Quotes of the Day

Laos' Quaintly-titled Vice Minister for Industry and Handicrafts sits in his office in Vientiane and allows himself to dream. From his desk, Nam Viyaketh points to a map of the country pinned on the far wall. It's dotted with dozens of red spots, each a potential site for a hydroelectric dam. Within 30 years, says Nam, Laos could have a generation capaciy of 12,000 MW of electricity (it currently has a production capacity of 700 MW) and exporting it to energy-hungry neighbors like Thailand and China, generating billions of dollars in revenue. "We can be like Kuwait," he says. "Kuwait pumps oil from the ground. In Laos, we are selling power made of the water from the heavens."

To Nam, a Soviet-trained engineer, his is the logical grand plan for a landlocked country blessed with mountains, rivers—and little else. "We don't want to be such a poor country anymore," Nam says. "We want to change." This week, the World Bank will take a step to turn that dream into a concrete reality. The Bank's executive board of directors will meet in Washington, D.C. on Thursday and is expected to endorse a controversial $1.25 billion hydroelectric dam that even developers admit will have major social and environmental impact. Yet the dam could earn the country $2 billion in revenue over a period of 25 years—money the government has promised it will use to pull its people out of poverty. That makes it a gamble the World Bank thinks is worth taking. "If revenues are channeled in the way we have agreed with the government," says Ian Porter, World Bank country director for Laos, "then we have every confidence they will have an impact [on eradicating poverty]."

In a country ruled by aging Marxist revolutionaries, and where promised economic and political reforms have been painfully slow in coming, that could be a big if. International donors often complain of wasted aid and corruption. Foreign investors continue to spurn Laos in favor of countries with better track records of transparency and accountability. (It was only five years ago that Laos, under pressure from the International Monetary Fund, agreed to publish its budget.) Huge trade and budget deficits are masked by a steady stream of foreign aid that, even donors admit, has had little impact on those who need it most. Three-quarters of Laos' population lives in poverty, half do not have access to electricity or clean water, and one in 10 children die before the age of five. According to one former senior western diplomat assigned to the capital: "The country is broken."

But both the World Bank and the Laos government believe that the Nam Theun 2 dam can help fix it. The project is the cornerstone of the government's giddy goal of becoming the "battery of Southeast Asia," and has been on the drawing board for almost 20 years. The dam will flood an area the size of Singapore, bleed one river almost dry and swell another, force the relocation of 6,200 people, and affect as many as another 100,000 living in and around the country's central Nakai Plateau. A joint project between the Laos government and a consortium of international companies led by the France's state-owned Electricité de France, the dam will have a generation capacity of 1,070 MW of electricity when completed in 2009, 95% of which will be sold to Thailand. "We don't have many comparative advantages over our neighbors," says Somboune Manolom, general manager of Lao State Holding Enterprise, which represents the country's 25% stake in the consortium. "Competition in the world is becoming stronger, and we have many disadvantages—mountainous country, low education and illiteracy. If we start with hydropower development, I think we can help the country along."

Such big dreams will inevitably come at a cost. Hydropower, once touted as cheap, clean energy, has fallen out of favor in recent years. In 2000, a report by the World Commission on Dams found that in developing countries the damage to communities and environment from building dams was rarely offset by the economic and developmental gains, which often failed to meet expectations. Assuming the World Bank approves funding for the project, Nam Theun 2 will be the first major new dam project the bank has supported in a decade. Opposition to the project has been fierce from international environmental NGOs, which say the dam will destroy the livelihoods of thousands and do untold damage to rivers and their fish populations, while offering no guarantee that the revenue will improve people's lives. "Laos has a track record of poorly-managed projects that create more poverty than they solve," says Aviva Imhof, campaign director of International Rivers Network, which is based in Berkeley, California. Imhof has tracked the project for a decade and, together with the Canada-based Probe International, led a global campaign to have it halted. "Laos is repeatedly being rewarded for its failure," says Probe's policy director Grainne Ryder.

World Bank officials acknowledge that the project carries considerable risks, but they believe they've made them manageable. Underpinning their faith, says Porter, is a slew of economic reports and social and environmental impact studies they demanded of developers—all of which have been made available for public scrutiny. The Bank believes there are enough safeguards and mitigation measures now in place to minimize the impact of the dam and insists it has extracted guarantees from the Laos government that revenue will be used to reduce poverty.

"It would be foolish to pretend we won't do any environmental damage. You do a project as big as this, you cause environmental damage. Fact!" says Peter Goldston, a booming-voiced Australian who is technical director of Nam Theun Power Co., the consortium building the project. "But our project allows us to mitigate some of the damage." Goldston, 61, has worked on seven dam projects in Australia, Cambodia and the Philippines, dating back to 1966. "We did some terrible things during that time, no doubt about it," Goldston says. "But times have changed, so we have had to change, too." The World Bank's Porter agrees: "We have learned our lessons from the past."

Villagers in Keng Gnao, a small community on Nakai Plateau, are counting on it. They have been told for years that their thatched huts would one day lie beneath an enormous lake and that they would have to be relocated. A long time ago, the idea might have upset them. But in the intervening years, they have watched loggers decimate the plateau's lush forests, where villagers collected and hunted much of their food. Poverty on the plateau is endemic. Children often die in infancy. Crops routinely fail. Hunger is a fact of life. A few kilometers from Keng Gnao, developers have built a model village complete with sturdy houses topped by tin roofs, electricity, running water and irrigated gardens. Some of the villagers have visited the site, and their minds are made up. "We're tired of life here," says Duong, 30. "We're ready to move tomorrow." For better or worse, tomorrow is nearly upon them.

• Andrew Perrin | Bangkok
• A massive hydroelectric dam could generate much-needed income. But is it worth the environmental cost?