Who is Profiting from the Dam?
Financiers and Investors
Xe Pian-Xe Namnoy’s consortium members are directly profiting from the project through their equity investments and their roles as contractors. Beyond these four companies, a number of other entities are also profiting from the dam.
A syndicate of four Thai banks has provided 70% of the cost of the dam through debt financing. On November 28, 2013, these banks provided a 20-year loan worth approximately USD714 million. These banks are collecting interest on the loan until it is paid down in 2033. The lending syndicate is composed of Krung Thai Bank, Ayudhya Bank and Thanachart Bank, three commercial banks from Thailand; and the Export-Import Bank of Thailand, the government’s export credit agency. Ayudhya Bank’s parent company, with a 76.55% stake, is the prominent Japanese financial institution Mitsubishi UFJ Financial Group.
The Korean government has enabled and profited from the project through entities it controls. The government’s Economic Development Cooperation Fund loaned USD80 million overseas development aid to Lao Holding State Enterprise, one of the project’s consortium members, to fund its equity investment in the dam.
Several Korean government-connected entities are significant shareholders in the two Korean conglomerates involved in the dam consortium. These are:
- The Korean Development Bank, which owns 32.9% of the Korean Electric Power Corporation, the parent company of dam consortium member Korea Western Electric Power Co.
- The Ministry of Economy and Finance, which owns 18.2% of the Korean Electric Power Corporation.
- The government-owned National Pension Service, which invests the retirement savings of Korean citizens, owns 7.19% of the Korean Electric Power Corporation and 8.37% of SK Holdings and 7.15% of SK Discovery, the largest shareholders of the dam’s lead developer and builder, SK Construction & Engineering.
Moreover, the Korean government’s export credit agency, the Export-Import Bank of Korea, advised on the dam’s financial structure, according to an article written by staff from one of the project lenders and the law firm representing the lenders. The Export-Import Bank of Korea also reportedly participated in a feature of the project loan called a “take-out mechanism,” which allowed the dam’s developers to transfer a portion of the project loan to the Export-Import Bank of Korea at a later date. (The Asian Development Bank was also reportedly an early financial advisor and participated in the take-out mechanism, according to the same source. However, in correspondence with the authors of this report, the Asian Development Bank denied playing a role in the dam, without providing evidence. See textbox for more details.)
The Thai government is also an important backer and beneficiary of the project. The Thai government’s export credit agency, the Export-Import Bank of Thailand, was a member of the project loan syndicate, as discussed above.
The Electricity Generating Authority of Thailand (EGAT), the country’s electricity utility, is by far the largest buyer of electricity from the dam, making it an important player in making the project “bankable” and getting it off the ground. In 2013, EGAT signed an agreement to purchase 90% of the dam’s electricity. EGAT is also the largest shareholder, with a 45% stake, of Ratchaburi Electricity Generating Holding, one of the dam’s consortium members and the construction supervisor. Another government-connected entity, the Thai Social Security Office, is Ratchaburi’s fourth-largest shareholder, with a 3.27% stake.
The Asian Development Bank’s Hidden Role in Xe Pian-Xe Namnoy
The Asian Development Bank (ADB) played an important, behind-the-scenes role in getting Xe Pian-Xe Namnoy off the ground, according to a public document written by people closely involved in financing the project. According to the document, the ADB acted as an early financial advisor for the project. The ADB’s expertise would have been important for the dam’s consortium members and lenders, which lacked experience in structuring complex hydropower projects of this nature in Laos.
The ADB also appears to have backed the project loan through a feature called a take-out mechanism, according to the document. This mechanism allowed Xe Pian-Xe Namnoy Power Company to take a portion of the loan off the books of the Thai banks and transfer it to the ADB (and Export-Import Bank of Korea, the other participant in the mechanism). Xe Pian-Xe Namnoy Power Co. had the option to do this for a period of three years from the signing date of the project loan, with the permission of the Thai banks. Even if the take-out mechanism was not exercised, the ADB’s backing of the project through this feature likely helped ensure that the project was bankable.
The ADB’s role in the dam is described in an article written by staff from Krung Thai Bank, one of the project lenders for the dam, and Latham & Watkins, the law firm representing the lenders. The article was published in March 2014, four months after the project loan agreement was signed. The authors were closely involved in negotiating and executing the loan deal. When presented with this evidence, an ADB spokesperson denied in an emailed response that the bank had advised on the project and participated in the take-out mechanism. The spokesman did not specifically address the article describing the ADB’s involvement or provide evidence that it was not involved.
The ADB’s indirect support for the Xe Pian-Xe Namnoy Hydropower Project is illustrative of the ways in which it has supported the development of the Lao hydropower sector, together with other multilateral development banks, in particular the World Bank and its private sector lending arm, the International Finance Corporation.
Following the initiation of extensive economic reforms in 1986, through the New Economic Mechanism, Laos opened large sectors of the economy to large-scale private investment. An important area identified to support the country’s economic transformation was the exploitation of water resources through construction of large hydropower dams in the Mekong basin intended to export electricity to neighboring countries. This initiative was encouraged and supported by international financial institutions, in particular the World Bank and ADB. In the early 1990s, when the Xe Pian-Xe Namnoy project was initiated, both banks had hydropower projects in the planning stages and were also assisting the Lao government to develop mechanisms to facilitate private hydropower investment, as well as financing the construction of transmission lines and related infrastructure. Over the years, the multilateral development banks began to shy away from direct financing of large-scale hydropower in the region, conscious of the steep reputational risks involved. They have instead opted for more indirect support for the sector. This includes developing financing plans and constructing transmission lines to enable cross-border and regional power trade. In some cases it has included providing guarantees for commercial loans for hydropower projects.
The ADB continues to support the construction of transmission lines and infrastructure to facilitate regional power trade – much of it from large hydropower projects – through the development of the Greater Mekong Subregion regional energy grid. The International Finance Corporation has positioned itself as a knowledge broker to promote the development of so-called “sustainable hydropower” initiatives in the region. In Laos, the International Finance Corporation has led multi-stakeholder analyses of the hydropower sector and helped establish the rules for hydropower investments and identify sites for exploitation. This indirect support for the development of the hydropower sector and individual dam projects raises questions over application of the banks’ safeguard policies to projects that benefit from their involvement.