67571 Economic analysis of the environmental and social impacts of the Nam Theun 2 Hydroelectricity Power Project Final Draft Report February 7, 2005 By Dr. Benoit Laplante Consultant, Environmental Economics Report submitted to the World Bank Table of Content Table of Content 2 List of Tables 3 List of Figures 4 List of Abbreviations 5 Executive Summary 6 I. Introduction 13 II. Brief project description 13 III. Economic assessment of environmental and social impacts: Overall approach 16 and methodology IV. Area 1: Nam Theun River downstream the Nakai dam 21 IV.1 Area description 21 IV.2 Expected impacts 24 IV.3 Economic assessment 25 V. Area 2: Nakai Nam Theun National Biodiversity Conservation Area 31 V.1 Area description 31 V.2 Expected impacts 33 V.3 Economic assessment 35 VI. Area 3: Nakai Plateau/Reservoir 50 VI.1 Area description 50 VI.2 Expected impacts 51 VI.3 Economic assessment 55 VII. Area 4: Xe Bang Fai 68 VII.1 Area description 68 VII.2 Expected impacts 71 VII.3 Economic assessment 73 VIII. Area 5: Mekong River 80 IX. Project lands 82 X. Summary of results 84 Annex 1 91 References 98 2 List of Tables Table 1. Methodologies for economic valuation 19 Table 2. Estimates of the number of riparian households and inhabitants Nam Theun River Basin 27 Table 3. Estimated yearly household fisheries income Nakai Plateau and Xe Bang Fai River – 2001 28 Table 4. Estimated yearly household income from fisheries (USD) 28 Table 5. Estimated losses of fisheries income (cash and imputed) Nam Theun River Basin 29 Table 6. Area 1: Nam Theun River Basin downstream the Nakai Dam, Summary of project impacts 30 and activities Table 7. Area 2: Nakai Nam Theun NBCA, Potential negative and positive impacts 34 Table 8. Economic values of the NNT NBCA 35 Table 9. Average household cash income by source by Ethnic group (kip, 1996) 36 Table 10. Yearly cash and imputed household income measured by various surveys 37 Table 11. Shortfall of aggregate income relative to poverty line 41 Table 12. Estimated impact of NT2 project on poverty alleviation 41 Table 13. Willingness to pay of pharmaceutical companies to preserve biodiversity hotspots 43 Table 14. Carbon mitigation via forest restoration, sustainable agriculture and avoided deforestation, 44 2003 – 2012 Table 15. Carbon sequestration in forests of Lao PDR 45 Table 16. Area 2: Nakai Nam Theun NBCA, Summary of project impacts and activities 49 Table 17. Population estimates for the Asian Elephant - 2000 51 Table 18. Population of the Nakai Plateau and eligible for relocation – 1998 52 Table 19. Estimated number of households to be relocated 53 Table 20. Area 3: Nakai Plateau: Potential negative and positive impacts 54 Table 21. Yearly cash and imputed average household income: Nakai Plateau 56 Table 22. Scenarios for equivalent CO2 release from reservoir 62 Table 23. Release rates per year 62 Table 24. NT2 project and GHG emissions Present value (million USD) 63 Table 25. Area 3: Nakai Plateau: Summary of project impacts and activities 67 Table 26. Affected households and population along the XBF 69 Table 27. Level and sources of income along the XBF 70 Table 28. Area 4: Xe Bang Fai: Potential negative and positive impacts 72 Table 29. Possible implementation of fisheries mitigation plan 74 Table 30. Area 4: Xe Bang Fai: Summary of project impacts and activities 79 Table 31. Estimates of opportunity cost of project lands 83 Table 32. Summary of results 87 3 List of Figures Figure 1a. Project affected area 14 Figure 1b. Project affected area – Schematic representation 15 Figure 2. Concept of total economic value 18 Figure 3. Downstream Nam Theun River 21 Figure 4. Nam Kading downstream the Theun Hinboun Dam 22 Figure 5a. Inflow to the Theun Hinboun Headpond 23 Figure 5b. Discharge into Nam Kading 23 Figure 5c. Discharge into Nam Hinboun 23 Figure 6. Distribution of household sizes on Nakai Plateau, 1998 60 Figure 7. Distribution of Financial Benefits Generated by the Nam Ha Ecoguide 65 Service Figure 8. Area 4: Xe Bang Fai 68 Figure 9. Flow in XBF at Mahaixai 71 4 List of Abbreviations CCGT Combined Cycle Gas Turbine CDM Clean Development Mechanism CIA Cumulative Impact Assessment CITES Convention on International Trade in Endangered Species EAMP Environmental Assessment and Management Plan CH4 Methane CO2 Carbon dioxide EDL Electricite du Laos EGAT Electricity Generating Authority of Thailand GDP Gross Domestic Product GHG Greenhouse Gases GoL Government of Lao PDR IUCN The World Conservation Union Lao PDR Lao’s People Democratic Republic LECS Lao Expenditure and Consumption Survey NNT NBCA Nakai Nam Theun National Biodiversity Conservation Area NSC National Statistical Center NT2 Nam Theun 2 NTFP Non-Timber Forest Product RAP Resettlement Action Plan SDP Social Development Plan SEMFOP Social and Environmental Management Framework and Operational Plan THP Theun Hinboun Project US DOE United States Department of Energy XBF Xe Bang Fai River WCD World Commission on Dams WMPA Watershed Management and Protection Authority 5 Executive Summary 1. The Nam Theun 2 hydroelectricity power project (NT2), located in the Khammouane Province of central Lao’s People Democratic Republic (Lao PDR), aims to produce electricity with a generating capacity of 1,070 MW. Most of the electricity generated (995 MW) will be sold to the Electricity Generating Authority of Thailand (EGAT), and the remaining (75 MW) sold to Electricite du Laos (EDL). 2. For Lao PDR, an important direct benefit of the project pertains to the financial flows that will accrue to the country mainly in the forms of taxes, royalties, and dividends. However, the project also entails significant environmental and social impacts, both of a negative and positive nature. These impacts must be identified, described, and wherever possible quantified - physically and economically – in a manner that can be incorporated into the framework of the overall cost-benefit analysis of the project. 3. Insofar as environmental and social impacts are concerned, arguably the most important feature of the NT2 project is the trans-basin transfer of approximately 220 m3/s of water (annual average) from the existing Nam Theun River into the Xe Bang Fai River, and the inundation of the existing Nakai Plateau. The diversion of water will very significantly alter the discharge regime in both the Nam Theun (flow reduction) and the Xe Bang Fai (flow increase). In addition, the inundation of the existing Nakai Plateau will necessitate the relocation of approximately 5,600 people, and significantly impact their existing livelihood systems. The project aims to improve the income and livelihood systems of these resettled individuals. The project will also implement a watershed management program which will contribute significantly to the preservation of the Nakai Nam Theun National Biodiversity Conservation Area (NNT NBCA). The extent of the financial commitment (1 million USD per year), its duration (over a period of 30 years), and its certainty represents a significant contribution of the project to the preservation of this unique biodiversity area. 4. Area 1. Nam Theun downstream. Total discharge in the Nam Theun immediately downstream of the Nakai Dam to the confluence of the Nam Phao is expected to be reduced to 2 m3/s, from an average 1,500 m3/s in the wet season, and 20 m3/s in the dry season. Total discharge in the Nam Theun downstream from the Nam Phao is expected to be on average 45% of existing conditions. A number of adverse impacts may be expected including adverse impacts on fisheries, which may not be limited to the Nam Theun itself but may affect fisheries in the tributaries of the Nam Theun as fisheries migrate from the Nam Theun to those tributaries. The recently released Riparian Release Study indicates that no additional adverse impacts are expected on human-related use of the water of the Nam Theun River. The Riparian Release Study also indicates species recorded on the transects of the Nam Theun River are common in the surrounding forest environment, and that the riparian vegetation of the Nam Theun River is commonly recorded over a wide geographic scale of the Nam Theun River Basin. However, one notable exception to the above observations is the Big-headed Turtle (Platysternon magacephalum) which has thus far been observed only within the river valley. The habitat for this species is fast- flowing water and rapids which are common habitats of the Nam Theun River directly 6 downstream the proposed dam. The Big-headed Turtle appears on IUCN’s Red List for 2000 as being endangered, and CITES lists the species under Appendix II. Estimates of aggregate fisheries loss range from 0.73 to 1.30 million USD in present value terms. These losses are expected to be fully compensated for by the project. The estimated cost of this compensation program is expected to range between 0.8 and 1.6 million USD (depending on the timing of program implementation). 5. Area 2. Nakai Nam Theun NBCA. The Nakai Nam Theun NBCA is nationally and internationally recognized as one of the most important biodiversity sites in South East Asia. It is generally recognized that the protected area is currently under severe stress as a result of both legal and illegal activities. It has also been recognized that the current rate of harvesting of high value products is unsustainable, and that the wildlife and biodiversity are under serious threat. Within the protected area itself currently lives approximately 1,100 households (5,500 people) with an average level of total household income of approximately 400 USD in 1997. 6. The primary and key positive impact of the project (and its concomitant watershed management plan – SEMFOP) appears clearly to be: improving natural resources management, protecting and conserving the habitat and biodiversity of the NNT NBCA – widely considered to be a prime and unique biodiversity area of Southeast Asia, improving the livelihood of its inhabitants, contributing to poverty alleviation, and preserving the ethnic diversity found in the NNT NBCA. It is estimated that the project may reduce poverty by up to 35% in the NBCA. While other potential benefits have been examined, these would not appear to be of large significance, given existing information. 7. It has been found that the implementation of the SEMFOP cannot be justified solely on the basis that it is in the self-interest of the project to invest in the improved management and conservation of the NNT NBCA in order to prevent losses of energy sale that could result for reservoir sedimentation. If the watershed provides services to the project such as the prevention of reservoir sedimentation, the extent of these services would appear to be minimal. 8. Area 3. Nakai Reservoir. The flooding of the Nakai Plateau entails both local and global costs and benefits. The project, through its livelihood program will significantly contribute to poverty alleviation for the resettlers by doubling the expected present value of aggregate income (from 5 to 10 million USD), and by completely alleviating poverty of these resettlers (as measured against Lao poverty line). The project will further significantly increase access to improved health care and education facilities, water supply, sanitation, and electricity. Thus, if the livelihood programs effectively deliver intended income targets and service delivery objectives, the livelihood of the resettlers is expected to improve very significantly over conditions that would assume to exist in the absence of the project. 9. The project is expected to reduce emissions of GHG by approximately 20 million tons over the horizon of the analysis (avoided emissions of 50 million tons compared to CCGT minus an estimated 30 millions tons of emissions from the reservoir itself). However, given the significantly different timing of these events (a bulk of the emissions 7 from the reservoir is expected to take place early on following impoundment), the present value of these benefits may or may not be positive. 10. Finally, insofar as wildlife and biodiversity are concerned, existing information does not support the notion that the impacted area (Plateau and resettlement area) is of high biodiversity value. The White Winged Ducks may benefit from the project as the impoundment of the Plateau will lead to an expansion of forested wetlands. The habitat of the Asian Elephants is expected to be adversely impacted by the project, though not to the point of threatening the viability of the elephants in the area. For both of these species, conservation programs will be put in place by the project to facilitate their adaptation to the new environment. 11. Area 4. Xe Bang Fai. Numerous impacts (both negative and positive) are expected along the Xe Bang Fai River. Adverse impacts include mainly: loss of fisheries, the loss of river bank gardens, and the loss of assets including potentially cultural sites. If the activities described in the SDP are delivered and are effective as currently expected, the analysis shows that all known potential adverse impacts of the project will for the most part if not completely be mitigated or compensated for. The largest of these adverse impacts pertain to the loss of fisheries income with losses estimated at approximately 0.7 million USD per year. The mitigation plan developed jointly by the World Bank and NTPC is expected to completely mitigate these losses, leaving households of the XBF at least as well off as without the project. 12. It has also been shown that the project offers the potential for large positive induced impacts especially the increased potential for irrigated agriculture. Early estimates show potential revenues in the order of 4 to 6 million USD (present value) over the lifetime of the project. A rural development project will provide a better assessment of this potential. However, such positive induced impacts must account for the fact that if additional quantities of water may be source of economic benefits on the XBF, then reduced quantities of water available along the Nam Theun River basin may be source of economic costs. 13. The lower XBF is also subjected to periodic and large flooding. The recently completed Lower XBF Hydrology Study reveals that existing flooded area may experience an additional 3 days of flooding. If this were to be the case, productive rice yields could be significantly impacted, with an estimated expected loss ranging between 0.4 and 0.55 million USD per year, or approximately 3 million USD in present value terms. 14. Area 5: Mekong River. The Cumulated Impact Assessment study indicates no or very minimal impact – both negative and positive – along the Mekong River, including Cambodia’s Great Lake and floodplains. 15. Project lands. Estimates indicate an opportunity cost of land ranging from 1,000 to 4,000 USD per ha. The Concession Agreement allows the project an area of approximately 11,500 ha. However, the project does not anticipate all of this area to be 8 effectively used by the project. Given that infrastructure design has not been completed, it is not currently possible to assess the aggregate opportunity cost of land to acquired or effectively used by the project. Summary of results Project potential impacts Assessment Project activities AREA 1: Nam Theun River Downstream Nakai Dam Positive impacts • None expected Negative impacts • Fisheries Diversity 1 fish specie known to be endemic; Big-headed Turtle has thus far been observed only in the basin. Quantity Present value of fisheries losses Will pay compensation to those range between 0.73 and 1.30 who can demonstrate losses. million USD. Compensation package may amount to between 0.8 and 1.6 million USD depending on timing of implementation. • Health Expected to be very limited given the absence of significant settlements along the banks of the Nam Theun River. • Domestic water use Idem. • Agricultural water use Idem. • Riparian wildlife and Impact mainly along first 12 km. vegetation However riparian wildlife and vegetation are observed throughout the water basin. AREA 2: Nakai Nam Theun National Biodiversity Conservation Area Positive impacts • Poverty alleviation • Contribution to poverty The project will invest alleviation ranging between approximately 1 million USD per 1.5 – 3.8 millions USD; year, pre and post COD. The Reduction of poverty from 20 present value of this package to 35%. amounts to approximately 10 millions USD. • Health and education • Qualitative assessment; Improved health facilities and better education opportunities. • Cultural / ethnic diversity • Qualitative assessment; Improved opportunity to preserve cultural and ethnic 9 diversity. • Habitat and biodiversity • Qualitative assessment; Improved resource management aims to preserve habitat and biodiversity while simultaneously contribute to poverty alleviation. • Medicine and bioprospection • 0.5 to 5 millions USD. In all likelihood, over-estimate to the extent that no such activities have thus far been observed. • Carbon sequestration • 10 – 20 millions USD. In all likelihood, over-estimate. Negative impacts • Increased population • Qualitative assessment; The The SEMFOP aims to prevent pressure on the resources of project may increase pressure this increased population pressure the NNT NBCA. on the resources of the from exercising an adverse NBCA. impact on the NNT NBCA. AREA 3: Nakai Plateau / Reservoir Positive impacts • Poverty alleviation; • Double the present value of • In present value terms, the income (from 5 to 10 millions project will invest a total of USD) of resettlers; approximately 21 million completely eliminate poverty USD to implement the plateau (measured against Lao / reservoir resettlement poverty line) of resettlers; activities; • Health and education; • Qualitative assessment; Improved health facilities and better education opportunities; • Domestic water, sanitation, • Qualitative assessment: electricity; Improved access to domestic water supply, sanitation, and electricity; • Reduction in GHG emissions: • Estimated present value of Hydro vs. CCGT; global economic benefits: 34 millions USD; • Potential habitat improvement • Qualitative assessment: • Conservation program will be for White-Winged Ducks; Habitat for White Winged initiated. Ducks may improve as a result of expansion of forested wetlands. Negative impacts • Increased emissions of GHG • Estimated present value of 10 from reservoir. costs: 18 to 30 million USD; • Loss of habitat for Asian • Qualitative assessment; Loss • Conservation program will be elephants; of area generally not believed initiated. to be critical to the survival of the local population of Asian elephants; • Loss of other habitat and • Qualitative assessment; Area biodiversity. of the Plateau to be impacted by both impoundment and by resettlement is not considered of high biodiversity value (considering species richness, degree of endemism, rarity, vulnerability, and representativeness of component species. Project induced impact • Recreation and community- • Estimated present value may • Necessary investment not in based tourism. range in the order of 0.5 project budget costs. million USD. This would appear to be a conservative estimate. AREA 4: Xe Bang Fai River Negative impacts • Loss of fisheries; • Estimated present value of • All fisheries losses recovered losses: 4 million USD; with mitigation plan budgeted at 8.5 million USD – or 5 million USD (in PV terms);. • Loss of riverbank gardens; • Estimated present value of • All riverbank garden losses income losses: 0.25 to 0.6 recovered with mitigation plan million USD; budgeted at 0.35 million USD – or 0.3 million USD (in PV terms); Budget allocated by NTPC may not be sufficient; • Loss of crop yields • Estimated present value of • Losses of crop yield are losses reach 2 million USD; expected to be completely mitigated by the project through the raising of rive embankments. • Fixed infrastructure assets • Qualitative assessment; The • All identified assets will be (shops, houses, barns, temples, number and nature of assets either protected or relocated; pavilions, etc.) needing riverbank protection mitigation plan budgeted at or relocation remains to be 0.65 million USD – or 0.42 precisely determined; million USD (in PV terms); • Irrigation infrastructure; • Qualitative assessment; 19 • All affected irrigation pump irrigation systems may infrastructure will be revised be affected as a result of river as appropriate; mitigation plan bank erosion; budgeted at 0.05 million USD 11 – or 0.03 USD (in PV terms); • River crossing and transport; • Qualitative assessment; A • Alternative crossing facilities number of existing crossing will be provided and facilities will not be possible constructed by the project; as a result of the higher water mitigation plan budgeted at flow and water level; 0.2 million USD – or 0.13 million USD (in PV terms); • Alternative sources of domestic water supply will be provided; mitigation plan budgeted at 0.12 million USD – or 0.08 million USD in PV terms. Project induced positive impacts • Reduced pumping costs; • Estimated present value of savings may reach 0.3 million USD; • Increased irrigated agriculture; • Estimated present value of net revenues (not inclusive of investment costs) range between 5.2 and 7.5 million USD; • Electricity. • Increased availability (20 MW) and reliability of electricity supply in the XBF region. AREA 5: Mekong River Negative impacts • Minimal impact expected Positive impacts • Minimal impact expected 12 I. Introduction 1. The Nam Theun 2 hydroelectricity power project (NT2), located in the Khammouane Province of central Lao’s People Democratic Republic (Lao PDR), aims to produce electricity with a generating capacity of 1,070 MW. Most of the electricity generated (995 MW) will be sold to the Electricity Generating Authority of Thailand (EGAT), and the remaining (75 MW) sold to Electricite du Laos (EDL). 2. For Lao PDR, an important direct benefit of the project pertains to the financial flows that will accrue to the country mainly in the forms of taxes, royalties, and dividends. However, the project also entails significant environmental and social impacts throughout and beyond the project area. These impacts must be identified, described, and wherever possible quantified - physically and economically – in a manner that can be incorporated into the framework of the overall cost-benefit analysis of the project. The need to undertake such economic quantification or economic valuation does not result from a belief that all environmental and social impacts can be reduced solely to monetary values, but results instead from a belief that such quantification does in fact offer the best way for such impacts to be fully accounted for. 3. The primary purpose of the existing analysis is to undertake an economic valuation of the environmental and social impacts of the project, wherever possible. The lack of information pertaining to expected environmental and social changes induced by the project, or the impossibility to conduct original primary data collection may prevent the economic valuation of a number of environmental and social impacts. In such instances, however limited in number, the assessment remains of a qualitative nature. It should however never be concluded that a known impact (positive or negative) entails no benefit or cost when lacking economic quantification. It follows instead that such impacts should be appropriately accounted for by decision-makers and stakeholders in addition to the information provided by the cost-benefit analysis. We aim to conduct this study and present its results in a manner that is most conducive to a comprehensive understanding and assessment of the various tradeoffs faced across each impacted area of the project. II. Brief project description1 4. In this section, we aim to describe briefly only those key characteristics of the project essential for the understanding of the nature of the potential environmental and social impacts of the project. A more detailed description of these impacts for each project impacted area is presented in subsequent sections IV to VIII. 5. Insofar as environmental and social impacts are concerned, arguably the most essential feature of the NT2 project is the trans-basin transfer of 220 m3/s of water (annual average) from the existing Nam Theun River into the Xe Bang Fai River, and the 1 For a complete and comprehensive description of the project, the reader is referred to the project’s Environmental Assessment and Management Plan, Social Development Plan (NTPC 2004a, and 2004b) which includes the Resettlement Action Plan, and the Social and Environment Management Framework and Operation Plan (GoL 2003) 13 inundation of the existing Nakai Plateau. The diversion of water will very significantly alter the discharge regime in both the Nam Theun (flow reduction) and the Xe Bang Fai (flow increase). Figure 1a Project affected area Lao PDR Nam Theun Nakai Nam River Theun NBCA Nakai Plateau Mekong River Xe Bang Fai River 6. As illustrated in Figure 1a above and its schematic representation in Figure 1b, the Nam Theun River is a tributary of the Mekong River. It originates in the Nakai Nam Theun National Protected Area (NNT NBCA) and flows through the existing Nakai Plateau. The existing Theun Hinboun dam commenced operation in March 1998. The Theun Hinboun Project (THP) is itself a trans-basin power project which diverts water from the Nam Theun/Nam Kading, channels it through an underground tunnel to a power house (210 MW), and then discharges the water into the Nam Hai River, a tributary of the 14 Nam Hinboun River.2 The NT2 project will significantly alter water flow into the Nam Theun and the Nam Kading. Figure 1b Project affected area – Schematic representation Area 2 Nam Theun Nakai Nam Theun Area 1 NBCA Nam Theun Downstream Nam Phao NT2 Area 3 Dam Nam Reservoir Gnouang Nam Theun Power house Channel Xe Bang Fai Theun Area 4 Hinboun Nam Phit Xe Bang Fai Nam Nam Hai / Nam Kading Hinboun Mekong River Area 5 7. The NNT NBCA upstream of the Nakai Plateau constitutes the majority of the watershed area (3,710 km2 out of a total catchment area of 4,013 km2). It was officially created through the promulgation of Decree 164/PM in 1993.3 The NNT NBCA is Lao’s largest and most diverse natural forested area. It is internationally recognized as one of the richest biodiversity system in South East Asia. The NBCA is also home of approximately 5,500 people. Resources of the NNT NBCA have been and continue to be under intense pressure and threats as a result of: (1) poaching of wildlife and unsustainable harvesting of non-timber forest products by both locals and non-locals (including non-Lao nationals); (2) agricultural expansion by NBCA residents; and (3) commercial logging. 2 A comprehensive description of the Theun Hinboun power project is provided in ADB (1999). 