In the article ‘Hydropower in Laos: Does it Hold Water?’, we outlined the many environmental, social and economic pitfalls of hydropower in Laos, and the benefits of investing in sustainable agriculture, tourism and alternative energies instead. Here, we examine those issues in the context of Champasak Province in Southwest Laos.
Champasak presents an ideal case study, as it is a popular tourist destination and major agricultural hub, but is also on track to become one of Laos’ biggest hydropower producers and exporters by 2030. At present, there are 3 major hydropower dams in various stages of development here: Don Sahong, Phou Ngoy and Ban Koum. However, the case for these dams is questionable at best due to their significant environmental and economic risks.
The Dams
Don Sahong
Operational since 2020, Don Sahong is situated on the Hoo Sahong Channel, a critical fish migration route on the Mekong and the only one offering passage to fish during the dry season.
Most of Don Sahong’s energy exports are sold to Thailand and Cambodia, which are also expected to reap almost all of its economic benefits, deriving a net project value (NPV) of around US$91 million. Meanwhile, stakeholders and the Laotian government would experience an NPV loss of US$102 million with an internal rate of return of just 10%.
While it is too early to properly assess Don Sahong’s environmental impacts, it presents a major blockage to fish migration, threatening fish populations that depend on an unobstructed Hoo Sahong Channel. This in turn threatens to cause an estimated US$47 million loss in fish production, with a 2014 WWF assessment finding no effective mitigation measures for this.
Furthermore, Don Sahong is an existential threat to the Mekong’s last Irrawaddy dolphins, of which just 85 existed in the river as of 2014. Reduced water flow downriver from the dam is expected to reduce the dolphins’ occurrence in the Mekong by 34%, placing both them and a US$4 million Cambodian dolphin-watching industry at risk of collapse.
Phou Ngoy
Phou Ngoy is a proposed hydropower dam that would be built just south of Pakse –Champasak’s capital city– at a critical linkage point between the upper Mekong and the biodiverse floodplains downriver.
Budgeted to cost US$2.4 billion, construction has been delayed indefinitely due to inflation, pushback from regulatory and environmental agencies, and the reluctance of the Thai government to finalise a purchase agreement due to social and political opposition to hydropower. As with Don Sahong, virtually all of Phou Ngoy’s economic benefits will be reaped by Thailand, which will derive an NPV of around US$147 million. By contrast, Laos would face a US$3-3.5 billion NPV loss, with the government shouldering US$582 million of this should they take a direct stake.
Flooded Village Countryside Mahaxay City Khammouan Stock Photo 1152916001 | Shutterstock
Additionally, through altering seasonal water flows and blocking fish migration routes, the dam could cause a US$131 million loss in fish production, harm the biodiversity of the floodplains downriver, and threaten the homes and livelihoods of 817 villagers in its immediate vicinity. In 2018, Southern Laos was hit by severe flooding, with areas near Phou Ngoy’s proposed site being among the worst affected. Thus, the dam could exacerbate an already serious flood hazard, and the cost of relocating residents is predicted to detract US$132 million from its NPV.
Ban Koum
Ban Koum is a cross-border hydropower project between the Thai and Laotian governments. However, Laos will face an NPV loss of US$239 million, while almost all of the energy produced will be sold to Thailand. Despite this, Thailand has halted feasibility studies there due to opposition to hydropower and the greater cost efficiency of alternative energies like solar, stalling the project in the planning phase for over a decade.
Adding to Thailand’s hesitancy are the US$116 – 149 million environmental costs Ban Koum will create in the country. Fish production losses alone would be even higher at US$293–381 million, while relocating the 950 people who would be displaced by flooding would cost US$157–173 million. Ban Koum dam is also anticipated to flood San Phan Bok (Thailand’s Grand Canyon), causing damages too great for any present-value calculation to capture.
Alternatives to Hydropower
With the three hydropower dams estimated to destroy US$3.5–6.5 billion in value – and cost Champasak US$1–1.2 billion in environmental and social costs– there is little to no economic or environmental case to invest in them. Fortunately, if the right enabling environments for alternative energies, sustainable agriculture and tourism are created, the province is well suited to recover revenue lost from terminating hydropower projects.
