Environmental Cost of Hydropower Development Project: Case Study from the Xaiyaburi Hydrapower Dam

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Phongphat Phanthavong
Adis Israngkura


The controversial impacts of hydropower development are still debatable, especially when dams are constructed in the mainstream of multinational rivers. This study examines the impacts of the Xaiyaburi hydropower project constructed in the mainstream of the Mekong River in Bolikhamxay province, Lao PDR. Results from our Cost and Benefit Analysis indicated that the Xaiyaburi Dam is financially feasible with a positive financial net present value (FNPV) of $5,797,169,153 in its lifetime. In addition, this project is expected to earn an 8.26% financial internal rate of return (FIRR) per year; $1 spent as an investment in this project is expected to generate financially $2.18 in return. However, the result from the financial cost and benefit analysis (FCBA) might not be enough to fully understand the impacts of hydropower development. We, therefore, extended the CBA analysis into broader issues by including the opportunity cost related to environmental impacts caused by the project into consideration. The opportunity cost considered in this study consisted of 2 categories, Used and Non-Used Value. While the Used Value is measured by the opportunity cost related to land loss, fish stock reduction and CO2 emission, the Non-Used Value is measured by the opportunity cost related to local peoples’ willingness to pay (WTP) for environmental attributes improvement. Similar to the FCBA, we found economical feasibility for the project. It is estimated to yield an economic net present value (ENPV) of $545,113,968 in its lifetime and $1 spent as an investment in this project is expected to generate only $1.05 in return. However, when considering the economic IRR value, we found infeasible growth of the project (0.96% of the economic IRR). Moreover, the project NPV is highly sensitive to the change of revenue (1% reduction in revenue is expected to decrease the value of the ENPV by 19.60%) and the change of the Carbon tax (1% reduction in revenue is expected to decrease the value of the ENPV by 5.06%) respectively. Results of this study provided us useful quantitative information for the government of Laos and other countries along the Lower Mekong Basin (LMB) to assist in decision making on the hydropower production plan, especially to the project that will be constructed in the mainstream of a multinational river to ensure the implementation of an environmentally friendly hydropower program.

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