3 Government of Lao PDR, Decree on the Establishment of the National Protected Areas for the Whole Country, Decree No: 164/PM, Prime Minister Office. 15 8. A dam (referred to as the Nakai Dam) on the Nam Theun River will transform the 640 km2 Nakai Plateau into a reservoir of approximately 450 km2 with a total storage volume of 3,910 million m3 at full supply level. The existing Plateau is currently occupied by approximately 1,030 families comprising 5,600 individuals. Most of these individuals will have to be relocated as a result of the Plateau inundation. 9. Water from the reservoir will drop to a power station located at the base of the Nakai Plateau. The diverted water, discharged from the power station, will then flow into the Xe Bang Fai River upstream of Mahaxai, via a regulating pond and a 27 km long channel. This is expected to double the water flow of the Xe Bang Fai in the dry season, and add approximately 10% of the Xe Bang Fai flow in the wet season. Approximately 40 000 individuals currently occupy the shores of the Xe Bang Fai River from its confluence with the Nam Phit down to the Mekong River. These individuals may experience both positive (e.g. increased irrigation potential facilitated by the additional water), and negative (reduction in fisheries) impacts as a result of the increased water flow into the Xe Bang Fai. 10. The electricity generated for export to Thailand will be delivered by a 138 km long, 500 kV transmission line to a power sub-station located on the Lao – Thailand border near Savannakhet. The electricity generated for domestic consumption will be delivered to Thakhek by a 75 km long, 115kV transmission line. The precise routing of these transmission lines has not yet been determined. The project will further require the construction of 4 work camps to accommodate a working population of approximately 4,000 individuals, and the construction of a residence for the 150 employees that the project will necessitate on a permanent basis. III. Economic assessment of environmental and social impacts: Overall approach and methodology 11. The economic valuation of environmental and social impacts of projects has been the object of a very large number of studies and handbooks over the last 20 years.4 We cannot hope in this analysis to give proper consideration to the multiplicity of issues that have attracted the attention of researchers. However, in the context of the existing analysis, the following 5 issues/topics deserve attention: (1) the concept of total economic value; (2) the step-by-step approach of an economic assessment; (3) with/without project scenario vs. before/after scenario; (4) the distinction between environmental costs and mitigation costs; and (5) horizon and discount rate. We discuss each of these briefly in sequences. 12. Total Economic Value. The notion of use facilitates the identification of effects and represents a useful starting point. It is important to note that the absence of ‘observable’ human use does not imply that the resource is of no use. For example, an unexploited forest serves as habitat, supports the maintenance of biological diversity, acts as a carbon sink, preserves the watershed, prevents flooding, and provides a number of 4 Among other useful references, see Freeman (2003), and Pearce and Moran (1994). 16 services, despite its resources not being actually extracted. All resources have a ‘use’, even if this ‘use’ is not directly observable. 13. The concept of Total Economic Value recognizes that the value of an environmental resource consists of the sum of both its use value, and non-use value. Total Economic Value = Use values + Non-use values For purposes of economic assessment, use values are further broken down into the following: Direct use values refer to situations where individuals make actual use of the resource for livelihood or commercial purposes (for example, fisheries, timber, non-forest timber products) or recreation (for example, swimming in a lake, bird watching); Indirect use values refer to cases where society benefits indirectly from the functions of the ecosystem (for example, forests act as carbon sink and provide watershed protection); Option values refer to situations where individuals are willing to pay to preserve a resource in order to maintain the option of using it at a later point in time (for example, society may benefit from the conservation of biodiversity by preserving the option of pharmaceutical discoveries). Similarly, non-use values are broken down into two categories: Existence values reflect that individuals may value specific aspects of the environment or resource for the sole continued existence of that resource unrelated to any form of use, current or future; and Bequest values which refer to situation where individuals may wish to preserve a resource for use by future generations. These are summarized in Figure 2. 17 Figure 2 Concept of total economic value Total Economic Value Use value + Non-use value Direct use Indirect use Option Existence Bequest value value value value value Output that can Functional Future Value from Value of be consumed benefits direct and knowledge environmental directly indirect use of legacy existence 14. Various approaches and methodologies have been developed in recent years to provide an economic valuation of the various types of use described above. However, it is generally true that the informational needs and the complexity of these approaches increase significantly as we move from left to right in Figure 2, from direct use value to bequest value. While direct use value may reasonably be estimated using existing market prices, the estimation of non-use values generally require methodologies and approaches which are still subject to refinement and occasionally of controversy. A summary of these approaches and methodologies is presented in Table 1. In this study, the change in productivity approach will be most often used to economically assess environmental impacts. 15. Steps leading to the economic assessment. The economic valuation of environmental and social impacts proceeds through the following 4 steps: Step 1: Identify all potential physical environmental and social impacts; Step 2: Predict the quantitative potential effects, on-site and off-site; Step 3: Proceed with economic assessment where feasible; Step 4: Perform sensitivity analysis. For each of the potentially impacted areas of the project (as identified in Figure 1b), the above steps will guide the economic analysis. It is however important to recognize that the economic assessment of environmental and social impacts is only one step in a sequence of steps. The extent, nature, and overall quality and comprehensiveness of the economic analysis crucially depend on the identification and quantification of the environmental and social changes brought upon by the project: by definition, unidentified changes and unquantified impacts cannot be economically valued. 18 Table 1 Methodologies for economic valuation Methodology Approach Applications Data Limitations requirements Revealed preferences methodologies Change in Trace impact of Any impact that Change in ecosystem Data on change in productivity change in ecosystem affects produced services; impact on ecosystem services, services on produced goods. productivity; net and subsequent goods (i.e. value of produced impact on production agricultural or goods. are often lacking. fisheries yield). Cost of illness, Trace impact of Any impact that Change in ecosystem Dose-response human capital change in ecosystem affects health (e.g. service; impact on functions are often services on air or water health (dose- lacking; provides morbidity and pollution). response functions); under-estimates since mortality. cost of illness or it omits preferences value of statistical for health; value of life. statistical life subject to controversy. Replacement cost Use cost of replacing Any loss of goods or Extent of loss of Tends to over- the lost good or services goods or services, estimate actual value. service cost of replacing them. Travel cost Derive demand curve Recreation. Survey to collect Limited to from data on actual monetary and time recreational benefits; travel costs. costs of travel to hard to use for multi- destination, distance purpose or multi- traveled. destination trips. Hedonic pricing Extract effect of Air quality, scenic Prices and Requires large environmental beauty, impact of characteristics of quantities of data. factors on price of landfills on house goods. goods that include values. those factors. Stated preferences methodologies Contingent valuation Ask respondents Any service. Survey that presents Difficult and costly directly their scenario and elicits to implement; willingness-to-pay willingness-to-pay requires considerable for a specified for specified expertise for it to service. services. yield reliable results. Choice modeling Ask respondents to Any service. Survey of Same as above. choose their respondents. preferred option from a set of alternatives. Other methods Benefits transfer Use results obtained Any for which Valuation studies Reliability of transfer in one context (study suitable comparison from study sites. depends greatly on site) and apply studies are available. similarity of study results in another and policy sites. context (policy site) Source: World Bank (2004). 19 16. With/without scenario vs. before/after scenario. When identifying the environmental and social impacts of a project, a common temptation is to compare the nature of the environmental and social situation as it stands before the project versus how it is expected to become with the implementation of the project. This is generally wrong. A correct approach is to compare what the situation is expected to become with the project relative to what the situation would be expected to become without the project. In most instances, this is not the same as before and after. The construction of the scenario “without project� requires the use of trends and assumptions pertaining to changes in these trends. 17. Environmental vs. mitigation costs. As pointed out by the World Commission on Dams (WCD): “Efforts in the last two decades to expand the scope of the cost benefit analysis to cover social and environmental issues have rarely led to comprehensive social and environmental valuation, and have usually been limited to incorporating the costs of resettlement and environmental litigation.� (WCD (2000), page 181). The WCD further notes the common pitfall that: “social and environmental impacts are not valued explicitly and are only indirectly accounted for through mitigation or resettlement budgets.� (page 181). Insofar as available information makes it possible, we aim in this analysis to explicitly address this issue raised by the WCD, and assess directly those environmental and social costs and benefits of the project without equating environmental costs to mitigation costs. 18. Horizon and discount rate. The economic assessment of the environmental and social impacts covers the period 2004 to 2009 when the Nakai Power Station is expected to initiate operation, and 25 years beyond 2009, which is the length of the existing Concession Agreement. As costs and benefits are incurred at different point in time and over a long horizon, it is necessary to assess the present value of such costs and benefits so as to compare them in a common unit of measurement. While the concept of discounting is relatively familiar, the choice of the actual discount rate remains an arguable issue. In the United States, most agencies (such as the Environmental Protection Agency and the National Oceanographic and Atmospheric Administration) use a real discount rate of between 3% and 6%. For consistency purposes with the other modules of the cost-benefit analysis, a discount rate of 10% is used in this analysis to estimate the present value of future costs and benefits to the year 2004. While a real discount rate of 10% may appear to be relatively high, it shall be noted that if the project demonstrates a positive net present value using a 10% discount rate, then the use of lower discount rates would simply increase the net present value of the project. 19. In Sections IV to VIII below, we proceed with the economic analysis of environmental and social impacts as they occur in each impacted areas of the project. Results are summarized in Section IX. 20 IV. Area 1: Nam Theun River Basin downstream the Nakai Dam IV.1 Area description 20. As illustrated in Figure 3 below, the Nakai Dam will have a significant impact on the water flow released into the Nam Theun River.5 The average flow in the Nam Theun River downstream the dam site is currently estimated to be 600 m3/s in the wet season and approximately 50 m3/s in the dry season. The project will reduce this flow to a weekly average of 2 m3/s downstream the dam site.6 Given the contribution of the Nam Phao and the Nam Gnouang (two major tributaries of the Nam Theun River between the Nakai Dam and the Theun Hinboun headpond), the reduction of water inflow to the headpond of the Theun Hinboun is expected to be on average 55% of existing conditions. Figure 3 Downstream Nam Theun River Nam Phao Nam Gnouang NT2 Dam 12 km Reservoir W: 600 m3/s 60 km Nam Theun D: 50 m3/s Head Flow reduced to: 2 m3/s Pond Inflow to headpond Theun Hinboun reduced by 55% Dam Power House Nam Hai / Nam Nam Kading Hinboun NPA Mekong River 21. The Nakai Dam will also result in a reduction of the water flow into the Nam Kading. As illustrated in Figure 4, the peak water flows into the Nam Kading is expected to fall from 6,000 m3/s to approximately 4,500 m3/s. The number of days for which the minimum riparian release of 5 m3/s from the Theun Hinboun Dam is reached is expected 5 The dam itself will have a crest length of 325 m and a height of 48 m. Per definition provided by the International Commission on Large Dams, it thus qualifies as a large dam. 6 This amounts to approximately 63 million m3 per year. The project does propose a complimentary release over and above this minimum riparian release but limits this complimentary release to a maximum of 5 million m3 in any 12 months. If released continuously over a 12 month-period, this complimentary release would increase the weekly average riparian release to 2.15 m3/s. 21 to increase to 175 days from the existing 120 days. Finally, while the Theun Hinboun Dam currently spills water above the minimum release for 245 days of the year, this number is expected to fall to 190 days per year. Figure 4 Nam Kading downstream the Theun Hinboun Dam Head Pond Nam Theun Theun Hinboum Dam Without Nakai Dam Power House • Peak flow about 6000 m3/s. • Minimum riparian release of Nam Hai / Nam 5m3/s is reached 120 days per year. Hinboum • Spills 245 days per year. Water falls • Peak flow falls to 4500 m3/s. • Number of days at minimum riparian release Nam Kading increase from 120 days to 175 days; NPA • Spill-days fall from 245 to 190 days per year. Mekong River 22. As a result of the reduced flow to the Theun Hinboun headpond, the Nakai Dam will also result in a reduced flow into the Nam Hinboun. However, this reduction is expected to be minimal and limited to the dry season. Moreover, the impact of NT2 on Nam Hinboun is expected to be vastly offset by the extension of the Theun Hinboun, and the Nam Theun 3 Project on the Nam Gnouang River. Expected changes in water flow to the Theun Hinboun headpond, the Nam Kading, and the Nam Hinboun are shown in Figure 5 below. 22 Figure 5a Inflow to the Theun Hinboun Headpond 1400 1200 1000 m3 / s 800 Without NT2 600 With NT2 400 200 0 b l ar ov ec n n p ay ct r Ju g Fe Ap Ja Ju Se Au M O N D M Figure 5b Discharge into Nam Kading 2000 1800 1600 1400 1200 Without NT2 m3 / s 1000 800 With NT2 600 400 200 0 b l ar n n ov ec p ay ct r Ju g Fe Ap Ja Ju Se Au M O N D M Figure 5c Discharge into Nam Hinboun 350 300 250 200 Without NT2 m3 / s 150 With NT2 100 50 0 b l ar ov ec n n p ay ct r Ju g Fe Ap Ja Ju Se Au M O N D M Source: Adapted from ADB (2004) 23 23. The reduction in water quantity flowing into the Nam Theun River will reduce the absorption capacity of the river. As a result, water quality in the Nam Theun River may deteriorate, especially downstream its confluence with the Nam Phao into which wastewater from the district centre of Lak Xao is discharged.7 However, despite the expected population increase in Lak Xao, initial calculations indicate a minimal reduction in water quality in the Nam Theun River (ADB, 2004).8 IV.2 Expected Impacts 24. Given the significant reduction in water flow downstream the Nakai Dam, a main issue pertains to fisheries, both its quantity and diversity. Insofar as diversity is concerned, initial surveys by Kottelat (1996) had identified 61 fish species in the Nam Theun River, 11 of which not having been observed in other river basins of Lao PDR. Additional surveys (Kottelat, 1997a, 1997b) have identified 8 of the 11 species in other river basins of Lao PDR. Of the 3 species not known to exist outside the areas expected to be impacted by the project, 2 exist in the tributaries of the Nam Theun, including the Nam Phao. It is not known at this time whether or not the migration pattern of these two species rely on the Nam Theun River itself, and whether they may relocate in the upper reaches of these tributaries. One species is located in a waterfall immediately downstream of the proposed location of the Nakai Dam. This waterfall will be significantly impacted by the flow reduction. This particular species may not adapt to changes in the river conditions. 25. The recently completed Riparian Release Study (NTPC 2005) also indicates species recorded on the transects of the Nam Theun River are common in the surrounding forest environment, and that the riparian vegetation of the Nam Theun River is commonly recorded over a wide geographic scale of the Nam Theun River Basin. However, one notable exception to the above observations is the Big-headed Turtle (Platysternon magacephalum) which has thus far been observed only within the river valley. The habitat for this species is fast-flowing water and rapids which are common habitats of the Nam Theun River directly downstream the proposed dam. The Big-headed Turtle appears on IUCN’s Red List for 2000 as being endangered, and CITES lists the species under Appendix II. 26. Referring specifically to fisheries, the Environmental Assessment and Management Plan (NTPC 2004a; henceforth EAMP) notes that: “The virtual suppression of most of the seasonal, cyclic successions of low and high waters will probably have a much more significant impact on the aquatic diversity than the reduction of the minimum 7 Lak Xao’s population is currently estimated at 12,700 and is expected to reach 27,000 over the horizon period of the NT2 project. This rapid population increase (3% annual growth rate) however is not expected to result from the NT2 project given the relatively long distance between Lak Xao and the dam site (20 km), and then between Lak Xao and the power station (60 km). The main driving force for this population increase is estimated to be the improvement of Route 8, and the continued increasing integration of the Lao and Vietnamese economies. 8 Water quality in the Nam Phao River is expected to deteriorate significantly immediately downstream of Lak Xao as a result of Lak Xao’s population increase. However, as pointed out earlier, the NT2 project is not expected to be a significant contributor to this population increase. 24 flow. It is likely to severely affect their growth, reproduction, and migrations.� (p.68). The EAMP further notes that: “A permanent low water level will have a negative impact on the fish as it will drastically reduce the available food sources, reduce the number of hiding places and increase the predation (by other fish as well as terrestrial animals and humans), and will increase their sensitivity to diseases.� 27. Though it is recognized that the Theun Hinboun Dam has already impacted fisheries and fisheries migration along the Nam Kading and the Nam Hinboun, the EAMP notes that: “The completion of the Nakai Dam will block possible migrations between the Nakai Plateau and downstream areas, from the Nam Theun above the Theun Hinboun Project.� (p. 68). The EAMP further notes that: “Suppression of [variations in the water discharge] may seriously affect migrations in the Nam Theun below the dam, but also between the Nam Theun and its tributaries like the Nam Phao.� (p. 68). Finally, the EAMP notes that: “Even with the presence of barriers to long-range migrations down river, such as the Theun Hinboun dam further downstream on the Nam Theun, the problem remains for those species migrating only in the Nam Theun as these migrations are not affected by the Theun Hinboun Project.� (p. 69). Despite the explicit recognition that fisheries may be impacted, the EAMP asserts that: “(…) information obtained on fish migration in the Nam Theun is at present incomplete and somewhat contradictory and does not allow clear conclusions about which fish may migrate, at which season and for what purpose.� (p. 69). 28. In addition to the impact on fisheries, the following impacts may potentially be of some significance: (1) health impacts related to direct water use (e.g. bathing and drinking) as a result of the expected increase in pollution concentration in waterways, downstream the Nam Phao River; and (2) impacts on domestic and agricultural water use along the Nam Theun and the Nam Kading as a result of the reduced water flow. However, the Riparian Release Study (NTPC 2005) indicates these impacts to be minimal as the water of the Nam Theun River is not currently and is not expected (in the foreseeable future) to be used for domestic and agricultural use as there are only a limited number of villages located directly on the banks of the Nam Theun River.9 IV.3 Economic assessment 29. As indicated earlier, all fish species of the Nam Theun River are known to exist in other rivers of Lao PDR, with the exception of 3 species. Of these, 1 species may not adapt to the changing conditions of the river. The diversity of the terrestrial vegetation and wildlife is not expected to be impacted in the Nam Theun River Basin. Biodiversity loss within the Nam Theun River basin as a result of NT2 is thus expected to be minimal. The most significant expected impacts pertain to the potential loss of fisheries as it contributes to nutrition and income.10 9 The NT2 project is expected to reduce the generation of energy from the Theun Hinboun power station by approximately 15%. This loss of production represents an explicit cost of the NT2 project and has been included in the cost-benefit analysis of the NT2 project. 10 The focus in this analysis on the loss of fisheries does not imply that a (potential) loss of a species known to exist only in the Nam Theun River basin has no economic cost. However, the economic valuation 25 30. For purpose of assessing the potential loss of imputed and cash income from fisheries downstream the Nakai Dam, it may be useful to distinguish the following 4 sections: (1) Nam Theun River, from Nakai Dam to Nam Phao River; (2) Nam Theun River, from Nam Phao to Theun Hinboun dam; (3) Nam Gnouang and Nam Phao (tributaries of Nam Theun); and (4) Nam Kading (downstream the Theun Hinboun Dam), as expected losses of fisheries may vary across there various sections of the river basin. For all of the above 4 sections, the scenario without project is based on the continuation of existing conditions and trends. For purpose of this analysis, it is assumed that the loss of fisheries is taking place as soon as dam construction is initiated, in 2004. 31. In order to estimate the potential loss of fisheries along the Nam Theun River and its tributaries, the following information and assumptions have been used: • Estimates of riparian population along the Nam Theun, Nam Kading, Nam Phao and Nam Gnouang. To this effect, GIS information was used to locate those villages within approximately 250 meters of the shore of the rivers of interest. This information was then paired with population figures from the 2000 Population Census performed by the National Statistical Center (NSC). Estimates of population in the entire river basin were also used to approximate fisheries losses; • Estimates of income (both cash and imputed income) from fisheries for this riparian population. These estimates were made by extrapolating from existing socio-economic surveys of the Nakai Plateau population and Xe Bang Fai population, assuming that income from fisheries for the riparian population in the Nam Theun River may be of the same order of magnitude. In addition to these estimates obtained from extrapolating information from the Xe Bang Fai, estimates of income provided by the Riparian Release Study were also used. • Estimates of losses of this estimated income from fisheries. Estimates of percentage losses range from 25% to 75%. As a reference point, fisheries loss in the Xe Bang Fai is assumed to be in the order of 40%. 32. Population estimates are presented in Table 2.11 As is observed, significant population centers exist along the Nam Kading – especially at the confluence with the Mekong River, and the Nam Phao. According to this information, there would be a total of approximately 2 859 riparian households in the Nam Theun River Basin. Recent of biodiversity (broadly understood) has typically focused on the valuation of services provided by ecosystems and watersheds, and not on the estimation of the intrinsic economic value of specific individual species within that ecosystem. We thus refrain from attaching an economic value to this single specie that may be threatened by the project. It should not be understood that we implicitly attach a value of zero to such expected costs. Instead, it implies that this potential impact remains of a qualitative nature that must be appropriately accounted for by decision-makers. 11 It should be noted that matching village names from various databases is somewhat of a challenging exercise as the English spelling of village names often differ significantly. Numbers presented in Table 2 should therefore be seen as approximate. 