Alternative Energies
Despite making up only a tiny fraction of Laos’ energy mix, solar and wind have great potential as a source of energy revenue. With their costs declining globally, both are already much cheaper to install than the hydropower projects, which their marginal costs of production are likely to breakeven with by 2030.
Champasak is a particularly promising province for solar, as not only does it have 14,909 km² of land suitable for solar installation, but also receives a very high amount of shortwave radiation. As a result, even if just 2% of its theoretical energy output were achieved, solar would still produce more energy than all three hydropower projects combined, worth over US$1 billion/year.
Due to Champasak’s relatively low average wind speed, wind has less potential as a wide-scale energy source and would only produce 20% of the energy of the hydropower projects if 2% of its theoretical energy output were achieved. Nevertheless, it could still be a complementary energy source to solar in farming communities in northeast Champasak.
Agriculture
With its rich farmland (particularly on the Bolaven Plateau), Champasak is one of Laos’ leading producers of coffee, rice, vegetables and fruit, exports of which were valued at US$226 million in 2021. While this figure is only a quarter of the hydropower projects’ projected revenue, it could increase multifold if conditions were made more conducive.
Coffee in particular is key to this potential, as not only is it Laos’ fifth most valuable agricultural export (worth US$51 million), but 61% of the country’s crop is grown in Champasak. Thanks to productive farmland and more weather resistant beans, yields have increased by 0.8 tonnes/hectare between 2012 and 2021 despite plantation sizes remaining unchanged since 2016, reducing the need to deforest land for coffee.
Currently however, Champasak’s agricultural sector is increasingly dominated by monocultures of banana and especially the soil degrading cassava. With a recent tax rate hike on Laotian coffee exports and most farmers lacking the bargaining power to deal with volatile coffee prices, many could be tempted to switch to these more profitable (and environmentally damaging) cash crops. Also, coffee exports are largely limited to Thailand and Viet Nam and while the Lao-China Railway potentially offers access to other coffee markets, authorities have not yet approved it for this purpose.
One way to address this is to grow coffee and bananas in mixed plantations, which are more profitable and resilient than growing either in monocultures. Increasing direct trade routes to countries further afield would also diversify the market, while giving coffee farmers collective bargaining power would increase price resilience.
Tourism
Champasak is well positioned to capitalise on the projected recovery of Laos’ tourism industry, having 217 officially designated tourist sites conducive to the growth of eco-tourism. Seneca estimates that when international travel fully resumes, tourism in Champasak will be worth US$100 million/ year.
Fully realising this potential however will require greater investment in transport infrastructure (particularly the Lao-Nippon Bridge) and in Champasak’s fledgling service and manufacturing industries, to incentivise longer stays and greater spending by tourists.
Export Processing
An additional investment recommended for Champasak (and Laos as a whole) is in its special economic zone (SEZ) and its four sub-SEZs.
As discussed in our previous article, Laos can increase its agricultural revenue both by increasing international exports and expanding its food processing sector. Lying within easy travelling distance of Viet Nam, Thailand and Cambodia, Champasak would be an ideal stepping stone for produce meant for these markets. Meanwhile, its SEZ and sub-SEZs already include trade and logistics warehouses and offer services conducive to export processing like manufacturing. However, these are currently under-utilised and so require greater investment, perhaps in the form of capital redeployed away from hydropower.
Don’t sell Champasak down the River
As things stand, hydropower risks irreparably destroying natural capital from ecosystem services in Champasak, and the lives of riverine communities within and beyond the province. But with two of the dams uncertain of even being built, there is still a chance to avoid this by investing instead in alternative energies, agriculture and tourism. Through doing this, Champasak could not only diversify its economy, but also create a much more stable, productive and sustainable one too.
Author: Thomas Gomersall, Seneca Impact Advisors
For more information, please contact info@senecaimpact.earth
