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Southeast Asia rethinks its hydro expansion

China's unanticipated recent rebuff from Myanmar over the planned Myitsone 6 GW hydro plant could signal a shift in Southeast Asia's policy over hydropower development schemes, a change also apparent in the decision by Laos to suspend its 1260 MW Xayaburi project.

Aerial view of Son La Dam in Vietnam Credit: Alstom

Jeremy Bowden

The recent surprise cancellation of the 6000 MW Chinese-sponsored Myitsone hydro project in Myanmar – or Burma, as it is also known – not only made waves in international politics. For the power industry, its implications could also be significant, with new priorities emerging in how the region's rivers are exploited.

China's many other projects in the region are also now likely to face greater scrutiny. Meanwhile, growing concerns over the downstream impact of damming the Mekong have persuaded Mekong River Commission (MRC) members Thailand and Laos to heed the views of fellow members Cambodia and Vietnam and delay the 1260 MW Xayaburi project in Laos, the first of several dams slated for the lower Mekong.

On 8 December 2011, Laos and the MRC decided to cease work on the Xayaburi dam while a further study is conducted into its environmental and social impact in partnership with Japan. Massive public opposition and pressure from Vietnam and other countries caused Laos to appeal to the MRC for approval of Xayaburi in 2010 – the first appeal of its kind. The group provisionally suspended work on the dam last April, and that decision has now been confirmed. Thailand – where project developer Ch.Karnchang Co is based and which will receive the bulk of electricity from the project – had been in favour of proceeding, despite strong domestic public opposition. Downstream neighbours Cambodia and Vietnam had voiced fears over its impact on river flow, fishing and farming.

Until now, concern over the potential impact on neighbouring states has prevented MRC members from building any dams on the lower Mekong. But China remains outside the MRC and has built dams on the upper Mekong without any prior consultation with its neighbours. The first went up 20 years ago and now the 7000 MW Xiaowan dam, the world's tallest double-arch dam, will soon be completed as the fourth of a planned eight giants for the Mekong in Yunnan province. Many groups claim the dams are already affecting water flows and fish stocks downstream. Complaints recently intensified as river levels dropped sharply. The dams also enable China to control the river's hydrology, creating a downstream dependency.

But concern centres on planned dams lower down the river, which are expected to have an even greater impact on the Mekong Delta than those already built by the Chinese. A go-ahead for Xayaburi would have paved the way for another nine mainstream Mekong projects in Laos and two more in Cambodia. Vietnam wants a ten-year moratorium on damming the mainstream Mekong, although it has no objection to the damming of tributaries and smaller rivers, which continue in both Laos and Vietnam.

Map of dams on the Lancang and Mekong rivers Source: Mekong River Commission

Such projects include state-owned power utility Electricity of Vietnam's (EVN) 2400 MW Son La project on the Da river, which is powering up to full capacity. EVN has also started work on the 1200 MW Lai Chau project. Many similar projects are also underway in Laos. About 35 per cent of the Mekong river's inflows come from main tributaries scattered through Laotian territory.

In an act of regional solidarity, Laos agreed with the MRC in May that a strategic long-term development of the Lower Mekong basin was required. Now, despite signs of ongoing work at the dam, it has confirmed that decision, reinforcing its already close relationship with Vietnam in particular.

MyaNmar's change of heart

Myanmar President Thein Sein's surprise statement on 30 September 2011 that the Chinese-sponsored Myitsone dam project on the Irrawaddy river was "against the will of the people" and should halt for the duration of his term – at least until 2015 – is the first major upset for Chinese hydro development plans in the region, and came as a shock to the Chinese developer, China Power Investment Corp (CPIC). The decision throws a spotlight onto China's massive dam building programme in Southeast Asia, and draws attention to its potential adverse social and environmental impact.

By linking the decision to his period in office, Thein Sein may have been making a populist gesture. But the move could also be aimed at heading off opposition to further hydro projects. Until Thein Sein's volte-face, Myanmar's military junta had been steadily selling off its country's rich river resources to hydropower developers from China. A recent survey from pressure group EarthRights found that as many as 45 Chinese companies have been involved in about 63 hydropower projects in Myanmar, mainly on the Salween river, which is the longest remaining free-flowing river in Southeast Asia. It also remains unclear if the project has been cancelled completely, while work on six other hydropower dams linked to the Myitsone dam project is reportedly continuing.

Yet the move is clearly a snub to China, by far Myanmar's most important patron. Reaction from China has been negative but fairly muted, with the reversal appearing to have caught officials off-guard. Thein Sein's decision shows that Chinese interests can be overruled, and perhaps illustrates a lack of options on China's part when faced with such a situation, with Myanmar holding all the cards in the form of resources and alternative investors. The project completion had been scheduled for 2018, with 90 per cent of power generated going to China.

Already, non-governmental groups in Myanmar are demanding other Chinese dams planned or under construction be reviewed or shelved. At the very least, groups expect Chinese developers to engage more with civil society, partly due to pressure from company owners and shareholders concerned about the risks of overseas investment. Opponents of Chinese and other major projects in neighbouring Laos, Cambodia and Vietnam will also be encouraged by the decision. The Myitsone project, which affected tens of thousands of people, has fuelled criticism of Myanmar's leaders. In Vietnam, hydro projects have also provided a focus for political opposition. Since 2003, EVN has displaced almost 200 000 people through dam building in the Sesan and Srepok basins.