26 information obtained from local authorities indicate an estimated total of 8 556 households in the entire basin. Table 2 Estimates of number of riparian households and inhabitants Nam Theun River Basin River Village Number of households Nam Theun Phonesi 67 Kenghuang 47 Thabak 169 Sobkat 21 Katok 126 Kangna 67 Sobhia 77 Kengbid 102 Kapan 25 Sub-total 701 Nam Gnouang Bandone 15 Phabang 60 Vangxay 17 Thasala 61 Sub-total 153 Nam Phao Napeir 154 Nasalom 37 Lak 5 101 Lak 7 114 Lak 10 106 Lak 12 22 Nakhe 25 Phonemenh 38 Lak 20 126 Nongdong 32 Namphao 119 Saengsavang 120 Nakang 14 Sub-total 1008 Nam Kading Pakpang 185 Paksoun 94 Pakkading TaiI 94 Dornxay 70 Phonengam 68 Hatkhornsavanh 30 Hatsaykham 104 Phonesi 352 Sub-total 997 Total 2 859 33. Existing socio-economic surveys performed in 2001 on the Nakai Plateau and the Xe Bang Fai River (XBF) have estimated income (both cash and imputed) from fisheries to vary between 52 to 205 USD per year per household (Table 3), with a mid-point 27 estimate of 121 USD per household per year. Data collected in the recent Riparian Release Study provides an average estimated fisheries income of 131 USD per household per year. This estimate of fisheries income coincides almost exactly with the mid-point estimate of fisheries income along the Xe Bang Fai. For purposes of the existing analysis, an average fisheries income of 131 USD per household per year is therefore assumed. Table 3 Estimated yearly household fisheries income Nakai Plateau and Xe Bang Fai River - 2001 Average HH income % of total income Average HH income from fisheries from fisheries Plateau 521 10.0 52 XBF Average 681 17.8 121 XBF High 893 22.9 205 34. Multiplying this estimated average household income from fisheries with household figures presented in Table 2, one may thus produce estimates of what may be the level of aggregate income obtained from fisheries activities for those riparian households located along the shores of the Nam Theun, Nam Phao, Nam Gnouang, and Nam Kading. These estimates are presented in Table 4. Table 4 Estimated yearly household income from fisheries (USD) Low case Medium case High case scenario scenario scenario (52 USD) (131 USD) (205 USD) Nam Theun - From Nam Phao to THD 36,452 91,831 143,705 Nam Gnouang 7,956 20,043 31,365 Nam Phao 52,416 132,048 206,640 Nam Kading 51,844 130,607 204,385 35. As indicated earlier, there currently is no estimate of the potential loss of fisheries associated with the reduction in water quantity and water quality in the Nam Theun River. A recent study based on recalled information presents an estimated loss of fisheries of approximately 35% in the Nam Ha/Nam Hinboun as a result of the Theun Hinboun project.12 It should be noted that this estimated fisheries loss of 35% resulting from the Theun Hinboun Project has served as a basis to estimate fisheries losses along the Xe Bang Fai. Missing appropriate estimates, we construct 3 scenarios of potential losses of fisheries income: 20%, 35%, and 50%. With these percentage loss scenarios, 12 It is important to note that this estimate has been obtained based on recalled surveys as there does not exist base line information on fisheries activities prior to the implementation of the Theun Hinboun Project. See ADB (1999) for more information. 28 one may estimate revenues losses on both a yearly basis and in present value terms. Results are presented in Table 5, using the medium case scenario of 131 USD. Table 5 Estimated losses of fisheries income (cash and imputed) Nam Theun River Basin Nam Theun Scenarios Yearly estimates Present value 20% loss 18,366 157,397 35% loss 32,141 275,445 50% loss 45,915 392,050 Nam Phao 20% loss 26,409 226,328 35% loss 46,216 396,074 50% loss 66,024 565,821 Nam Gnouang 20% loss 4,008 34,353 35% loss 7,015 60,118 50% loss 10,021 85,883 Nam Kading 20% loss 26,121 246,244 35% loss 45,712 430,927 50% loss 65,303 615,611 36. Numbers presented in Table 5 allow one to estimate aggregate losses for any combination of scenarios along each of the river. At the outset, it may be argued that not all of these scenarios are equally likely. For example, it may reasonably be expected that fisheries losses will be higher along the Nam Theun River itself (given the significant reduction in water quantity and quality) than such losses may be along the Nam Phao and Nam Gnouang. Furthermore, fisheries along the Nam Kading have already been adversely impacted by the Theun Hinboun Dam, and riparian villages of the Nam Kading have also access to the fisheries of the Mekong River. For purposes of the existing analysis, assume the following combination of scenarios: 50% along the Nam Theun; 20% to 35% along both the Nam Phao and Nam Gnouang, and 20% loss along the Nam Kading. This combination of scenario yields aggregate fisheries losses ranging from 0.10 to 0.14 million USD per year or 0.73 to 1.3 million USD in present value terms. For purposes of comparison, as will be indicated in Section VII below, fisheries losses along the Xe Bang Fai River are estimated to be 0.7 million USD per year, or approximately 4 million USD in present value terms. The impacts on the Nam Theun and those on the Xe Bang Fai differ however importantly on one key feature: impacts on the fisheries of the Nam Theun are expected as soon as construction of the Nakai Dam is taking place (2004 in this analysis) while impacts on the fisheries of the Xe Bang Fai are expected only following the operation of the power station in 2009. 29 37. Unlike the situation for the Xe Bang Fai River for which an extensive compensation program has been developed, to this date there does not appear to be a similar program for the Nam Theun River Basin. The Resettlement Action Plan (RAP) indicates that: “The NT2 Project will pay compensation to individuals who can demonstrate losses and traditionally use the Nam Theun between the Nakai Dam and the Theun-Hinboun headpond� (Chapter 3, p. 45). The above calculations provide a first indication of what this ‘compensation’ may amount to. For the Xe Bang Fai River, a program (including technical assistance and monitoring) of approximately 10 million USD was developed to compensate for estimated fisheries losses of 1,070 tons. This program thus amounts to approximately 9.35 USD per kg on average in the XBF basin. Using a similar coefficient for losses in the Nam Theun River Basin would indicate a compensation program ranging between 0.8 and 1.6 million USD (in present value terms) depending on the timing of the program’s implementation. Table 6 Area 1: Nam Theun River Basin downstream the Nakai Dam Summary of project impacts and activities Project potential impacts Assessment Project activities Positive impacts • None expected Negative impacts • Fisheries Diversity 1 fish species known to be endemic; Big-headed Turtle has thus far been observed only in the basin. Quantity 0.73 – 1.30 million USD. Will pay compensation to those who can demonstrate losses. Compensation package may amount to between 0.8 and 1.6 million USD. • Health Expected to be very limited given the absence of significant settlements along the banks of the Nam Theun River. • Domestic water use Idem. • Agricultural water use Idem. • Riparian wildlife and Riparian wildlife and vegetation. vegetation is widely observed throughout the river basin. 30 V. Area 2: Watershed (Nakai Nam Theun National Biodiversity Conservation Area) V.1 Area description13 38. The catchment area of the Nakai Plateau covers an area of 4,013 km2, of which approximately 3,550 km2 is occupied by the Nakai Nam Theun National Biodiversity Conservation Area (NNT NBCA). As a result of the importance of the NNT NBCA in the catchment area, discussions of the project watershed to a large extent pertain to the NNT NBCA. 39. The NNT NBCA upstream of the Nakai Plateau was officially created through the promulgation of Decree 164/PM in 1993.14 The Government of Lao PDR (GoL) has recently endorsed two important corridors linking the NNT NBCA to the Hin Namnor NBCA and the Phou Hinpoun NBCA. The NNT NBCA – Phou Hinpoun NBCA corridor covers an area of 513 km2, while the NNT NBCA – Hin Namnor NBCA corridor covers an area of 36 km2. This approval by the GoL thus brings the total size of the NNT NBCA and corridors to approximately 4,000 km2. 40. The NNT NBCA is the largest of all NBCAs in Lao PDR, representing 12% of the total area occupied by all 20 existing NBCAs.15 Perhaps more importantly, it is generally recognized as the most diverse natural forested area and the most important for biodiversity conservation in Lao PDR (Robichaud, 2001).16 It is also internationally recognized as one of the richest biodiversity systems in South East Asia, in terms of both flora and fauna.17 The NNT NBCA has recently been the site of newly discovered species, and the re-discovery of species thought to be extinct in South East Asia. 41. The population of the NNT NBCA is estimated at approximately 1,000 households representing 5,500 individuals mainly of the Katuic, Vietic and Tai Kadai ethnic groups. Actual demographic changes in the villages of the NNT NBCA are difficult to assess due to the absence of reliable longitudinal database. Nonetheless, (natural) population growth rate is estimated to be approximately 4%18 significantly above the estimated country average population growth rate of 2.5%.19 42. Socio-economic surveys of the residents of the NNT NBCA have been few, and none very recent. Chamberlain et al. (1996) estimated average annual household cash 13 A detailed description of the NNT NBCA and protected areas in Lao PDR is available in NTPC (2004c). Other sources of information include Government of Lao PDR (2000), and Clarke (2000). 14 Government of Lao PDR, Decree on the Establishment of the National Protected Areas for the Whole Country, Decree No: 164/PM, Prime Minister Office. 15 The 20 existing NBCAs of Lao PDR cover a total area of approximately 3.2 million ha. 16 The first biodiversity field survey of the NNT NBCA was conducted in 1994 (Timmins and Evans, 1994). A large number of additional surveys were then undertaken (in particular see, Timmins and Evans, 1996; Ling, 1999; Foppes et al, 1997; Ingles et al. (1998); IUCN (2000), and WCS (2003)). 17 See Olson and Dinerstein (1998) and Baltzer et al. (2001) for more details. 18 NTPC (2004c), Part IV, page 36. 19 World Bank (2003a). 31 income at the time of the survey to range between 50 000 kip (Tai Kadai) to 147 000 kip (Vietic), with non-timber forest products (NTFPs) and livestock accounting on average for approximately 50% and 34% respectively of this estimated cash income.20 Ingles et al. (1998) conducted NTFP investigations in 1998 in 4 villages of the NBCA. Interviewed households estimated 54% of family income to be derived from NTFPs, 42% from livestock, and 4% from crops. Finally, the IUCN conducted a survey of 6 Brou (Katuic) villages in the year 2000. The study estimated that NTFPs and livestock contribute respectively 53% and 32% of an average household cash income (IUCN, 2000). 43. Surveys have also indicated health and education facilities in the NNT NBCA to be seriously lacking. Few schools are properly functioning and equipped with didactic material, and teachers are seriously lacking in numbers. As a result, the illiteracy level is considered to be very high. Similarly, health facilities are seriously lacking, and health workers few in numbers. 44. It is generally recognized that the resources of the NNT NBCA have been and continue to be under intense pressure and threats as a result mainly of the poaching of wildlife, and unsustainable harvesting of forest products of high commercial value by both locals and non-nationals (e.g. rattan, dammar resin, and fragrant wood are now thought to have been significantly if not completely depleted from the NNT NBCA). Residents of the NNT NBCA themselves recognized that the resources of the NBCA, primarily those harvested for commercial sale, have been excessively harvested and drastically reduced. 45. A number of factors not related to the presence of the NT2 project are also expected combine to further increase the existing pressure on the NNT NBCA. These factors include: (1) continued rapid population increase not only within the NNT NBCA, but mainly in the peripheral zone of the NBCA; (2) continued improvement of transportation infrastructure facilitating increased trade opportunities especially between Lao PDR and Viet Nam; and (3) as noted by the Cumulative Impact Assessment (CIA) study (ADB, 2004), the completion of the Ho Chi Minh Highway (National Highway No. 2) in Viet Nam which will run along the Lao – Viet Nam border (across the Vu Quang National Nature Reserve), thus significantly facilitating access to the NNT NBCA. 46. As a result of this continuing and increasing pressure, most observers concur with the view that unless an effective conservation and natural resource management is implemented, the NNT NBCA’s habitat, wildlife, and biodiversity have little hope of being preserved. Chamberlain et al. (1996) conclude their assessment of the socio- economic status of the villages of the NBCA noting: “It is clear that we are witnessing a decline in carrying capacity of local resources, especially land. While this declining resource base is not yet as serious as that on the Nakai Plateau, if it continues unabated, it will have a deleterious affect on the lives and livelihoods of the NBCA residents� (p. 49). Chamberlain (1997) further notes that the cultural diversity of the NNT NBCA is 20 In 1996, average exchange rate was approximately 1,000 kip per USD. 32 declining rapidly, with a number of indigenous ethnic groups currently considered at risk or even on the verge of extinction. 47. Limited financial and technical resources currently prevent the GoL to respond effectively to this increasing pressure on the human and natural resources of the NNT NBCA. Indeed, the management of NBCAs, and more generally conservation and biodiversity protection activities in Lao PDR (as in many if not most other developing countries) are constrained by lack of resources, infrastructure, equipment, and staff. It is estimated that resources devoted to NBCAs management amount to a few thousand dollars a year per NBCA. Despite the recognition that the human and natural resources of the NNT NBCA have been under significant stress for a large number of years, this lack of local (national) financial and technical resources have thus far not been alleviated with a significant influx of international resources targeted and focused on the NNT NBCA. V.2 Expected impacts 48. The NT2 project may have both a direct and indirect impact on the human and natural resources of the NNT NBCA. 49. First, fish species migrating along the Nam Theun River could be seriously affected as their migratory pattern may be perturbed and impeded by the presence of the Nakai dam, and the transformation of the plateau into a reservoir. This could have a significant impact on the livelihood of the inhabitants of the NNT NBCA, and could potentially plunge them further into poverty. Despite this potential effect, it is recognized in the SEMFOP that: “The likely impact of the NT2 dam on fish of the Nam Theun tributaries in the NT2 Watershed/NBCA has been little discussed or studied.� (SEMFOP, Part IV, p. 25). 50. Second, it is largely recognized that the NT2 project may significantly exacerbate pressure on the resources of the NNT NBCA through a significant population increase in the vicinity of the area. This population increase will result partly from the project working population with an expected peak force of approximately 4,000 individuals, with a number of potential followers which may range between 8,000 and 16,000 (SDP, Chapter 2, p. 21). The population increase will also result from a facilitated access to the area of the NBCA brought upon by the improvement of the transportation infrastructure. 51. The NT2 project may thus have a significant adverse impact on the NNT NBCA. The direct and indirect impacts discussed above provide an important (though not the only) rationale for the implementation of a management plan aimed at: (1) mitigating or compensating the inhabitants of the NNT NBCA for the potential loss of fisheries; and (2) preventing this additional population pressure from further degrading the NBCA’s habitat and depleting its resources and biodiversity. 52. As a result, an explicit key objective of the SEMFOP is to “facilitate the improved livelihoods for inhabitants of the NT2 Watershed-NBCA by focusing on poverty 33 reduction through environmentally sustainable development.� (SEMFOP, Part I, p. 2). The main components of the development strategy presented in the SEMFOP are to: • “Seek to steadily improve food security for the inhabitants of the NNT NBCA; • Seek to improve villager tenure over, and/or the management of natural resources by effective land and forest use planning and management; • Foster the diversification of livelihoods, and the gradual intensification of land use away from shifting cultivation; • Avoid the development of inappropriate infrastructure such as vehicular roads; • Develop appropriate water based access into and out of the NNT NBCA; • Maintain current population levels, or less, by the control of immigration, family planning and avoid any significant out migration; • Improve health and education levels, and village institutions in line with their cultural and ethnic heritage and identity.� (SEMFOP, Part I, p.3) 53. A second significant rationale of the SEMFOP is to provide an offset for the potential loss of habitat that the Nakai Plateau may experience as a result of the project. This issue is further discussed in Section VI below. Finally, a third rationale of the SEMFOP pertains to the protection of the reservoir’s energy potential. The protection and rehabilitation of the NNT NBCA’s forest coverage is a key objective of the SEMFOP as a means by which to prevent a rapid sedimentation of the reservoir. This third rationale is akin to a ‘user pays’ rationale whereby the NT2 project pays a fee for the services provided by the reservoir watershed. This issue is further discussed in Section V.3 below. Potential negative and positive impacts are summarized in Table 7. Table 7 Area 2: Nakai Nam Theun NBCA Potential negative and positive impacts Potential positive impacts Potential negative impacts • Improved livelihood of inhabitants • Fisheries (quantity and diversity). • Improved access to health services and education; • Maintenance and enhancement of the resource base; • Protection of natural habitat, and biodiversity. 54. In order to achieve the above objectives, the project will provide 1 million USD per year, indexed for inflation, covering the entire period before the commissioning of the 34 power station, and the 25 years of the Concession Agreement. These funds will be administered by the Watershed Management and Protection Authority (WMPA). No other projects in Lao PDR has thus far provided and effectively committed such amount of resources (1 million USD per year) over such a period of time (30 years), let alone in the Nam Theun area. The project would thus appear to offer a unique opportunity for a significant commitment of resources over an extended number of years to support the preservation of a unique biodiversity conservation area. V.3 Economic assessment 55. The forests and habitat of the NNT NBCA supports a wide range of activities, and yields numerous economic values. Applying the concept of economic values presented earlier in Figure 2 (Section III) to the NNT NBCA, one may categorize the various use and values of the NBCA as in Table 8 below. Table 8 Economic values of the NNT NBCA Direct use Indirect use Option values Existence / Bequest values Values values • Subsistence; • Wildlife protection; • Recreation; • Biodiversity; • Livelihood; • Catchment • Bioprospection. • Cultural / ethnic • Housing materials; protection; diversity. • Firewood; • Erosion control; • Medicines; • Carbon • Grazing. sequestration. 56. It is a challenging task to provide a thorough and comprehensive economic assessment of these impacts. This is especially the case with issues pertaining to biodiversity: the measurement of ‘biodiversity’, the quantification of rates of biodiversity losses, and the economics of biodiversity all present difficult conceptual and empirical issues. It is of further importance to note that this economic quantification does not aim to assess the economic values of the NNT NBCA in itself, but rather aims to assess the contribution of the project to these economic values and their preservation. 57. Given the nature of the project impacts in the NNT NBCA, the stated objectives of the SEMFOP, and the existing limited availability of data insofar as the NNT NBCA is concerned (as indicated in the SEMFOP itself), we mainly focus below on quantifying the contribution of the NT2 project to poverty alleviation (as the project aims to preserve and enhance the livelihood of the inhabitants of the NNT NBCA by preserving the resource base – NTFPs, wildlife, fisheries, etc. – which generates this livelihood). We also address issues pertaining to medicinal values (local benefits), bioprospection values (global benefits), and carbon sequestration (global benefits). We also discuss issues pertaining to the sedimentation of the reservoir (which the SEMFOP aims to limit or prevent). This discussion however recognizes that the prevention of the sedimentation of the reservoir remains entirely within the project’s self-interested motive, and would 35 obviously cease to be an issue would the project not exist. Issues pertaining to recreation and tourism are discussed in Section VI as such potential is as much related to the Nakai Reservoir as it is to the NNT NBCA. This discussion however recognizes that the potential development of such recreational and tourism economic activities is not per se an impact of the project, but is instead an impact induced (made possible) by the NT2 project, and that the realization of this potential would require further investment and development not the responsibility of the project itself. (i) Poverty alleviation and livelihood 58. Resources of the NNT NBCA (mainly NTFPs, trees, wildlife and fisheries) contribute a very significant proportion of the cash income and subsistence of the inhabitants of the NBCA. As indicated earlier, this income and subsistence base has been under severe pressure in recent years, and is expected to be under continued and increasing pressure in forthcoming years, independently of the presence of the NT2 project. 59. Socio-economic surveys of the inhabitants of the NNT NBCA have been few, and to our knowledge none has been performed in the last 2 or 3 years. As indicated earlier, Chamberlain et al. (1996) surveyed 13 villages of the NNT NBCA, representing approximately 50% of the then existing population of the NBCA. Survey results are presented in Table 9. Note that these estimates pertain solely to cash income. Using an exchange rate in 1996 of approximately 1,000 kip to 1 USD, these figures would suggest an average total cash income of approximately 90 $ per household. According to this survey, NTFPs and wildlife would contribute respectively 47% and 10% of average household cash income.21 Table 9 Average household cash income by source by Ethnic group (kip, 1996) Ethnic Agriculture Wildlife Plant forest Fish Average Total group products Income Vietic 37,137 16,190 79,149 15,484 147,960 (25.4)1 (10.9) (53.5) (10.5) Katuic 27,885 3,553 40,881 3,297 75,615 (36.9) (4.7) (54.1) (4.4) Tai Kadai 24,380 14,587 3,025 9,521 51,512 (47.3) (28.3) (5.9) (18.5) Average 29,281 9,155 41,199 7,668 87,303 (33.9) (10.1) (47.0) (8.9) Source: CARE (1996) 1 Percentage contribution to average total income. 21 An additional socio-economic survey was conducted in 1998 (Alton and Sylavong, 1997). However, the year 1997 is widely considered as an atypical year, following major typhoon damage and it being a mast year. 36 60. Resources of the NNT NBCA contribute not only to cash income but also to household subsistence (food, medicine, construction materials, etc.). It is customary to value household consumption by ‘imputing’ market prices to the consumed items. Imputed income (value of household consumption) in the NNT NBCA has not been thoroughly assessed. However such assessment has been performed in areas of Lao PDR other than the NNT NBCA. As indicated in Table 10 below, studies on the Nakai Plateau would appear to indicate that imputed incomes are approximately equivalent to cash income. A similar result would approximately hold along the Xe Bang Fai (except for the upper Xe Bang Fai), with perhaps a slightly higher contribution of cash income. On the other hand, results from the Nam Et and Phou Lei NBCAs and the Sekong Province would indicate that imputed income contributes between 65% and 80% of total income. Table 10 Yearly cash and imputed average household income measured by various surveys Studies Cash income Imputed income Total income CARE (1996) 257,000 205,000 462,000 Nakai Plateau (56%) (44%) RMU (1998) 828,454 1,040,406 1,868,8601 Nakai Plateau (44%) (56%) (2001) 2,640,000 4,630,000 7,270,000 Nam Et and Phou Loei NBCAs (36%) (64%) Rosales et al. (2003) 902 413 503 Sekong Province, Lao PDR (18%) (82%) 3153 1,229 1,544 (21%) (79%) GoL (2002) 3,139,937 2,694,230 5,834,167 Nam Kathang / Nam Gnom (54%) (46%) Upper Xe Bang Fai 5,642,980 2,103,456 7,746,436 (73%) (27%) Middle Xe Bang Fai 2,639,428 2,033,464 4,672,892 (56%) (44%) Lower Xe Bang Fai 3,544,834 2,671,663 6,216,497 (57%) (43%) Upstream upper Xe Bang Fai 2,911,863 2,172,865 5,084,728 (58%) (42%) 1 The fourfold increase in income between 1996 and 1998 is mostly accounted by rapid inflation and currency depreciation. At 1996 exchange rates, the 1996 income is equivalent to approximately 460 USD. At 1998 exchange rates, the 1998 income is equivalent to approximately 450 USD. 2 USD. For low income households; 3 USD, for medium income households. 37 61. Given the remote nature of the NNT NBCA and the difficulty to access the area, it is likely that imputed income represents a greater proportion of household total income. For this reason, we may want to retain the results observed in the Nam Et and Phou Lei NBCAs and consider that imputed income represents approximately 70% of total income. Under this assumption, imputed income of the NNT NBCA households is estimated to be approximately 210 USD, and average total household income to be 300 USD, in 1996. 62. Estimates obtained from the late 1990s have thus far not been subjected to revisions based on primary data collection. It is therefore not possible to assess with certainty how household income in the NNT NBCA may have changed between 1996 and 2004. In 1998 and 1999, real Gross Domestic Product (GDP) grew at an average rate of approximately 4%. It then grew by approximately 5.5% a year over the period 2000- 2003.22 This growth is generally lead by rapid growth in the industry and service sectors while the agricultural sector typically experiences a growth rate approximately 1 percentage point lower than the GDP growth rate. On the other hand, as observed earlier, average household income on the Nakai Plateau has failed to experience any growth between 1996 and 1998, and remained relatively constant at 450 USD. It is also known that the resource base in the NNT NBCA in 1996 had not yet declined as seriously as the resource base of the Nakai Plateau (CARE, 1996). Based on these observations, we expect that average household income on the NNT NBCA may have remained constant or slightly increased between 1996 and 2004, albeit at a rate considerably lower than the growth rate experienced by the Lao agricultural sector. For the purpose of estimating the impact of the NT2 Project on poverty alleviation, it is assumed that real household income in the NNT NBCA increased at the annual rate of 1% between 1996 and 2004.23 At this rate, average total household income reaches 325 USD in 2004. 