Lao PDR Development Report 2010 Natural Resource Management for Sustainable Development

Transcription

1 Lao PDR Development Report 2010 Natural Resource Management for Sustainable Development BACKGROUND PAPER An Environmental Perspective on Hydropower and Mining Development in the Lao PDR Prepared by Renae Stenhouse, Biodiversity and Environment Specialist, World Bank Lao PDR Office, and Jan Bojö, Sector Leader, Environment, East Asia & Pacific Region, World Bank Washington, D.C., with inputs from Khamlar Phonsavat, Climate Change Analyst, World Bank Lao PDR Office, Viengkeo Phetnavongxay, Environment Specialist, World Bank Lao PDR Office, Peter Jipp, Senior Natural Resource Specialist, World Bank Thailand Office, and Ekaterina Vostroknutova, Senior Economist, World Bank, Washington, D.C. Contents INTRODUCTION... 4 Water Resources and Hydropower... 4 Minerals and Mining... 5 ENVIRONMENTAL OPPORTUNITIES AND IMPACT OF HYDROPOWER AND MINING... 6 Opportunities... 6 Impact... 7 ENVIRONMENTAL PROTECTION IN LAOS Legislation and Regulation Strategies Government Organizations Good Practice TOWARDS SUSTAINABLE HYDROPOWER AND MINING DEVELOPMENT Strategic Planning Capacity Building Regulatory Reform Institutional Reform Incorporating Environmental Conservation into Project Design Valuing the Environment CONCLUSION REFERENCES Annex 1. Maps Annex 2. Hydropower, Mining, and the Environment Annex 3: Forests in Lao PDR... 0 Annex 4: Environmental Legislation in Lao PDR... 3

2 ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank Lao PDR Lao People s Democratic Republic ASEAN Association of South East Asian Nations LEnS Lao Environment and Social Project CA Concession agreement MAF Ministry of Agriculture and Forestry CSER Corporate social and environmental MEM Ministry of Energy and Mines responsibility DEPD Department of Energy Promotion and MOU Memorandum of Understanding Development DESIA Department of Environment and Social MRC Mekong River Commission Impact Assessment DFRC Division of Forest Resource Conservation MW Mega Watts DGeo Department of Geology NEC National Environment Committee DHM Department of Hydrology and NGO Non-governmental Organization Meteorology DIMEX Department of Import Export NLMA National Lands Management Authority DOE Department of Environment NPA National Protected Area DOE Department of Energy NPSH National Policy on Sustainable Hydropower DOF Department of Forestry NRM Natural Resource Management DOFI Department of Forest Inspection NTFP Non-timber forest product DOM Department of Mines NTPC Nam Theun Power Company DWR Department of Water Resources NT1 Nam Theun 1 EIA Environmental Impact Assessment NT2 Nam Theun 2 EPF Environmental Protection Fund PA Protected Area EPL Environment Protection Law PES Payment for Ecosystem Services ESIA Environment and Social Impact P-WREA Provincial Water Resources and Assessment Environment Authority EMMP Environmental Management and REDD Reducing Emissions from Deforestation and Monitoring Plan Forest Degradation GDP Gross domestic product SEM Strengthening Environmental Management GEI Global Environment Institute SEA Strategic Environmental Assessment GoL Government of Lao PDR SIA Social Impact Assessment IEE Initial Environmental Examination UNEP United Nations Environment Program IFC International Finance Corporation USA United States of America INGO International Non-governmental Organization ISO International Organization for Standardization WCS Wildlife Conservation Society IUCN International Union for Conservation of WERI Water Resources and Environment Institute Nature IWRM Integrated water resource management WMPA Watershed Management and Protection Authority Km Kilometers WREA Water Resources and Environment Authority WWF World Wildlife Fund 1

3 EXECUTIVE SUMMARY This paper focuses on environmental impact of hydroelectricity and mining in the Lao PDR. Both hydropower and mining are very dynamic sectors in Lao PDR and have the potential to make great contributions to economic development and poverty alleviation. The country is exceptionally well endowed with water resources, and there is considerable investment underway aimed at increasing the use of hydropower, mostly for export. There is also significant potential for mineral development in Laos, especially for copper and gold. However, this development comes with a number of environmental and social concerns. Therefore, the objectives of this paper are to analyze the development of the hydropower and mining sectors from an environmental perspective and to articulate a set of recommendations for minimizing the negative environmental impact of this development. Both hydropower and mining development can have serious environmental implications, not only at the local level. The significance and scope of these effects is related to the size of the project and its location. Several mining concessions and hydropower projects overlap with national protected areas (NPAs), which are areas of high biodiversity. For example, there are at least six hydropower projects in operation or under construction in NPAs (with a further 12 feasibility studies underway) and various mineral concessions that overlap with NPAs. At the local level, hydropower and mining developments can affect the terrestrial environment, for example, through loss of forest and associated ecosystem services, and to the aquatic system, for example, through water pollution, changes in hydrology, and changes in fish abundance. These changes can then have a negative impact on local people who are dependent on aquatic and forest resources for their food security and nutrition. The laws and regulations in Lao PDR have gone through several revisions and significant improvements in the past few years. This process has been undertaken to ensure their consistency with and applicability to existing national circumstances and emerging issues or challenges. The laws encourage the protection and sustainable use of natural resources through the minimization of negative environmental effects. Hydropower and mining sector strategies have been developed, and strategies for forestry, biodiversity, and tourism development all reinforce the framework for environmentally sustainable development. However, some gaps, especially in implementation and enforcement capacity, remain: Despite the economic wealth generated by natural resource projects, sustainable financing for environmental protection is still inadequate. Foreign assistance has been the main source of financing for natural resource management so far. Overlapping mandates and a lack of coordination among the agencies involved in natural resource use and management and among the central, provincial, and district levels of government. Financial, capacity, and human resources constraints in environmental management, planning, and the monitoring of the environmental and social impact assessments have become the binding constraints to implementing existing legislation, as well as to responding to emergency situations. The legislation does not specify types of penalties for breaking the law. The responsibility for mitigating damage at the local level is not clearly defined and not included in the project design. 2

