The Lower Mekong Region (LMR), part of the wider Mekong River Basin (MRB), comprises the nations of Cambodia, Laos, Myanmar, Thailand, and Vietnam. Hydropower projects have long been undertaken in the region beginning in the 1950s. Projects such as the Kirirom 1 Hydropower Dam was constructed in Cambodia with support from Yugoslavia in 1965. Other prominent hydropower projects completed in this period include the Nam Ngum Dam in Laos, the Baluchung 2 hydroelectric plant (also known as Baluchaung 2 hydroelectric plant) in Myanmar, the Bhumibol Dam in Thailand, and the Đa Nhim Hydroelectric Power Station in Vietnam.

 

Investors in Hydropower

The rapid growth of the hydropower industry slowed in the 1980s and 1990s due to financial constraints and concerns over the ecological and social impacts of hydropower projects. As a result of this, the withdrawal of fundings from international financial institutions (IFIs), such as the World Bank, particularly impacted developing nations.

A report published by the World Commission on Dams (WCD) and the formation of the International Hydropower Association (IHA) reflected a shift in the focus in planning and development of hydropower projects towards a more sustainable approach designed to consider communities affected by these projects.^{2 3}

The beginning of the 21st century saw a return to investment in hydropower, particularly in nations such as Brazil and China who sought sustainable sources of power to support their rapid economic growth.

Behind this hydropower boom has been South-to-South investment (investment between Global Majority developing countries) with this becoming a critical source of both technological and financial transfer. Between 2004 and 2012 the trade in hydropower technologies between South-to-South increased from below 10% of total global trade to nearly 50%.

Hydropower investment has also been driven not just by large IFIs like the World Bank, but also national development banks and private investors from emerging economies such as China, Brazil and Thailand, demonstrating a growing trend in South-to-South Foreign Direct Investment (FDI).⁴

China has also been a strong financier of infrastructure projects as part of its Belt and Road Initiative (BRI), investing close to $25.85 billion globally. Through this investment, China has emerged as one of the main financiers of hydropower projects, particularly in the LMR.

Key Projects with funding from Foreign Investment

The LMR is home to a number of significant hydropower projects funded by foreign investment. Projects include the Cambodian-Chinese funded Lower Se San 2 (LS2) Dam (also known as the Lower Sesan 2 dam), and a number of Thai-funded projects such as the Xayaburi Dam in Laos, and the Pak Mun Dam in Vietnam, which received investment from the Electricity Generating Authority of Thailand (EGAT)

Lower Sesan 2 Dam

The 400 MW LS2 dam is a hydropower project that began operating in 2017 on the Sesan River, a major tributary of the Mekong. Located in the Se San District, Stung Treng Province in Cambodia, it is a 6.5 kilometres long dam, considered one of the longest dams in Asia and, at the time of writing, the largest hydropower project in Cambodia.

The project is estimated to have cost $816 million, and is listed as a joint venture between China Huaneng Group and Royal Group of Cambodia, and is operated by the Hydro Power Lower Sesan 2 Company Limited.

In the 1990s the Asian Development Bank (ADB) commissioned feasibility reports on the possibility of building hydropower projects on the Sesan and Srepok rivers.⁵ In 2007 a memorandum of understanding (MOU) was signed between the Ministry of Industry, Mines and Energy (MIME) and the Vietnamese state energy utility Electricity Vietnam (EVN) to conduct a feasibility study. In 2007/2008 Power Engineering Consulting Company 1, a Vietnam-based consultancy firm was contracted to undertake the feasibility study, and Key Consultants Cambodia were subcontracted to undertake the environmental impact assessment.⁶ Financial troubles saw EVN begin to reduce its investment, with the Royal Group acquiring 49% of the project in 2011. Following the approval of the project by the Cambodian government in 2012, EVN further reduced its stake to 10% with the Royal Group reducing its stake to 39% and Hydro Lancang International Energy, a subsidiary of the Chinese state-owned enterprise China Huaneng, taking on a controlling stake of 51%. In order to implement the project the Hydro Power Lower Sesan 2 Company Limited was established by these investors.

The Hydro Power Lower Sesan 2 Company Limited is reported to have provided 30% of the project’s capital with 70% sourced from bank loans. Data around the exact funding for the project is opaque at best but funding has been attributed to the Industrial and Commercial Bank of China and the Bank of China. As well as this, the policy banks China Development Bank and Export–Import Bank of China are attributed as providing funding with the project being underwritten by China Export and Credit Insurance Corporation (Sinosure).

Chinese involvement in the development and operation of LS2 extended beyond financing with PowerChina Huadong Engineering Corporation Limited and Sinohydro Engineering Bureau 8 Company Limited being contracted to design and construct the plant. While Gezhouba Group No.1 Engineering Company Limited were contracted to dig the open channel for the dam.

With Chinese Foreign Direct Investment (FDI) increasing significantly over the last 20 years, China is the main funder of major hydropower projects in Cambodia with financing from China Eximbank and the China Development Bank.

Impacts and concerns of Hydropower

Hydropower is seen as integral in the push towards green energy development in the LMR, with countries such as Vietnam and Thailand outlining their plans for green growth. Hydropower also  forms part of China’s plans to be “carbon neutral’ by 2060, with hydropower projects, both within the borders of China but also in its neighbours, seen as integral to meeting this target. Considering the Mekong region as a  whole, the Greater Mekong Region (GMR) has 745 dams, either completed or currently under construction, on the Mekong itself as well as its tributaries.⁷ 209 of these are for generating electricity, whilst the remaining are for irrigation, flood control, and other mixed-usage. The development of new dams is showing no signs of slowing with plans for the development of new Thai-Laos dams in the coming years.

The development of these planned hydropower projects is not without controversy. They are often announced against the backdrop of community and NGO protests and opposition to the projects, with the economic interests of companies foregrounded against the livelihoods of local communities. 

Hydropower, rather than being a clean energy source, has been linked with increases in methane production, riverbank erosion, and sediment and the reduction of fish stocks. As well as hydropower’s designation as a clean energy source being under dispute, the damage that hydropower projects do to local communities is also very real. Communities are frequently resettled for hydropower projects, with damage to fish stokes and biodiversity impacting the livelihoods of communities within the Mekong Delta.

It is also worth considering the imbalances in hydropower investment across the region, particularly considering the number of Thai-financed projects developed in neighbouring countries such as Laos and Vietnam. Thailand itself is home to only 12 hydropower dams, but has significantly invested in the construction of dams in neighbouring countries in particular Laos. Environmental damage and displacement of communities is offset to other countries whilst energy is exported for the benefit of neighbouring countries, boosting government’s claims of utilising green/clean energy.

Whilst the shift to renewable energy is imperative in the face of rising global temperatures, the usage of energy sources such as hydropower need to be considered in the face of the long term harm that hydropower projects do to the environment and to the local communities, with calls for international financiers to pause their investments in hydropower due to these concerns.