63. In 1997, the national poverty line was set to 800 USD for an average household of 5.5 persons.24 The National Statistics Centre (NSC) revises this poverty line every 5 years by means of the Lao Expenditure and Consumption Survey (LECS). The most recent survey (referred to as LECS3) was conducted in 2002. The NSC has however not yet released revised estimates of the national poverty line for the year 2002. A recent informal discussion with NSC officials indicates that estimates of the national poverty line may have reached approximately 840 USD in 2002. This would represent an annual growth rate of approximately 1% per year between 1997 and 2002. Assuming that this growth rate would extend to the period 2002-2004, the poverty line in 2004 would be estimated at 860 USD. 64. In order to provide an economic assessment of the NT2 project on poverty alleviation, it is of significant importance to note that SEMFOP’s development strategy as enunciated earlier aims not only to alleviate and compensate solely for the specific potential adverse effects associated directly to the project itself (incremental population pressure and potential adverse fisheries impact), but aims to improve the living 22 World Bank (2003b). 23 It will be clear below that this assumption provides us with a conservative estimate of the positive impact of the NT2 Project on poverty alleviation. 24 Government of Lao PDR, National Statistics Centre. 38 conditions and livelihood of the NNT NBCA inhabitants relative to the existing situation which, without the project, is generally expected to continue to worsen. The project aims to achieve this objective by: (1) providing households of the NNT NBCA with an improved and sustainable livelihood (income, health, and education), and by stabilizing the population of the NBCA at its current level. In the absence of the project, the generally accepted development scenario is a rapidly increasing population faced with a declining resource base, thereby unable to maintain existing levels of income. These two scenarios may be summarized as follows: Scenario without project: Rapid population increase, declining resource base, and decreasing income; Scenario with project: Stabilization of population, improved management of the resource base, increasing income. 65. As indicated earlier, average household income in the NNT NBCA (325 USD) falls considerably below the national poverty line (860 USD). In 2004, this represents a shortfall of approximately 605 USD per household, or 605,000 USD for the entire population of the NNT NBCA. In order to assess the impact of the project on poverty alleviation, it is necessary to take account not only of the potential for increased household income (thereby reducing the extent of the gap relative to the poverty line), but also for the potential that a smaller number of households would find themselves below the poverty line (relative to the scenario without project). Given the overall objective of poverty alleviation, we thus wish to measure the impact of the project in terms of its potential to reduce the shortfall of aggregate household income relative to the poverty line.25 66. Assume the following: Scenario without project: • Population growth: Continues recent growth of 4% per year; • Income growth: Continues recent growth of 1% per year; Remains stable; Falls by 1% per year; • National poverty line: Increases by 1% per year. Scenario with project: • Population growth: Remains stable at current level; 0% growth; Reaches national population growth of 2% per year; • Income growth: Continues recent growth of 1% per year; 25 Note that this does not imply that villagers in the NBCA consider themselves to be poor. It implies instead that the poverty alleviation objective of the project is assessed against the poverty line as defined by the GoL. 39 Increases to 1.5% per year; Increases to 2% per year. • National poverty line: Increases by 1% per year. 67. Without the NT2 project, the aggregate shortfall to the poverty line reaches 8 to 9 millions USD. With the project, this shortfall shrinks to approximately 5 millions USD if the population were to stabilize at existing level, and would reach approximately 6 millions USD if population growth in the NBCA were to reduce to the national average of 2% instead of stabilizing at current level (Table 11). The difference between the with and without project scenarios provides a measure of the project’s contribution to poverty alleviation in the NBCA. As shown in Table 12, this contribution ranges between 2.6 and 3.8 millions USD if population were to stabilize at existing level, and between 1.5 and 2.8 millions USD if population growth were to reach 2% per year. In the case of a 0% population growth, this represents a reduction in poverty (as measured by income) as a result of the project ranging between 32 and 42%. If population were to grow at 2% per year, the reduction in poverty in the NNT NBCA would range between 18% and 31%. Assuming that the project is implemented substantially as designed and reaches its intended objectives, it thus has the potential of significantly reducing poverty in the NNT NBCA. Note that the 0% population growth target is unlikely to be realized within the duration of the Concession Agreement (and horizon of the existing analysis). As such a 2% population growth rate may be a more likely though perhaps optimistic outcome. 68. It should be noted that the above assessment strictly focuses on the impact of preserving and enhancing the resource base of the NNT NBCA as this resource base contributes to income, and as its preservation and enhancement may contribute to poverty alleviation.26 The above assessment does not separately include benefits associated with improved health and education, which are also known to be contributors to poverty alleviation. Furthermore, the above assessment does not include benefits that may be associated with the preservation of the distinctive and unique ethnic and cultural diversity of the inhabitants of the NNT NBCA. Nor does it include benefits pertaining to the preservation of the indigenous knowledge base. As a result, the contribution of the project as assessed above solely by its potential positive impact on income in all likelihood significantly underestimates the full impact of the project.27 26 Note that we do not address the issue of inequality between villagers and between ethnic groups. Such an increasing inequality has been observed between the first two LECS. From a conservation perspective, one could argue that inequality may have a negative impact on biodiversity. However, given the current status of available data, it is not possible at this point in time to assess the impact of rising inequality on resource exploitation and biodiversity. 27 It should be further noted that the relationship population – poverty – biodiversity may not be as simple as described above. For example, a dispersed (extensive) swidden system such as is currently the norm in the NNT NBCA may not only be conducive to biodiversity, enhancing populations of large ungulates, and creating more diverse habitats for avifauna, but may also be more productive when production is measured as return on labor. However, swidden systems depend more on labor. As a result, a decrease in population may increase poverty. Conversely, intensification runs the risk of concentrating population, creating unemployment, and therefore freeing people to exploit natural resources in a non-sustainable manner. A complete assessment of this relationship is currently not possible and should be subjected to further research. 40 Table 11 Shortfall of aggregate income relative to poverty line (millions USD) 1% 0% -1% Without project 8.083 8.584 9.013 1% 1.5% 2% With project: 0% population growth 5.485 5.336 5.176 With project: 2% population growth 6.592 6.388 6.169 Table 12 Estimated impact of NT2 project on poverty alleviation Without project 1% 0% -1% With project: 0% population growth 1% 2.599 3.100 3.528 1.5% 2.748 3.249 3.677 2% 2.907 3.408 3.836 With project: 2% population growth 1% 1.492 1.993 2.421 1.5% 1.695 2.196 2.624 2% 1.915 2.416 2.844 (ii) Medicine and bioprospection 69. It is apparent that the resource base of the NNT NBCA serves not only as a source of livelihood for the inhabitants of the NBCA, but also supports a broad range of medicines (direct use value) used by villagers from within and from outside the NBCA. Given its wide and sometimes rare or endangered species, it may also be suggested that the resource base of the NBCA may also have future medicinal and pharmaceutical applications (option value). Estimating what those values may be represents a significant challenge. 70. The medicinal use and bioprospection potential of the fauna and flora of tropical rainforests is widely recognized. Principe (1991) reports that in the developed world, perhaps 25% of all medical drugs are based on plants and plant derivatives, while this proportion may reach 75% in the developing world. Balick and Mendelsohn (1995) asserts that a complete collection and screening of all tropical plant species could be worth as much as 147 billion USD to society as a whole. 41 71. However, the economic valuation of such use and option values as it pertains to specific individual species or to specific areas of the globe (such as is the case for the specific area occupied by the NNT NBCA) that support this biodiversity is fraught with conceptual and empirical difficulties, and to this date remains highly speculative (Balick and Mendelsohn, 1992; Simpson et al., 1996). It may further be argued that the medicinal and bioprospection values alone of tropical rainforests may not provide the correct or sufficient set incentives to ensure the protection of the biodiversity they harbor (Simpson, 1997). 72. Insofar as the NNT NBCA is concerned (and more generally Lao PDR), significant data deficiencies considerably increase these difficulties. This difficulty is compounded by the fact that such bioprospection activities have thus far not been observed in the NNT NBCA itself. Hence, observed bioprospection activities cannot be used to assess the expected potential bioprospection value of the NBCA. We can thus not hope to provide accurate estimates of such values for the single NNT NBCA. The best we can do to provide some understanding of the medicinal and bioprospection values of the NBCA, is to extrapolate results from a number of valuation studies performed in other areas of the globe. However, it should be understood that such transfers cannot be accurate; it aims to be solely indicative and remains highly uncertain. A proper economic assessment of these values would require significant research efforts. 73. In a much cited study, Ruitenbeek (1989) has estimated the economic value arising from medicinal applications of wild plants in Korup National Park (Cameroon). His study suggests and annual value ranging between 0.2 and 0.7 USD per ha. Applying this range of values to the 4000 km2 of the NNT NBCA (and the newly added corridors), yields an annual value of ranging between 80,000 and 280,000 USD which, over the horizon of the project yields a present value between 0.7 and 2.6 million USD. 74. Alternatively, pharmaceutical companies have paid between 0.02 and 2.29 USD per ha for the preservation of biodiversity hotspots (Table 13). It may be argued that the pharmaceutical companies involved in these contracts did so for reputational (publicity) reasons, and not purely as an assessment of the expected pharmaceutical potential of the targeted biodiversity hotspots. It may therefore be that the above prices paid for the preservation of biodiversity hotspots reflect the reputational value of the protected areas as it contributes to the image or reputation of the parties involved as opposed to a true assessment of the expected economic value of the biodiversity of the areas. In all likelihood, these prices may reflect both reputational and biodiversity values. Assuming a range between 0.11 and 1.38 USD per ha, these numbers would provide a present value for the NNT NBCA ranging from 0.4 to 5.2 million USD. 42 Table 13 Willingness to pay of pharmaceutical companies to preserve biodiversity hotspots ($ / ha) Country / Region Payment Country / Region Payment Western Ecuador 2.29 Cape Floristic province 0.18 Southwest Sri Lanka 1.87 Peninsular Malaysia 0.16 New Caledonia 1.38 Southwest Australia 0.14 Madagascar 0.76 Ivory Coast 0.13 Western India 0.53 Northern Borneo 0.11 Philippines 0.52 East Himalaya 0.11 Brazil coast 0.49 Colombian Choco 0.08 Western Amazonia 0.29 Central Chile 0.08 Tanzania 0.20 California Floristic Province 0.02 Source: Simpson (1997). 75. Finally, a number of debt-for-nature swaps have taken place in recent years whereby an organization or other entity purchases a developing country’s secondary debt (on the secondary debt market) in exchange for conservation measures to be implemented by the debtor country. While it is difficult to correctly compare these swaps (swaps differ according to the area protected, the duration of the contract, the degree of protection, etc.), Pearce and Moran (1994) reports implicit values ranging approximately from 0.1 to 2.00 USD per ha of protected areas. These numbers would provide a present value for the NNT NBCA ranging from 0.4 to 7 million USD.28 76. These estimates, based on various economic assessment methodologies, would thus yield a medicinal and bioprospecting value of the NNT NBCA ranging approximately from 0.5 to 5 million USD. Once again, it is important to note the large uncertainty of these estimates. It may further be of relevance to note that despite the NNT NBCA being considered as one of the most important biodiversity areas of Southeast Asia, no contracts of the nature discussed above have thus far involved the NNT NBCA, and no bioprospection activities have thus far taken place in the NBCA. If markets and market behavior were to reflect true values, the above assessment may thus considerably over-estimate the true medicinal and bioprospection values of the NNT NBCA.29 Hence, while the NNT NBCA may harbor such values which could, in an unknown future be of significance to the global community (and a source of income to Lao PDR), the protection of these values, in expected terms within the time frame of the existing analysis, would not appear solely in itself to provide a strong economic rationale for the preservation of the habitat and biodiversity of the NNT NBCA, as the project aims to achieve through its SEMFOP. 28 Note that it is not asserted here that the NNT NBCA offers potential for a contractual arrangement such as a debt-for-nature swap. It is beyond the scope of this paper to assess such potential. We are simply using implicit values paid under this particular type of contractual arrangements for other conservation areas, and extrapolate these values to the NNT NBCA. 29 This is not saying that markets do in fact reveal true values, as numerous types of market failures may indeed impede them from doing so. 43 (iii) Carbon sink and sequestration 77. Forests play an important role in the global carbon cycle because they: • store large quantities of carbon in vegetation and soil; • exchange carbon with the atmosphere through photosynthesis and respiration; • are sources of carbon when they are disturbed by human or natural causes; • become carbon sinks (net transfer of CO2 from the atmosphere to the land) during land abandonment and regrowth. 78. One of the most immediate options to increase carbon stocks and avoid carbon emissions is to maintain existing forest-carbon stocks and sink processes by avoiding deforestation (Malhi et al., 2002; Niles et al., 2002).30 As shown in Table 14, slowing tropical deforestation offers the largest potential opportunity for mitigating carbon emissions. Furthermore, to the extent that deforestation is generally accomplished by burning large quantities of biomass, the prevention of deforestation also avoids emissions of large quantities of nitrous oxide, which has a greater warming potential than CO2.31 Table 14 Carbon mitigation via forest restoration, sustainable agriculture and avoided deforestation, 2003 – 2012 (Million tons of Carbon) Forest Sustainable Avoided restoration agriculture deforestation Latin America 177.9 93.1 1097.3 Africa 41.7 69.7 167.8 Asia 96.2 227.3 300.5 Source: Niles et al. (2002). 79. There is some degree of uncertainty on how best to assess carbon sequestration and sink services of existing forests. Myers (1997) estimates the quantity of carbon sequestered by tropical forest vegetation range from an average of 100 to 150 tons of carbon per ha of closed secondary forests, to an average of 200 to 250 tons of carbon per ha of closed primary forest. For the whole of Asia Pacific, Sedjo and Sohngen (2000) estimates a carbon density of approximately 160 tons per ha. 80. In Lao PDR, estimates of carbon sequestered range from 50 to 150 tons per ha (Table 15). The forest of the NNT NBCA is considerably varied reflecting a topography (gradient soils, altitudes, etc.) which changes considerably over the territory of the NBCA and gives rise to microclimates. It includes evergreen forest, undisturbed Fagaceous forest, cloud forest, riverine forest, and the unique everwet forest. Since there has not been an assessment of the carbon sequestration for the NNT NBCA itself, we will assume 30 Studies in the Amazon indicate that mature tropical forests exercise a sink strength of the order of 1 ton of carbon per ha per year. Hence, conserving tropical forests under threat of destruction both avoids emissions and sequesters additional carbon (Chambers et al. 2001). 31 Quantities of nitrous oxide emissions are however not well known (Houghton, et al. 1997). 44 a range between 100 and 150 tons of carbon per ha of the NBCA. Under this assumption, the NNT NBCA would contain approximately between 40 and 60 million tons of carbon. Table 15 Carbon sequestration in forests of Lao PDR (tons per ha) Forest type Area (ha) Tons per ha Evergreen/mixed dense 1,589,653 150 Evergreen/mixed disturbed 4,033,725 75 Evergreen/mixed mosaic 2,113,086 50 Deciduous 733,141 125 Deciduous mosaic 600,227 50 Regrowth forest 317,999 75 Source: GoL (2000b) 81. The economics of carbon emissions and sequestration has given rise to a large number of studies, and has been facilitated by the emergence of carbon markets. It is generally estimated that the benefits of carbon sequestration (avoided damages) may range between 10 and 25 USD. On the other hand, carbon is currently trading at a price of approximately 12.50 USD. In order to avoid over-estimating the value of the carbon sequestration and sink services provided by the NNT NBCA, we adopt a conservative estimate of 10 USD per ton of carbon. Applying this unit value to the carbon content of the NNT NBCA yields a total value of sequestered carbon in the NBCA ranging between 400 and 600 millions USD. 82. This number must obviously be interpreted with great care. It solely indicates that the global society would be willing to pay a maximum of between 400 and 600 millions USD to avoid an instantaneous release of all carbon currently sequestered in the NNT NBCA.32 Such a scenario (instantaneous release of all carbon) is of course an unlikely scenario. While any other scenario remains hypothetical, consider the following information: • The topography of the NNT NBCA is not conducive to a complete exploitation of its geographical area, be it for logging purposes or shifting cultivation. Recent (informal) discussions with a number of forestry experts indicate that 40% to 60% may be amenable to logging or shifting cultivation;33 • Forest resources have declined at a very rapid pace in the last 50 years. During the 1940s, the forest cover represented approximately 70% of the total area occupied by Lao PDR. This fell to 64% at the beginning of the 1960s. Current official 32 In order to be completely accurate, one would have to deduce from this maximum willingness the pay the value of the carbon that would be sunk in the course of the forest restoration process which would follow the complete release of the existing stock of carbon. 33 A number of individuals narrated the story where helicopter logging was attempted in the NNT NBCA. It is remembered as having been rather unsuccessful. 45 figures put this number at 47%. As stated in the Lao State of the Environment Report (2001): “Forest clearing continues at the rate of 300,000 ha per year. At this rate, the country’s last remaining forest areas will disappear over the next 38 years.� (p. 37). 83. As a result, assume the following: • The carbon density (C per ha) is uniformly distributed throughout the area of the NNT NBCA. This implies that the 40% to 60% of the NBCA’s considered to have potential for exploitation also contains 40% to 60% of the estimated stock of carbon sequestered in the NBCA. For purpose of estimation, we will assume 50%; • The area of the NNT NBCA considered to have potential for exploitation is indeed fully exploited at a uniform rate over the course of the next 40 years; • The nature of this exploitation is such that the carbon content of the exploited area is indeed released to the atmosphere; 84. The first of the above assumptions implies a carbon content ranging between 16 and 36 million tons of carbon in the area of the NBCA offering potential for exploitation. The second and third assumptions imply an annual release of carbon ranging between 0.5 and 0.75 million ton. At 10 USD per ton, this represents an annual value between 5 and 7.5 million USD, and a present value (calculated over the life time of the NT2 project, and not over the 40 years of exploitation) ranging between 47 and 70 millions USD. 85. The above assessment in all likelihood represents a significant over-estimate of the value of the carbon sequestration services provided by the NNT NBCA for the following important reasons: • First, the above numbers implicit assume that without the project, the exploitable area of the NNT NBCA is indeed fully exploited over a 40 year-period, with certainty. In fact, there is only a likelihood of this scenario effectively taking place. There currently is no possibility to assess what this likelihood may be. Note simply that if the likelihood of this scenario happening were to be 50%, the expected present value associated with the prevention of releasing the carbon contained in the NNT NBCA would then range between approximately 23 and 45 millions USD; • Second, of interest in this analysis is not the fact that the expected carbon sequestration services provided by the NNT NBCA may be depleted without the project, but instead is the impact that the project may have on this potential scenario. If the project were expected to have no or minimal impact on the potential occurrence of the without project scenario, then no or only minimal carbon sequestration benefits can be attributed to the project itself. As a simple matter of illustration, if the project were to reduce the probability of the occurrence of the above scenario from 50% to 25%, then the project’s contribution (benefits) to the protection of these services would range between 10 46 and 20 millions USD. Hence, the project must significantly alter the “without project scenario� if significant carbon sequestration benefits are to be attributed to the project; • Finally, if the concept of NBCAs were to have some meaning and the intent of Decree 164/PM effectively implemented, it may be assumed that the forest resource of the NNT NBCA will be among the last ones to be targeted for significant exploitation, thus postponing the loss of carbon sequestration services to a later period, and thereby reducing the present value of these services. For example, if a similar rate of carbon release were assumed to start in 2015 instead of 2004, the present value of these services would fall to between 7 and 10 millions USD. For all of the above reasons, the present value of the carbon sequestration services that the project may facilitate or preserve would not appear to be of large significance. 86. It must also be noted that any estimate of the carbon sequestration services of the NNT NBCA is an assessment of the global economic benefits provided by such services. It is not suggested that this represents a value that could be ‘captured’ by the NT2 project or the GoL and transformed into a financial inflow. In fact, under the Clean Development Mechanism (CDM), the Kyoto Protocol restricts allowable forestry measures to afforestation and reforestation, and explicitly excludes the protection of threatened native forests. Hence, while these services (large or small) provided by the NNT NBCA do represent an economic benefit of the project and to this extent should be included in the economic analysis, there currently is no possibility for these benefits to be transformed into a financial flow of resources to the project and/or the GoL. (iv) Sedimentation 87. Before we address the issue of sedimentation, it is important to recognize that were the project not to proceed (which is the scenario against which the NT2 project is being compared in this analysis), the issue of erosion and sedimentation would obviously cease to exist. Hence, insofar as this issue of sedimentation is concerned, the main issue of interest is whether or not the SEMFOP is first and foremost a management plan to respond and avoid soil erosion and sedimentation, or whether it is mostly a management plan aimed at protecting and conserving the resource base of the NBCA and the livelihood of its inhabitants. 88. Given the location of the Nakai reservoir and the surrounding topography, soil erosion and its potential impact on reservoir sedimentation has been a source of concern. As reported in the EAMP, the Nam Theun Watershed is currently eroding at an annual rate of 580 kg per ha. For tropical areas, this represents a very low rate of soil erosion. If this rate of erosion were to continue over the life time of the project, this would yield to a loss of storage volume of approximately 0.15% on the 25th year of the Concession Agreement. 