4 A Lack of public access to information on environmental effects and on proposed and ongoing mitigation measures exacerbates the negative impact. The recommendations in this report focus on five areas: (i) strategic planning; (ii) capacity building; (iii) regulatory reform; (iv) institutional reform; and (v) reflecting the real value of the environment to achieve a more balanced economic growth agenda. Strategic planning for hydropower and mining development needs to be strengthened. Strategic Environmental Assessments (SEAs) can be an important tool for incorporating environmental considerations into sectoral policies, plans, and programs. The environmental and social impact of mining and hydropower cannot be addressed at the project level alone but needs to be addressed in the context of watershed management. The implementation of environmental and social impact assessment procedures needs to be strengthened. Trade-offs between conservation and economic development must be made, but the balance is often distorted. The benefits of exploitation are often visible in the short term in market values, while the environmental costs are often long-term and do not manifest themselves in the market place. Transparency and public disclosure of decision-making and environmental valuation are therefore important mechanisms for ensuring that environmental resources are fairly valued. Payment for Ecosystem Services (PES) is a way of putting a price on the environment, and revenue transfer is one mechanism for compensating stakeholders for the loss of environmental values. TheREDD (Reducing Emissions from Deforestation and Degradation) initiative has the potential to reduce the rate of forest loss in Laos, provided that certain conditions are met. The project-by-project approach so far employed will not be appropriate given the anticipated acceleration of the program of extraction. In particular, the cumulative effects of mining and hydropower need to be addressed through a strategic framework at the national or river-basin level. The implementation of environmental assessment procedures needs to be strengthened within the WREA and other relevant ministries. There is a need for Cumulative Impact Assessment of multiple hydropower and mining projects within each river basin. The environmental impact assessment study for the first dam on any river should include a cumulative environmental assessment of the likely effects of any proposed additional dams on the same river system. The implementation of mitigation measures for cumulative (rather than dam-specific) effects should be completed or well underway prior to the construction of the second dam on the river. Such an assessment was made during preparation for the Nam Theun 2 Hydropower project. In conclusion, there is very considerable potential for Lao PDR to benefit from the development of hydropower and mining, but there must be a number of improvements in the implementation of environmental protection to ensure the long-term, sustainable use of these natural resources. 3

5 INTRODUCTION This paper is written as a contribution to the Lao People s Democratic Republic (Lao PDR) Development Report titled Natural Resources Management for Sustainable Development. The report aims to inform government dialogue on natural resources management, particularly with respect to: (i) sustaining growth and diversifying the economy; (ii) reducing poverty and mitigating vulnerability; (iii) ensuring environmental and social sustainability; and (iv) enhancing governance. While this paper is one of a set of contributions to a synthesis, this version can be read as a stand-alone report. The main audience for the paper is staff within the government, development partners, research institutions, and nongovernmental organizations (NGOs). Within this context, the objectives of this paper are: (i) to analyze the development of the hydropower and mining sectors from an environmental perspective and (ii) to articulate a set of recommendations in the interest of minimizing the negative environmental impacts of this development. Those two sectors are chosen because they are particularly significant and dynamic in Lao PDR and have the potential to make a significant contribution to economic development. However, they are also associated with a number of environmental and social concerns. As shown below, the spatial extent of potential mineral extraction is considerable, as are the existing and planned reservoir areas for hydropower. The paper is structured as follows. The next section provides an overview of water resources and the hydropower sector. The subsequent section provides a similar overview of the mining sector. The two main themes of hydropower and mining development are brought together in the next section, which deals with the challenges of environmental and social effects. In the following section, the legislative, regulatory, and institutional arrangements for addressing these challenges are brought into the picture. The final section sets out some recommendations for the future governance of these natural resources to ensure their contribution to sustainable growth. Water Resources and Hydropower Lao PDR is exceptionally well endowed with water resources, with some 33,000 cubic meter of fresh water per capita. 1 The water supply in Laos consists mainly of rain-fed river systems. The water quality of Lao rivers is considered to be good, with high oxygen levels and low nutrients. Water covers 600,000 hectares of the nation. The mainstream Mekong flows for 1,700 km either along the Lao border or in Lao territory (ASEAN Regional Center for Biodiversity Conservation, 2009). Thanks to the country s topography, these water resources represent 23,000 mega watts (MW) of exploitable potential hydro-power, 15,000 MW of which are internal to the country and 8,000 MW representing Lao PDR s share in mainstream Mekong development undertaken jointly with other riparian countries. The Mekong Basin makes up 88 percent of the land area of Laos, and within that area there are numerous streams and sub-catchments that support rich biodiversity and fisheries. Thus, Laos has a pivotal role to play in the conservation of the Mekong River and its associated aquatic ecosystems. The mountainous topography that dominates the Lao landscape means that streams are widespread and are a key habitat. The mainstream Mekong supports a diversity of aquatic fauna (Duckworth et al., 1999). It is one of the most species-rich river systems in the world, with the total number of fish species estimated to be over 450 (World Bank, 2005). The lower Mekong River supports one of the world's largest inland fisheries. A census in 1998 found that some 70 percent of farming households in Laos fish part-time or seasonally. In rural areas, fish are often the primary source of animal-based protein that households consume. Up to 80 percent of fish consumed by Lao villagers come from the wild (depending 1 Unless otherwise noted, this section draws on Van den Toorn (2009). 4

6 on location of the village, see Fenton et al., 2010). Fisheries contribute around 13 percent of gross domestic product (GDP) (World Bank, 2005). Definition 1. Catchments A catchment is an area of land bounded by natural features such as mountains, from which all runoff water flows to a low point, which is any body of water, such as a river or wetland. Catchments are also known as river or water basins or watersheds. Catchments vary in size, and large catchments tend to include a large network of many rivers. These networks can be broken up into smaller sub-catchments, bound by lower hills and ridges and drained by smaller streams. How each of these sub-catchments are managed affects the overall larger catchment - what occurs upslope affects areas down slope and what occurs upstream can affect downstream. Definition 2. Biodiversity Biological diversity (biodiversity) means the variability among living organisms from all sources including, inter alia, terrestrial, marine, and other aquatic ecosystems and the ecological complexes of which they are part; this includes diversity within species, between species, and of ecosystems. Source: CBD (2006). There has been considerable progress in developing the regulatory legislation and institutional frameworks for environmental safeguards for hydropower, but some issues remain. The Law on Water and Water Resources (1996) provides the basic legislative framework for water resources development, and the government s strategy for development is outlined in the National Policy on Environmental and Social Sustainability of the Hydropower Sector in Lao PDR (NPSH) of The NPSH built on the principles developed under the Nam Theun 2 (NT2) project and applies them to the sector as a whole, particularly to large dams, those defined as having a capacity of more than 50 MW or an inundation area of more than 10,000 hectares. Within this framework for hydropower development, a number of factors are limiting the achievement of sustainable hydropower. A key issue is that the implementation and enforcement of Environmental Impact Assessments (EIAs) has been weak in a number of cases. Other main constraints that must be addressed urgently include: (i) the limited enforcement of legislation and regulation; (ii) project-based rather than program-based planning; (iii) fragmented arrangements for water resources management; (iv) gaps between sectors; and (v) data fragmentation and problematic access (WREA, 2008). The key causes of these constraints are inconsistent regulations, unclear responsibility among agencies, and inadequate human and financial resources. To date, most planning and development of the hydropower sector has been done by developers (World Bank, 2009). We return to these issues in more detail later. Minerals and Mining There is considerable potential for mineral development in Laos. 2 The most economically important mineral resources are copper and gold, as well as potentially bauxite and gas/oil. In addition, there are considerable deposits of lignite/coal, gypsum, and potash, and smaller deposits of gem stones and zinc, but their combined economic importance is small. Deposits of bauxite have been prospected and explored at the Boloven Plateau in the Southern Region. One firm has received a Production Agreement, and seven others are still prospecting. The environmental implications of open-cast bauxite mining cum alumina refining are significant. A large area would have to be cleared, and the waste water from the refinery is highly polluted. Oil reserves have been found in the Central-North region, but commercial 2 Unless otherwise noted, this section draws on Van den Toorn (2009). 5

