22 mai 2012

From Serre-PonÃ§on to Nam Theun 2: Back to a sustainable and multi-purpose future integrating water, energy and food needs

by EDF Group, Thai and Lao Governments

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Description of the Actors

It was through the "Serre-PonÃ§on and Lower Durance development" Bill of 5th January 1955, voted in almost unanimously by both Assemblies, that the State declared the public value of the Durance development project, the construction and operation of which it entrusted to EDF. The upstream 324 MW Serre-PonÃ§on scheme was commissioned in 1960. The other main stakeholders are: Water Agency, Local Commission for Water, Fishing French Federation, Kayaking French Federation, Local farmers, Local Tourism businesses. The 1070 MW Nam Theun 2 (NT2) hydropower project originated in a protocol signed between the Lao and Thai Governments. That agreement stipulates supply by Laos of 5000 MW to the Energy Generating Authority of Thailand (EGAT) to meet that country's rapidly growing needs for electrical power. The electricity is provided both to EGAT (Thailand consumption) with 995 MW (and to ElectricitÃ© Du Laos - EDL (for local consumption) with 75 MW. Developed and built by EDF under a BOOT (Build, Own, Operate, Transfer) process, in association with regional firms, the scheme was commissioned in early 2010. The owner and operator, NTPC (Nam Theun 2 Power Company Ltd), is composed of 3 shareholders: EDF International (40%), EGCO (35%-Electricity Generating Public Company -Thailand), LHSE (25% - Lao Holding State Enterprise - fully owned by the Government of Lao PDR). Financers are also key stakeholders in this project. The US dollar senior debt facilities include political risk guarantees from the Asian Development Bank (ADB), the World Bank and the Multilateral Investment Guarantee Agency (MIGA), export credit agency support from COFACE of France, EKN of Sweden and GIEK of Norway, and direct loans from multilateral and bilateral development agencies including the ADB, Nordic Investment Bank, Agence FranÃ§aise de DÃ©veloppement (AFD), PROPARCO and the Export-Import Bank of Thailand. Nine international commercial banks and seven Thai commercial banks are providing long-term loans to NTPC.

Background to the Case

From a long time ago, EDF has developed hydropower with a specific attention on water resources management. For example, the Serre-PonÃ§on dam, commissioned in 1966, is the most outstanding architectural structure of the multipurpose Durance and Verdon River system. With 32 hydropower plants, it enables the production of 6.5 billion kWh of renewable electricity and an output of 2000 MW within 10 minutes, supplies drinking water and water for industrial purposes to an entire region and irrigates over 150,000 hectares of farmland with a guaranteed storage of 200 million m3 in summer. The regulation of water flow and irrigation allowed the development of agriculture in the downstream areas. The reservoir of Serre-PonÃ§on became a lake on which activities were developed, and for instance, the average turnover from Tourism (fishing, sailing, water-skiing, swimming, cycling â€¦) is about 100 to 150 Mâ‚¬ a year nowadays. An innovative consultation process was also a key issue to gain the acceptance of local population. More recently, with the same philosophy of optimizing the multi-purpose of water, EDF developed and built the 1075 MW Nam Theun 2 hydropower scheme in Laos. It is a trans-basin project (partial water diversion from Nam Theun river to Xe Bang Fai River) with 1070 MW installed capacity under 350m head. It creates a 450 km2 and 3.5 billion m3 reservoir by means of a 45m high dam. Power generation, irrigation, flood control, clean drinking water, access to reservoir for fishing, boating, â€¦ are the different benefits of the scheme which is a major contributor to the socio-economic development of this region including Thailand. Indeed, NT2 originated in a protocol signed between the Lao and Thai Governments. That agreement stipulates supply by Laos of 5000 MW to the Energy Generating Authority of Thailand (EGAT) to meet that country's rapidly growing needs for electrical power. The electricity is provided both to EGAT (Thailand consumption) with 995 MW (5635 GWh/year) and to ElectricitÃ© Du Laos - EDL (for local consumption) with 75 MW (200 to 300 GWh/year). A high level of public consultation and disclosure has been a priority to ensure that all affected people are fully informed of the Project and that their views are taken into consideration. Over 250 public consultations and workshops were organized at all level (local, national, regional, international). Nam Theun 2 has benefited and continues to benefit from a level of consultations within Laos that has not been seen before, between the local government, project developers, the Project Company and the World Bank.

