For EGAT, the Project represents a long-term and reliable source of capacity and electrical energy, diversifying its reliance on any particular fuel and minimising any environmental impacts. The Project will be an integral element of the long-term development of the electricity supply market within Thailand, accounting for approximately 5% of the forecast gross generating capacity available in 2008.
Co-operation in energy exchange between the Lao PDR and Thailand has existed on an uninterrupted basis for over 30 years – the first energy exchange commenced in 1971 with the commissioning of the Nam Ngum 1 hydroelectric power project. The commercial relationship between the two countries has continued uninterrupted since then.

3 Historic Background

The development of hydroelectric power projects in the Lao PDR for the export of electricity to both Thailand and Vietnam has long been addressed in inter-governmental agreements between the respective countries. In addition to the benefits derived from the export of electricity, the development of hydroelectric power capacity is also needed to satisfy both current and domestic electrical energy demand for industrial, residential and domestic purposes.

Hydroelectric power generation has long been identified as a stable source of foreign exchange revenue to fund economic and social development in the Lao PDR, with the potential for hydropower development on the Nam Theun and Nam Kathang river systems first identified in the 1970s by the Mekong Secretariat.

In 1980, Motor Columbus, a Swiss engineering firm, was contracted by the Mekong Secretariat to investigate the possibility of developing three projects along the Nam Theun River. In 1984 and 1986 the Snowy Mountains Engineering Corporation Ltd, an Australian engineering firm, undertook further investigation for the Mekong Secretariat in respect of geotechnical investigations for the potential Nam Theun 2 dam site. In 1991, the same company was commissioned by the World Bank to undertake the Nam Theun 2 Project Feasibility Study.

In 1994, the World Bank was formally invited by the GOL to participate in the Project, both as a country risk guarantor and a provider of funds to GOL. The preliminary environmental impact assessment prepared by TEAM Consultants was released in 1995 and, following their detailed review, the World Bank issued a list of outstanding concerns, including the need for an Alternative Study, an Economic Impact Analysis and an Environment and Social Review. In 1996, the World Bank developed the Nam Theun Social and Environmental Project that would finance Project-related activities and be treated as part of GOL’s equity interest in the Project.
Concurrently, EDF and ITD had established, along with other partners, the Nam Theun 2 Electricity Consortium (“NTEC”) and commenced negotiations with EGAT in respect of a potential power purchase agreement in 1994. In 1995 NTEC had agreed with GOL to support the planning and initial development of the Nakai-Nam Theun NBCA and entered into discussions with the International Union for Conservation of Nature (“IUCN”) for the development of a management plan for the Nakai-Nam Theun NBCA.

In recognition of EGAT’s increasing energy requirements and the unique geographical benefits for hydroelectric power projects in Lao PDR, in June 1996, the GOL and the Government of Thailand entered into a Memorandum of Understanding to further support the development of power projects in the Lao PDR through the supply of up to 3,000 MW of electrical capacity to EGAT by 2006. The Project, with at that point a nominal capacity of 680 MW to be used as a baseload plant, was nominated by the GOL as one of the potential suppliers of generating capacity and electricity to EGAT.

However, with the Asian financial crisis occurring shortly thereafter, EGAT’s forecast electrical energy requirement was reduced significantly and the two governments agreed to vary the power purchase scheme with the scheme separated into two stages - 1,600 MW by December 2006 and a further 1,700 MW by March 2008. The Project would no longer be required by 2006 but would remain a key element of EGAT’s future operational planning needs and would be required by 2008.

Notwithstanding the temporary delay caused by the impact of the Asian financial crisis on EGAT’s power requirements, the GOL, the World Bank and NTEC continued to undertake further assessment of the economic viability and potential environmental impact of the Project. In 1997, consultants Seatec International completed a draft Environmental Action Management Plan.