7 development did not follow and is unlikely in the foreseeable future. There are better prospects of finding gas. If exploratory drilling were to be successful and lead to further development, the gas would be exported to Thailand. From an environmental point of view, gas drilling operations would be relatively clean and would not lead to much environmental damage. The drilling area and pipeline systems would not take up much space. The Mineral Law (2009) outlines the basis for the sustained growth of the sector. All investors and exploration teams are required to submit all results of their exploration and mapping activities to the Department of Geology in the Ministry of Energy and Mines (MEM) for public disclosure upon termination of the concession. However, the different methods, scales, and definitions of all the different projects would need to be aggregated to provide a complete picture of mineral resource exploitation in the country. The planning of mining development is hampered by the lack of a consistent database. The legal principles of data collection are generally followed, but the sector agencies lack the resources to build a systematic, comprehensive, and dynamic national database. The government intends to start building the necessary capacity soon with support from the donor community. Multi-million dollar geological surveys are out of the question and are beyond the financial capacity of the mining authorities. It will take considerable time and resources to establish a database management system capable of harmonizing the varied information that is generated by different surveys. ENVIRONMENTAL OPPORTUNITIES AND IMPACT OF HYDROPOWER AND MINING This section deals with the opportunities and generic impact of hydropower and mining development and also reviews the location and spatial extent of this development in Lao PDR. The severity of its effects depends very much on location, and the impact of multiple hydropower developments in the same general area is cumulative (see Annex 2). Opportunities Mining and hydropower projects can provide and leverage resources that might otherwise not be available for strictly environmental conservation projects in Laos, which is a gain to conservation (Quintero, 2007 and World Bank, 2009). For example, through investment in resource use, hydropower and mining projects have been known to contribute to environmental conservation by: Establishing new protected areas or adding area to existing protected areas Strengthening the management of existing protected areas and increasing their funding base (for example, funds provided by the Nam Theun Power Company for the management of Nakai Nam Theun Protected Area, which forms the Nam Theun 2 (NT2) Watershed) Providing new funds for research into endangered species (for example, research into the range and population of elephants in the NT2 area and research into endangered species through the Seppon mine, both of which would probably have been unfunded otherwise) Increasing or making new efforts to raise awareness and environmental education (for example, the Phu Bia Mine is providing funds and staff to coordinate with Department of Forest Inspection (DoFI), the National University of Laos, and the Wildlife Conservation Society (WCS) to provide awareness raising about the illegal wildlife trade, in local communities.) Training opportunities (for example, the Phu Bia Mine and the Sepon Mine have both increased the capacity of the local provincial Water Resources and Water Authority (P-WREA) office). 6

8 Impact Both hydropower and mining development can have serious environmental implications at the local level (see Annex 2 for an overview, and IFC, 2007 and World Bank, 1998a and 1998b for details). Land has to be cleared and sometimes inundated. Removal of the overburden to access ore can create large volumes of solid waste that requires adequate storage. To illustrate this, the overburden waste-to-ore ratios for surface mining of metal ores are often in the range of 2:1 and 8:1. In the processing stage, the tailings generated can cause problems through highly acidic drainage and dissolved heavy metals in the runoff. Significant levels of dust are often generated from mining in the extraction, crushing, and transport stages. The income from alternative agriculture and forestry is lost. For example, sustainable forestry in a production forest area can provide benefit sharing to the local community, but under the current legislation, if hydropower or mining occurs in the same area, the forest is cleared under salvage logging and the revenue goes to the central treasury, with no benefit accruing to the local community. Also, if the conditions governing salvage logging are not well defined and monitored, the developer may log an area larger than the actual area required for biomass removal. Access roads for construction must be built, which may induce further environmental damage because of in-migration and the increased profitability of natural resources exploitation. Additional areas usually have to be cleared for offices and living quarters for staff during construction and operations. The loss of forest area results in a loss of biodiversity and ecosystem services and reduces the extent to which local people can rely on wild food for their food security and nutritional needs. Resettlement of people to new areas may have an additional impact on the environment. Some effects such as quarries and borrow pits occur only during the construction phase, while others (access roads, power transmission lines, and water quality and flow changes) continue for the duration of the project (Ledec and Quintero, 2003 and Gibson and Carlsson Rex, 2010). Land use change and loss of forest is highly relevant in the Lao context given that households are very dependent on agricultural land, rivers, and forests for income and food. For example, even an average urban household depends on own-grown rice for 50 percent of its rice consumption, and this increases to 94 percent for poor households. The reliance on wild meat as source of protein is also very high: up to 20 percent of meat consumed by the population comes from the wild. Malnutrition is highest (above 50 percent) in those households that are most reliant on wild food and own rice production, thus the loss of forest has most serious consequences for those villagers who rely most heavily on the forest to achieve food security and nutrition (Fenton et al., 2010a and 2010b). The impact extends beyond the local level to downstream. The river discharges downstream will be affected by hydropower development, with less water in the wet season, more in the dry season. The sedimentation load downstream will be reduced as dams will trap silt that would otherwise fertilize areas downstream. Pollution of the water can increase, for example, through the leaching of highly acidic mine tailings, erosion from mining sites, and increased waste generated by hydropower development and related industrial development. Fish migration routes are altered, which in turn can reduce inland as well as marine fishing stocks. These effects may also extend beyond international borders, as it is possible that some hydropower development could impact the water resources available to the Great Lake in Cambodia. A generic description of the various effects of hydropower development is presented in Figure 2. In Laos, a reduction in fish stocks downstream would have significant negative effects on downstream villagers, as it has been found that up to 80 percent of fish consumed by the average villager comes from the wild (depending on the location of the village). Significant declines in local fish stock could increase poverty and malnutrition (see Fenton et al., 2010, for poverty and nutrition projections). The significance of these effects is, in general, related to the size of both the project and the impacted area and to the location of the project site. Figure 3 (in Annex 1) and Tables 1a to d illustrate the large areas of overlapping interests between hydropower, mining, and forestry protection. Tables 1b 7

