendor agreed to make corrections but has not done so in the 3 years since notice was given. The main impact of the observed errors appears to be that of limiting various management information system reports and providing some erroneous information in the monitor views available to the shift operators. As the operators are aware of these, the day-to-day impact is not significant but may cause confusion in the event of some previously unseen abnormal operating condition or emergency. The plant site has internet access. The system should be capable of analysis by the vendor if connected to the vendor. If so, then this should be done and the errors corrected. If the system is not capable of remote interrogation and analysis, this should be added for future maintenance and in the event of a system failure in the future. 11. Proper maintenance requires that necessary tools and spare parts are available to the maintenance personnel when and as needed. The amounts of spares and the method of storage were observed to be proper and reasonable. Tools of the required types and in adequate numbers are available and in good repair. 12. The following actions are recommended to ensure continued good performance of the Project: (i) developing an action plan for the mapping and removal of sediment by the onset of the dry season; (ii) acquiring the necessary depth finders and removal equipment; (iii) developing a sediment disposal plan; (iv) installing vibration monitoring and analysis systems on both generation units; (v) establishing vibration profiles and histories of these to provide for early detection of pending failures; (vi) improving the intake water level

36

Appendix 7

instrumentation; (vii) installing differential pressure measuring on the trash racks at the intake; (viii) adding of a grappling hook to the trash rack rake or other device for the removal of large debris from the intake; (ix) obtaining a copy of the final physical model test for the operational staff; (x) initiating a check of the grounding of the transmission line towers, shield wire connections, and shield angle; and (xi) providing training to additional personnel in the maintenance of the SCADA and control system software and hardware.

FINANCIAL STATEMENTS OF THE THEUN-HINBOUN POWER COMPANY Table A8.1: Income Statement ($'000)
Item 1998 A. Revenues Net Sales Other Income Total A B. Cost and Expenses Cost of Sales Royalty Expenses Depreciation and Amortization Expenses Selling and Administrative Expenses Interest Expenses Total B Net Income Before Income Tax Income Tax Net Income After Income Tax Unappropriated Retained Earnings, Beginning Adjustment Retained Earnings Before Cash Dividends Appropriated for Cash Dividends Unappropriated Retained Earnings, End 41,888 634 42,522 Actual 1999 2000 58,565 1,662 60,227 59,243 4,657 63,900 Projected 2005 2006 58,550 586 59,136 59,140 591 59,731 Total 2007 59,740 597 60,337 2008 60,340 603 60,943 2009 55,680 557 56,237 2010 49,450 495 49,945 2011 49,950 500 50,450 2012 50,450 505 50,955 838,382 14,275 852,657

2001 57,896 1,114 59,010

2002 62,130 621 62,751

2003 57,390 574 57,964

2004 57,970 580 58,550

2,776 1,863 6,215 5,151 10,189 26,194 16,328 0 16,328 (8,879) 7,449 9,500 (2,051)

4,448 2,790 8,206 2,480 12,390 30,314 29,913 0 29,913 7,989 (10,039) 27,863 27,700 163

3,264 3,017 8,685 2,630 10,323 27,919 35,981 0 35,981 (2,837) 3,000 36,144 30,800 5,344

3,396 2,869 8,347 2,211 8,565 25,388 33,622 0 33,622 5,344 0 38,966 25,400 13,566

2,840 3,110 9,190 1,440 8,230 24,810 37,941 0 37,941 13,566 0 51,507 29,770 21,737

2,670 2,870 9,200 1,481 10,180 26,401 31,563 0 31,563 21,737 0 53,300 24,330 28,970

2,480 2,900 9,200 1,524 9,190 25,294 33,256 (4,860) 28,396 28,970 0 57,366 23,360 34,006

2,740 2,930 9,200 1,849 8,720 25,439 33,697 (4,950) 28,747 34,006 0 62,752 21,940 40,812

2,880 2,960 9,200 2,348 8,210 25,598 34,133 (5,100) 29,033 40,812 0 69,845 22,320 47,525

