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dam-l LS: At what price electricity?
>BKK Post / 30 October 1999
>
>COMMENT / NAM THEUN 2 HYDROPOWER PROJECT
>
>At what price electricity?
>
>The outcome of purchasing electricity that cannot be used
>is obvious and frightening. What is obvious is that Thai
>consumers will have to pay for nothing. What is frightening
>is that Egat has already been warned.
>
>Witoon Permpongsacharoen
> Thailand is negotiating for an additional 1,600 megawatt
>of electricity from Laos in 2006, including 900 megawatt
>from the controversial Nam Theun 2 hydropower project. Does
>Thailand need this electricity? Will the Lao People's
>Democratic Republic benefit from damming a major Mekong
>tributary and selling electricity to Thailand?While the
>Thai government is telling us the answers are yes, the real
>story is somewhat different.When Nam Theun 2 comes on line
>in December 2006, the Electricity Generating Authority of
>Thailand plans to have an excess electricity capacity of
>9211.6MW equivalent to 44.3% of Thailand's total capacity.
>In effect Thailand is buying electricity, on a take or pay
>contract, that according to Egat's plans, we do not need.
>What is worse is that Egat's current development plan has
>grossly overstated Thailand's electricity demand growth;
>already this year the actual peak demand is far short of
>even Egat's forecast worse-case scenario. The plans for new
>purchases assume not the worst case, but a medium level
>(higher) growth scenario.
> Within just one year of Egat releasing its Power
>Development Plan 99-01 its forecasts have failed. We cannot
>assume otherwise, but that electricity demand will continue
>to fall short of Egat's eternal optimism. If this is the
>case, and it appears at best extremely risky to assume
>otherwise, excess capacity in 2006 will be higher than
>9211.6MW, possibly a lot higher.
> The outcome of purchasing electricity that cannot be
>used is both obvious and frightening. What is obvious is
>that Thai consumers will have to pay, effectively for
>nothing-for electricity that will just sit in the Thai
>system unused. What is frightening is that Egat has already
>been warned. Several studies have recommended that Thailand
>reduce planned purchases and investments, including
>cancelling some agreed projects. The alternative is
>increased tariffs for consumers.
> In the negotiations for Nam Theun 2, Egat recently
>raised the offer price. We are told they have done this to
>demonstrate the spirit of Thai brotherhood with our friends
>in Laos.
> So now Thailand is offering to pay 4.372 US cents per
>unit for electricity from Nam Theun 2 and will also incur a
>further unit transmission cost of 0.756 US cents per unit.
>Compare this total price-5.128 US cents per unit-with the
>cost Egat calculated to be equivalent to the cost of new
>Egat-owned plants-4.178 US cents per unit. Existing Egat
>plants are cheaper still, and unlike Nam Theun 2, neither
>of the above require new transmission investment.
> Offering to pay premium, even platinum prices, for
>electricity that won't be used is a very substantial
>gesture of brotherhood while Thai consumers are suffering
>the effects of the economic crisis; but unfortunately, it
>is a gesture that will not bear fruit for Laos.
> Since Nam Theun 2 was first conceived the promises made
>to Laos have been wildly inflated. The World Bank and
>project developers promised Vientiane that Nam Theun 2
>would deliver the foreign exchange Laos so desperately
>wants in huge quantities. But will it? A closer look at the
>economics of Nam Theun 2 is revealing.
> When Thailand had a purchase agreement with Laos for Nam
>Theun 2, the agreed price was 5.6 US cents per unit. This
>agreement expired because Nam Theun 2 wasn't going to be
>ready by Thailand's deadline of 1999. Following this, an
>economic study of Nam Theun 2 was conducted by consultants
>Louis Berger that assumed a price of 5.7 US cents per unit.
>According to Berger's report the Nam Theun 2 project would
>only be profitable for Laos if inflation remained low and
>the exchange rate was stable. The risks of the project were
>high, warned Berger, and there was a good chance that the
>government of Laos would earn little, or worse, that
>returns on equity would be negative.