9 and 1d show that the main types of land to be inundated for reservoirs and under mining concessions are forest and potential forest. The critical factor determining the severity of the environmental impact of a hydropower or mining project is its location. As the map below illustrates, several mining concessions and hydropower projects overlap with national protected areas, which are the areas of the highest biodiversity in Laos (see Annex 3 for definitions of forest categories in Laos). Figure 3 shows that there are at least six hydropower projects that are operational or under construction located in national protected areas (NPAs), with a further 12 feasibility studies underway for hydropower projects in NPAs. There are three mineral exploration concessions within NPAs and numerous general survey concessions. A huge area of southern Laos is under a petroleum exploration concession, which takes in six NPAs and much production forest and several protection forest areas. Table 1a shows that an estimated 3 percent of the NPA area is or will be under reservoirs for hydropower (note this figure is extrapolated from data for half of the hydropower concessions). Table 1c suggests that up to 5 percent of the NPA area is under some kind of mining concession and that up to 2.4 percent of the NPA system may become exploitation areas for mining. In all, this suggests that up to 8 percent of the NPA system is under some kind of hydropower or mining concession (with up to 5.4 percent of the NPA land area exploited or inundated). Figure 4 (in Annex 1), which depicts special mineralization preserves, shows that three of these large areas overlap with protected areas. This includes in the north of Laos a large area where a mineral preserve overlaps into the Nam Et Phou Louey National Protected Area. This is a Class I tiger conservation landscape, thought to contain the largest tiger population of Laos, and is an area of intensive conservation effort by provincial and district governments with the Wildlife Conservation Society (WCS) Laos. Clearly, there is a conflict of interest within the government between forest and biodiversity conservation and economic development. Table 1a: Hydropower Reservoir Area in National Protected Areas (km 2 ) Stage Km 2 in NPA Under construction 109 In planning 200 Feasibility study 136 Status unclear 72 Total 517 Note: GIS information on the size of the reservoir is available for only 42 out of 90 current or planned hydro projects in Lao; thus the data in the table represent only half of the current/planned projects. The total area of NPAs in Laos is 34,000 km 2. Table 1b: Percentage of land types to become inundated areas for hydropower reservoirs Other Current Potential Agriculture Wooded Forest Forest Land Area Others Under construction In planning Feasibility study Total National level Note: GIS information on the size of the reservoir is available for only 42 out of 90 current or planned hydro projects in Lao; thus the data in the table represent only half of the current/planned projects. 8

10 Table 1c: Mining Concession Area inside National Protected Areas (km 2 ) Stage Km 2 in NPA Exploitation 34 Exploration 216 (41) General survey 1,478 (182) Total 1,728 (823) Note: Numbers in the brackets indicate an estimate of the potential area within the concession that would be exploited for minerals. Total area of NPAs in Laos is 34,000 km 2. Figure 2: Generic flow chart of impact of hydropower development from the watershed to downstream Upstream/Watershed Increased access to forest (from new roads or from reservoir) leads to increased resource extraction Loss of forest to roads and reservoir Reservoir/Dam Short-term boom in fish stock Change and ongoing flux in fish species composition Anaerobic conditions due to biomass, leads to fish kills and algal blooms Release of CO 2 during construction phase Impact of dam constructions (roads, infrastructure, habitat loss) Downstream Change to sediment load, which may lead to riverbank erosion or accretion and decline in water quality Change to flow regime, which may affect tributaries Changes in fish species composition and fish abundance (likely decrease) Source: World Bank staff. 9

11 Table 1d: Percentage of land types under different mining concessions Current Potential Other Agriculture forest forest wooded Area land Others Total Exploitation Exploration General Survey Total National Level Source: Fenton, et al. (2010b). ENVIRONMENTAL PROTECTION IN LAOS This section reviews the relevant legislation, regulation, sectoral policies and government agencies responsible for environmental protection. It also gives examples of good practice. Finally, it identifies some issues, the solutions to which will be further discussed in the subsequent section. Legislation and Regulation Environmental protection is enshrined in paragraph 17 of the Constitution of Lao PDR (as published in 1996) and further detail is contained in the Environmental Protection Law (EPL) of The EPL, which is now under review, outlines the EIA process. The EPL stipulates the requirement for developers to submit an Environmental Assessment Report in accordance with regulations issued by the agency in charge of environmental management. The Decree on the Implementation of the EPL (2001) assigns responsibility for EIA review to sector agencies and provinces and requires these agencies to establish EIA regulation and monitoring units in line with the general guidelines of the national agency. The EPL established an Environmental Protection Fund (EPF) in 2006, with support from the Asian Development Bank (ADB) and the World Bank, which provides funds for institutional capacity building, investment, and biodiversity conservation. It is administered by the EPF Board, under the Prime Minister s Office. Revenue from NT2 will flow to the EPF. The laws and regulations in Lao PDR have gone through a series of revisions and significant improvements in the past few years. This process has been undertaken to ensure their consistency with and applicability to existing national circumstances and emerging issues or challenges. The revised laws and regulations include the draft Water and Water Resources Law, the new Mining Law, which is being reviewed at the National Assembly for approval, and the Decree on Environmental Impact Assessment (2010), which has recently been approved by the Prime Minister. The government has promulgated the binding approval of the Environmental and Social Impact Assessment and the related Compliance Certificate as part of the concession acquisition process. The leading government agency in this regard is WREA within the Prime Minister s Office, which evaluates the Environmental and Social Impact Assessments (ESIA) prepared by the developers. The Ministry of Energy and Mining has a mandate to enforce the National Policy on the Environmental and Social Sustainability of the Hydropower Sector in Lao PDR (2006). The Mekong River Commission (MRC) is an organization consisting of the riparian countries that is coordinating development within the Greater Mekong System. The Forestry Law and the Wildlife Law were revised and reissued in 2007 and the responsibility for enforcing their provisions was given to the new Department of Forest Inspection (DoFI) under the Ministry of Agriculture and Forestry. 10