3,030 2,990 9,200 2,747 6,920 24,887 35,450 (5,340) 30,110 47,525 0 77,635 22,370 55,265

3,180 3,020 9,200 3,599 5,460 24,459 36,484 (5,610) 30,874 55,265 0 86,140 22,540 63,600

3,340 2,780 9,200 4,391 3,810 23,521 32,716 (5,150) 27,566 63,600 0 91,165 23,660 67,505

3,500 2,470 9,200 5,357 2,350 22,877 27,068 (4,430) 22,638 67,505 0 90,143 21,480 68,663

3,680 2,500 9,200 6,535 1,010 22,925 27,524 (4,640) 22,884 68,663 0 91,547 30,200 61,347

3,860 2,520 9,200 7,973 360 23,913 27,041 (4,760) 22,281 61,347 0 83,628 33,830 49,798

48,084 41,589 132,643 51,718 105,907 379,941 472,716 (44,840) 427,876 513,492 (15,918) 925,450 369,200 556,250

Appendix 8

37

38

Table A8.2: Balance Sheet ($'000)
Item 1997 A. Assets 1. Current Assets Cash on hand and in banks Accounts receivable-trade Other current assets Total Current Assets 2. Noncurrent Assets Hydroelectric power project-net Hydroelectric power project in progress Equipment-net Other noncurrent assets Total Noncurrent Assets Total Assets B. Liabilities and Equity 3. Current Liabilities Accounts payable Current portion of long-term debt Accrued expenses, retention payable, and short-term debt Payable to shareholders and related companies Total Current Liabilities Long-term debts C. Shareholders' Equity 4. Share capital Unappropriated retained earnings Total Shareholders' Equity Total Liabilities and Equity 1998 Actual 1999 Projected 2007