47 89. A water quality study was undertaken to examine how reservoir sedimentation could be affected if erosion rates were to increase above the observed current rate. If erosion rates were to increase 25 times as much as the current rate, the study (CWR, 2000) estimates that approximately 325 million cubic meters of sediment would enter the lake in its first 50 years of operation. As the dead storage zone of the Nakai reservoir has a minimum volume of 380 million cubic meters, the study concludes that even this high rate of sedimentation, the profitability of the project would not in any ways be adversely impacted even if, as is probable, part of this sediment stayed in the upper active storage zone. 90. The study also examined the impact of erosion rates up to 70 times larger the current observed rate of erosion, which would be an extremely severe case of sedimentation and would only happen if major logging occurred in the catchment, if there were very poor management practices in road construction and if there was little regrowth of ground cover. At these very high levels of erosion, the study concludes that there would be a small but measurable reduction in available energy for sale by 6.6% in the 25th year of the Concession Agreement. Assuming that the loss of energy for sale starts in year 10 or in year 15 post commissioning of the dam and increases linearly until it reaches 6.6% of energy sale in year 25, our estimates reveal a loss of revenues ranging in present value terms between 6 and 12 millions USD. Given the real present value of total revenues in the order of 1.2 billion USD, such losses represent less than 1% of the total revenues of the project. In expected terms (likelihood of this extreme case of soil erosion actually happening), this loss will be very small. (v) Summary 91. Results are summarized in Table 16. If the project effectively implements the intent and objectives presented in the SEMFOP, the results suggest the following: • The primary and key positive impact of the project (and its concomitant watershed management plan – SEMFOP) appears clearly to be: improving natural resources management, protecting and conserving the habitat and biodiversity of the NNT NBCA – widely considered to be a prime and unique biodiversity area of Southeast Asia, improving the livelihood of its inhabitants, contributing to poverty alleviation, and preserving the ethnic diversity found in the NNT NBCA. While other potential benefits have been examined and may effectively exist, these, given existing information, would not appear to be of large significance. • The presence of the SEMFOP cannot be justified solely on the basis that it is in the self-interest of the project to invest in the improved management and conservation of the NNT NBCA in order to prevent losses of energy sale that could result for reservoir sedimentation. If the watershed provides services to the project such as the prevention of reservoir sedimentation, the extent of these services would appear to be minimal. 48 Table 16 Area 2: Nakai Nam Theun NBCA Summary of project impacts and activities Project potential impacts Assessment Project activities Positive impacts • Poverty alleviation • Contribution to poverty The project (SEMFOP) will alleviation ranging between invest approximately 1 million 1.5 – 3.8 millions USD; USD per year, pre and post Reduction of poverty from COD. The present value of 20 to 35%. this package amounts to approximately 10 millions • Health and education • Qualitative assessment; USD. Improved health facilities and better education opportunities. • Cultural / ethnic diversity • Qualitative assessment; Improved opportunity to preserve cultural and ethnic diversity. • Habitat and biodiversity • Qualitative assessment; Improved resource management aims to preserve habitat and biodiversity while simultaneously contribute to poverty alleviation. • Medicine and • 0.5 to 5 millions USD. In all bioprospection likelihood, over-estimate to the extent that no such activities have thus far been observed. • Carbon sequestration • 10 – 20 millions USD. In all likelihood, over-estimate. Negative impacts • Increased population • Qualitative assessment; The The SEMFOP aims to prevent pressure on the resources project may increase this increased population of the NNT NBCA. pressure on the resources of pressure from exercising an the NBCA. adverse impact on the NNT NBCA. 49 VI. Area 3: Reservoir area VI.1 Area description34 92. The Nakai Plateau currently occupies a surface area of approximately 650 km2. The October 1998 Census identified 1,160 households on the Nakai Plateau. Between 1998 and 2002, the number of households on the Plateau increased from 1,160 to 1,244, implying an annual population growth rate of approximately 2.2%. Average total (cash and imputed) income per household on the Plateau was estimated at 521 USD in 2003. 93. While the Nakai Plateau is said to have harbored a very large diversity and quantity of wildlife and forest products, the Plateau has experienced intense pressure from settlement expansion, logging and hunting. Over the course of the last 15 years, it has been noted that the traditional livelihood system of the inhabitants of the Plateau has changed considerably away from a relatively autarkic economy towards a cash economy. As such, forest products with market values have been very significantly harvested, and wildlife hunted. CARE (1996) notes that most of the wildlife on the Plateau has been hunted out, and that NTFPs have declined significantly. Finally, declining soil fertility has been reported, and attributed to reduce fallow periods and a lack of access to dense forest. The study (CARE, 1996) concludes: “The declining resource base on the Nakai Plateau is of grave concern: If it continues unabated, livelihoods and daily lives of residents will be seriously affected.� (p. 41). 94. The information currently available generally does not support the notion that the plateau area is of high biodiversity value (considering species richness, degree of endemism, and the vulnerability, representativeness, and integrity of component species). However, two species of the Nakai Plateau have attracted particular attention, the White Winged Duck, and the Asian Elephants. 95. Five to ten pairs of White Winged Ducks have been recorded in the forested wetlands of the Nakai Plateau, especially in the Northern embayments. The White- Winged Duck is a secretive and rare inhabitant of tropical lowland forests in South-east Asia. Its habitat includes wetland areas for breeding and foraging. The species was once widespread throughout South-east Asia. However, in the past 50 years, the fragmentation of the species’ forest habitat has caused a significant reduction of their numbers. The current total population in the wild is estimated at less than 500 individuals and the species is listed as globally endangered by IUCN. 96. Two herds of approximately 120 Asian Elephants are present on the Nakai Plateau. More than 100,000 Asian elephants may have existed at the start of the twentieth century, but only some 35,000 to 50,000 now remain in the wild. As indicated in Table 17, India has by far the largest remaining populations of Asian Elephants (estimated at around 57% of the total). A further 16,000 elephants are held in captivity throughout Southeast Asia. In Laos, the population of Asian elephants is estimated to range between 34 For a more detailed and comprehensive description of the Nakai Plateau, see NTPC (2004a, 2004b). 50 1,000 and 1,300 animals. The population of Asian Elephants on the Nakai Plateau would thus represent approximately 10% of the population of this species in Lao PDR. Table 17 Population estimates for the Asian Elephant - 2000 Country Estimated Numbers Bangladesh 200 – 240 Bhutan 60 – 100 Borneo 1,000 – 2,500 Cambodia 200 – 500 China 200 – 300 India 19,000 – 29,000 Indonesia 2,800 – 4,800 Laos 950 – 1,300 Myanmar 4,600 – 5,000 Malaysia 800 – 1,200 Nepal 40 – 60 Sri Lanka 3,100 – 4,400 Thailand 1,300 – 2,000 Viet Nam 100 – 150 Total 35,000 – 50,000 Source: IUCN (2000). VI.2 Expected impacts 97. At full supply level, the reservoir will have an area of approximately 450 km2, and will hold 3,910 million m3 of water. The reservoir will experience significant drawdown in the course of the dry season. At the minimum operating level, the reservoir will have a surface area of approximately 82 km2, with a volume of 3,530 million m3 of water. The impoundment of the Nakai Plateau will have an impact on forests, woodlands, and land cover in the inundation area. The inundation of the reservoir is expected to submerge 58 ha of cultivated paddies and approximately 280 ha of shifting cultivated land. Furthermore, the inundation will submerge 53 km2 of existing wetlands, scrub terrain, agricultural lands, villages, and road areas. On the other hand, a vast number of islands will be created by the reservoir, and wetlands in the area of these islands are expected to expand substantially. Furthermore, wetlands in the Northern embayments are expected to expand substantially during the wet season. 98. Arguably the most significant impact of the Plateau impoundment is the necessary relocation of approximately 75% of the population currently inhabiting the Nakai Plateau, and a significant disruption of their current livelihood systems. In October 1998, the total population of the Nakai Plateau was estimated at 1,160 households, of which 886 from 17 villages were then identified as having to be relocated (Table 18). 51 Table 18 Population of the Nakai Plateau and eligible for relocation - 1998 Total HH Total Pop. Eligible HH Name of villages Ban Oudomsouk 283 1530 94 Ban Sop Hia 54 327 54 Ban Nam Nian 16 96 16 Ban Thalang 52 265 52 Ban Nong Boua Kham 42 283 42 Ban Nakai Tai 147 730 147 Ban Nakai Neua 67 303 67 Ban Sop Phene 43 204 43 Ban Hat Khampane/Sop Ma/Kaeng Yao 47 221 47 Ban Nong Boua/Sailom/Pamanton 28 151 28 Ban Phonphanpek 85 422 0 Ban Boua Ma 53 259 53 Ban Phonsavang 25 137 25 Ban Sop on 66 382 66 Ban Done 89 655 89 Ban Khone Khen 37 202 37 Ban Ka Oy 26 153 26 Total HH 1,160 6,320 886 99. Between 1998 and 2002, the total population of the Plateau increased at an annual rate of approximately 2.2% to reach 1,244 households in 2002. An updated survey of the population to be relocated was then not conducted in 2002. However, under the assumption that this population also increased at an annual rate of 2.2% between 1998 and 2002, and that it would continue to increase at this same rate over the relocation period, then the total population to be relocated would reach 1,030 households representing approximately 5,690 individuals. As noted in Table 19, note that relocation would mainly take place over the period 2005 – 2007. 100. The resettlement area is located to the south west shore of the Nakai Reservoir. Most villages will move within a short distance of their existing location, adjacent to the reservoir. The resettlement area includes approximately 650 ha of land which will be converted to support the implementation of new livelihood options such as agriculture, livestock raising, reservoir fisheries and commercial forestry. This area is currently not intensively used by the residents of the Nakai Plateau, and is not known to be of biodiversity significance. 52 Table 19 Estimated number of households to be relocated Name of villages 1998 2003 2004 2005 2006 2007 Ban Oudomsouk 94 103 105 107 109 112 Ban Sop Hia 54 59 60 62 63 64 Ban Nam Nian 16 17 18 18 19 19 Ban Thalang 52 57 58 59 61 62 Ban Nong Boua Kham 42 46 47 48 49 50 Ban Nakai Tai 147 160 164 168 171 175 Ban Nakai Neua 67 73 75 76 78 80 Ban Sop Phene 43 47 48 49 50 51 Ban Hat Khampane/Sop Ma/Kaeng Yao 47 51 52 54 55 56 Ban Nong Boua/Sailom/Pamanton 28 311 31 32 33 33 Ban Phonphanpek 0 0 0 0 0 0 Ban Boua Ma 53 58 59 60 62 63 Ban Phonsavang 25 27 28 28 29 30 Ban Sop on 66 72 74 75 77 79 Ban Done 89 97 99 101 104 106 Ban Khone Khen 37 40 41 42 43 44 Ban Ka Oy 26 28 29 30 30 31 Total 886 967 988 1,010 1,032 1,054 Total HH Eligible per year 0 31 0 243 314 448 Total Eligible HH 1,036 Total Eligible Population 5,690 1 Indicate the timing of relocation. 101. As indicated in the RAP, an important objective of the project, via the offered livelihood options, is not only to maintain existing levels of income (currently well below the existing poverty line), but to raise these levels initially above the poverty line, and subsequently to the national average village income for rural areas.35 The project also aims to improve significantly living conditions by providing resettlers with access to improved housing, health care and education facilities and services, as well as other facilities such as domestic water, sanitation, and electricity. If all of these objectives are achieved, the project should have a significant impact on poverty alleviation for those households necessitating relocation. 102. The impact on the existing population of White Winged Ducks appears difficult to establish with certainty a priori. Though their existing habitat is going to be disturbed, this habitat is not to going to be reduced significantly. Furthermore, wetlands in the Northern embayments and the areas of the islands are going to expand significantly into forested areas in the wet season. The expansion of these forested wetlands, with appropriate management, should support an improved and larger habitat for the White 35 These will be discussed in further details in Section VI.3. 53 Winged Ducks. The project intends to implement a ‘White Winged Duck Conservation Programme’ to facilitate the preservation and support the expansion of the population of White Winged Ducks. 103. The existing two herds of elephants are located near the Nam Xot and the Nam Theun entries to the Plateau. The southern herd is not expected to be affected by the project. However, the northern herd will be affected as existing migration routes will be closed off by the reservoir, leaving the only accesses via the Nakai Dam itself and over the bridge to be constructed at Ban Thalang to carry route 8B. The establishment of the corridors between the NNT NBCA and the Pou Hin Poun NBCA and between the NNT NBCA and the Hin Nam Nor NBCA may partially mitigate these adverse impacts. The project intends to implement an ‘Elephant Conservation Programme’ to maintain and support existing population of Asian Elephants. 104. A summary of potential negative and positive impacts is presented in Table 20. Table 20 Area 3: Nakai Plateau Potential negative and positive impacts Potential positive impacts Potential negative impacts • Improved income for the resettlers; • Resettlement of approximately 5,700 people currently on the plateau; • Improved housing infrastructure, • Loss of existing economic activities, access to improved health services livelihood systems, housing, and and education, and other services infrastructure; such as domestic water, sanitation, and electricity; • Potential development of new • Loss of habitat for Asian elephants; economic opportunities such as community-based tourism; • Potential improvement of habitat to • Increase of GHG emissions from the support wildlife, and reservoir. implementation of conservation programmes; • Improved security from the removal of UXO; • Reduced GHG emissions when compared to alternative power supply (CCGT). 54 VI.3 Economic assessment 105. As indicated in Section V, it is a challenging task to provide a thorough and comprehensive economic assessment of these impacts, especially on issues to pertaining to wildlife and biodiversity. Given the nature of the project impacts, the stated objectives of the RAP and the overall importance of the livelihood programs developed by the project, we focus below mainly on quantifying the contribution of the NT2 project to poverty alleviation as the project aims to enhance significantly the livelihood of the resettlers. Indeed, the resettlement of affected villages is seen as a significant opportunity to improve income, livelihood, and food security through a range of new livelihood opportunities. We also address the important issue of greenhouse gases (GHG). Indeed, a significant (global) economic benefit of the NT2 project, when compared to thermal power alternatives of equivalent energy production, is the reduced emissions of GHG. However, these reduced emissions may be partially or totally offset by the production of GHG from the reservoir, especially during the first years of inundation as the store of organic carbon from vegetation and soil decompose. This issue is addressed in further details below. Finally, we discuss issues pertaining to recreation and tourism. However, as pointed out earlier, this discussion recognizes that the potential development of such recreational and tourism economic activities is not per se an impact of the project, but is instead an impact induced (made possible) by the NT2 project. (i) Poverty alleviation and livelihood 106. Resources of the Nakai Plateau (mainly NTFPs, trees, wildlife and fisheries) contribute a very significant proportion of the cash income and subsistence of the inhabitants of the Plateau. As indicated earlier, this income and subsistence base has been under severe pressure in recent years, and is expected to be under continued pressure in forthcoming years. CARE (1996) notes that most of the wildlife on the Plateau has been hunted out, and that NTFPs have declined significantly. Finally, declining soil fertility has been reported, and attributed to reduce fallow periods and a lack of access to dense forest. The study (CARE, 1996) concludes: “The declining resource base on the Nakai Plateau is of grave concern: If it continues unabated, livelihoods and daily lives of residents will be seriously affected.� (p. 41). 107. In order to assess the impact the project may have on poverty alleviation over the horizon of analysis, the following steps are necessary: Step 1: Estimate household income of the resettlers in 2004 based on existing surveys and information; Step 2: Construct scenarios of how household income may evolve in the absence of the project; Step 3: Assess the aggregate level of income that the Concession Agreement commits to achieve for the resettlers; 55 Step 4: Assumptions pertaining to annual growth of poverty line (household and rural villages poverty lines) over the horizon of the project. 108. Step 1. Socio-economic surveys of the inhabitants of the Nakai Plateau indicate a level of total income (cash and imputed) in 1996 and 1998 of approximately 450 USD per household (Table 21). The lack of growth between these two years is consistent with the observation of a seriously declining resource base. In 1998 and 1999, real Gross Domestic Product (GDP) grew at an average rate of approximately 4%. It then grew by approximately 5.5% a year over the period 2000-2003,36 lead mainly by the industry and service. The agricultural sector typically experiences a growth rate approximately 1 percentage point lower than the GDP growth rate. Based on these observations, we expect that average household income on the Nakai Plateau may have remained constant or slightly increased between 1998 and 2004, albeit at a rate considerably lower than the growth rate experienced by the Lao agricultural sector. For the purpose of estimating the impact of the NT2 Project on poverty alleviation, it is assumed that real household income on the Nakai Plateau increased at an annual rate of 1% between 1998 and 2004. At this rate, average total household income reaches 480 USD in 2004. When applied to the 1,035 affected households of the plateau, this represents an aggregate level of income of approximately 0.5 million USD in 2004. Table 21 Yearly cash and imputed average household income Nakai Plateau Studies Cash income Imputed income Total income CARE (1996) 257,000 205,000 462,000 Nakai Plateau (56%) (44%) RMU (1998) 828,454 1,040,406 1,868,8601 Nakai Plateau (44%) (56%) 1 The fourfold increase in income between 1996 and 1998 is mostly accounted by rapid inflation and currency depreciation. At 1996 exchange rates, the 1996 income is equivalent to approximately 460 USD. At 1998 exchange rates, the 1998 income is equivalent to approximately 450 USD. 109. Step 2. In terms of income projection in the absence of the project, we adopt similar assumptions as those of the NNT NBCA, namely that household income continues to grow at a rate of 1% per year, stabilize, or decline at a rate of 1% per year. Note that these assumptions are consistent with income growth (or the lack thereof) estimated between 1996 and 1998. 110. Step 3. Unlike the inhabitants of the NNT NBCA who are not guaranteed income targets within the context of the SEMFOP, the NT2 project is committed to ensure that resettled households of the Nakai Plateau will reach specific income targets considerably above those currently observed. These target income levels are specified as a commitment in the Concession Agreement as follows: 36 World Bank (2003b). 56 • Household Income Target means the yearly target for the income of the Resettler households, including income in cash and in kind, to be reached at the beginning of year 5 of the Resettlement Implementation Period, being for each Resettler household in the Resettlement Area, the greater of: (a) the then current National Rural Poverty Line, multiplied by the number of persons in the household; and (b) 1,420,800 Kip per person, multiplied by the number of persons in the household; (this being equivalent to USD 800 per average household in June 2002, using the exchange rate of Lao PDR Kip 9,800 = USD 1 and average household size being 5.518 persons). • Village Income Target means the yearly target for the income of the Resettler villages, including income in cash and in kind, to be reached at the end of the Resettlement Implementation Period, being for each village in the Resettlement Area, the greater of: (a) the then current Average Rural Income per Person, multiplied by the number of persons in the village; and (b) 2,131,200 Kip per person, multiplied by the number of persons in the village (this being the equivalent of USD1,200 per average household in June 2002, using the exchange rate of Lao PDR Kip 9,800 = USD 1 and the average household size being 5.518 persons). 111. Note that there remains considerable uncertainty as to the precise meaning and implications of the above commitment. In particular, there is no mention in the Concession Agreement of the household income target being reached 4 years after relocation, and the village income target being reached 7 years after relocation. The Concession Agreement clearly mentions that the household income target is to be reached four years after the start of the Resettlement Implementation Period – which is not the same as ‘4 years after relocation’ – and that the village income target is to be achieved at the end of the Resettlement Implementation Period – which is not the same as ‘7 years after relocation’.37 112. The latest version of the SDP appears to take a position which is different than the statement found in the Concession Agreement. In Chapter 25, Volume 2 of the SDP, we read: “The timing for achieving the household and village income targets will be established and set to start for each village as that year of relocation of the individual village.�38 Referring back to Table 20, this implies the following: 37 See Annex 1 for a discussion on this issue of timing for achieving income targets. 38 For example, a village relocated in 2005 would aim to achieve the household income target in 2009 and the village income target in 2012. Another village relocated in 2007 will aim to achieve the household and village income targets in 2011 and 2014, respectively. 57 • The 31 households moved in 2004 should reach the HH Income target in 2008 (4 years after relocation), and the Village Income Target in 2011 (7 years after relocation); • The 243 households moved in 2005 should reach the HH Income target in 2009 (4 years after relocation), and the Village Income Target in 2012 (7 years after relocation); • The 314 households moved in 2006 should reach the HH Income target in 2010 (4 years after relocation), and the Village Income Target in 2013 (7 years after relocation); • The 448 households moved in 2007 should reach the HH Income target in 2011 (4 years after relocation), and the Village Income Target in 2014 (7 years after relocation). 113. Step 4. In 1997, the national poverty line was set to approximately 800 USD for an average household of 5.5 persons, while the national average rural income was set at 1,240 USD for an average household of 5.5 persons.39 As indicated in Section V, the National Statistics Centre (NSC) revises this poverty line every 5 years by means of the Lao Expenditure and Consumption Survey (LECS). The most recent survey (referred to as LECS3) was conducted in 2002. The NSC has not yet released revised estimates of the national poverty line for the year 2002. However, an annual growth rate of approximately 1% per year between 1997 and 2002 appears appropriate. Assuming that this growth rate would extend to the period 2002-2004, the poverty line in 2004 would be estimated at 860 USD, and the national average rural household income at 1,330 USD. 114. We are now in a position to assess the impact of the project. Given the overall objective of poverty alleviation, we wish (as we did for the NNT NBCA) to measure the impact of the project in terms of its potential to reduce the shortfall of aggregate household income relative to the poverty line. As indicated earlier, average household income on the plateau (480 USD) falls considerably below the national poverty line (860 USD). In 2004, this represents a shortfall of approximately 380 USD per household, or approximately 0.4 million USD for the entire population of the plateau affected by the project (resettlers). 115. The scenario without project is thus the following: Scenario without project: • Income growth: Continues recent growth of 1% per year; Remains stable; Falls by 1% per year; 39 Government of Lao PDR, National Statistics Centre. 