12 In principle, the existing laws and regulations are strong, but the country s implementation and enforcement capacity need to be strengthened. The laws are sound in encouraging the protection and sustainable use of natural resources by minimizing the environmental impact of such activities as road construction, power development, and mining associated with development projects. However, the legislation does not specify types of penalties for breaking the law. A detailed list of key laws and regulations related to natural resource management in hydropower and mining is contained in Annex 4. The overall impression is that the main constraining factor is not the legislation itself but rather the lack of human and financial capacity to implement it. Strategies The government s policies related to water and hydropower provide a comprehensive framework for the sustainable management of the sector s development. Of particular relevance to hydropower are: (i) the Policy on Water and Water Resources (Government of Lao PDR, 2000) aiming to ensure water use is sustainable and equitable and supports both socioeconomic development and environmental protection and (ii) the National Policy on the Environmental and Social Sustainability of the Hydropower Sector in Lao PDR (Government of Lao PDR, 2005) aiming to ensure that the sector is viable in the long term, produces net benefits for Lao society, and minimizes environmental harm from hydropower. With reference to the example set by Nam Theun 2, it states that the developers of large dams (greater than 0 MW or with an inundation area of more than 10,000 hectares) must produce a full EIA and an Environmental Management Plan, must award compensation to affected people to help them achieve at least the level of livelihoods that they had previously enjoyed, including to offset any natural terrestrial habitat loss by funding effective conservation management in nearby protected areas, conduct free, prior, and informed consultation with affected communities, and publicly disclose all consultation reports, impact assessments, mitigation plans, and monitoring reports. The government has a strategy for the sustainable management of both energy and mining. The key document is the Strategic Development of Energy and Mining Sectors up to 2020 (Government of Lao PDR, 2008), which aims to promote the sustainable use of natural resources as a way to raise revenue for rural development and poverty eradication, to protect the environment, and to minimize any negative impact on the environment. Expansion of mining and hydropower will entail difficult tradeoffs with other strategic objectives. Of relevance here is the Forestry Strategy to the Year 2020 for the Lao PDR (Government of Lao PDR, 2005). The strategy gives a comprehensive overview of the forestry sector and outlines a range of policies, programs, and no less than 146 actions. Under the overall objective of poverty alleviation, the strategy aims to increase forest cover from an estimated current 40 percent of the total land mass of Laos to 70 percent by This implies a natural regeneration of about 6 million hectares, and establishing tree plantations on about 0.5 million hectares. The strategy recognizes that a large part of the regeneration area is in fact used for shifting cultivation. A more permanent regeneration will, therefore, require the promotion of sedentary agriculture. The strategy estimates that about $180 million will be necessary to implement the program. The government sees the protection of biodiversity primarily from the perspective of poverty alleviation. The National Biodiversity Strategy to 2020 and Action Plan to 2010 (Government of Lao PDR, 2004) defines its main goal as to maintain the diverse biodiversity as one key to poverty alleviation and protect the current asset base of the poor. It provides an overview of the rich biodiversity of Lao PDR with some 8,000 to 11,000 flowering plants and more than 700 species of birds. It notes that all sectors will have to share the costs and benefits of conserving biodiversity and that the implementation of protected areas will incur some opportunity costs. 11

13 The strategy for tourism development recognizes the importance of a preserved environment. The Lao PDR Tourism Strategy (Government of Lao PDR, n.d.) estimates that the number of tourists will grow from about 1.6 million in 2010 to 3 million in Protected areas are clearly identified as major factors in attracting more tourists and generating more income. Government Organizations A number of institutions are involved in natural resource use and management and environmental protection in Lao PDR (Table 2). The Ministry of Energy and Mines (MEM) and the Ministry of Planning and Investment are key agencies in overseeing hydropower and mining developments, while the Water Resources and Environment Authority (WREA) is the key regulatory agency. Provincial and district authorities also play a key role in monitoring environmental programs and compliance. However, while the central agencies delegate responsibilities to the decentralized authorities, the necessary resources to fund the implementation of these monitoring responsibilities in the provincial and district offices are often lacking. While forests are the property of the Lao PDR community and are centrally managed by the state, some forest land is allocated to the armed forces (Forestry Law, 2007, Article 85), who additionally hold a number of mining concessions. Table 2: Government Organizations Involved in Natural Resource Management and Environmental Protection Institution Acronym Ministry or Role Related to NRM/Environment Authority Water Resource and Environment Authority WREA Department of Water Resources Department of Hydrology and Meteorology Department of Environment Department of Environmental and Social Impact Assessment Water Resources and Environment Institute Ministry of Energy and Mines Department of Energy Department of Energy Promotion and Development Department of Geology Department of Mines DWR DHM DOE DESIA WERI WREA, Prime Minister s Office MEM Ministry of Energy and DOE Mines DEPD DGeo DOM Effective management of water resources and the environment. Manages, monitors, & coordinates at the national, provincial, and district levels. Departments include Water Resources, Environment, and Environment and Social Impact Assessment. Effective management of water resources and promotion of integrated river basin management Collection and analysis of hydrological and meteorological data, emergency preparedness planning National environmental planning, policy, and public outreach Implementation of the EIA and SIA process Research and development Policymaking, management, surveys, and environmental protection related to mining and energy development Policy, planning, regulations and standards, safeguards Leads implementation of the national hydropower policy Promotion and monitoring of concession agreements between government and private investors Geoscience, surveys, databases, mapping All activities related to mine concession management and investments. Preparation of mine investments (license, exploration, and feasibility studies). Inspection and monitoring of performance requirements including 12

14 Ministry of Agriculture and Forestry Department of Forestry Division of Forest Resource Conservation Department of Forest Inspection Department of Import Export MAF Ministry of Agriculture and Forestry DoF DFRC DoFI DIMEX Ministry of Industry and Commerce Economic Police Ministry of Interior National Environment Committee NEC Source: World Bank staff compilation. Prime Minister s Office environmental management of mine operations. Effective management of forests and natural habitats Protection of protected areas Promote sustainable forest development Biodiversity conservation and coordination of protected area management Law enforcement of the Forestry Law and Wildlife Law Control export of wood (furniture) and NTFP production Includes the newly formed Environmental Police section. Involved in case processing and law enforcement related to forest crimes. Coordinates & advises the government on environmental management, strategies, regulations, and plans. Chaired by Deputy Prime Minister. International NGOs (INGOs) assist the government in environmental policy development, research, environmental management, and biodiversity conservation. The four main environmental INGOs in Laos are the International Union for the Conservation of Nature (IUCN), the Wildlife Conservation Society (WCS), the World Wildlife Fund (WWF), and the Global Environment Institute (GEI). Good Practice There are examples of good practice environmental compliance in mining and hydropower. One example is the Sepon Gold-Copper Operation Project operated by Lane Xang Minerals (a subsidiary of Oxiana Limited prior to 2008 and now Minerals and Metals Group Limited) in the Vilabouly district of Savannakhet Province. Another example is the Phu Kham Copper-Gold Mining Project operated by Phu Bia Mining Limited in the Xaysomboun Special Region. Both projects are internationally operated mines, listed on the Australian stock exchange, operated under international scrutiny, and exercising corporate social and environmental responsibility. These operators have spent resources on building the technical capacity of the central and provincial WREA and MEM staff to enable them to act as environmental and social compliance monitors. As a member of the Australian Minerals Council, the Sepon Mine has been committed to best environmental practices since commencing its operation in It was certified in 2008 to the ISO standard on Environmental Management Systems. To achieve this certification, a mine has to have: (i) put in place environmental and social management plans in key environmental and social aspects that are relevant to the mine operation and its environment; (ii) provided a sufficient budget for the implementation and monitoring of those plans; and (iii) commissioned regular third party audits to ensure its compliance and commitments. The mine is also audited every year against the Australian and New Zealand standard on occupational health and safety (AS/NZ 4801:2001). The Phu Kham mine is audited yearly by the International Finance Corporation (IFC) to monitor its environmental and social responsibility and sustainable practices. Both companies also established Trust Funds, which have provided financial support to villages in the immediate project areas in building basic infrastructure, agriculture development, health, and education. The Nam Theun 2 (NT2) Hydropower project provides an example of current best practice in Laos. This project has been built at a financial cost of US$1.3 billion, financed by 27 parties, including 13