Appendix 8

2000

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

2012

1,759 956 2,715

31,155 9,722 614 41,491

30,239 12,071 451 42,761

28,626 10,274 323 39,223

30,107 10,665 247 41,019

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

31,000 10,700 410 42,110

165,349 370 43,597 209,316 212,031

196,017 0 252 7,191 203,460 244,951

192,433 0 159 6,515 199,107 241,868

183,854 0 97 5,844 189,795 229,018

175,589 0 245 5,382 181,216 222,235

165,054 0 225 4,952 170,230 212,340

155,150 0 225 4,655 160,030 202,140

145,841 0 225 4,375 150,442 192,552

137,091 0 224 4,113 141,428 183,538

128,865 0 224 3,866 132,955 175,065

121,134 0 224 3,634 124,992 167,102

113,866 0 225 3,416 117,506 159,616

107,034 0 224 3,211 110,469 152,579

100,612 0 224 3,018 103,854 145,964

89,139 0 224 2,674 92,037 134,147

76,795 0 224 2,304 79,322 121,432

7,084 3,487 9,869 3,711 24,151 77,878

143 11,176 5,887 1,191 18,397 118,603

0 11,097 11,447 835 23,379 108,326

0 11,137 7,399 765 19,301 94,374

0 11,139 3,920 874 15,933 82,736

0 11,140 7,200 900 19,240 116,363

0 11,300 7,200 900 19,400 98,770

0 11,350 7,200 900 19,450 84,096

0 11,500 7,200 900 19,600 68,126

0 11,600 7,200 900 19,700 52,840

0 6,200 7,200 900 14,300 42,537

0 6,200 7,200 900 14,300 26,716

0 6,200 7,200 900 14,300 15,774

0 6,200 7,200 900 14,300 8,001

0 6,200 7,200 900 14,300 3,500

0 6,200 7,200 900 14,300 2,333

110,000 110,000 212,029

110,000 (2,051) 107,949 244,949

110,000 163 110,163 241,868

110,000 5,344 115,344 229,019

110,000 13,566 123,566 222,235

55,000 21,737 76,737 212,340

55,000 28,970 83,970 202,140

55,000 34,006 89,006 192,552

55,000 40,812 95,812 183,538

55,000 47,525 102,525 175,065

55,000 55,265 110,265 167,102

55,000 63,600 118,600 159,616

55,000 67,505 122,505 152,579

55,000 68,663 123,663 145,964

55,000 61,347 116,347 134,147

55,000 49,798 104,798 121,432

Table A8.3: Cash Flow Statement ($'000) Item
1994–1997 A. Cash Inflows Shareholders' Equity Shareholders' Advances, Loans Loan Drawdowns Other Inflows Net Sales Collection of Receivables Interest Income Total Cash Inflows B. Cash Outflows Pre-Operating Costs and Expenses (net of accrued expenses) Advance Payment for Plant Construction, Contractor Plant Construction (net of retention pay's accrued interest) Prepaid Expenses and Current Accounts Equipment Payment of Accrued Expenses, Short-Term Debt Payment of Shareholders' Advances, Loans Cost of Sales Royalty Expenses Selling and Administrative Expenses Income Tax Total Cash Outflows Net Cash Inflows Before Debt Service Debt Service Cash Before Dividends Dividends Net Cash Inflows During the Year Cash Balance, Beginning Cash Balance, End 1998

Actual
1999 2000 2001 2002 2003 2004 2005 2006

Projected
2007 2008 2009 2010 2011 2012

Total

110,000 3,711 81,365 0 0 0 0 195,076

0 0 48,414 11,310 41,888 104 634 102,350

0 0 0 6,710 58,565 1,662 66,937

0 0 0 10,753 59,243 144 4,657 74,797

0 110 0 9,074 57,896 96 1,114 68,290

0 0 0 9,500 62,130 150 621 72,401

0 0 0 9,500 57,390 150 574 67,614

0 0 0 9,500 57,970 150 580 68,200

0 0 0 9,500 58,550 150 586 68,786

0 0 0 9,500 59,140 150 591 69,381

0 0 0 9,500 59,740 150 597 69,987

0 0 0 9,500 60,340 150 603 70,593

0 0 0 9,500 55,680 150 557 65,887

0 0 0 9,500 49,450 150 495 59,595

0 0 0 9,500 49,950 150 500 60,100

0 0 0 9,500 50,450 150 505 60,605

110,000 3,821 129,779 142,347 897,625 1,994 14,275 1,299,841

37,136 5,791 149,313 0 708 370 0 0 0 0 0 0 193,318 1,758 0 1,758 0 1,758 1,758

0 0 17,960 16,745 37 0 2,520 2,776 1,863 5,151 0 47,052 55,298 16,402 38,896 9,500 29,396 1,758 31,154

0 0 4,511 2,493 35 933 355 4,448 2,790 2,480 0 18,045 48,892 22,108 26,784 27,700 (916) 31,154 30,238

0 0 1,224 11,293 44 2,824 71 3,264 3,017 2,630 0 24,367 50,430 21,243 29,187 30,800 (1,613) 30,238 28,625

355 0 208 13,048 231 0 0 3,396 2,869 2,211 0 22,318 45,972 19,090 26,882 25,400 1,482 28,625 30,107

0 0 500 10,000 90 1,500 100 2,840 3,110 1,440 0 19,580 52,821 19,000 33,821 29,770 4,051 30,107 34,158

0 0 500 9,000 90 1,500 100 2,670 2,870 1,481 0 18,211 49,403 23,000 26,403 24,330 2,073 34,158 36,231

0 0 500 9,000 90 1,500 100 2,480 2,900 1,524 4,860 22,954 45,246 22,500 22,746 23,360 (614) 36,231 35,617

0 0 500 9,000 90 1,500 100 2,740 2,930 1,849 4,950 23,659 45,127 21,400 23,727 21,940 1,787 35,617 37,403

0 0 500 9,000 90 1,500 100 2,880 2,960 2,348 5,100 24,478 44,903 21,000 23,903 22,320 1,583 37,403 38,986

0 0 500 9,000 90 1,500 100 3,030 2,990 2,747 5,340 25,297 44,690 17,600 27,090 22,370 4,720 38,986 43,706