> Yet Berger was talking about a project with a price of
>5.7 US cents per unit. Although the price being offered by
>Thailand is above the market rate, 4.372 is hardly the same
>as 5.7. It is impossible that the government of Laos could
>turn a profit on such a price. Sadly though, it is not
>impossible that the price will be accepted. After all, the
>Laotian government is not the only player with a stake in
>Nam Theun 2, and those other players are playing a clever
>game.
> The Nam Theun 2 hydropower project is owned by a
>consortium called the Nam Theun 2 Electricity Consortium
>(NTEC) which includes: Australian company Transfield,
>French electricity giant, Electricite de France (EdF) and
>several Thai companies including Merril Lynch Phatra
>Securities and Thai-Italian construction company. The
>Vientiane government has a 25% share in the project and
>Egco, an Egat-owned company, is looking to replace Jasmine
>International, the Thai company which recently quit the
>consortium. Interestingly, Egat's increased price offer
>comes at much the same time Egco is looking to buy in.
> Nam Theun 2 is a so-called a Build-Own-Operate-Transfer
>(Boot) project. This means the project will be built, owned
>and operated for 25 years by NTEC and then transferred to
>the government of Laos. So for 25 years when the hydropower
>station and reservoir are in peak operating condition, the
>consortium members will share the income from Thailand.
>What remains of Nam Theun 2 will then be handed over for
>the Laotian government to own alone for the last few years
>of project viability. Note: large hydro-electric dams have
>a lifespan of only 30-50 years, towards the end of which
>they produce less and less electricity and require
>extensive and expensive repairs.
> But the sweetener for the private companies in the
>consortium is not that they will be able to offload the
>project just when it is starting to become a liability. The
>private companies are involved to do, and to profit from
>doing, what they do best: construction.
> Imagine a situation where you own a project that is
>going to have a low return, but you can set the price for
>building it. With Nam Theun 2, the developers are really on
>the money. EdF and Transfield, who will manage the
>construction, will not only set the price; they will get a
>project management fee of around 20% of the total
>construction cost for assuming cost overrun risks.Given
>that they are setting the price, we can fairly assume these
>risks will be very small.With an opportunity like this it
>is no wonder that developers have clung on to the project
>through years of controversy and near collapse. Transfield
>and EdF have even been successful at cajoling their
>governments to pressure Thailand to offer a better price
>for the electricity.
> This is not to forget the World Bank, which has been
>with Nam Theun 2 from the start. After spending years
>convincing Laos that Nam Theun 2 will solve Laos' economic
>problems, the World Bank has recently used the project as a
>stick to beat the Vientiane government into adopting their
>economic mantra. Their message is simple and difficult to
>refuse: if Laos further liberalises the economy (and
>conveniently forgets that it was recommendations like these
>that got Laos into the economic mess it now faces) the
>World Bank will support Nam Theun 2.
> The net is complete when you add the criteria that Laos
>must repay World Bank loans in foreign currency-currency
>they can only earn with an export-oriented project;
>currency they borrowed to develop export projects
>recommended by the World Bank.
> Nam Theun 2 cannot solve the problems of the Laotian
>economy, but it can make money for private developers and
>it can make money flow, if not grow, in Laos. Perhaps this
>is the straw the Laotian government is grasping at-a flow
>of money in, even if it is less than the money flowing out.
> The question for Thailand is: is it enough? As a friend
>of Laos should we offer this straw that will solve nothing?
>And should we offer it at such a high cost to Thailand when
>the economic crisis is already causing us great pain?
> Witoon Permpongsacharoen is director of Towards
>Ecological Recovery and Regional Alliance (Terra).
>
>
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Aviva Imhof
South-East Asia Campaigner
International Rivers Network
1847 Berkeley Way, Berkeley CA 94703 USA
Tel: + 1 510 848 1155 (ext. 312), Fax: + 1 510 848 1008
Email: aviva@irn.org, Web: http://www.irn.org
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