58 • National poverty line: Increases by 1% per year. 116. Given the above assumptions, without the NT2 project, the present value of aggregate level of income of those households affected by the project ranges between 4.3 and 5.1 million USD. If the level of income of the household of the Plateau were to be equal to the poverty line, aggregate income would be approximately 9.1 million USD. Their existing and expected level of income thus represents a shortfall between 4.0 and 4.8 million USD relative to the poverty line. 117. The scenario with project is the following: Scenario with project: • Income growth: Achievements of income targets as described in the SDP; • National poverty line: Increases by 1% per year; • National average rural household income: Increases by 1% per year. 118. In order to estimate the impact of the project on aggregate income level, we need to account for the fact that different households will be relocated at different points in time (as shown in Table 20 above). We also need to account for the fact that the poverty lines (household and village) depend on household size. Assume the following: • Up to the specific year when a household is moved (2005, 2006 or 2007), household income is the same as it would be without the project; • From the moment of relocation, the household income first increases linearly up to the target income level to be achieved 4 years after relocation (household poverty line), and then continue to increase linearly until it reaches the target income level to be achieved 7 years after relocation (national average rural household income). From that point on, income stabilizes at the income targets then achieved;40 • As indicated in Figure 6, the distribution of household size approximates relatively well a normal distribution around the mean of 5.5. We will thus use the poverty line and the national average rural household income as it applies to the average household size of 5.5. 40 This will lead us to under-estimate the impact of the project. 59 Figure 6 Distribution of household sizes on Nakai Plateau, 1998 140 120 Number of Households 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Household size 119. Given the above assumptions, the aggregate level of income of the resettlers reaches 9.9 millions USD in present value terms, approximately twice the aggregate level of income that would be reached without the project. This level of income is also slightly higher than what would be the present value of aggregate income were all households immediately to reach the poverty line (9.1 million USD). There is no doubt that the project may very significantly contribute to poverty alleviation: in the aggregate, the project completely alleviates poverty for those households that must be relocated. 120. It should further be noted that the above assessment strictly focuses on the impact of the project on income and livelihood. It does not separately include benefits associated with access to improved health and education services, as well as improved housing facilities, infrastructure, domestic water, sanitation, and electricity which are all different components of the multi-dimensional nature of poverty. 121. It is of importance to note that the above assessment depends crucially on the various livelihood programs reaching their intended objectives and targets. While the project remains confident of achieving these income targets, there nonetheless remains a risk (within or outside the control of the project) that these targets may not be achieved (for example, fish yield from the reservoir may not achieve existing expectations). In this analysis, we have not assessed independently the risks associated with each component of the livelihood programs. Despite these risks, the project remains nonetheless committed to achieving these income targets, as is specified in the Concession Agreement itself. 60 (ii) Greenhouse gases 122. Insofar as the emission of greenhouse gases is concerned, the project has two opposite impacts. On one hand, the production of hydropower energy avoids the emissions of GHG that would be produced were the quantity of energy be produced with thermal power alternatives. On the other hand, following the inundation of the Nakai Plateau and the creation of the reservoir, the stock of organic carbon from the vegetation and soil will decompose and result in the production of carbon dioxide (CO2) and methane (CH4). We address sequentially these two issues below. 123. Hydro vs. thermal power alternatives. The annual energy production of the NT2 project is estimated at 5,354 GWh. The thermal power alternative against which the NT2 project is compared in the economic analysis of the project is the combined cycle gas turbine (CCGT) of a similar production capacity. EGAT currently uses a conversion factor of 7,000 of Btu/kWh, or alternatively 7,000 mmbtu/GWh (this factor represents the average energy input to the generation process for a natural gas utility plant in Thailand). Given the energy production of 5,354 GWh, the NT2 project would thus avoid approximately 37.5 mmbtu of natural gas per year. 124. The United States Department of Energy (US DOE) estimates the emissions of 0.01447 ton of carbon per mmbtu of natural gas. Given the ratio of 3.667 tons of CO2 per ton of carbon, the NT2 project would thus avoid annually the emissions of approximately 2 millions tons of CO2, or 50 millions tons over the project horizon of analysis.41 At a price of 3 USD per ton of CO2 (which is approximately equal the price of carbon previously used in Section V), the annual global benefits of this avoided emissions amount to approximately 6 millions USD. Over the horizon of the Concession Agreement, this represents a present value of approximately 34 millions USD. 125. Reservoir emissions. To this date, one study (Delmas et al., 2001) has attempted to estimate the potential emissions of GHG from the Nakai Reservoir. This study uses estimated emissions from the Petit-Saut Reservoir in French Guyana (said to share similar characteristics as the Nakai Reservoir), and extrapolates the information to assess potential emissions from the Nakai Reservoir, accounting principally for differences in carbon stock in the biomass of the reservoir. 126. The total amount of organic matter potentially submitted to decomposition was estimated to be 110 tons of carbon per ha (compared to 260 tons of carbon per ha at Petit Saut; this reflects the fact that the biomass of the Nakai Plateau has been considerably depleted over recent years). Given the reservoir area of 450 km2 at full supply, the total carbon stock in the biomass of the Nakai Reservoir was estimated to be 5 million tons. 41 Note that this number is significantly lower than the estimate (approximately 400 millions tons) presented in Annex Y of the EAMP (Estimate of Greenhouse Emissions from the NT2 Hydroelectric Proejct – Nam Theun 2 Reservoir Compared to Emissions from Thermal Power Alternatives). The estimate presented in the EAMP originates from Delmas et al. (2001). Note however that a higher estimate of avoided CO2 emissions would simply increase the benefits of the NT2 project when compared to the thermal power alternative. 61 Accounting for the emissions of methane especially in the early years of inundation,42 the study estimates the emissions of approximately 30 millions tons of equivalent CO2 over a 100 year time-scale. 127. While this estimate of equivalent CO2 emissions is significantly lower than the avoided emissions of 50 millions tons presented earlier, it must be noted that while the avoided emissions (compared to CCGT) takes places uniformally over a period of 25 years starting in 2009 (at a rate of approximately 2 million tons per year), a significant proportion of the release of total CO2 equivalent from the reservoir would take place in the first few years of inundation. However, there is currently no estimate of what this rate of release may be over the time horizon of the existing analysis and of what it may be over the first years of inundation. We thus construct a number of scenarios simply to assess the likelihood that releases of CO2 emissions from the Reservoir may offset (in present value terms) the benefits of avoided emissions from the project (when compared to CCGT). 128. Assume that impoundment of the Reservoir takes place in 2008, one year before the expected start of operation of the power station. Insofar as emissions release is concerned, consider the following scenarios: Table 22 Scenarios for equivalent CO2 release from reservoir First 10 years Next 90 years % Qty (m) % Qty (m) Scenario 1 40 12 60 18 Scenario 2 50 15 50 15 Scenario 3 60 18 40 12 Scenario 4 70 21 30 9 Further assume the following rates of release over the first 10 years of impoundment:43 Table 23 Release rates per year Period Assumed rate of release 2008-2011 15% per year 2012-2013 10% per year 2014 8% 2015 6% 2016 4% 2017 2% 42 Methane is approximately 20 times more potent (per mole) as a GHG than CO2. 43 For example, under scenario 1, 15% of 12 million tons would be released for each year between 2008 and 2011, inclusively. 62 Finally, for the remaining 90 years, assume a uniform yearly release rate.44 129. As shown in Table 24 below, under such scenarios, the global economic benefits of NT2 project from avoided emissions (compared to CCGT) may be offset by the estimated costs of GHG release from the Reservoir. Table 24 NT2 project and GHG emissions Present value (million USD) 1. Present value NT2 vs. CCGT: 34 2. Reservoir emissions Scenario 1 Scenario 2 Scenario 3 Scenario 4 18 22 26 30 3. Net 16 12 8 4 130. As indicated earlier, there currently is no possibility to assess which of the above scenarios may be more likely. However, the above assessment does demonstrate that insofar as GHG emissions are concerned, the extent of global benefits enabled by the project is extremely sensitive to what would be the actual release of GHG from the reservoir: More emissions released in earlier years following impoundment reduces the net benefits of the project insofar as GHG are concerned. Note that the above assessment also relies extensively on the following two estimates: (1) the total stock of carbon in the biomass of the Nakai Reservoir; and (2) estimates of GHG from the alternative CCGT. A biomass study is currently being completed and should address the first of these issues. It was pointed out earlier that our estimates of avoided CO2 emissions from the project (compared to CCGT) differs very significantly from the estimates presented in Delmas et al. (2001). This issue will be resolved once the original Delmas et al. study will be made available. (iii) Recreation and community-based tourism45 131. It is argued that there is a considerable potential for tourism based on both the natural and cultural features of the Nakai Plateau and the NNT NBCA. However, this potential has not yet been realized mainly due to the lack of infrastructure (roads, accommodation, access, etc.). As pointed out in the SEMFOP, the NT2 project may overcome some of the constraints by improving access to the area of the plateau. In addition, it is expected that the presence of a large reservoir could provide a very significant potential for tourism, and water-based recreational activities. 132. Tourism in Lao PDR has become an important and fast-growing sector which contributes significantly to the socio-economic development. Tourism ranks as one of 44 For example, under Scenario 1, the annual release rate for each year following the first 10 years would be 18 (million tons) / 90 (year). 45 See Laplante and Thechalicha (2003) for more details. 63 the top foreign currency earners; in 2000 the industry ranked first in foreign currency revenue generation. In 2001, revenue from tourism reached almost US$104 million, with an average growth rate of 46.68% and a total of more than 670,000 tourist arrivals. The National Tourism Development Plan for Lao PDR prepared with support from UNDP gives estimated potential net annual foreign exchange earnings of US$500 million by the year 2013 (NTA, 2001). Official tourism statistics for Lao PDR give the number of tourist arrivals in 2001 at 674,000, generating revenues of US$104 million. For the first six-months of 2002, tourist arrivals stand at 388,600 – with a 21% change compared to the same period in 2001. This trend suggests that tourism in Lao PDR will continue to grow, albeit perhaps at a lower rate. 133. Given the country rich natural attractions with relatively large forested areas and biodiversity, Lao PDR possesses a significant potential for eco-tourism and community- based tourism. It is reported that up to 70% of tourists to Lao PDR express an interest in nature, and the Government has established broad guidelines for the development of ecotourism in Lao PDR. In particular, ecotourism can be promoted to the destinations of many of the National Biodiversity Conservations Areas, which covers 12.5% of the country. As it is reported in the Protected Area System in Lao PDR: Country Status Report – 199946: “Government policy now aims to promote greater use of protected areas. Although lacking major wildlife spectacles, many of the protected areas in Lao offer outstanding scenic and forest attractions, combined with rich cultural traditions and great ethnic diversity.� 134. Several initiatives and some development have already been undertaken for eco- tourism destinations into a number of the NBCAs such as Dong Hua Sao, Nam Kan/Nam Nga, Nam Ha, Phou Hin Poun, Phou Khao Khouay, Phou Xang He and Xe Pian NBCAs. Eco-tourism has already generated some initial income meaningful to both the conservation of natural resources (especially NBCA management) and a contribution to local economy. Thus, in Nam Ha NBCA, for example, tourism earnings for the first quarter of 2001 generated income worth 1,600 USD for local villages, more than 3,000 USD for local food sellers, guides and transporters, almost 400 USD for the NBCA Authority and over 300 USD for the Provincial Tourism Office. For the period August 2001 – July 2002, the Nam Ha Ecoguide Service is said to have generated approximately 40 000 USD of which 50% were considered direct benefits to the local communities (Figure 7). Elsewhere in the country, eco-tourism operation has started to gain momentum in exploring the potential. A survey conducted in Savannakhet Province shows that 59% of tourist state willingness to spend between $5 and 10 USD per day ecotourism experience (Craig and Soungnawongsa, 2000). 46 Southammakoth, S., Department of Forestry, Ministry of Agriculture and Forestry. Paper presented at the 2nd Southeast Asia Regional Forum of the World Commission on Protected Areas in 1999. Pakse, Lao PDR. IUCN Lao PDR 2000, pp. 45-54. 64 Figure 7 Distribution of Financial Benefits Generated by the Nam Ha Ecoguide Service Total Financial Benefits 2001 - 2002* 4% 5% 20% Tourism Office Monitoring Fee 4% NPA Permits 5% Guides,Food,Transport, Accommodation 54% Direct Benefits to Local People 2001 - 2002 National Taxes 2% 15% 10% 5% 3% Guide Office & Other Village Operational Costs 15% 54% Accommodation Village & Ecotourism Village-based 2% Development Fund 20% Guides 23% Town-based guides Transport Total: US$ 39,173 42% 17% Food Purchased in Village Food Purchased from town * August 2001 - July 2002 Total: US$ 21,153 135. Given the almost complete absence of eco-tourism or community-based tourism in the area of the existing Plateau and NNT NBCA, it remains extremely difficult to assess the potential for the development of such activities for the Reservoir and the NNT NBCA. On one hand, the project area remains at a considerable distance from Vientiane and may appeal only to a small percentage of tourists to Lao PDR. On the other hand, there are a very limited number of large water surfaces in Lao PDR. Furthermore, the presence of wetlands and islands along the possibility of wildlife observation may support nature-based tourism of high quality. Finally, the close presence of Savannakhet (2nd largest urban centre of Lao PDR) may support tourism activities. 136. Simply for purposes of illustration, consider the Nam Ha experience which is said to have generated 40,000 USD of benefits over the period 2001/2002. Assume that community-based tourism on the Reservoir and NNT NBCA would generate a similar level of benefits in 2010, one year after the impoundment of the Plateau (thus ignoring any tourism growth between now and 2010), and would then grow at an annual rate of 10%. Under such assumptions, the present value of tourism benefits would amount to approximately 0.5 million USD, an additional 10% increase above and beyond the contribution of the livelihood programs to poverty alleviation for the resettlers. 137. While recreation and community-based tourism are activities that may develop and be a source of income to the resettlers and to some (small) extent to the inhabitants 65 NNT NBCA, this positive development would not be considered as a direct impact of the project, but instead as an impact induced (made possible) by the project and the creation of the Reservoir. (iv) Summary 138. Arguably the most significant impact of the project pertains to the relocation of more than 1,000 households accounting for in excess of 5,600 individuals. This analysis shows that the project will significantly contribute to poverty alleviation for the resettlers by doubling the expected present value of aggregate income (from 5 to 10 million USD), and by completely alleviating poverty of these resettlers (as measured against Lao poverty line). The project will further significantly increase access to improved health care and education facilities, water supply, sanitation, and electricity. Thus, if the livelihood programs effectively deliver intended income targets and service delivery objectives, the livelihood of the resettlers is expected to improve very significantly over conditions that would assume to exist in the absence of the project. 139. The project is expected to reduce emissions of GHG by approximately 20 million tons over the horizon of the analysis (avoided emissions of 50 million tons compared to CCGT minus 30 millions tons of emissions from the reservoir). However, given the significantly different timing of these events (a bulk of the emissions from the reservoir will take place early on following impoundment), the present value of these benefits may or may not be positive. Current information on the dynamics of reservoir emissions does not allow to precisely point out which scenario is more likely to realize. In addition to the above uncertainty, a study is currently under way to provide a better estimate of the total carbon stock on the Nakai Plateau. 140. Finally, insofar as wildlife and biodiversity is concerned, existing information does not support the notion that the impacted area (Plateau and resettlement area) is of high biodiversity value. This results from the very intensive harvesting, hunting, and logging activities that have taken place over the last 10 to 15 years. The White Winged Ducks may benefit from the project insofar as the impoundment of the Plateau leads to an expansion of forested wetlands. The habitat of the Asian Elephants is expected to be adversely impacted by the project, though not to the point of threatening the viability of the elephants in the area. For both of these species, conservation programs will be put in place to facilitate their adaptation to the new environment. 66 Table 25 Area 3: Nakai Plateau Summary of project impacts and activities Project potential impacts Assessment Project activities Positive impacts • Poverty alleviation; • Double the present value of income • In present value terms, the (from 5 to 10 millions USD) of project will invest a total resettlers; completely eliminate of approximately 21 poverty (measured against Lao million USD to poverty line) of resettlers; implement the plateau / reservoir resettlement activities; • Health and education; • Qualitative assessment; Improved health facilities and better education opportunities; • Domestic water, sanitation, • Qualitative assessment: Improved electricity; access to domestic water supply, sanitation, and electricity; • Reduction in GHG emissions: • Estimated present value of global Hydro vs. CCGT; economic benefits: 34 millions USD; • Potential habitat • Qualitative assessment: Habitat for • Conservation program will improvement for White- White Winged Ducks may improve be initiated. Winged Ducks; as a result of expansion of forested wetlands. Negative impacts • Increased emissions of GHG • Estimated present value of costs: 26 from reservoir. to 44 million USD; • Loss of habitat for Asian • Qualitative assessment; Loss of area • Conservation program will elephants; generally not believed to be critical be initiated. to the survival of the local population of Asian elephants; • Loss of other habitat and • Qualitative assessment; Area of the biodiversity. Plateau to be impacted by both impoundment and by resettlement is not considered of high biodiversity value (considering species richness, degree of endemism, rarity, vulnerability, and representativeness of component species. Project induced impact • Recreation and community- • Estimated present value may range • Necessary investment not based tourism. in the order of 0.5 million USD. in project budget costs. This would appear to be a conservative estimate. 67 VII. Area 4: Xe Bang Fai VII.1 Area description47 141. As indicated in Figure 8, water from the reservoir will drop to the power station located at the base of the Nakai Plateau. The water discharged from the power station will then flow into a regulating pond and from there to the Xe Bang Fai River (henceforth XBF) via a 27 km long channel. The electricity generated for sale to Thailand will be delivered via a 138 km long, 500 kV transmission line. A 70 km long 115 kV transmission line will deliver electricity from the power station to Thakhek for connection to the EDL system. Figure 8 Area 4: Xe Bang Fai Reservoir Power house Nam Katang Regulating Pond Channel 27 km Xe Bang Fai Mahaxai 70 km 115 kV line 138 km 500 kV Mekong River 142. As indicated in Table 26, 89 villages are located along the XBF, comprising 42,500 individuals in 2001. These villages will be potentially affected (both positively and negatively) by the project. Assuming a population growth rate of 2.2%, then a total of 8.445 households accounting for approximately 50,000 individuals could potentially affected at the time of commissioning of the power station in 2009. 47 See NTPC (2004b) for more details. 68 Table 26 Affected households and population along the XBF 2001 2009 Total Total Total Total HH Pop. HH Pop. Upstream of Upper XBF: 12 villages 537 3222 639 3,835 Upper XBF: 12 villages 852 5112 1,014 6,084 Middle XBF: 12 villages 704 4224 838 5,027 Lower XBF: 53 villages 5003 30018 5,954 35,726 Total XBF 7096 42576 8,445 50,672 143. In addition to the households located along the XBF, approximately 1,000 households are estimated to reside along the downstream channel, and approximately 1,500 households are estimated to reside along the Nam Kathan, representing approximately 5,500 and 8,200 individuals respectively. Finally, a survey conducted in 2004 identified 66 villages not located along the XBF itself but nonetheless using the XBF for fishing and collection of aquatic products. These 66 villages comprise 42,450 individuals of which 3,350 have indicated fishing in the XBF. 144. The level of total income (cash and imputed) of the villages varies significantly along the XBF (Table 27). In 2001, it reached a maximum of 842 USD per household located along the upper XBF, and a minimum of 553 USD for those households located upstream of the upper XBF. Approximately 65% of the households are poor. 145. The most important source of livelihood is agriculture (up to 43% of total income in the lower XBF) of which rice represents the most important crop. The total area of developed paddy in the 89 villages of the XBF is approximately 14,120 ha of which 10,536 ha are used for wet season paddy, and 5,306 ha for dry season paddy. 10 villages (representing a total area of developed paddy of approximately 482 ha – or 3.5% of total paddy area) do not appear to pump water to irrigate their fields,48 while another 16 villages (representing a total area of developed paddy of approximately 1,202 ha – or 8.5% of total paddy area) are using diesel pumps. Diesel pumps appear particularly used in the middle XBF where 58% of the paddy land (660 ha out of a total of 1,139 ha) is serviced with diesel pumps. A number of these villages do not grow dry season rice as diesel fuel is too expensive. 48 Though some of these villages may grow rice in areas serviced by a pump located in another village. 69 Table 27 Level and sources of income along the XBF Upstream of Upper XBF (based on 120 surveys) KIP USD (USD 1 = 9,200 kip) Total Surveyed Average HH Total Surveyed Average HH Income Income Income Income Agricultural Products 209,408,408 1,745,070 22,762 190 Fish 81,799,000 681,658 8,891 74 Livestock & wildlife 42,100,000 350,833 4,576 38 Others 276,860,000 2,307,167 30,093 251 Total Income 610,167,408 5,084,728 14,738 553 Upper XBF (based on 240 surveys) Agricultural Products 323,584,520 1,348,269 35,172 147 Fish 426,271,800 1,776,133 46,334 193 Livestock & wildlife 134,300,000 559,583 14,598 61 Others 974,988,300 4,062,451 105,977 442 Total Income 1,859,144,620 7,746,436 22,453 842 Middle XBF (based on 180 surveys) Agricultural Products 241,633,176 1,342,407 26,264 146 Fish 178,139,200 989,662 19,363 108 Livestock & wildlife 94,033,000 522,406 10,221 57 Others 327,315,208 1,818,418 35,578 198 Total Income 841,120,584 4,672,892 13,545 508 Lower XBF (based on 795 surveys) Agricultural Products 2,140,026,126 2,691,857 232,612 293 Fish 741,566,836 932,788 80,605 101 Livestock & wildlife 407,863,000 513,035 44,333 56 Others 1,652,659,280 2,078,817 179,637 226 Total Income 4,942,115,242 6,216,497 18,019 676 Source: SDP, Chapter 30. 146. Fisheries represent between 13% (upstream upper XBF) and 23% of income (upper XBF). According to the 2001 XBF Survey, the average annual fish catch would amount to approximately 400 kg per household or 2.8 million kg (given the 7,096 households located along the XBF), or 320 USD per household per year (assuming an average return of 0.8 USD per kg). 147. A significant percentage of households (approximately 30%) located along the XBF grow crops and vegetables in riverbank plots during the dry season. Riverside crop fields and vegetable gardens would appear to cover an area of approximately 316 ha and 18 ha respectively. Livestock and animal husbandry represent another (though significantly smaller) source of income and livelihood. On average, a household raises 2 or 3 heads of cattle, 1 pig, and approximately 10 chickens. 