1 Project Location

The Nam Theun 2 Project is on the Nam Theun River, a tributary of the Mekong River, at Keng None in Bolikhamsai Province in central Lao PDR. The catchment area for the Project is in the Annamite Moun- tains that run along the border with the Socialist Republic of Vietnam. The catchment area is appro- ximately 4,013 km2. Most of the components of the Project – including the dam, reservoir and power station – are in Bolikhamsai Province and Khammouane Province, with the transmission line passing through the Savannakhet and Khammouane Provinces.

The Project area will cover approximately 40% of the Nakai Plateau with about 90% of its watershed being formed by the Nam Theun watershed conservation area.

It is estimated that 85-90% of the total watershed is currently covered by forest whereas the reservoir area, because of its ease of access that has allowed extensive logging for many years, is about 33% forested.
The mountains which form the vast majority of the watershed are heavily forested and in near pristine condition.

The conservation value of this unique area (the Nakai Nam Theun National Biodiversity Conservation Area or “Nakai-Nam Theun NBCA”) has long been globally recognised. It is an integral part of the Project’s commitment to its ongoing environmental mitigation and protection policy to maintain the integrity of this unique area.

The Nakai Plateau incorporates wetlands, both permanent and seasonal freshwater lakes, ponds and marshes. There are also agricultural and forestry activities along the river and these activities, as well as logging and associated road construction, have had a significant detrimental impact on forests and wildlife. Recent studies confirm that the area’s wildlife is severely diminished and under severe threat. While some natural habitat on the plateau remain unspoilt, increasing demand for fuel and meat, and opportunities to export illegal wildlife products have had significant impacts on the indigenous wildlife communities.
The GOL has recognised that it does not have adequate personnel or monetary resources to control the potential future degradation of the forest and wildlife resources in the Project area. Already, shifting cultivation patterns, fire and logging has degraded parts of the forest and has severely affected the main valley floor, the area to be inundated under the reservoir.
It is evident that without the Project’s revenue and environmental mitigation plans, the existing level of degradation of the forest areas of the Nakai-Nam Theun NBCA may continue indefinitely and may deteriorate further.

2. Project Rationale
The Lao PDR is one of the world’s poorest countries with almost half of its population living under the poverty line with the average GDP per capita per annum below USD 500. Studies by institutions such as the World Bank have identified two main options for economic growth – the export of tropical timber products and the export of hydropower. However, as the large-scale exploitation of tropical timber products is viewed as non-sustainable and environmentally degrading, this option is not acceptable to the GOL.
One of the few readily available and sustainable resources available to the GOL to achieve its stated objective of economic and social development is hydropower as neighbouring Thailand represents a long-term viable customer for power generated from Lao PDR. The Memorandum of Understanding (as amended) between the two governments provides for an export potential of 3,000 MW to Thailand by the year 2008, of which only 340 MW had been provided by late 2002.
Of all the projects identified by the GOL, the Project has been recognised as having the greatest potential to achieve the development objectives of Lao PDR. It is estimated that over the life of the Concession Agreement, the GOL will receive about USD 2,000 million from the Project and, following the transfer of the Project at the end of the Concession Agreement, all revenues thereafter. The payments received by the GOL will be used to alleviate poverty and promote economic and social development though programmes approved by the World Bank.