The Nam Theun 2 dam in Laos is under construction following World Bank approval of various loans and guarantees in May 2005. Needless to say this is a highly controversial project. Apart from the obvious environmental concerns, much of the opposition to NT2 has focussed on the impacts on local residents, both in the reservoir area itself and in downstream zones. The International Rivers Network provides a useful summary of many of these issues. Last year I was involved in a review of the project conducted by AusAID. At the time I had serious reservations about the resettlement package for those to be displaced by the dam. Here is an extract from the report:

“The key concerns relate to the adequacy of the resettlement package for the farmers to be displaced on the Nakai Plateau (who number over five thousand). In large part this weakness derives from the expressed desire of the displaced villages to remain on the plateau rather than move to more productive lowland sites. This has given rise to significant resource constraints. As a result the agricultural component of the resettlement package is weak, largely as a result of poor soil quality in the resettlement area. This is compounded by the small size of the agricultural plots, which are provided as a standard allocation of 0.66 hectare regardless of household size or current land ownership. It is quite clear that the agricultural package will not be capable of meeting subsistence requirements for the majority of households. It is also clear that a substantial number of households will receive less land than they currently farm.

The agricultural problems associated with the resettlement program are recognized by the proponents and they have put forward a range of other livelihood activities to supplement incomes. These include fisheries, forestry, wage labour and various craft and business activities. However, the local viability of these options is unproven and it seems that the assumptions behind the proposed business activities, in particular, are highly optimistic. Moreover, even with the proponent’s assumptions built in, it is evident that the livelihood packages will not meet livelihood targets for substantial numbers of households. More generally, the dramatic livelihood transition that is envisaged appears ambitious. Most people to be relocated currently depend on subsistence agriculture and forest product collection but they are expected to rapidly adopt mixed livelihood packages with a strongly commercial orientation. This does not appear consistent with the World Bank’s Indigenous Peoples policy that “development activities should support production systems that are well adapted to the needs and environment of indigenous peoples.”

In the past many of these concerns have been addressed by arguing that, at a national level, NT2 will contribute to poverty alleviation, both by promoting general economic growth and by providing government revenue that can be spent on a range of welfare and development services. But a recent paper by economist Peter Warr in The Economic Record casts come doubt on this optimistic scenario.

Warr 2006

Warr examines the “implications of the project for poverty incidence in Laos.” He makes the important point that “the manner in which the proceeds of the project are distributed greatly affects its impact on poverty incidence.” In particular, he argues that the macroeconomic effects of increased spending of dam revenues by urban Lao could increase the incidence poverty, especially in rural areas. Large investment projects, while undoubtedly increasing national income, can affect prices and incomes in ways that increase poverty. Good governance, Warr concludes, is the key. Hardly grounds for optimism in Laos!