0 0 500 9,000 90 1,500 100 3,180 3,020 3,599 5,610 26,599 43,994 13,900 30,094 22,540 7,554 43,706 51,261

0 0 500 9,000 90 1,500 100 3,340 2,780 4,391 5,150 26,851 39,036 9,800 29,236 23,660 5,576 51,261 56,836

0 0 500 9,000 90 1,500 100 3,500 2,470 5,357 4,430 26,947 32,648 6,000 26,648 21,480 5,168 56,836 62,004

0 0 500 9,000 90 1,500 100 3,680 2,500 6,535 4,640 28,545 31,554 2,400 29,154 30,200 (1,046) 62,004 60,958

0 0 500 9,000 90 1,500 100 3,860 2,520 7,973 4,760 30,303 30,301 900 29,401 33,830 (4,429) 60,958 56,529

37,491 0 5,791 0 178,716 0 144,287 1,707 20,257 4,046 51,348 41,589 51,718 44,840 578,526 662,072 236,343 425,729 369,200 56,529 579,042 635,571

Appendix 8

39

40

Appendix 9

FINANCIAL AND ECONOMIC INTERNAL RATES OF RETURN 1. The main purpose of the Project is to export power to the Electricity Generating Authority of Thailand (EGAT). The power purchase agreement (PPA) with EGAT stipulates that 95% of the available electricity will be sold on a take-or-pay basis at a specified tariff rate. EGAT, at times, buys more than 95% and the Electricité du Laos (EdL) buys about 1%. The actual generation is determined after EGAT’s demand is indicated for the next day. 2. EGAT’s payments are determined half in baht and half in US dollars. The exchange rate is fixed at $1.00 = B25.35, the rate that prevailed on the execution date of the PPA. Consequently, the revenue has been calculated taking into account baht depreciation. 1 The small percentage of electricity sold to EdL is also determined in US dollars at 96.2% of the tariff paid by EGAT. Over 95% of the project capital costs were incurred in foreign exchange as well. The calculation of the financial internal rate of return (FIRR) and economic internal rate of return (EIRR) is, therefore, in US dollars. The actual costs incurred and benefits received prior to 2002 are brought to constant 2002 price terms using the World Bank’s manufacturers’ unit value index, which increased by 2.4% per year in the 1990s. The weighted average cost of capital is estimated at 8.3%. 3. Interest during construction is excluded from the actual capital costs. No residual value of the capital costs is assumed at the end of the 25-year economic life, similar to the appraisal projections. Royalty payments to the Government are calculated at 5% of revenue, while taxes are projected at 15% of the net income payable from 2004 onward. For 2002, the average of the previous 2 years’ generation is taken. Thereafter, the energy generated is assumed to remain at the 2002 level until 2009 when Nam Theun 2 is expected to become operational, causing a drop of 275 gigawatt-hours.2 The actual tariff rates are assumed until 2001, and for 2002, a 1% increase is assumed as per the PPA, which states that tariff will increase every year only by 1% irrespective of the inflation rate. If the US inflation rate increases by more than 1%, the tariff will decrease in real terms. This has been taken into account in the calculation by deflating the tariff rate by a factor of (1.010/1.024). The energy sold to EdL (less than 1%) is assumed to increase by 5% from 2002. Based on these assumptions, the FIRR is 17.0% (Table A9.1), well above the weighted average cost of capital of 8.3% (Table A9.2).

1 2

For example, a factor of (0.5 + 0.5 x [25.35/42.00]) has been used to determine the US dollar value of the 2002 revenue. Although latest studies expect this to be lower than 275 gigawatt-hours, the same drop as in the license agreement is assumed here.

