The European Investment Bank (EIB) will lend USD 55 million to the Lao People's Democratic Republic (PDR) for the development, construction and operation of a 1,070 MW hydroelectric project on the Nam Theun River in central Laos. The loan will be used by the Government of Laos to make its equity contribution in the Nam Theun 2 Power Company Ltd (NTPC) in charge of the project. The EIB loan will have a 30-year term, including a grace period of 6 years.
NTPC is owned by a consortium comprising Electricité de France International (35%), the Government of Laos (25%), EGCO of Thailand (25%) and Italian -Thai Development Public Company (15%).
The Government's equity contribution will also be financed by a USD 20 million long-term loan from the Asian Development Bank -ADB-, as well as by grants from the World Bank -WB- (USD 20M) and from the Agence Française de Développement- AFD- (USD 6M). These institutions will also support the project through a combination of loans to NTPC and political risk insurance. The total estimated cost of the project is close to USD 1.3 billion.
The Nam Theun 2 project will have a high development impact and will contribute to regional integration. In particular, it will further sustainable economic and social development in Laos, one of the poorest countries in the South East Asia region. The investment is currently the best option to generate revenues and reduce the country's dependence on international aid for its development. Some 95% of the electricity produced will be exported to Thailand. The export revenues will help to improve Laos' fiscal prospects and external debt servicing capacity.
Project preparation involved extensive public consultation both locally and internationally to ensure broad understanding and public acceptance of the project. Institutional and implementation arrangements include innovative and best practice features to ensure transparency and accountability of public expenditure management. Construction activities as well as the implementation of the safeguards will take place during 2005-2009.
Commercial operations are scheduled to start in November 2009. The project has been designed with the close involvement of the World Bank, the Asian Development Bank, the European Investment Bank, the Nordic investment Bank, the Agence Française de Développement, COFACE and other export credit agencies. Cooperative arrangements are being set up for the next stages of the project cycle, in particular for monitoring purposes and to strengthen governance. These include in particular:
- multi-donor technical assistance and funding to improve public expenditure management;
- close oversight through audits, public expenditure reviews and public expenditure surveys;
- a contractual commitment to share management and financial responsibility for the outcomes of the environmental and social mitigation and compensation programmes;
- long-term funding and technical assistance for the watershed management;
- a comprehensive programme of monitoring and evaluation of project performance;
- regular field-based supervision, monitoring and support from WB, ADB, EIB and AFD;
- international expert panels to monitor dam safety, project effectiveness, the achievement of income targets and other key objectives of the social and environmental programmes;
- annual consultative meeting, to provide public scrutiny, transparency and accountability.