70 148. Water from the XBF represents the most important source of domestic water (drinking, cooking, bathing, dish and clothes washing, and gardening), especially in the dry season, where it represents approximately 63% of domestic water. Rainwater in the wet season also represents a significant source of domestic water supply, especially for drinking and cooking purposes. Changes in water flow and quality in the XBF may thus have a significant impact on domestic water supply. VII.2 Expected impacts 149. The XBF currently experiences wide variation in water flow from a mean monthly flow (at Mahaixai) of 13 m3/s in the dry season month to 800 m3/s in the wet season. The project will discharge an annual average of 220 m3/s into the XBF, and reach a maximum discharge of 330 m3/s. Hence, water flow in the XBF will be considerably increased in the dry season month. This will induce an increase in the water level of the XBF ranging from 3.5 meters up to 5 meters in the upper XBF, and from 3.5 to 0.2 from the middle to the lower XBF. During the wet season, the project will increase the natural flow of the river from an average 800 m3/s to approximately 1,100 m3/s. This will translate into an increase in water level of approximately 1.3 meters. Flooding at Mahaxai occurs at a flow of approximately 2,200 m3/s. Figure 9 Flow in XBF at Mahaxai 1200 1000 800 m3 / s Without NT2 600 With NT2 400 200 0 v b l ct g p ay ar n n r ec Ju Ap No Fe Au Se Ja Ju O M M D Source: ADB (2004) 150. The increased flow of water and the fluctuation in water levels during the week (from week days to weekends – when discharge is going to be reduced) will increase the erosion rate of riverbanks along the XBF. While this effect may be temporary and last until a new cross sectional equilibrium the erosion of riverbanks will result in both the 71 potential of assets along the riverbanks (such as riverbank gardens and other infrastructure assets), and a reduction in water quality as the concentration of suspended solids in the river will significantly increase. The concentration of suspended solids is expected to increase from an average 45 to 70 mg/l to a predicted level from 90 to 95 mg/l, approximately a twofold increase. This increase in the concentration of suspended solids is expected to have significant impacts on fish productivity in the XBF. 151. The downstream impacts in the XBF basin, its tributaries and adjacent seasonally flooded lands thus result largely from a much higher average annual flow of water into the XBF, a poorer water quality (especially in the first few years after the commencement of commercial operations), and a permanently lower water temperature especially in the upper XBF. 152. The area of the Lower XBF consists of flat plains which are to some extent flooded almost every year. The flooding can be significant with up to approximately 30,000 to 45,000 ha of land covered with 1 to 3 meters of water. While flooding can result in damage to agricultural crops, it is also of importance for fish productivity. 153. A summary of the expected impacts of the project is presented in Table 28. Table 28 Area 4: Xe Bang Fai Potential negative and positive impacts Potential positive impacts Potential negative impacts • Improved access to health facilities • Fisheries within the mainstream XBF through the Regional Health and adjacent wetlands and tributaries, Program; including the Nam Katang; • Improved road infrastructure; • Loss of rice yield caused by increased flooding in the lower XBF; • Reduction in pumping costs (due to • Submergence of riverbank gardens; larger quantity and higher level of water); • Increased potential for irrigated • Physical assets threatened by erosion; agriculture; • Improved river navigation, • Irrigation infrastructure (such as especially in the dry season; pumps); • Increased quantity of domestic • Disruption of access across XBF; water supply, especially in the dry season; • Increased supply of electricity. • Reduced quality of domestic water supply. 72 VII.3 Economic assessment 154. In this section, we aim to provide an economic assessment of these identified impacts based on the existing information. At the outset, it should be noted that the project has planned and budgeted mitigation and compensation activities for all known negative impacts. For each identified negative impact we thus discuss both the estimated economic losses (when possible), and the existing mitigation activities. A study (Lower XBF Hydrology study) is currently under way to assess the potential impact of the project on flooding patterns and characteristics in the lower XBF. We must await the results from this study to assess the potential economic impact of such changes on floodplain fisheries and agricultural productivity. In addition, a survey is currently under way to register buildings and other fixed infrastructure up to 20 meters from the river edge. The precise nature and number of such assets that may need to be relocated is unknown at this point in time. Finally, it must be noted that a number of potentially positive impacts of the project (such as the increased potential for irrigated agriculture) are not direct impacts of the project, but are rather induced impacts from the project. (A) Potential Negative Impacts (i) Fisheries49 (i.1) Losses 155. Extensive discussion between World Bank and NTPC fisheries analysts have resulted in an estimation of total loss of fisheries in the range of approximately 730,000 kg per year, with a value of approximately 700,000 USD. This loss includes losses in the XBF mainstream as well as wetlands and tributaries. This loss also includes the estimated loss of fisheries from those (66) villages not located along the XBF but traveling to the XBF for fisheries purposes. Assuming these losses are incurred at the time of commissioning of the power dam, and every year thereafter, the present value of these losses amount to approximately 4 million USD. (i.2) Mitigation Plan 156. The mitigation plan agreed by all parties is essentially based on (1) the integration of fish culture in paddy fields, and (2) pond fish culture development in irrigated and non-irrigated areas. Under this strategy, affected households would select among a number of alternative options, including: • integrating fish culture in irrigated rice paddies (about 5,250 ha available); • developing new fish ponds (3.5 tons of fish/hectare/year) in irrigated areas; • adding irrigation for new integrated rice-fish culture with 10% of the area for fish ponds in non-irrigated paddy areas (about 10,500 ha available); • adding irrigation for new integrated rice-fish in non-irrigated paddy areas; and 49 This section relies extensively on work undertaken by Mr. Ron Zweig (World Bank) in collaboration with Roel Schouten, NTPC's fisheries consultant. 73 • other potential options (e.g., vegetables, animal husbandry, etc.). 157. The overall cost of the mitigation plan has been estimated to range in the order of 10 million USD. Discussions are still under way to identify an appropriate implementation plan, which would allow sufficient time for the program to be effective and running at the time of commissioning of the power station. Recent discussions suggest an implementation plan as presented in Table 30. In present value terms, the mitigation plan presented in Table 29 amounts to 5 million USD, more or less equivalent to the estimated loss of fisheries. Table 29 Possible implementation of fisheries mitigation plan Year Investment (million USD) 2005 0.25 2006 0.5 2007 1 2008 1.5 2009 1.5 2010 2 2011 2 (ii) Riverbank gardens (ii.1) Losses 158. As indicated earlier, various types of crops and gardens are currently grown on the banks of the XBF. These gardens will be affected by both the higher level of water (which will effectively flood located at the lower levels of the riverbank), and by the erosion of the riverbank. These impacts will be significantly higher in the upper XBF where the impact of the water on water flow and level is expected to be larger. A survey conducted in 2004 identified 316 ha of crop fields and 18 ha of vegetable gardens along the XBF. Given the different location of these fields and gardens, it is expected that approximately 200 ha of crop fields and 15 ha of vegetable gardens would be lost as a result of the project. Assuming an annual income from riverbank fields and gardens ranging between 200 and 500 USD per ha per year, the present value of the loss of income resulting from the adverse impact on riverbank gardens would range between 0.25 and 0.6 million USD. (ii.2) Mitigation Plan 159. The project anticipates the development costs of alternative garden areas to range between 2,000 and 2,500 USD per ha (RAP, December 2003). Given the 215 ha being impacted, the replacement costs would thus range between 0.43 and 0.53 million USD. At the current time, NTPC plans to implement a riverbank garden replacement program costing 350,000 USD. This amount would appear to be not sufficient for the purpose of 74 replacing riverbank gardens. Assuming that the mitigation plan is implemented two years before commissioning in two equal portions (as is currently recommended), in present value terms, the mitigation plan amounts to approximately 0.3 million USD. (iii) Loss of rice yield (iii.1) Losses 160. The recently completed Lower Xe Bang Fai Hydrology Study reveals that approximately 5,000 ha may be seriously affected, and that another 2,500 ha will also be significantly affected by longer and deeper flooding. The project has not provided a comprehensive analysis of the existing use of the above impacted areas, and of how farmers’ behavior may be altered as a result of the additional flooding. Given this insufficiency of information, it remains difficult to provide a detailed and reliable estimate of the potential loss that may result from the additional flooding. It may be expected that farmers would take a chance and plant each year in these areas, if there is any possibility of a crop since there is significantly lower cost without water pumping charges. Furthermore, the losses, if any, would almost certainly pertain only to the wet season crop. Dry season yields should be unaffected. Furthermore, since most of the area is served by electric irrigation pumps, the dry season crop(s) should be secure and somewhat more profitable with lower pumping costs due to the higher level of water in the XBF. 161. Assume that the wet season rice yield is approximately 3.5 tons/ha, and yields a gross income of about 350 USD per ha. Assume further a production cost of approximately 130 USD per ha for the wet season. The loss in net income would thus reach approximately 220 USD per ha per year for each hectare of cultivated land that would be lost as a result of the flooding. 162. In order to assess the incremental loss of crop yield that may occur as a result of the additional flooding brought upon by the project, one would need to know the existing average yearly loss (without project), and estimate the expected incremental yearly loss with the project. Unfortunately, existing average crop loss is not known. For purposes of the existing calculation, assume that the expected loss of crop yield increases from 30% to 50% on average for all of the 7,500 ha expected to suffer from additional flooding. This would involve 1,500 ha of incremental crop loss which would represent a loss of livelihood of approximately 350 000 USD per year. Assume that such losses would begin to be incurred on the first year of operation (2009), these losses would amount to approximately 2 million USD in present value terms. (iii.2) Mitigation Plan 163. The project has not undertaken a detailed analysis of programs that may be implemented to compensate or mitigate such losses. One approach would be to offer impacted farmers a mitigation program similar to the program designed to mitigate fisheries losses. Alternatively, it may be possible to raise the embankments by 75 approximately 0.5 m at the highest on both sides of the river in the lower XBF with the need declining as the lower XBF approaches the Mekong River. If this option appears of interest, there will be a need to analyze this option in further details to assess its technical and financial feasibility. A very rough estimate of 0.8 million USD has thus far been assessed, but needs to be confirmed through an actual survey and feasibility analysis. (iv) Physical assets (iv.1) Losses 164. A survey is currently under way to register buildings and other fixed infrastructure up to 20 meters from the river edge. The precise nature and number of such assets, such as houses, shops, bars, pavilions and temples located within this distance of the river is currently unknown. (iv.2) Mitigation Plan 165. Insofar as physical assets are concerned, the project’s mitigation plan includes two components: • In cases of assets which have cultural or community value, or for stretches of the river with a high density of fixed assets, the project will undertake riverbank protection; • In other cases and where relocation is feasible, the project will undertake the relocation of these assets. 166. The project has allocated a budget of 400,000 USD for riverbank protection and 250,000 USD for the relocation of assets, with a purpose of completely mitigating or preventing this adverse affect. (v) Irrigation infrastructure (v.1) Losses 167. There is a maximum of 19 pump irrigation systems which may be impacted by the erosion of the riverbank. (v.2) Mitigation Plan 168. The project will ensure the protection of the supply pipe footings and/or reestablishments of the supply pipeline, and completely mitigate this adverse effect. The project has allocated a budget 0.05 million USD for this purpose. 76 (vi) Access across rivers (vi.1) Losses 169. While boating along or across the XBF may be facilitated in the dry season, some existing crossing facilities (such as bamboo bridges) will become impossible due to the increased and higher water flow. (vi.2) Mitigation Plan 170. The project will ensure that alternative crossing facilities are made available at appropriate locations along the XBF. The project has allocated a budget 0.2 million USD for this purpose, and adverse effects should for the most part be mitigated. (vii) Domestic water supply (vii.1) Losses 171. As indicated earlier, water quality may be adversely impacted in the initial years following the commissioning of the power station. Since the XBF represents the most important source of domestic water supply, this may have an adverse affect on such uses. (vii.2) Mitigation Plan 172. The project will ensure that all impacted households have access to alternative sources of water supply, including the construction of bores and wells. The project has allocated a budget 0.12 million USD for this purpose, and any adverse effects related to a lack of access to the water of the XBF should be mitigated. It should be noted here that this indicative budget has been estimated by NTPC on the basis of a population of 7,096 in 2001. At the time of the commissioning of the dam, the expected population along the XBF is then expected to reach above 8,500. It is therefore likely that the above budget will not prove sufficient to implement this mitigation plan and will have to be revised accordingly. (B) Potential Positive Induced Impacts 173. As a result of the water transfer from the Nam Theun River to the XBF, the project will have two important and identifiable impacts for those households located along the XBF, and potentially the Nam Katang and the downstream channel. These impacts while not being direct project impacts, are impacts that are induced or facilitated by the project, and deserve discussion. (i) Reduction in pumping costs 174. As a result of the higher water level in the XBF, pumping costs are expected to decrease significantly. Estimates presented in the SDP suggests savings of approximately 77 50,000 USD per hear (SDP, Chapter 14). If this were to be the case, such savings would represent a total savings (in present value terms) of approximately 0.3 million USD over the life time of the Concession Agreement. (ii) Irrigated agriculture 175. The additional 7,000 million cubic meters available along the XBF, the Nam Katang, and the downstream channel offers a significant additional potential for irrigated agriculture, especially in the dry season where the certainty of a supply source has great value. Earlier studies have suggested that approximately 1,000 ha along the upper and middle reaches of the XBF have potential for irrigation, while another 4,000 to 5,000 ha offers such potential in the lower XBF. This assessment does not include the potential for irrigated agriculture along the Nam Katang. 176. The World Bank is currently examining the potential for a rural development project which, in particular, would aim to capture such opportunity. As this project is only in very early phases of consideration, estimates of potential returns do not currently exist. However, based on the same numbers that have been used to assess the fisheries mitigation plan along the XBF, we may be able to provide some indications of the potential benefits of increased irrigated agriculture along the XBF. 177. Assume an average yield of 3.5 tons of rice per ha per crop. At an average price of 0.10 USD / kg, this yields an income of approximately 350 USD per ha per crop. Production costs are estimated at approximately 130 USD per ha per crop (fertilizer: 70 USD; ploughing: 30; and electricity: 30), thus offering a net return of approximately 220 USD per ha per crop.50 If the potential area for irrigation ranges between 4,000 and 6,000 ha, this would represent an annual net income of approximately 0.88 to 1.32 million dollars. Assuming this potential is captured in the year of commissioning of the power station, this would represent a present value of income ranging between 5.2 and 7.5 million USD. While such calculations do not include any investment costs, and certainly deserve more careful attention, it does indicate that the increased potential for irrigated agriculture may represent a very significant induced impact of the project. (iii) Electricity 178. The project will allow the provision of 20 MW of power to the local grid. This additional electricity will increase the quantity and reliability of the existing power supply in the XBF region. The economic benefit of this additional electricity is accounted for in the economic analysis of the project. (C) Summary 179. If the activities described in the SDP are delivered and are effective as currently expected, this analysis shows that all known potential adverse impacts of the project will 50 Similar estimates have been used to provide a cost estimate of the mitigation plan for fisheries losses along the XBF. 78 be for the most part if not completely mitigated or compensated for. The largest of these adverse impacts pertain to the loss of fisheries income with losses estimated at approximately 0.7 million USD per year. The mitigation plan developed jointly by the World Bank and NTPC is expected to completely mitigate these losses, leaving households of the XBF at least as well off as without the project. 180. It has also been shown that the project offers the potential for large positive induced impacts especially the increased potential for irrigated agriculture. However, as indicated earlier, such positive induced impacts must account for the reduced quantity of water available along the Nam Theun River basin. Table 30 Area 4: Xe Bang Fai Summary of project impacts and activities Project potential impacts Assessment Project activities Negative impacts • Loss of fisheries; • Estimated present value of losses: 4 • All fisheries losses million USD; recovered with mitigation plan budgeted at 10 million USD – or 4 million USD (in PV terms); • Loss of riverbank gardens; • Estimated present value of income • All riverbank garden losses: 0.25 to 0.6 million USD; losses recovered with mitigation plan budgeted at 0.35 million USD – or 0.3 million USD (in PV terms); Budget allocated by NTPC may not be sufficient; • Loss of rice yield • Estimated present value of income • This loss is expected to be losses: 2 million USD; fully mitigated. However, no feasibility study has thus far been undertaken; • Fixed infrastructure assets • Qualitative assessment; The number • All identified assets will (shops, houses, barns, and nature of assets needing be either protected or temples, pavilions, etc.) riverbank protection or relocation relocated; mitigation plan remains to be precisely determined; budgeted at 0.65 million USD – or 0.42 million USD (in PV terms). Will be revised as results from asset survey are available; • Irrigation infrastructure; • Qualitative assessment; 19 pump • All affected irrigation irrigation systems may be affected infrastructure will be as a result of river bank erosion; revised as appropriate; mitigation plan budgeted at 0.05 million USD – or 79 0.03 USD (in PV terms); • River crossing and transport; • Qualitative assessment; A number • Alternative crossing of existing crossing facilities will facilities will be provided not be possible as a result of the and constructed by the higher water flow and water level; project; mitigation plan budgeted at 0.2 million USD – or 0.13 million USD (in PV terms); • Alternative sources of domestic water supply will be provided; mitigation plan budgted at 0.12 million USD – or 0.08 million USD in PV terms. Project induced impact • Reduced pumping costs; • Estimated present value of savings may reach 0.3 million USD; • Increased irrigated • Estimated present value of net agriculture; revenues (not inclusive of investment costs) range between 5.2 and 7.5 million USD; • Electricity. • Increased availability (20 MW) and reliability of electricity supply in the XBF region. VIII. Area 5: Mekong River 181. The trans-basin transfer of approximately 220 m3/s from the Nam Theun River to the Xe Bang Fai has raised a concern that the Mekong River – especially along the 190 km stretch between the mouth of the Nam Kading and of the Xe Bang Fai – and further downstream the Great Lake and the floodplains in Cambodia may be adversely impacted. The Cumulative Impact Assessment (CIA) study (ADB, 2004) aimed to assess potential changes in the hydrology of the Mekong River, and assess the potential for such impacts. To this date, the CIA is the only comprehensive study of this nature. The brief discussion below thus draws heavily from this study. Interested readers should refer to the study itself. 182. Insofar as hydrology is concerned, the CIA study reaches the following conclusions: Mekong River: • In the dry season, there will be no flow change in the Mekong River at Pakkading (at the confluence of the Nam Kading and the Mekong River) as a result of the 80 NT2 project. However, there will be a flow reduction of approximately 4% at Pakhinboun (at the confluence of the Nam Hinboun and the Mekong River); • In the wet season, there will be an average flow reduction of approximately 4% at both Pakkading and Pakhinboun; • In the dry season, discharge at Savannahket may increase by approximately 8%, and may be reduced by approximately 2% in the wet season; • In terms of water levels, the above changes in flow are expected to translate into a reduction in the water level of the Mekong River of approximately 3 cm between Nam Hinboun and the Xe Bang Fai in the dry season, and a reduction of 25 cm at Pakkading and 19 cm just upstream Xe Bang Fai in the wet season. The report notes these reductions to be marginal when compared to the normal Mekong flow. Tonle Sap and Great Lake: • The water level of the Mekong River at the confluence with Tonle Sap is expected to be reduced by 8 cm in the wet season, and to increase by approximately 4 cm in the dry season; • As a result of the reduced inflow into Great Lake, the level of Great Lake is expected to fall by 3 to 4 cm. The CIA study notes this change in level to be marginal when compared to an annual variation in maximum level of Great Lake of about 2.5 to 3 meters. 183. As a result of the above marginal changes in flow and water levels, the CIA study reaches the following conclusions as to the impacts of the NT2 project on the Mekong River and Cambodia’s Great Lake: Mekong River: • Reduced water flow between Pakhinboun and the Xe Bang Fai River may impact fisheries which are adapted to survive the dry season in deep pools of water. However, given that the reduction in water flow and water level is expected to be marginal, no significant impact on fisheries is expected; • There should not be any significant impact on the aquatic and riparian biodiversity of the Mekong River. Tonle Sap and Great Lake: • The changes in flow pattern and water level is expected to have only a very marginal adverse impact on the fisheries of the floodplains and the Great Lake; 81 • The reduction in water level in the wet season may reduce damaging incidents associated with high floods;51 • The increase in water level in the dry season may support irrigation and reduce salt intrusion in the Mekong Delta. 184. The CIA study thus concludes that only marginal adverse impacts may be observed to the fisheries of the Mekong River. It also concludes that both negative and positive impacts, though very marginal, may be experienced in the floodplains of Cambodia, the Great Lake, and in the Mekong Delta. Based on these conclusions, it would not appear appropriate, perhaps nor possible, to proceed with an economic quantification of these potential marginal impacts. 185. It should be noted however that the Mekong River and the floodplains of Cambodia are expected to experience very significant changes over the next 25 years if planned development projects are carried out. However, the CIA study concludes that the dominant factor that may impact the hydrology of the Mekong River as well as the Great Lake and floodplains of Cambodia will be additional hydropower developments in the Mekong River Basin, not the NT2 project. A comprehensive impact analysis of these forthcoming development projects should therefore pay detailed attention to these regional impacts. IX. Project lands 186. The NT2 project requires the acquisition of land, referred to as “Project Lands�. These Project Lands include areas for the construction of the Nakai Dam, the saddle dams (13) the headrace channel, the power station, the regulating pond and dam, the residence Nam Theun, the quarry areas, the workers’ camps, the downstream channel, new roads, as well as the corridors for the transmission lines. Total project lands as defined in the Concession Agreement covers an area of 11,535 ha of which approximately 3,400 ha will be occupied by the transmission lines. 187. Project lands as defined in the Concession Agreement are not necessarily those that will be effectively required by the project. Instead they are defined as the maximum area within which the project may chose to design or construct infrastructure, or over which the project has right of way. It is expected that in a large number of cases, the required area will be significantly smaller than the project lands defined in the Concession Agreement. 188. However, the design process not being completed, it is not possible at this point in time to clearly assess the amount of lands that will be effectively required by the project, either on a permanent basis, or on a temporary basis (for the time of the construction). The project expects such information to become available by financial close. Furthermore 51 Severe floods were experienced in Cambodia in both 2000 and 2001. In Cambodia, 347 people lost their life in 2000 and 62 in 2001 as a result of these floods. Total physical damages in 2000 were estimated to be in excess of 150 million USD. 82 the precise location of the corridors for the transmission lines is still being determined, and is currently expected in December 2004. Without a clearly designed and definite plan for the use of project lands, it is not possible to assess what types of land is going to be affected, in which quantity, and over which period of time. At this point in time, it is known that such project lands include the following: • Houses; • Farm and other buildings; • Fish ponds; • Paddy rice fields; • Gardens; • Shifting cultivation fields; • Bamboo groves; • Grasslands; • Forest areas; • Wetlands. 