Closer regional integration

Co-operation on resource management is becoming increasingly important in Southeast Asia as regional nations experience rapid economic growth, along with increased competition for land and demand for electricity. The Association of Southeast Asian Nations (ASEAN) already pursues power sector integration to help generate export revenues from cross border trade, while making more efficient use of energy resources. With river basins straddling countries across the region, an overall strategy for hydroelectric development and water resource management is also desirable, and the MRC's decision on Xayaburi appears to confirm a move in that direction.

The acknowledgement of social and environmental issues related to dam building, combined with the kind of give-and-take shown by MRC members over the Mekong's future, bodes well for deeper and more productive co-operation of all types in the region. The decision also strengthens Southeast Asian nations' ability to negotiate with China over Mekong and other basin development plans. The process of regional power sector integration is likely to accelerate with closer regional co-operation. The physical infrastructure linking countries continues to be expanded, including new links between Laos and Vietnam, and major links already established between Thailand and Laos, and Thailand and Myanmar. China is supplied from Myanmar, while it currently supplies Vietnam, but could join Thailand and others as a taker of lower Mekong hydropower in the longer term.

But the various interconnections still have to be moulded into a cohesive regional grid, with sufficient capacity and trading rules to enable optimum efficiency. So far, countries' disagreements over projects – such as Xayaburi or the Thai-backed Koh Kong Power 3600 MW coal plant in Cambodia, which was halted in 2008 – have hindered any development of a more open and commercial structure, and development has remained focused on individual projects.

Laos – the battery of Southeast Asia

For Laos, Xayaburi was to have been an important step in economic development. The landlocked country is one of Asia's poorest and least developed, but is thought to have an exploitable hydropower potential of 18–26 GW. About 12.5 GW of this is in the Mekong basin, where Laos announced a plan in 2010 to build 20 hydropower plants over the next decade, in addition to an existing 14 projects.

This expansion would lift total hydro capacity to more than 8 GW by 2020, which would satisfy growing domestic demand while also allowing Laos to gain massive earnings from foreign-funded power exports – the Nam Thuen 2 project alone is expected to net Laos $2 billion over the next 25 years. Power exports currently represent almost 30 per cent of Laos' total export earnings, which make up about a third of the economy.

To facilitate foreign investment Laos has adopted a build-own-operate-transfer (BOOT) approach, and the country also encourages shareholdings by long-term buyers. Opposition to Laos' hydropower ambitions is often strong, but has yet to make much impact. Laos says it plans to expand its grid to cover 90 per cent of its population by 2020, up from 60 per cent currently, and the country aims to use a 10 per cent share of generation from each export-based project to supplement supply from several medium-sized projects dedicated to the domestic market.

Laotian power projects, with information from Egat, EdL, Ratch, EdC, IHS Inc and ADB
Cambodian power projects, with information from Egat, EdL, Ratch, EdC, IHS Inc and ADB

By 2020 Laos has agreed to supply about 7000 MW to Thailand, and 5000 MW to Vietnam, leading officials to label Laos the "battery of Southeast Asia". As yet, no export projects from Laos specifically cater for Cambodia, although 10 MW has been supplied to Cambodia since 2006, and the 360 MW Mega First plans (see table) could result in further exports, with an overall 200 MW target in place for 2020.

The Asian Development Bank (ADB) forecasts that hydro generation will grow annually by 20 per cent in Cambodia and, as in Laos, export projects are also planned, leading to substantial current activity in the sector.

Plans are often closely linked to aid. China, for example, financed half the Kamchay Dam through a $600 million aid package in 2006. Recently, China has been edging Thailand and Vietnam aside in terms of fresh investment in Laos, where it is keen to further water down Vietnam's influence.

The Chinese juggernaut

Hydropower in China accounts for 22 per cent of generation capacity, and is expanding at 15 GW per year, according to equipment manufacturer Alstom. As the final units of the Xiaowan project on the upper Mekong river began operating in August 2010, China's hydro capacity became the world's largest at just over 200 GW, with a further 70 GW of capacity under construction. Outside China, conservation group International Rivers says Chinese banks and companies are involved in building nearly 300 dams in about 70 countries. In Southeast Asia alone, 84 are proposed or under construction, including 18 in Laos and 56 in Myanmar.

China's thirst for power is almost unquenchable. Even with massive building plans, supply can barely keep up with demand. Ongoing power shortages are forecast to worsen this winter as soaring coal prices discourage plants from producing at full capacity. Low water levels in southwest China limited the region's hydropower output this year, forcing heavier reliance on coal, although China still manages to export power to Vietnam, where shortages are even more acute.

Chinese companies have already completed one dam in Cambodia, two dams in Laos and eight others in Myanmar. Of the proposed Chinese dams, four are to be built on the Mekong river's mainstream: three in Laos – Pak Beng, Sanakham and Pak Lay – and the fourth in Sambor, Cambodia. The commercial viability of these dams will depend on China's releasing enough water at the right time from its dams in the Mekong's upper reaches, which should help encourage greater Chinese co-operation and co-ordination with its downstream neighbours.

China rejects allegations that its poor water management on the upper Mekong caused water shortages downstream, and continues to defend the Myitsone project. Further investment is unlikely to be hampered dramatically by recent developments, although investors may pay greater attention to social and environmental issues. Chinese firms could also face questions from stakeholders over their policies and the risks of investing abroad.

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