Project Finance

NAM THEUN 2 BRIEF

WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY

Hydropower in Asia: The Nam Theun 2 Project

MIGA is supporting a landmark $1.25 billion hydropower project in Lao People’s Democratic Republic, the largest ever investment in the country. The project involves the development, construction, and operation of a trans-basin power plant that is expected to generate $1.9 billion in foreign exchange earnings over a 25-year period through the export of electricity to Thailand. These earnings will enable the country to increase the amount of money it can invest in health, education, and basic infrastructure for the benefit of the poor. MIGA’s guarantee was very important to lowering the project’s risk profile, which in turn enabled the government and developers to attract commercial financing and gave the investors the assurance needed to go ahead with the deal. In June 2005, MIGA provided $9 million in political risk insurance for a hydropower project in Lao People’s Democratic Republic (PDR). The bulk of the guarantee, $86 million, is covering a nonshareholder loan by Fortis Bank NV of Belgium (representing itself and acting as agent for a number of commercial banks) against the risks of expropriation, breach of contract, war and civil disturbance, and transfer restriction and inconvertibility in both Lao PDR and Thailand. The rest of the coverage is protecting Electricité de France International (EDFI), one of the project’s sponsors, against the risk of transfer restriction in Lao PDR. MIGA’s policy complements a $50 million partial risk guarantee issued by the World Bank, as well as a $20 million grant from the International Development Association of the World Bank Group (IDA). of the country, about 250 kilometers east of Vientiane. Its main features are a 48-meter high gravity dam on the Nam Theun river, a 450 sq km reservoir on the Nakai plateau, a powerhouse, and a 30 km long double-circuit 500 kV transmission line to deliver the...