189. In the absence of active and voluntary market transactions for land, the assessment of the opportunity cost of project lands, for different types of project lands remains at best a challenging exercise. The Draft Technical Guidelines for Resettlement and Compensation prepared by the GoL indicate that “the compensation should be determined based on the average productive values of land based on the past three to four years of production, and should be equivalent to at least 6 to 7 years of harvest value.� For lands affected by the project, this level of compensation may serve as an indication of the market value of the project lands, and of its opportunity costs. 190. Based on information available in the SDP and on discussion with various stakeholders, the following estimates have been obtained for different types of project lands (Table 31). Table 31 Estimates of opportunity cost of project lands Types of project Average Average unit Average Opportunity lands yield value annual value cost3 Irrigated paddy 7.1 t / ha 125 $ / ton 887 $ / ha 4,300 $ / ha fields Rainfed paddy 2.8 t / ha 150 $ / ton 350 $ / ha1 1,700 $ / ha fields Shifting 1.5 t / ha 150 $ / ton 225 $ / ha 1,100 $ / ha cultivation Bamboo groves 1000 stems / ha 0.2 $ / stem 200 $ / ha 975 $ / ha Forest areas2 - - 400 $ / ha 1,950 $ / ha 1 Net of input costs; 2Include both NTFPs and sustainable timber. 3 Calculated over 7 years, using a 10% discount rate. 83 191. Given the existing uncertainty surrounding: (1) the design and location of the project assets; (2) the quantity of project lands which is effectively going to be used by the project; (3) the existing use of the project lands; and (4) whether the project use will be of a temporary or permanent nature, it would appear precarious to use the estimated unit value presented in Table 31 to estimate the opportunity cost of all project lands. If (1) all project lands as defined in the Concession Agreement were effectively used by the project; (2) if this use were to be of a permanent nature; and (3) one may assume an average opportunity cost of land of approximately 2,000 $ per ha, then the opportunity cost of all project lands would amount to approximately 23 million USD. This would appear to be a significant over-estimate. However, we must await the finalization of project design in order to provide a more reliable estimate of the opportunity costs of project lands. X. Summary of results 192. In summary, results from this analysis are as follows: • Area 1: Nam Theun River Basin. Aggregate fisheries loss may range from 0.73 to 1.30 million USD in present value terms (for purposes of comparison, fisheries losses along the Xe Bang Fai River are estimated to approximately 4 million USD in present value terms). Additional adverse impacts (which may include water- related health impacts, reduced quantity and quality of water for domestic and agricultural use, and riparian wildlife) are expected to be minimal. Extrapolating from the mitigation program designed for the XBF River indicates that one may estimate an approximate budget of 0.8 to 1.6 million USD for mitigation of fisheries losses in the Nam Theun. The RAP indicates that the project will pay compensation to individuals who can demonstrate losses. However, it has not yet been determined how such losses will have to be ‘demonstrated’, which adverse impacts may be eligible for compensation (or whether it covers solely loss of fisheries income), and whether it covers areas other than solely the Nam Theun River between the Nakai Dam and the Theun Hinboun Headpond. • Area 2: Nakai Nam Theun NBCA. The primary and key positive impact of the project (and its concomitant watershed management plan – SEMFOP) appears clearly to be: improving natural resources management, protecting and conserving the habitat and biodiversity of the NNT NBCA – widely considered to be a prime and unique biodiversity area of Southeast Asia, improving the livelihood of its inhabitants, contributing to poverty alleviation, and preserving the ethnic diversity found in the NNT NBCA. It is estimate that the project may reduce poverty by up to 35% in the NBCA. While other potential benefits have been examined and may effectively exist, these, given existing information, would not appear to be of large significance. 84 It has been found that the presence of the SEMFOP cannot be justified solely on the basis that it is in the self-interest of the project to invest in the improved management and conservation of the NNT NBCA in order to prevent losses of energy sale that could result for reservoir sedimentation. If the watershed provides services to the project such as the prevention of reservoir sedimentation, the extent of these services would appear to be minimal. The present value of the costs of the budgeted SEMFOP activities (1 million USD per year) amount to approximately 10 million USD. • Area 3: Nakai Reservoir / Plateau. The project will significantly contribute to poverty alleviation for the resettlers by doubling the expected present value of aggregate income (from 5 to 10 million USD), and by completely alleviating poverty of these resettlers (as measured against Lao poverty line). The project will further significantly increase access to improved health care and education facilities, water supply, sanitation, and electricity. Thus, if the livelihood programs effectively deliver intended income targets and service delivery objectives, the livelihood of the resettlers is expected to improve very significantly over conditions that would assume to exist in the absence of the project. The project is expected to reduce emissions of GHG by approximately 20 million tons over the horizon of the analysis (avoided emissions of 50 million tons compared to CCGT minus 30 millions tons of emissions from the reservoir). However, given the significantly different timing of these events (a bulk of the emissions from the reservoir will take place early on following impoundment), the present value of these benefits may or may not be positive. Finally, insofar as wildlife and biodiversity is concerned, existing information does not support the notion that the impacted area (Plateau and resettlement area) is of high biodiversity value. The White Winged Ducks may benefit from the project insofar as the impoundment of the Plateau leads to an expansion of forested wetlands. The habitat of the Asian Elephants is expected to be adversely impacted by the project, though not to the point of threatening the viability of the elephants in the area. For both of these species, conservation programs will be put in place to facilitate their adaptation to the new environment. • Area 4: Xe Bang Fai. If the activities described in the SDP are delivered and are effective as currently expected, the analysis shows that all known potential adverse impacts of the project will be for the most part if not completely mitigated or compensated for. The largest of these adverse impacts pertain to the loss of fisheries income with losses estimated at approximately 0.7 million USD per year. The mitigation plan developed jointly by the World Bank and NTPC is expected to completely mitigate these losses, leaving households of the XBF at least as well off as without the project. 85 It has also been shown that the project offers the potential for large positive induced impacts especially the increased potential for irrigated agriculture. Early estimates show potential revenues in the order of 5.2 to 7.5 million USD (present value) over the lifetime of the project. A rural development project will provide a better assessment of this potential. The lower XBF is also subjected to periodic and large flooding. It is expected that the project will significantly impact approximately 7,500 ha of land. Assuming that all this impacted area is under cultivation and that the project increases flood impacted area by approximately 20%, then the loss of income associated with this incremental flooding may amount to approximately 2 million USD in present value terms. • Area 5: Mekong River. The Cumulated Impact Assessment study indicates no or very minimal impact – both negative and positive – along the Mekong River, including Cambodia’s Great Lake and floodplains. • Project lands. Estimates indicate an opportunity cost of land ranging from 1,000 to 4,000 USD per ha. Given that infrastructure design is not completed, it is not currently possible to assess the aggregate opportunity cost of land to acquired or effectively used by the project. The precise location of the transmission lines is expected to be finalized in December 2004, and complete infrastructure design to be completed by financial close. 193. Complete results are summarized in Table 32. 86 Table 32 Summary of results Project potential impacts Assessment Project activities AREA 1: Nam Theun River Downstream Nakai Dam Positive impacts • None expected Negative impacts • Fisheries Diversity 1 fish specie known to be endemic; Big-headed Turtle has thus far been observed only in the basin. Quantity Present value of fisheries losses Will pay compensation to those range between 0.73 and 1.30 who can demonstrate losses. million USD. Compensation package may amount to between 0.8 and 1.6 million USD depending on timing of implementation. • Health Expected to be very limited given the absence of significant settlements along the banks of the Nam Theun River. • Domestic water use Idem. • Agricultural water use Idem. • Riparian wildlife and Impact mainly along first 12 km. vegetation However riparian wildlife and vegetation are observed throughout the water basin. AREA 2: Nakai Nam Theun National Biodiversity Conservation Area Positive impacts • Poverty alleviation • Contribution to poverty The project will invest alleviation ranging between approximately 1 million USD per 1.5 – 3.8 millions USD; year, pre and post COD. The Reduction of poverty from 20 present value of this package to 35%. amounts to approximately 10 millions USD. • Health and education • Qualitative assessment; Improved health facilities and better education opportunities. • Cultural / ethnic diversity • Qualitative assessment; Improved opportunity to preserve cultural and ethnic diversity. • Habitat and biodiversity • Qualitative assessment; 87 Improved resource management aims to preserve habitat and biodiversity while simultaneously contribute to poverty alleviation. • Medicine and bioprospection • 0.5 to 5 millions USD. In all likelihood, over-estimate to the extent that no such activities have thus far been observed. • Carbon sequestration • 10 – 20 millions USD. In all likelihood, over-estimate. Negative impacts • Increased population • Qualitative assessment; The The SEMFOP aims to prevent pressure on the resources of project may increase pressure this increased population pressure the NNT NBCA. on the resources of the from exercising an adverse NBCA. impact on the NNT NBCA. AREA 3: Nakai Plateau / Reservoir Positive impacts • Poverty alleviation; • Double the present value of • In present value terms, the income (from 5 to 10 millions project will invest a total of USD) of resettlers; approximately 21 million completely eliminate poverty USD to implement the plateau (measured against Lao / reservoir resettlement poverty line) of resettlers; activities; • Health and education; • Qualitative assessment; Improved health facilities and better education opportunities; • Domestic water, sanitation, • Qualitative assessment: electricity; Improved access to domestic water supply, sanitation, and electricity; • Reduction in GHG emissions: • Estimated present value of Hydro vs. CCGT; global economic benefits: 34 millions USD; • Potential habitat improvement • Qualitative assessment: • Conservation program will be for White-Winged Ducks; Habitat for White Winged initiated. Ducks may improve as a result of expansion of forested wetlands. Negative impacts • Increased emissions of GHG • Estimated present value of from reservoir. costs: 18 to 30 million USD; • Loss of habitat for Asian • Qualitative assessment; Loss • Conservation program will be 88 elephants; of area generally not believed initiated. to be critical to the survival of the local population of Asian elephants; • Loss of other habitat and • Qualitative assessment; Area biodiversity. of the Plateau to be impacted by both impoundment and by resettlement is not considered of high biodiversity value (considering species richness, degree of endemism, rarity, vulnerability, and representativeness of component species. Project induced impact • Recreation and community- • Estimated present value may • Necessary investment not in based tourism. range in the order of 0.5 project budget costs. million USD. This would appear to be a conservative estimate. AREA 4: Xe Bang Fai River Negative impacts • Loss of fisheries; • Estimated present value of • All fisheries losses recovered losses: 4 million USD; with mitigation plan budgeted at 8.5 million USD – or 5 million USD (in PV terms);. • Loss of riverbank gardens; • Estimated present value of • All riverbank garden losses income losses: 0.25 to 0.6 recovered with mitigation plan million USD; budgeted at 0.35 million USD – or 0.3 million USD (in PV terms); Budget allocated by NTPC may not be sufficient; • Loss of crop yields • Estimated present value of • Losses of crop yield are losses reach 2 million USD; expected to be completely mitigated by the project through the raising of rive embankments. • Fixed infrastructure assets • Qualitative assessment; The • All identified assets will be (shops, houses, barns, temples, number and nature of assets either protected or relocated; pavilions, etc.) needing riverbank protection mitigation plan budgeted at or relocation remains to be 0.65 million USD – or 0.42 precisely determined; million USD (in PV terms); • Irrigation infrastructure; • Qualitative assessment; 19 • All affected irrigation pump irrigation systems may infrastructure will be revised be affected as a result of river as appropriate; mitigation plan bank erosion; budgeted at 0.05 million USD – or 0.03 USD (in PV terms); • River crossing and transport; • Qualitative assessment; A • Alternative crossing facilities 89 number of existing crossing will be provided and facilities will not be possible constructed by the project; as a result of the higher water mitigation plan budgeted at flow and water level; 0.2 million USD – or 0.13 million USD (in PV terms); • Alternative sources of domestic water supply will be provided; mitigation plan budgeted at 0.12 million USD – or 0.08 million USD in PV terms. Project induced positive impacts • Reduced pumping costs; • Estimated present value of savings may reach 0.3 million USD; • Increased irrigated agriculture; • Estimated present value of net revenues (not inclusive of investment costs) range between 5.2 and 7.5 million USD; • Electricity. • Increased availability (20 MW) and reliability of electricity supply in the XBF region. AREA 5: Mekong River Negative impacts • Minimal impact expected Positive impacts • Minimal impact expected 90 Annex 1 Note on Resettlers’ Income Targets I. Background In the course of the various discussions that have taken place in recent weeks and months, it is often stated that the target income for resettled households is 800 USD 4 years after relocation, and 1,200 USD 9 years after relocation. The above statement, widely and frequently stated, is not correct as it does not correspond to the income targets as defined in the Concession Agreement. Wrong Statement: Income target is 800 USD per Household 4 years after relocation; and 1,200 USD per Household 9 years after relocation. Furthermore, in Chapter 12 of the Social Development Plan (Livelihood Integration and Income Scenarios – Transition to Stability), we read the following: “The target income levels as specified in the Concession Agreement are: • All households to be brought to at least the national poverty line four years after relocation. In 1997, the National Poverty Line was set to US$ 800 for an average reservoir household of 5.518 persons. • All villages to be brought to the national average rural income level by the end of the resettlement implementation period. For livelihood projection purposes the target income for the reservoir household was set in 1998 at US$ 1,200 per average household of 6.5 persons to be reached at the end of Year 9 after relocation. Village targets will be calculated by multiplying the average plateau household size with the number of households. The result is an average where some households by nature fall below the village target but should not fall below the NPL.� So, what we read in Chapter 12 of the SDP is that the following income levels are being targeted: (1) All households reach the national poverty line 4 years after relocation; (2) All villages to be brought to the national average rural income level at the end of Year 9 after relocation. While the above statement made in Chapter 12 reflects more accurately the wordings of the Concession Agreement, it is still not entirely consistent with what is found in the Concession Agreement. 91 The purpose of this note is to discuss and compare the above two statements with respect to the following two features: (1) the stated timing for achieving the income targets; and (2) the nature of the income targets themselves. In order to discuss and compare what is frequently stated and what is mentioned in Chapter 12 of the SDP with the Concession Agreement, we must first examine the relevant sections of the Concession Agreement itself. II. Content of Concession Agreement In the Concession Agreement, we read the following: “Household Income Target means the yearly target for the income of the Resettler households, including income in cash and in kind, to be reached at the beginning of year 5 of the Resettlement Implementation Period, being for each Resettler household in the Resettlement Area, the greater of: (a) the then current National Rural Poverty Line, multiplied by the number of persons in the household; and (b) Lao PDR Kip 1,420,800 per person, multiplied by the number of persons in the household (this being equivalent to USD 800 per average household in June 2002, using the exchange rate of Lao PDR Kip 9,800 = USD 1 and average household size being 5.518 persons). Village Income Target means the yearly target for the income of the Resettler villages, including income in cash and in kind, to be reached at the end of the Resettlement Implementation Period, being for each village in the Resettlement Area, the greater of: (a) the then current Average Rural Income per Person, multiplied by the number of persons in the village; and (c) Lao PDR Kip 2,131,200 per person, multiplied by the number of persons in the village (this being the equivalent of USD1,200 per average household in June 2002, using the exchange rate of Lao PDR Kip 9,800 = USD 1 and the average household size being 5.518 persons).� 92 So, what is asserted in the Concession Agreement is the following: Content of Concession Agreement Household Income Target = Maximum of: the then National Rural Poverty Line and 1,420,800 Kip per person, to be achieved 4 years after the beginning of the Resettlement Implementation Period (i.e. at the beginning of year 5); Village Income Target = Maximum of: the then Average Rural Income per Person and 2,131,200 Kip per person, to be achieved at the end of the Resettlement Implementation Period. We can now compare the content of the Concession Agreement with what is frequently and widely stated, and what is mentioned in Chapter 12 of the SDP. III. Comparative analysis III.1 Compare Concession Agreement with Frequent Statement Note the following significant differences with what is widely and frequently stated: • There is absolutely no mention in the Concession Agreement as to the target being 800 USD and 1,200 USD per household: (1) The THEN National Rural Poverty Line may or may not amount to 800 USD for a family of 5.5 people; (2) The THEN Average Rural Income per Person may or may not amount to 1,200 USD for a family of 5.5 people; and (3) The USD value of Kip 1,420,800 and Kip 2,131,200 (stated in the Concession Agreement) depends on the THEN exchange rate at the time of calculation, and may THEN not amount to 800 and 1,200 USD (in fact, even at today’s exchange rate of approximately Kip 10,500 = 1 USD, Kip 1,420,800 has become 746 USD (and not 800), and Kip 2,131,200 has become 1,119 USD (and not 1,200). • There is no mention in the Concession Agreement of the household income target being reached 4 years after relocation, and the village income target being reached 9 years after relocation. The Concession Agreement clearly mentions that the household income target is to be reached four years after the start of the Resettlement Implementation Period – which is NOT the same as ‘4 years after relocation’ – and that the village income target is to be achieved at the end of the Resettlement Implementation Period – which is NOT the same as ‘9 years after relocation’. 93 III.2 Compare Concession Agreement with Chapter 12 of SDP Note also the following significant differences between the Concession Agreement and what is mentioned in Chapter 12 of the SDP: • Chapter 12 of the SDP refers to the “national poverty line�, while the Concession Agreement refers to the “national rural poverty line�; and perhaps more importantly, as stated above: • There is no mention in the Concession Agreement of the household income target being reached 4 years after relocation (as stated in Chapter 12), and the village income target being reached 9 years after relocation. The Concession Agreement clearly mentions that the household income target is to be reached four years after the start of the Resettlement Implementation Period – which is NOT the same as ‘4 years after relocation’ – and that the village income target is to be achieved at the end of the Resettlement Implementation Period – which is NOT the same as ‘9 years after relocation’. We now seek to provide a clearer understanding of the differences explained above in terms of both of timing, and income targets. IV. Timing for achieving income targets In order to provide a better understanding of the differences explained above, it is necessary to examine more closely the Concession Agreement as it pertains to the definition of the Resettlement Implementation Period. We read the following in the Concession Agreement (Volume 2A, Schedule 4, Part 1, Section 2.1): “The Resettlement Process shall comprise the following three stages: (a) the Resettlement Pre Financial Close Period, being the period prior to the occurrence of Financial Close for resettlement, which commenced in the year 1994 and will end on the occurrence of Financial Close; (b) the Resettlement Planning Period, being the period prior for planning the resettlement, which will commence on the occurrence of Financial Close and end on the date agreed by the Resettlement Committee and the Company as being the date for the commencement of the Resettlement Implementation Period, the Resettlement Planning Period being expected to continue for about one year after the Financial close; (c) the Resettlement Implementation Period, being the period for implementation of resettlement activities, which will commence on the date 94 agreed by the Resettlement Committee and the Company as provided in Paragraph (b), and end when the Resettlement Committee is satisfied, on advice from the Panel of Experts, that the Resettlement Objectives and Resettlement Provisions have been achieved.� We further read in the Concession Agreement the following (Section 2.2 of Volume 2A, Schedule 4, Part 1): “Without limiting the provisions of clause 2.1 (c), the parties intend that the Resettlement Implementation Period will be approximately nine (9) years in duration.� The reference to 9 years thus appears in this Section 2.2. However, it is of great importance, contrary to what is widely and frequently asserted, and contrary to what is presented in Chapter 12, that the period of 9 years defines the duration of the Resettlement Implementation Period. Hence, the achievement of the village income target is NOT 9 years after relocation, but at the end of the Resettlement Implementation Period. These are two dates are very different. To understand the difference, it may be easier to draw the following diagram, assuming that Financial Close is taking place, as currently expected, in early 2005. Figure 1 Achievement of Income Targets as defined in the Concession Agreement Resettlement Resettlement Resettlement Pre Financial Planning Implementation Close Period Period Period 1994 Financial 1 year 9 years close: after: after: Early Early Early 2005 2006 2015 95 Hence, according to the Concession Agreement: The Household Income Target is to reached at the beginning of Year 5 of the Resettlement Implementation Period, which is now expected to be early 2010; And The Village Income Target is to be reached at the end of the Resettlement Implementation Period, which is now expected to be early 2015. According to the SDP, Chapter 4, the following relocation strategy is presented: Table 1 Timing of households relocation Village 2003 2004 2005 2006 2007 Khonken 44 Don 106 Sop On 79 KaOy 32 Phonsawang 30 Sopma 55 Sopphen 50 Bouama 62 Nongboua 31 Phonephanpek Odosouk 114 Nakai Tai 179 Nakai Neua 81 Nongbouakham 51 Thalang 62 Sophai 63 Namnian 19 Total 31 0 249 321 457 The statement “4 years after relocation, and 9 years after relocation� is most often interpreted as implying the following: • The 31 households moved in 2003 should reach the HH Income target in 2007 (4 years after relocation), and the Village Income Target in 2012 (9 years after relocation); 96 • The 249 households moved in 2005 should reach the HH Income target in 2009 (4 years after relocation), and the Village Income Target in 2014 (9 years after relocation); • The 321 households moved in 2006 should reach the HH Income target in 2010 (4 years after relocation), and the Village Income Target in 2015 (9 years after relocation); • The 457 households moved in 2007 should reach the HH Income target in 2011 (4 years after relocation), and the Village Income Target in 2016 (9 years after relocation). 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