Reasons for Action, Objectives and Targets

Hydropower is the major contributor of renewable energy and was responsible for 90% of the world's renewable electricity production. The development of a hydro project is sustainable if social and environmental issues are properly treated and is a powerful tool for local and regional development and also for fighting against poverty and global warming. As part of its commitment to a sustainable development approach, the EDF Group seeks to balance economic development with a high level of service, environmental protection and social equity whatever the location in the world. All members of Parliament were in agreement about the great importance of the Durance project and of the Serre- PonÃ§on dam, the keystone of this development plan. Despite the large environmental and social impacts, at no point was the project brought into question because development was the main driver and advantages were higher than drawbacks, despite widespread criticism at the time of EDF's "fully-hydraulic" policy. Falling under the umbrellas of both energy policy and town and country planning policy, the development of the Durance, which would lead to the destruction of two villages, was supported by most of the different actors. In the minds of those in charge of the project, the aim was to boost the development of the region as a whole and to modernise its valleys, even at the cost of its village communities. And this was confirmed during the various debates triggered by the draft Bill on the development of the Durance. Indeed, given all the contradictory interests at stake, it seemed crucial to the authorities and to EDF that the country's interest in the project should be expressed by a public vote at the National Assemblies. In Nam Theun 2, the approach was a step by step approach with some difficulties at the beginning of the project to define the level of environmental and social requirements in a country where standards in these fields are poor or inexistent. It last about 3 years to have comprehensive studies on these aspects. The project has been identified as one of the best hydro projects in Laos in terms of benefits sharing, including water, energy and food resources optimisation and an attractive economic rate of return for the investors. NT2 project is also a unique approach towards environmental and social management: Comprehensive environmental and social impact assessments have been carried out and extensive socio-economic surveys have been performed regarding both the population living in the future reservoir area and those living downstream.

Link to the Nexus

The management of the Serre-PonÃ§on reservoir has multiple objectives — electricity production, flood amelioration and water for irrigation. Tourism is not a contract condition but is also included in reservoir management objectives. EDF is required to deliver 200 Mm3 to irrigators between 1st July and 31st September annually, and an information bulletin is sent each week to farmers about irrigation flows. EDF encourages farmers for saving water by financing modern systems for water use reduction. Through a specific agreement (Water Saving Convention signed in 2000), which leads EDF to payback a part of the saving costs if the targeted objectives are reached, the agricultural consumption for one partner decreased from 310Mm3 in 1997 to 201Mm3 in 2005. EDF, in association with the Water Agency, co-financed a number of environmental initiatives e.g. reforestation of upstream land. The Plan Durance reports on the implementation and effectiveness of these additional economic benefits. In Laos, both reservoir area and downstream powerhouse area are concerned by water, energy and food issues. Often, compensation approach is used by developers, but in the case of NT2, the choice made was to use a more integrated approach embracing the different issues as described below, which allows for instance to save water from agriculture, to better manage flow streams in order to protect ecosystems downstream, to decrease energy needs for agriculture, â€¦ To ensure sustainability: participation, sharing, technical assistance, training, communication, â€¦ are also key issues. The creation of the Nam Theun 2 reservoir has flooded large areas on the Nakai Plateau and it was necessary to relocate 17 villages with 1100 households and 7000 individuals. Before resettlement, households living on Nakai always had diverse livelihoods, which allowed them to cope with frequent shocks and to make the most of limited natural resources. They subsisted mainly by cultivating swidden upland rice, vegetable gardens and fruit trees, supplemented with fishing, livestock raising and collection of NTFPs (Non- Timber Forestry Product) and wildlife. Forty two percent of cash and in-kind incomes came from agriculture and 23% from livestock, with 16% from wages, food-for-work and jewelry sales, 10% from fishing and 9% from NTFPs and wildlife. The worst-off households had no land suitable for rice cultivation, and relied mainly on NTFPs for subsistence. Some households sold or bartered forest products, and occasionally livestock, to merchants in Ban Oudomsouk. However, at least 55% of household income was in-kind: crops produced and consumed by the household. The post-relocation livelihood program was designed in consultation with the resettlers, bearing in mind the natural resources available to them, their skills, traditions and previous livelihood patterns. The pillars of the resulting livelihood program are: forestry, fisheries, agriculture, including livestock and cultivation, and off-farm income sources. Downstream the powerhouse, in order to reduce and mitigate impacts of a different flow regime on the local population, a Downstream Program has been set up. It is a USD 16 Millions multifaceted program, which design and implementation spans from 2006 to 2013. It covers all downstream areas, has been endorsed by the Government of Lao, and is jointly implemented by the Project Company and the local administration. It includes agriculture programme, rehabilitation of water systems for irrigation and flood control, technical and financial assistance for irrigation pumps, â€¦