15 the World Bank and the Asian Development Bank. It is a public-private partnership project, with the Lao government share being 25 percent. The project is implemented by the Nam Theun 2 Power Company (NTPC), which is a French-Thai-Lao consortium. The project will generate 1,070 MW, of which 95 percent will be sold to Thailand. It is projected to generate US$2 billion in revenues for the Government of Laos over 25 years. These revenues will be spent on health, education, infrastructure, and the environment. The project is complex, affecting protected areas, ethnic minorities, other local populations, and major river systems, and is the first World Bank project to have triggered all of the 10 World Bank Safeguards. The project has had a number of environmental effects, including: The loss of forest area and wetlands, and associated plant and animals as the reservoir was created Increased access via the reservoir to the protected area, putting more pressure on forest resources Changes to fish composition and abundance (for example, a boom in the first years in the reservoir) in the reservoir and downstream Seasonal algal blooms and localized fish kills due to anaerobic conditions Changes in the sediment load and flow to downstream, which has caused river bank erosion. These impacts have been mitigated or compensated for in a number of ways: The expansion of the protected area, the creation of a management authority and a management plan, and funding for efforts to mitigate the negative effects of resource extraction The addition of forest land and funding for the watershed in compensation for the forest land lost (see Box 1) Environmental education to discourage over-extraction of forest resources The provision of housing, agricultural land, community-owned production forest, and livelihood assistance so that resettlers need not add pressure to the protected forest area The creation of wetlands and the relocation of wetland plants and turtles Wildlife rescue and an elephant program to avoid wildlife losses with the filling of the reservoir Biomass removal in the early stages to avoid anaerobic conditions (though it is expected that water quality will return to good quality within three years of commencement of operation, due to the flushing cycles of the dam) Water quality monitoring, at a world standard laboratory at Nakai Capacity building within the government for environmental monitoring and management Compensation or assistance to villagers who lost land (for example, riverbank gardens) due to erosion. Good practice notwithstanding, there are a number of key issues that are delaying progress towards effective and sustainable resource development and protection in Lao PDR. These include: Overlapping mandates, for example in the mining sector, where various agencies and levels of government have mandates to carry out monitoring (Boland et al., 2001). Many agencies are involved in project approval, inspection, and enforcement of regulations. This means that the delegation of responsibility may be unclear and may result in some projects being subjected to multiple regulation and inspections or to no monitoring at all. This has been addressed to an extent in the new EIA Decree (2010), as discussed in the previous section, though implementation may be lagging behind. A lack of coordination among the key agencies involved in natural resource use and management, and among central, provincial, and district levels of government. 14

16 A lack of sustainable financing for environmental protection, despite the economic wealth generated by natural resource use projects. Foreign assistance has been the main source of financing for natural resource management. Gaps in procedures for the implementation of the environmental protection and safeguard requirements in regulations and legislation. For example, the NPSH has only limited requirements and procedures for monitoring environmental compliance in hydropower projects. While the policy has a requirement for the effective protection of watersheds and for spending some of the revenues on biodiversity conservation, no procedures are specified in the policy on how watershed should be managed or on how revenue should be shared for biodiversity conservation. A lack of practical experience and skills in environmental management, planning, and monitoring of the ESIA process, particularly in mining, which applies to both the government and most local private companies that are investing and running mining operations in Laos. Despite the building of capacity in WREA through the Strengthening Environmental Management (SEM) project since 2003 and the Lao Environment and Social Project (LEnS) project since 2005, the institution still lacks sufficient experience in environmental compliance monitoring in mining as these projects mainly focused on capacity building in the hydropower sector. Staff numbers at the MEM have remained constant even though the number of mining projects has rapidly and significantly increased. For example, the central level Division for Mines Inspection, in charge of inspection and monitoring and safeguards compliance, only had around five staff as of 2010, and they have limited equipment and training to undertake their mandate. Likewise, in the Department of Electricity there are only six staff responsible for reviewing and monitoring the environmental aspects of hydropower. As a result, the effectiveness of monitoring tends to depend on the extent of the project operators sense of social and environmental responsibility. Government staff in the mining sector have had to build skills themselves as they take on new and complex tasks, rather than receiving formal and targeted training. The Ministry of Energy and Mines carried out a capacity assessment regarding NPSH compliance in It was found that, while most projects had carried out EIAs, the majority of projects had not met the requirements for information disclosure, watershed protection, compliance monitoring, and revenue sharing. After this assessment, the MEM developed a strategy to implement the NPSH. A lack of financial commitment towards environmental and social management and monitoring by most private companies, which can lead to environmental degradation, for instance, the discharge of untreated tailings into the local drainage system instead of building a tailing storage dam. As an example, the Nam Theun 1 (NT1) hydropower dam was constructed by an overseas company in a public-private partnership. It was constructed inside the Nam Kading National Protected Area, and this included building a road into the protected area, and opening it up to outside access in a way that had not previously been possible. The Concession Agreement made allowances for mitigating the environmental impact of building the new road and for compensation to the local population for the loss of forest. However, when the financial crisis hit, the company halted its operations. The agency for the protected area requested the mitigation measures and compensation payments but have not received them as the company refuses to pay since they are not operating in the area now, and government agencies have not come together to resolve the issue. A loss of forest area and wildlife particularly to reservoirs for hydropower projects. Associated civil works (roads, power lines, workers camps, and quarries) also impact forest integrity. A lack of public access to data. Currently, there is no system in place at WREA or the MEM enabling public access to contractual agreements, ESIAs, or Environmental Management Plans. The inability of the regulatory agencies to respond to emergency situations, such as chemical spills, which means that the operators must fulfill this role, and most of them may also lack the capacity for this (Boland et al., 2001). 15