Table A9.1: Financial Internal Rate of Return ($ million)
Cost 5% Royalty Sales to EGAT Tariff Payment ($/kWh) ($/kWh) Sales to EdL (Local) Energy Payment Revenue (GWh) ($/kWh) Total Revenue Net Cash Flow (42.05) (15.31) (51.40) (96.07) 20.42 51.29 53.44 51.49 51.85 51.08 45.68 44.99 44.32 43.65 42.99 34.50 33.98 33.47 32.96 32.46 31.96 31.47 30.99 30.52 30.05 29.59 29.13 28.68 28.24 734.35

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total

Actual Cost 42.05 15.31 51.40 96.07 20.51

O&M THPC

Tax

5.27 5.31 4.45 4.86 4.73 4.73 4.73 4.73 4.73 4.73 4.73 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 106.98

2.43 2.98 3.05 2.97 2.98 2.94 2.90 2.86 2.82 2.78 2.74 2.20 2.17 2.14 2.12 2.09 2.06 2.03 2.00 1.98 1.95 1.92 1.90 1.87 1.84 59.71

4.64 4.57 4.51 4.45 4.39 3.53 3.48 3.43 3.38 3.34 3.29 3.25 3.20 3.16 3.12 3.07 3.03 2.99 2.95 67.79

Total Cost 42.05 15.31 51.40 96.07 28.22 8.29 7.50 7.83 7.71 7.67 12.26 12.16 12.06 11.96 11.86 9.59 9.51 9.43 9.36 9.28 9.21 9.13 9.06 8.99 8.92 8.85 8.78 8.72 8.65 459.82

Energy (GWh)

Revenue ($)

1,212.2 1,438.8 1,486.7 1,485.3 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 32,978.8

0.0496 0.0497 0.0502 0.0507 0.0500 0.0493 0.0486 0.0479 0.0473 0.0466 0.0460 0.0454 0.0448 0.0441 0.0435 0.0429 0.0424 0.0418 0.0412 0.0406 0.0401 0.0395 0.0390 0.0385 0.0379

0.0401 0.0414 0.0410 0.0399 0.0401 0.0395 0.0390 0.0384 0.0379 0.0374 0.0369 0.0364 0.0359 0.0354 0.0349 0.0344 0.0340 0.0335 0.0330 0.0326 0.0321 0.0317 0.0313 0.0308 0.0304

48.61 59.56 60.92 59.30 59.54 58.72 57.92 57.13 56.35 55.58 54.82 44.06 43.46 42.86 42.28 41.70 41.13 40.57 40.01 39.47 38.93 38.39 37.87 37.35 36.84 1,193.36

0.60 0.60 0.60 0.58 0.61 0.64 0.67 0.70 0.74 0.78 0.82 0.86 0.90 0.94 0.99 1.04 1.09 1.15 1.21 1.27 1.33 1.40 1.47 1.54 1.62 24.13

0.039 0.040 0.039 0.038 0.039 0.038 0.037 0.037 0.036 0.036 0.035 0.035 0.035 0.034 0.034 0.033 0.033 0.032 0.032 0.031 0.031 0.031 0.030 0.030 0.029

0.023 0.024 0.024 0.022 0.023 0.024 0.025 0.026 0.027 0.028 0.029 0.030 0.031 0.032 0.033 0.035 0.036 0.037 0.038 0.040 0.041 0.043 0.044 0.046 0.047 0.808

48.63 59.59 60.94 59.32 59.56 58.75 57.94 57.15 56.37 55.60 54.85 44.09 43.49 42.90 42.31 41.74 41.17 40.61 40.05 39.51 38.97 38.44 37.91 37.40 36.89 1,194.17 FIRR

Appendix 9

225.34

41

17.0%

42

Appendix 9

Table A9.2: Weighted Average Cost of Capital
Financing Source Amount ($ million) Interest Rate (%) Real Interest Rate (net of inflation and taxes) (%) 7.4 8.5 10.0 8.3

Equity Commercial Supplementary Credit Total/Weighted Average

110.0 71.6 58.6 240.2

10 10 12

4. The EIRR is calculated from the country’s viewpoint rather than from the Government’s perspective. Economic costs exclude interest during construction, taxes, duties, and royalties. Economic benefits to the country consist of the revenues from energy sales to Thailand and the economic value of the domestic sales. The latter is calculated at the retail domestic tariff rate that is considered to reflect the willingness to pay by the poor nearby communities. As foreignskilled labor was used in the construction, only a minor portion of the capital cost, which is difficult to determine, was nontradables. As such, no adjustment is made for unskilled local labor. Similarly, the calculation does not consider the environmental and social costs and benefits that may have been generated. Taking only the quantifiable costs and benefits to the country into account, the EIRR is 18.5% (Table A9.3).

