Course:ECON371/UBCO2011WT1/GROUP6/Article6

Mekong river hydroelectric dam threatens livelihoods and endangered species in landlocked Laos

Link to Article

Summary

In Laos, a government plan to build a hydroelectric dam (Don Sahong) in the Mekong River has received strong opposition from multiple environmental organizations and international scientists. There are worries regarding the potential impacts the construction of the dam will have on the biodiversity of the river and the 60,000 people who are dependent for their food and their livelihood on fisheries. The construction of the Dam would have a major impact on the Irrawaddy dolphins and the Giant catfish, which are already endangered species. Other concerns include the possibility of undermining the country’s huge potential for eco-tourism. The fishery industry in South-East Asia in general is extremely important and 78% of Laos total fish production comes from capture fisheries. However, the dam could put at risk 70% of the fish catch in the Lower Mekong Basin due to the restriction on the only major channel of fish mitigation between Cambodia and Laos. The project is very complex and the fact that the Mekong is a river shared by multiple nations only adds to the mix. All nations involved must make a decision on whether to build what would be the eighth dam in the Laos.

Analysis

Cost-Benefit Analysis

In this particular case, a CBA would be the best methodology. In a project where the stakes are as high as they are, and societal pressures are coming from all angles we are certain that they have proceeded to make comprehensive and specific quantitative and qualitative studies on all possible cumulative impacts. This may explain why a final decision on the dam is still yet to be made. This project would hold both a national and a worldwide perspective. On one hand, the project deals with the Laos population, and how to manage their resources in order to hopefully provide better standards of living. On the other hand, the Mekong River is shared by multiple nations, Thailand, Vietnam, Cambodia, and Laos, adding to the complexity of the situation. The environmental impacts of the dam will directly affect all the nations sharing the Mekong River. It could potentially undermine eco-tourism in the area and could contribute to the extinction of a variety of endangered fish such as the Mekong Giant Fish and the Irrawaddy Dolphin. Finally, a new dam in place would reduce sediment flowing downstream to the Mekong River Delta, increasing the vulnerability of this area to the impacts of climate change like sea level rise.

So as we can see, the majority of the impacts experienced by this physical project (as it deals with the construction of new dams) will be spread across all nations involved and could even extend to other countries (third parties). South East Asia is well known for their fishery industry, and if the ecosystem in the Mekong were to be disturbed enough to make a serous shift in its internal working it could have devastating repercussions for their economy and countries importing from the area will therefore suffer from it too.

Let’s take a look at the project’s inputs and outputs:

Project’s inputs:

• Capital Investment for Dam construction • Operating & maintenance Costs • Territory lost due to floods • Loss of Biodiversity – possible extinction of some wildlife! • Fall in eco-tourism • Misplaced Locals • 60 million people are dependent for their food and their livelihood on fisheries

Project’s Outputs:

• Additional power generated • Increased jobs • Increased government profits as they would supply power to neighbouring countries, Thailand and Vietnam

Measuring costs and benefits can be extremely difficult, especially in a project that deals with several nations. We must discount all future operating costs as well as expected revenue from power production in order to get a Present Value. This can lead you to take a financial decision on whether the project is feasible or not. A positive NPV meaning one should go through with the project, and a negative otherwise. Furthermore, we can take different approaches depending on the environmental applications. For example, we can measure the loss of biodiversity by using contingency valuations. This is in order to determine the willingness to pay for the habitat protection of all affected species. Although, could we really put a number on what it takes to protect a specie from fully becoming extinct? Also, we may find some differences in the Willingness to accept and willingness to pay (possibility of WTA > WTP). Are we sure on the repercussion that a loss of specie may have in the future? Remember, we can assume that we would be placing 78% of Lao’s total fish production in jeopardy by attempting to place a dam that could have serious consequences on the fishing industry, and hence the overall economy of the country. Especially, on a country where the fishing industry is a key factor adding to their GDP.

Additionally, we can calculate the value placed on the natural heritage area by using the Travel-Cost approach and seeing how much people are willing to pay in order to visit the site. What about the loss in tourists? We can also evaluate the loss in value to the area around the dam due to the fall in tourism or fishery activity by using hedonic estimation and we can see a more specific amount of what we are giving up if we go through with the project (opportunity costs). In order to determine the cost of any floods and droughts that may arise we must calculate the total damage caused by flooding/droughts and times it by the probability of this event occurring each year. Then treat it as perpetual cost. Let’s not forget that although not mentioned in the article, some of the population living in the area surrounding the preliminary location of the dam will have to be relocated. Therefore, they must estimate the costs of relocating all the population misplaced by the construction of the dam. This can be easily estimated as the cost of providing similar living conditions for everyone that was moved from their homes. Finally, a great deal of the population would not be able to get the food they need if fish are not able to take their usual routes upstream, which will affect the breeding process and in turn the health of millions of people depending on the fish of the Mekong as a necessity for survival. The government may need to implement plans in order to assure that those struggling with getting a hold of food will be taken care of.

As mentioned previously, once all values are discounted back and an NPV value is reached we can make a decision as to whether to go forward with the project or not. However, simply because we get a positive NPV value may not necessarily mean that the project should be given a green light. We need to elaborate a series of scenarios and create a sensitivity analysis, in order to paint a better and bigger picture of the issue. We must also look at other criteria such as fairness and moral considerations.

The discount rate is a variable that can be tampered with when doing the sensitivity analysis. Individuals, when faced with being poor and hungry or destroying the environment for money to feed themselves; they will more likely choose to feed themselves. This is because of uncertainty; they don't know what is in store for tomorrow. Whereas in Canada we don't have to worry about going hungry, so a worse economic position is not life or death. The discount rate comes into play because if you are uncertain about life for in a couple of years, you will have a huge discount rate. The country as a whole would follow this and would most likely have a larger discount rate then a country like Canada. This would make all future environmental impacts lower in terms of present value.

Because a project of this magnitude affects a great amount of people, we need to make sure that there is some level of fairness and try to avoid bias. Yes, Laos is one of the poorest countries in Southeast Asia and would relish the opportunity to supply hydroelectric power to their neighbouring countries in order to improve their standards of living and the country’s current economic situation. However, there are already 11 dams in Laos and many more in the surrounding countries. Is it really necessary to add another one? At least, is this the right time to do so? Hydroelectric Power is a great renewable resource, but at what point are we over doing it? Is this excessive construction of dams sustainable? Especially, on such an important and dependable river such as the Mekong. Is the government tolerable of improving the economy at the sake of potentially contributing to the extinction of some wildlife, and depleting a considerable amount of the nation’s heritage?

Laos signed an agreement with Mega First Corporation Malaysia to provide a feasibility study on the project. Companies like such seek to maximize profits and could have bias in their analysis of the situation. However, with the societal pressures applied by a great variety of NGOs they could potentially reach a point where they are able to make a very well informed decision based on the extensive quantitative and qualitative studies done across different sectors and entities, which could prove to be beneficial in the end.

Professor's Comments

Many good points on what would need to be considered in a CBA. I would like to have seen more emphasis on the practical issue. Even if the NPV of the project is negative, the critical issue for Laos is whether it's benefits are positive. If the overall NPV is negative and it is positive for Laos, what would it take for Laos to make the choice for overall efficiency? Think Coase here.

8/10