17 Box 1. NT2 Watershed: Opportunities for Protected Area Conservation and Emerging Issues With NT2 there have been some success stories in terms of best practice operation in building dams in highly biodiverse landscapes and creating opportunities for environmental protection: Legislative protection of the watershed: While some area of the Nakai Nam Theun NPA was lost to flooding for the reservoir, two biodiversity corridors were added, making the official NT2 Watershed an area of 4,000 km 2. Long-term funding for the watershed: As compensation for loss of part of the Nakai Nam Theun National Protected Area, the NTPC is paying a total of $31.5 million over 31 years to the Watershed Management and Protection Authority (WMPA). This is for environmental protection and monitoring and for protecting the livelihoods of the enclave villages. With approximately one-third of the funds spent on conservation and protection (the remainder is spent on livelihood development and infrastructure), this is, to date, the highest level of long-term funding of any protected area in Laos. Wildlife rescue during reservoir filling: During the flooding of the protected area part of the reservoir, a Wildlife Rescue Team rescued a number of animals from the forest and relocated them to the NT2 watershed in an area patrolled by rangers to prevent any hunting of the released animals. Protection of the Asian elephant population of Nakai Plateau: The Nakai Plateau was a known range area for a population of elephants. A significant area of the population s range was flooded to create the reservoir. After the flooding, most of the elephants naturally moved across to the Protected Area. Innovative work was carried out (and is ongoing) in regards to resolving human elephant conflict. While there is substantial funding for the Watershed, and an agency has been established to manage it, the Watershed is threatened by a number of effects that are not yet being mitigated effectively or sufficiently: Illegal selective logging of high-value forest species, especially rosewood and other hard woods, by outsiders (resettlement villagers, people from across the border with Vietnam, or people from elsewhere in the country) and enclave villagers, driven by demand from well-connected privately owned industry Hunting by non-enclave villagers for consumption, and hunting by non-enclave villagers, enclave villagers and Vietnamese for the wildlife trade, driven by an increasing middle class in the towns and cities of Laos and the region Encroachment into the Watershed protected area, without notification to the WMPA, by gold mining by well-connected privately owned industry, and by the road entering the protected area for fiber optic cables and electricity lines. TOWARDS SUSTAINABLE HYDROPOWER AND MINING DEVELOPMENT The challenges listed in the previous section are not new and generally agreed. The focus of this section is what to do about them. We will focus here on five areas where improvements are either underway or are still needed: (i) strategic planning; (ii) capacity building (iii) regulatory reform; (iv) institutional reform; and (v) reflecting the real value of environment to achieve a balanced economic growth agenda. Strategic Planning Strategic planning for hydropower and mining development needs to be strengthened (World Bank, 2009). Important ministries, notably, Energy and Mines and Agriculture and Forestry, have few mechanisms to pro-actively identify and select investments based on a national strategy. Steps that could be taken towards this goal might include: (i) a sectoral master plan for least-cost hydropower expansion and priority areas for mining development; (ii) Strategic Environmental Assessments (SEAs) of the hydropower and mining sectors, taking into account their cumulative impact, particularly where multiple hydropower sites are being developed in a given watershed: (iii) frameworks for selecting projects with least environmental impact, for example, by screening potential sites; and (c) integrated water resource management (IWRM) for cross-sectoral planning. 16

18 SEAs can be an important tool for incorporating environmental considerations into sectoral policies, plans and programs (World Commission on Dams, 2000). A SEA is undertaken much earlier in the decision-making process than a project environmental impact assessment (EIA), and information from the SEA should flow through the tiers of decision-making and be used in an EIA at a later stage. It should include extensive public participation. The Mekong River Commission (MRC) is undertaking an SEA of Proposed Hydropower Developments on the Mekong Mainstream in the Lower Mekong Basin. In this SEA, the Commission aims to identify the opportunities and risks of hydropower to regional development by assessing alternative mainstream Mekong hydropower development strategies. It will consider costs and benefits in relation to economic development, social equity, and environmental protection. It will involve: a survey of baseline data and a gaps analysis; hydrological modeling; an assessment of water demands from other sectors and land uses; and the potential for future water scarcity or flooding downstream. It will also involve stakeholders in this process. Regarding the environment, it will assess natural resource value in economic terms and also investigate potential effects of its exploitation, such as to fisheries and the barrier effects of dams on fish migration, maintaining ecological integrity and biodiversity, river morphology and hydrology, and water quality. The assessment will include the development of scenarios, based on different levels of dam construction and thus power generation capacity, from none to all 11 of the proposed projects. It is intended to inform policymakers on whether, and how, projects on the mainstream Mekong should best be pursued, and will provide initial information to inform EIAs for hydropower project in the area (Soussan, 2009). The SEA will be reported on at the end of There is a need for a Cumulative Impact Assessment of multiple hydropower and mining projects within a river basin. The environmental impact assessment study for the first dam on any river should include a cumulative environmental assessment of the likely impact of any further dams on the same river system. The implementation of mitigation measures for cumulative (rather than dam-specific) effects should be completed or be well underway prior to construction of the second dam on the river (Ledec and Quintero, 2003). Such an assessment was made during preparation for the Nam Thuen 2 Hydropower project. Hydropower plant capacity is often used as a screening indicator in the consideration of a project s environmental impact, but this has been shown to not be accurate (Ledec and Quintero, 2003). The selection of a site largely defines the environmental and social impact of hydroelectric projects. Assessing the potential environmental impact of alternative sites through a series of quantitative indicators and before ESIAs begin would facilitate strategic planning in the energy and mining sector in Laos. A multi-criteria framework for choosing sites can rule out those sites that will have very high adverse environmental and social effects. It would make it possible to screen projects before doing ESIAs, thus potentially saving developers and government agencies the costs of carrying out and evaluating ESIAs at unsuitable sites. It would also make it possible to compare and rank alternative projects and sites at different locations, which would not normally happen in the standard EIA process. Poor sites for hydropower projects include sites that require large areas to be flooded, where dam and reservoir construction would require significant resettlement, that would affect critical natural habitats (whether or not they are formally defined as protected areas) or sites of high cultural significance; where the project would affect rivers with a naturally high diversity of native species and where some aquatic species that would be affected are found only in the project area; and where the project is likely to cause water quality to deteriorate. Another critically important set of indicators measures the extent of any downstream impact, such as the length of river left mostly dry due to water diversion and the number of tributaries downstream of the dam (Ledec and Quintero, 2003). The environmental and social impact of mining and hydropower cannot be addressed at the project level alone but instead need to be addressed in the context of the river basin as a whole. 17