Table A9.3: Economic Internal Rate of Return ($ million)
Cost O&M THPC Sales to EGAT Tariff Payment ($/kWh) ($/kWh) Sales to EdL (Local) Energy Payment Revenue (GWh) ($/kWh) Total Revenue Net Cash Flow (42.05) (15.31) (51.40) (96.07) 22.83 54.25 56.47 54.45 54.83 54.01 53.21 52.42 51.64 50.87 50.11 40.23 39.63 39.04 38.45 37.88 37.31 36.75 36.20 35.65 35.11 34.58 34.06 33.55 33.04 861.75 18.5%

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Total

Actual Cost 42.05 15.31 51.40 96.07 20.51

5.27 5.31 4.45 4.86 4.73 4.73 4.73 4.73 4.73 4.73 4.73 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 106.98

Total Cost 42.05 15.31 51.40 96.07 25.78 5.31 4.45 4.86 4.73 4.73 4.73 4.73 4.73 4.73 4.73 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 3.85 332.32

Energy (GWh)

Revenue ($)

1,212.2 1,438.8 1,486.7 1,485.3 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,486.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 1,211.0 32,978.8

0.04956 0.04966 0.05016 0.05066 0.04997 0.04929 0.04861 0.04795 0.04729 0.04665 0.04601 0.04538 0.04476 0.04415 0.04354 0.04295 0.04236 0.04178 0.04121 0.04065 0.04009 0.03954 0.03900 0.03847 0.03794

0.0401 0.0414 0.0410 0.0399 0.0401 0.0395 0.0390 0.0384 0.0379 0.0374 0.0369 0.0364 0.0359 0.0354 0.0349 0.0344 0.0340 0.0335 0.0330 0.0326 0.0321 0.0317 0.0313 0.0308 0.0304

48.61 59.56 60.92 59.30 59.54 58.72 57.92 57.13 56.35 55.58 54.82 44.06 43.46 42.86 42.28 41.70 41.13 40.57 40.01 39.47 38.93 38.39 37.87 37.35 36.84 1,193.36

0.60 0.60 0.60 0.58 0.61 0.64 0.67 0.70 0.74 0.78 0.82 0.86 0.90 0.94 0.99 1.04 1.09 1.15 1.21 1.27 1.33 1.40 1.47 1.54 1.62 24.13

0.01024 0.01253 0.01892 0.02857 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100 0.03100

0.006 0.008 0.011 0.017 0.019 0.020 0.021 0.022 0.023 0.024 0.025 0.027 0.028 0.029 0.031 0.032 0.034 0.036 0.037 0.039 0.041 0.043 0.045 0.048 0.050 0.716

48.62 59.57 60.93 59.32 59.56 58.74 57.94 57.15 56.37 55.60 54.84 44.09 43.49 42.89 42.31 41.73 41.16 40.60 40.05 39.51 38.97 38.44 37.92 37.40 36.89 1,194.08 EIRR

Appendix 9

225.34

43

ENVIRONMENTAL MANAGEMENT DIVISION

44
Appendix 10

EMD Manager

Deputy EMD Manager

Planning/Construction Support

Supervisor

Administration

Technical Support

Community Support

Secretary

Environmental Specialist

Organization Specialist

Community Specialist (Health)

Community Specialist (Savings and Credit Fund)

Fishery Monitor

Chemist

Field Assistant (Livestock)

Field Assistant (Short Term)

Field Assistant (Short Term)

Field Assistant (Short Term)

Field Assistant (Savings and Credit Fund)

CONSULTANTS

Environment (1)

Livestock (1) Conservation Farming (1)

Rural Development Sociology (1)

EMD = Environmental Management Division.

