Economic Reality May End More Big Mekong Dams

Politics, economics, environmentalism deliver good news

By: David Brown

Environmentalists have said that damming the Mekong is a bad idea for years and they're right. The environmental costs are substantial for northeast Thailand, large for Laos and huge further downstream in Cambodia and southwest Vietnam.

There's been another flurry of alarms, as Asia Sentinel reported on June 30. The Mekong River Committee (MRC) prepared to greenlight a huge project on the Mekong mainstream only 25 kilometers upstream from the World Heritage town of Luang Prabang, and to commission yet another consultation about another dam, Sanakham, up near the Lao border with China.

The irony and the good news is that neither of those dams are likely to be built on a river that is suffering from serious drought and water shortage.  Nor, for that matter, are other mainstream dams in Laos at Pak Lay and Pak Beng likely to be built either, though they were OK'd by the MRC in 2017 and 2018 respectively. That's not because the Lao government has experienced sudden enlightenment. Lao officials are still campaigning hard for the projects. It's because big hydropower projects are no longer bankable.   

The gestation period for a big hydroelectric project is lengthy and complex. The development banks that finance them aim to lock in a sure profit before they front billions of dollars in development loans that are to be paid back over a couple of decades.

Sinohydro and Datang Power, companies that have built dozens of big dams in China, have likely counted on loans from the state-owned China Development Bank to build Pak Lay, Pak Beng and Sanakham. It's not clear where PetroVietnam subsidiary PV Power has hoped to find US$2.3 billion in financing for the projected dam above Luang Prabang, a venture agreed between the Lao and Vietnamese governments in 2007. Hanoi, midway through a radical revision of its power development strategy, has stopped issuing state guarantees to investors in power projects.

A diligent search of online project development gossip turns up no evidence that the Vietnamese government is eager to see the Luang Prabang dam project go ahead. Hanoi is well aware that the agricultural economy of southwest Vietnam, the incredibly fertile Mekong Delta, is already being hammered by climate change, which has brought saline invasion and changing monsoon patterns. The flattening of the annual, nutrient-rich Mekong flood pulse and degradation of Delta fisheries that's resulted from the construction of dams upstream further burdens the Delta economy. Especially in a year when the ruling Communist Party is focused on rebalancing its top leadership, the party-state needs to show that it is defending Delta interests.

Nor does Hanoi want to offend Vientiane, where China, with deep pockets, has gained influence at Vietnam's expense. The result, a development policy specialist with decades of experience in Vietnam suggested to me, is that the Vietnamese government aims to slow walk the Luang Prabang dam project until it dies of unfinanceability.

Though there's a certain logic to focusing effort on things one is good at, and surely Vietnamese state companies and their Thai and Chinese counterparts have plenty of experience building and operating big dams, there's come a point where, even if externalities aren't considered, big dams no longer make economic sense. The price of solar and wind power generation has fallen so far and so fast in the last decade that big hydro no longer is bankable. 

Southeast Asia generally, and Vietnam in particular, are blessed with abundant solar and wind energy resources. Utility-scale solar projects can be brought to the market in a year or two; utility-scale wind projects take a bit longer.

Midway through a remarkable refocusing of its power development strategy away from reliance on hydro and coal, Hanoi is eager to cover short-term gaps by purchasing power, perhaps as much as 1500 gigawatt hours, perhaps 10 percent of a projected shortfall, from Laos in 2021 and 2022. In the longer term, Laos doesn't much figure in Vietnam's energy policy planning.

I contacted Brian Eyler of the Stimson Center, whose "Last Days of the Mighty Mekong" (Zed Books, 2019) is the go-to book on the river's present-day tribulations, to ask if he agrees that by churning up consultation activity in the MRC, the Lao government is trying to create an illusion of forward motion towards its vision of Laos becoming the hydro-powered 'Battery of Southeast Asia."

"Yes," Eyler replied. "In addition to a lack of financing for these projects, an offtaker has yet to appear to purchase power from the dams. None of the dams you’ve mentioned has a power purchase agreement to back it up. It's mindboggling to see the MRC start the [consultation] process without these key boxes (financing and power purchase agreements [PPA]) checked off. Perhaps the Lao government's calculus is to use passage [through the multinational consultations] as a way to gather financing and PPAs.

“Mooting these dams now gives an illusion of progress when in actuality all signals point to mainstream Mekong dams being obsoleted in the very near term. Unreliable flows, cheaper alternatives and efficiency gains in key markets like Thailand and Vietnam are greatly reducing the need for power produced from far-flung mega dams. Clearly Laos needs to explore alternative development options."

Laos will have to scale back its ambitions, but without building even one more big dam, it is still a position to benefit. That's because the turbines of existing dams in Laos on the Mekong's many tributaries, turning at night, can pair very efficiently with floating solar power arrays to pump a fairly steady supply of power into the regional grid. A large-scale project of this sort is already being planned at Nam Ngum, the largest reservoir in Laos, with a Chinese firm as a foreign partner.

David Brown is a retired US diplomat with wide experience in Southeast Asia and a regular contributor to Asia Sentinel