Capitalising on power exports

Asia File

Neighbourly cooperation took another big step forward in the greater Mekong sub-region when Thailand signed an agreement this month to buy almost the entire production of a massive new hydroelectric power project that Laos is going to build. It's the latest in a convenient give-and-take that satisfies Thailand's power need on the one hand and Laos' cash need on the other.

The two countries are perfectly made for each other. Thailand needs lots of power to sustain industrial and agricultural growth in its provinces, while Laos, right next door, has huge potential resources of hydroelectricity, more than it will ever need to develop for its own use.

The coincidence may be fortuitous but its practical implication hasn't been lost on Vientiane. With some prompting from international lending institutions, it has thrown open its rivers to independent power producers (IPPs), thus helping to develop a promising export market and generate much-needed income to shore up a poor economy.

It all began five years ago when Laos' first IPP power plant, the 210-MW Theun Hinboun in Khammouane province, was commissioned specifically to supply Thailand. In 1999 followed another, the 150-MW Houay Ho in Attapeu province, also for the same purpose.

Both projects follow the joint venture build-operate-transfer route involving international partners, including Thai. The strategy appears so promising that, of 20 power plants to be built in Laos by 2015, as many as 14 will toe this line. Statistically, IPP plants will be producing all but 295 MW of the 5,937 MW new capacity planned, and as many as eight of them will be producing solely for Thailand.

The July power purchase agreement with the Electricity Generating Authority of Thailand (EGAT) involves what's going to be the biggest of them all, the 1,077-MW Nam Theun II, supposed to cost at least $ 1 billion.

EGAT itself is a partner in this venture and, when production starts in six years, will buy as much as 920 MW of its output for the next 25 years. The other joint venture partners are Electricite de France International, the Ital-Thai group of Thailand and the Laotian government. The World Bank will have a 10 per cent stake in the project's equity.

Like all other hydroelectric power plants in Laos, Nam Theun II has had its share of problems and controversies. There were doubts about its financial viability and hassles about pricing; and the 1997 Asian economic crisis was an additional damper.

Besides, the project had to contend with stiff opposition from environmentalists who worried about the resettlement of people living in the project area, destruction of forests and damage to fisheries and agriculture on which thousands of Laotians depend for their livelihood.

What finally clinched the project was the World Bank's decision to provide a guarantee against political risk and participate in its equity. Nam Theun II, on the upper Theun River in the heavily forested Nakai plateau, is the biggest power project in Indochina so far; and the fact that a project of this size can now go ahead means private capital won't be too shy for the other export-oriented IPP projects that Laos has lined up.

But Thailand isn't the only destination for Laotian IPPs. At least five of the proposed hydroelectric plants will have Vietnam as their export market.

Construction is scheduled to begin next year on Sekaman 3, a 300-MW plant on Sekaman River in Laos' Sekong province, which a Vietnamese-Laotian joint stock company is going to build at a cost of $ 325 million. This will open a valuable second front for Laos' power industry and create an additional bolster for its economy.

Laos has a total hydroelectric potential of about 26,500 MW, of which an estimated 18,000 MW is exploitable. So far, only 627 MW has been developed, which means the potential remains virtually untapped.

In light of Laos' central position in a sub-region characterised by expanding electricity demand, this has opened up for it and others an enormous opportunity for growth. And, thanks to the efforts of the Asian Development Bank, government leaders in the sub-region are in an ebullient neighbourly mood.

A greater Mekong power grid is gradually coming into place. Major transport projects are on the cards that will bring the entire sub-region closer together in trade, investment and tourism.

The first railway link between Thailand and Laos, across the Mekong river, will be laid with Thai assistance. Highway 9 linking Laos with Vietnam is nearing completion for a February 2004 opening. A north-south corridor linking China and Thailand via Laos and an east-west corridor bridging Thailand, Laos and Vietnam are at various stages of development.

Great things are happening in the Mekong area, and Thailand's power deal with Laos comes as a big boost to the cooperative endeavours of the region's governments that presage the emergence of a strong new economic community.