Appendix 11

45

PHOTOGRAPHIC DETAILS

The TheunHinboun Power Company’s weir with rubber gates across Nam Theun in the dry season

The weir and gates across Nam Theun during the wet season

46

Appendix 11

Transmission line through the protected limestone area

Water tank built by the TheunHinboun Power Company

Appendix 11

47

Livestock training: enclosing animals

A toilet built under health and sanitation activities

48

Appendix 11

Mulberry plantation pruned for the rainy season

Silkworm rearing

Appendix 11

49

All season gardens water facilities sponsored under conservation garden activities

Landing areas provided by the Theun-Hinboun Power Company

50

Appendix 11

Focus group interview, men on one side (above) and women on the other side (below)

Appendix 12

51

MITIGATION AND COMPENSATION PROGRAM AND ITS IMPLEMENTATION 1. Logical Framework Activities for Social Impacts. The Environmental Management Division (EMD) of the Theun-Hinboun Power Company (THPC) is undertaking a comprehensive social mitigation plan based on participatory techniques and lessons learned from other development activities in the Lao People’s Democratic Republic (Lao PDR). A summary of the status of these activities as reported in the quarterly reports is given below.1 (i) Community assessment and organization. Village mitigation agreements and development plans have been prepared for 11 villages and sample socioeconomic baseline surveys are being carried out as per the targets in the logical framework, adopting a livelihood framework2 to monitor and assess the impact. Social mitigation implementation. Savings and credit (S&C) groups and livestock groups have been established in 11 villages. Eight garden groups and five sericulture groups (for women) have also been established. Water supply. A total of 90 dug and tube wells have been completed. Problems appear to be arising with the previously installed wells. The villages visited by the Operations Evaluation Mission (OEM) reported malfunctioning of some water wells. Water wheels for gardens are being installed in a few areas in collaboration with the National University of the Lao PDR. Culverts have been built on an asneeded basis and water filter tanks are being tried as a pilot scheme in some villages. Health and sanitation. Village health volunteers (VHVs) have been trained, and basic medicine kits, mosquito nets, and revolving medicine funds have been provided to all 11 villages. Of the 14 VHVs, 10 are men. Toilet construction is in progress in seven villages and follow-up monitoring may be needed to encourage their effective usage. Family planning activities have been introduced and mostly women attend dissemination meetings. Savings and credit funds. In 11 villages, 915 accounts are operating with a total Kip value of 85 billion of which 65 billion has been lent to group members. The membership is reported to be open to all villages and the amount of monthly deposit is determined by the group depending on how much the poorest in the village are able to contribute. After 3 months of continued savings, EMD contributed part of its mitigation and compensation program budget towards the S&C funds. The activity groups can borrow from the funds (e.g., for supplying fingerlings for fish farming). However, the OEM observed that some villagers are not really aware of this financing scheme and believe that EMD provided the fingerlings free of charge. This illustrates that building ownership is a tedious and challenging process that requires substantial time and effort. Security of holding

(ii)

(iii)

(iv)

(v)

1

2

Quarterly progress reports are submitted to the Science, Technology, and Environment Agency in Vientiane with copies to its provincial offices and the Environment Division of the Electricité du Laos. The second q uarter report for 2002 was available for review by the Operations Evaluation Mission. The livelihood framework uses an asset-based approach instead of an income-based approach to measure impacts where assets considered are social, natural, human, financial, and physical assets.

52

Appendix 12

large cash deposits in the villages and the distances to common banks should also be reviewed. (vi) Gardens. House gardens have been established in eight villages with participatory land use planning, terracing where appropriate, and planting fruit trees and vegetables. Family allotments have been surveyed and villagers are encouraged to apply for temporary land use certificates after 3 years. This program is enhanced by the conservation techniques introduced in the headpond area and will allow better watershed management. Farmer-to-farmer training is being done and should be extended to villages further upstream to improve overall watershed management. Other activities. Other livelihood enhancement activities carried out in several villages include silkworm rearing and weaving and training for livestock management. Some essential supplies have been provided to several schools. THPC runs a school and a health center adjacent to the power plants that are open to the public in the area.