Process, Summary of Action Taken

The construction of Serre-PonÃ§on dam led to the flooding of 2 825 hectares of land — 600 hectares of which were cultivable — and had a major impact on the villages of Savines and Ubaye, resulting in the resettlement of over a thousand inhabitants. Many buildings were destroyed, including two industrial facilities, and in addition, 60 km of road and path and 14 km of railway were lost. Population displacement was a key issue for the construction of the dam (around five villages), with around 15,000 inhabitants affected and 2,000 relocated. A three-year public consultation process was undertaken, with a large proportion supporting the dam and compensation (new houses, land, new roads) negotiated with those communities that were to be affected. Only three villages were against the proposed dam. This process was very innovative on that time for this kind of project. The consensus that formed around the desire for modernity and greater well-being, as well as the will to break into a new era, led to fundamental changes in the local communities after the dam was built. Although the majority of inhabitants chose to leave the area, they all picked very different destinations. By changing locations, these farmers left behind the peasant life and entered the world of modern agriculture. A break therefore occurred both with the area itself and with the previous era, with the common aim of achieving social advancement. One of the major trade-off was the decision to set aside part of the Serre-PonÃ§on reservoir for the storage of 200 million m3 of water for agricultural purposes. For NT2, all obligations and measures needed to mitigate the Project's impacts or to compensate the population have been identified in the expert studies and have been contractually sealed into the Concession Agreement signed between the developers and the government of Laos. The approximately 1,100 households or 7,000 people, whose current villages are situated within the area of the future reservoir, moved in a maximum 5 km area from their original habitations. New housing, schools, health and community infrastructure complete with electricity and water supply were constructed. The primary water supply activity was the construction of around 500 deep boreholes which are equipped with AfriDev hand pumps, prior to the beginning of operation. The Downstream Program is also conducting demonstration activities within each district as part of developing the operation and maintenance program for water supply. As part of the demonstration activities water users are trained on how to operate and replace degenerated parts, given tools and basic spare parts and a handbook on how to maintain and repair the hand pumps. While gaining land ownership, each household is given a variety of livelihood opportunities, including agriculture, forestry, reservoir fisheries, livestock, and community-based commercial activities. NTPC has provided resettled households with both technical assistance, through extension workers and demonstration plots in each village, and free or subsidized inputs including agricultural tools, fertilizer and improved crop varieties. Households have been able to choose between several different technical systems. Although soils on Nakai are relatively poor, an agricultural system combing rotation of crops with legumes (particularly stylo, or "tropical alfalfa") with use of fertilizers and improved crop varieties has generated yields of over 3 tonnes/ha, even on poor soil. The 4,000 km^2 Nam Theun 2 forested watershed, which ensures a continuous supply of water to the reservoir, is controlled and managed by the Watershed Management Protection Authority (WMPA), established for that purpose, and funded by NTPC via a contribution of US$ 1 million per year during the construction (5 years) and concession (25 years) periods. This world-class primary forest area is of key importance in terms of its biodiversity and is considered to be the largest untouched refuge of its kind in South-East Asia (elephants, tigers, Saola...).

Planning and Budget

It is difficult to calculate the original budget of the Serre-PonÃ§on dam which is including in a more larger valley development project. The economic performance is very good and increased by the indirect benefits from the scheme (irrigation, flood control, drinking water supply, tourism,...). The project was voted in 1955 and commissioned in 1966. The NT2 project construction started in May 2005, mobilising up to 8000 workers (75% of Lao workers), and was commissioned in March 2010. A total of US$ 1.58 billion in capital commitments for NTPC was completed to finance the total base project cost of US$ 1.250 billion, contingencies and ancillary bonding facilities. Around US$ 180 million (13% of the global budget of the project) are devoted to environmental & social (E&S) issues from design to operation of the scheme. This value is higher than usual value for such a hydro project especially in a country where there is no specific regulation in regards to E&S standards. However, NT2 demonstrates it is possible to develop a hydro project with a good equilibrium between the 3 pillars of the Sustainable Development and the objective is now to replicate this new standard for other Lao projects in a shorter timeframe since benefiting from this unique and comprehensive experience.