(vii)

2. Mitigation Activities for Environmental Impacts. Most of the revegetation of the construction site has been completed and the power plant premises are very well managed and maintained. Studies on water quality monitoring, erosion and sedimentation, and alternatives to the ferry operation (due to dry season operational problems) have been conducted by short-term consultants. Water quality laboratory has been established and is managed by a trained person. A 1-year program for fishery evaluation commenced in May 2002, with comparative studies conducted on two unaffected rivers. A logical framework has been prepared to guide the fishery impact evaluation and mitigation. Small ecotourism projects are planned in the two adjacent national biodiversity conservation areas with the approval of the Government. Problems with the rubber gates in the past may have created some difficulties in managing the headpond water level. THPC expects to replace the rubber gates at the end of the rainy season by raising the dam with permanent structures. A comprehensive study on riparian releases has not been initiated; the OEM recommends that such a study be conducted by a competent and internationally recognized person. 3. Recommendations. The mitigation plans identified in the logical framework are very comprehensive and ambitious, and try to adopt best practices in terms of participation and building ownership. Particular attention needs to be paid to keeping the agreed schedule while ensuring sustainability of these programs. The following recommendations are made by the OEM on these aspects. (i) Given the absorption capacity of the villages, education and skill levels of the village participants, and time and resource limitations of the EMD program, it is suggested that introduction of new activities in each village be limited to four or less depending on its contextual situation and the participatory decisions. During the mitigation program, these activities should illustrate to the village the benefits of organization skills they have built, importance of regular monitoring and maintenance as needed, and the usefulness of prearranged plans of action in the event of unforeseen circumstances. The observations made during the village visits indicate the lack of confidence the women have in actively participating in group decision-making. It is suggested that

(ii)

Appendix 12

53

the gender development program should be provided early on to build the confidence of the women and to encourage the men to share responsibility for some decision-making and activities with the women. More women VHVs are needed for the health program to be effective. On the other hand, more men should participate along with women in the family planning instruction meetings. (iii) An S&C group formation is a new concept in these villages, and the villagers are enthusiastic about the benefits of the S&C funds. It is essential that the funds be effectively managed. Due to the lack of group liability or insurance schemes, there is a risk that there will be involuntary default due to unforeseen circumstances. A plan of action needs to be developed for such events. The S&C-related work carried out by EMD should be managed by a person dedicated solely for that purpose and he/she should be well trained to teach the villagers techniques to ensure sustainability of such programs. The OEM observed heavy dependence on THPC for any major problems that emerge during the day-to-day life of the villages. A stronger message of the limited timeframe of EMD involvement need to be conveyed to the villagers. EMD efforts in building ownership should be diligently emphasized by all the field staff. In addition to EMD benefit monitoring and impact evaluation, basic participatory monitoring and evaluation techniques can be taught to the village development committee to ascertain their own progress. As outlined in the logical framework, an independent review of the EMD program should be carried out to learn lessons for the subsequent period. To strengthen the sustainability of the EMD program, it is suggested that a few staff from the district or provincial government could be seconded to provide field assistance. These staff once trained could continue to support the accounting functions of the S&C committee until the villagers are able to take on the responsibility effectively. At the time of preparing the bi-annual workshop to the major stakeholders, a dissemination note could be prepared to circulate to lenders and other donors (especially bilateral) active in the Lao PDR. The aim would be to attract donor funds to supplement the work that EMD is doing to enhance the program sustainability. Strengthening the education level of the villagers is crucial for the sustainability of the EMD program. There have been examples in the Khammouan Province where other donors have supported adult education programs.

(iv)

(v)

(vi) (vii)

(viii)

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