Problems, Difficulties Met

With the multi-purpose uses of water in Serre-PonÃ§on, combined with a lake level agreement to keep the reservoir level at 780m at the beginning of July and >775m at mid-August, EDF sometimes has difficulties in meeting both these needs during dry years. All the objectives and plans were formulated by SDAGE (Management and Master Plan of Water) in 2001 and incorporated into the Plan Durance. These objectives have always been achieved, with regular reporting to stakeholders. The competing needs of various reservoir users has sometimes caused conflict, and after the low rainfall season of 1989-90 conflicts between stakeholders and anger at EDF lead to the formation of a new agreement which called for a better optimisation of the water level throughout the year to integrate the needs of all stakeholders. For this purpose, EDF also developed hydrological models and a dense network of sensors (discharge, snow, rain and temperature) which allow the hydric content of the Durance and Verdon basins to be assessed, together with any changes that occur and the volume of water supplied and discharged, weighted by a probability of occurrence. Although the technical challenges have largely been overcome in Nam Theun 2, challenges remain. Perhaps the most important change required is a social one. The resettled households must now farm under significantly different circumstances to those they have adapted to over generations. Understandably, adoption of unfamiliar techniques and inputs is taking time to spread. Some households and villages are more willing than others to take risks by investing in new technologies. This means that some have achieved impressive yields, while others lag behind. For example, the best performing village in terms of yields has been Khon Kaen, a village towards the South of the plateau. The farmers of Khon Kaen had subsisted on the poorest soils in the plateau for generations, and were keen to take up new technology that would allow them to get as much as they could from every inch of land. This willingness to innovate has paid off. Despite having some of the least fertile soils on the plateau, in 2008 Khon Kaen achieved an average rice yield of 2.4 tons/ha, more than twice the average.

Results to Date and Future Commitments

During the last 50 years at Serre-PonÃ§on, EDF has reconciled electricity production with the expectations of all other partners and water users including that of tourism, a particularly active industry with high-growth potential for the regional economy. The shared management approach to 2002 and 2003's droughts highlighted that with highperformance forecasting and a strong solidarity between the different actors, notably from the Lower Durance agricultural community, and a thorough and regular dialogue it was indeed perfectly possible to enjoy the nearly limitless recreational activities offered by the 2nd Europe's largest man-made lake. On a wider note, the ecological balance of the aquatic environment and the conservation of the countryside disrupted by the different hydropower stations along the Durance system make up both one of society's aims and a requirement of sustainable development. The main problems encountered after 50 years in this highly developed valley are morphological imbalances in the bed of the Durance and on the boundaries in wildlife development. Downstream, phenomena of erosion, incision, paving, clogging and local draining-off can appear in the river. These phenomena can cause problems in terms of decreased biodiversity, the loosening up of the structure and the settling of the groundwater. Aware of the situation, EDF is now studying measures to operate differently the facilities while minimizing impact on environment. This requires the corresponding measures to be prioritized and jointly funded by all the partners (elected representatives and water users) committed to successfully conducting a Durance Plan steered by the State. In NT2, the multipurpose use of water is a key element in the success of such a project and a good indicator of benefit sharing is the livelihood of the local people around the project. On the Nakai Plateau, households enjoy significantly higher incomes and living standards relative to the baseline. As well as improvements in economic indicators, they enjoy better access to health, education, water and sanitation. This has already led to demonstrably improved health outcomes and increased enrolment in school. As well as adding to household well-being, it is hoped that these investments in human capital will pay off in the long term, with increased and sustainable incomes. These improvements are clearly appreciated by the resettlers, and reflected in overall positive feedback on their new conditions and livelihoods. However, building livelihoods is a complex and long-term process, and it is far too early to declare victory or sustainability. Although some encouraging results have been achieved on demonstration plots, progress in agriculture has been slow relative to fisheries. Households will need to adopt unfamiliar new techniques to realize higher potential yields. Off-farm income sources, particularly small shops, are beginning to replace wages from project related employment, which were available during the construction phase of the project. But the considerable potential for further development of offfarm livelihoods, including tourism, will not bring benefits to the majority of resettlers unless carefully managed. Forestry is a major livelihood pillar, and particularly important for vulnerable households. Although significant progress has been made with the development of the Village Forestry Association, it is early days to judge whether this can provide a sustainable income source for resettled households. In addition, households are expressing concerns about declining availability of NTFPs. Potential negative effects on household well-being and nutrition must be carefully monitored, and ways of replacing this important livelihood component pioneered.

Lessions Learnt Hydropower has a crucial role to play in the water, energy, food and climate change nexus as an integrator and an optimizer of the water resources in a sustainable way as demonstrated for many years in Serre-PonÃ§on and as shown nowadays in Laos. The key issue for successful projects is the continuous consultation and dialog with the stakeholders wherever you are (developed or developing country) and whenever you are (50's years, nowadays or tomorrow).

Contact

Laurent BELLET, EDF Hydro { laurent.bellet@edf.fr}