19 With the support of the ADB and the World Bank, the Government of Laos will begin to put into place an Integrated Water Resources Management (IWRM) in a river basin context strategy, which will include Nam Ngeum and Nam Theun-Nam Kading. The Mekong Integrated Water Resources Management (M- IWRM) initiative already exists and soon investment on river basin management will begin in the Xe Bang Hieng and Xe Bang Fai river basins. IWRM is new for Lao PDR and will be the responsibility of the Department of Water Resources (DWR) under WREA. The Lao Environment and Social Project (LEnS) funded by the World Bank and implemented by WREA and other related agencies includes support for building a community conservation network for watershed protection in the Bolikhamxai, Khammouane, and Savannakhet provinces. Capacity Building The implementation of environmental and social impact assessment procedures needs to be strengthened within WREA and other relevant ministries. Without these procedures, the projected flood of development investments will cause long-term environmental damage and natural resource loss. ESIAs must be carried out and evaluated by WREA before the approval of or the commencement of work on hydropower or mining projects. Capacity needs to be built within WREA to require developers to produce high-quality ESIAs and to be able to evaluate them. There also needs to be a clear delineation of responsibilities between each agency involved (for example, WREA and the MEM) and between each level of government and coordination to ensure that different agencies and levels of government are consistent in their interpretation and implementation of legislative requirements (Boland et al., 2001). The Lao Environment and Social Project (LEnS) supports capacity development for environment and social natural resource management at the national and provincial levels. This project is funded by the World Bank and implemented by WREA and other related agencies. The LEnS supports capacity building in the new Department of Environment and Social Impact Assessment (DESIA), which is under the jurisdiction of WREA) The new department has recruited over 50 staff on a contractual basis. The capacity of DESIA needs to be built over the long term in terms of staffing, training, and equipment. The LEnS project also supports the provincial and district levels of WREA in the Bolikhamxai, Khammouane and Savannakhet provinces. Measures to increase managerial capacity and to enhance public access to data are also included. A capacity-building initiative funded by a New Zealand Trust Fund through the World Bank is also active in assisting WREA to enhance its capacity. The objectives of this work are to identify the key strategic areas for building the capacity of WREA in the short and medium term, and to create the basis for harmonized donor support for capacity development in the framework of the Vientiane Declaration for Aid Effectiveness. This work complements the agency s five-year plan for and is expected to include an assessment of capacity at the central and the provincial levels. An initial capacity assessment conducted in July 2009 as part of this work suggested that, with its current level of skills, the agency faces major constraints in the areas of: (i) the monitoring of pollution and of hazardous substances; (ii) environmental and impact assessments, particularly at the stage of monitoring and recommendation in cases of non-compliance; (iii) and the gathering and analysis of statistical data. A new Technical Assistance project for Capacity Building in the Hydropower and Mining Sectors in Lao PDR is being implemented (World Bank, 2009). The objective of the project is to increase capacity for, and improve the performance of, government oversight of the hydropower and mining sectors. The project aims to induce policy dialogue and sector reform, and more specifically will work on three components. 18

20 Component 1, the hydropower and mining learning program, will: (i) build the capacity of targeted government staff and public/private sector practitioners; (ii) support advanced education at the National University of Laos: and (iii) promote information sharing by establishing a small library and updating the website for the Ministry of Energy and Mines. Component 2, hydropower sector development, will: (i) improve hydropower planning to take into account potential social and environmental costs when reviewing economic benefits; (ii) improve hydropower concession management by assisting the Department of Energy Promotion and Development to ensure that projects comply with their concession agreements (CAs) and to ensure that sound environmental and social safeguards and monitoring, are included in CAs; and (iii) assist the Department of Electricity to manage and implement the National Policy on Environmental and Social Sustainability of the Hydropower Sector, including the incorporation of the new EIA Decree. Component 3, mining sector development, aims to improve sector governance and the enabling environment by providing legal advisory support to complete the legislative and regulatory framework, including the development of a national mining development policy and promoting models for corporate social and environmental responsibility (CSER). The component will also strengthen government oversight capacity, for monitoring and evaluation, mining inspection, compliance, environmental safeguards, and community consultation and disclosure programs, and will create a program to promote mineral development. Regulatory Reform Due to the rapid development of the hydropower and mining sectors, the Government of Laos revised the Environment Impact Assessment regulation and updated it as a Decree on Environmental Impact Assessment in February The new EIA decree makes the EIA process clearer and explains the roles and responsibilities of key agencies and of the project owners. It strengthens the role of WREA as the third party regulating agency for all stages of the approval and monitoring of projects and denotes WREA as the key agency responsible for the ESIA process. Overall, the new decree includes key themes required for effective EIAs (as outlined in Sadler, 1996). Its objective is to implement Article 8 of the EPL, which relates to EIAs, and to contribute to sustainable socioeconomic development (Article 1). The decree includes provisions for screening projects as small or large; requiring strategic environmental assessments, cumulative impact assessments, and trans-boundary EIAs; defining the roles of WREA, technical agencies, and local government; requiring disclosure and public involvement in decision-making and dispute settlement; following up on projects to ensure that the requirements of the Environmental Management and Monitoring Plan (EMMP) for the project are met; fining or warning offenders; and building the capacity of government staff through investment projects. A key improvement in the new decree is the strengthened requirements for public involvement and disclosure and for the registration of consultancy firms conducting EIAs. The generic steps outlined in the EIA Decree are as follows: 1. The developer submits a proposal for an investment project to WREA. 2. WREA screens the project and decides within 15 days if it is a small project or large project. 3. Small projects develop an Initial Environmental Examination (IEE). Large projects develop a draft Environmental Impact Assessment (EIA), as well as a Social Impact Assessment (SIA). The onus is on the developer to do this. Only contractors registered with WREA can produce these assessments. When the EIA is being carried out, the community at the project area must be informed. 4. The developer and local administration organize community consultation. Community provides comments on the draft. 5. Sectoral bodies review the draft EIA and provide comment. 6. EIA is finalized, having incorporated the comments. 19

21 7. WREA approves/asks for amendments/rejects the EIA. Once it is approved, WREA issues an Environmental Certificate, which may include certain requirements of the developer. 8. For large projects, the developer must establish an Environmental and Social Management Office, which reports to WREA, and develop an Environmental Management and Monitoring Plan. 9. The developer can then begin to clear/construct/implement the project. 10. The IEE is self-monitored by the developer. Projects with approved EIAs that include measures to prevent/minimize any negative effects are monitored by local authorities and provincial WREA (P-WREA). WREA conducts tours of inspection and reports to the National Environment Committee, which is under the jurisdiction of Prime Minister s Office. For particularly complex projects, the government will establish a National Steering Committee to oversee the project. Thus, the decree has strong provisions for sound environmental management and impact mitigation and for the enforcement of the mitigation measures. The true value of this recent decree remains to be seen as it depends on the skills and commitment of WREA, P-WREA, sectoral bodies, and local administrations. A policy review is needed of salvage logging related to hydropower and other infrastructure requiring biomass removal. The Ministry of Agriculture and Forestry has issued Regulations on Salvage Logging, which provide general guidance for the conduct of salvage operations, but a number of significant issues are not addressed in the regulation. Concessions for salvage logging are given independently of concessions for hydropower projects, so that if financing is not found for an approved hydropower project and the project faults or stalls, the salvage logging can occur anyway, and may even occur prior to the project failing, as was the case at Nam Theun 1. Exploitation of timber resources in a reservoir site should be considered as a potential revenue source within the project as a whole and not as a separate unconsolidated activity, so that the entities responsible for the dam s construction, reservoir operation, and catchment are involved from the earliest stages in salvage planning, implementation, and oversight with financial and operational controls on a par with those for revenues from power and water. Salvage logged timber has been a major component of the national timber harvest in Lao PDR, some years accounting for more than 50 percent of log production. This can be expected to continue to be significant as the government both continues its hydropower development efforts and increasingly improves the regulation and control of the permanent production forest estate through its system of national Production Forest Areas. As well as harmonizing the approval procedure of salvage logging with actual development of hydropower projects, policies concerning hydropower-related salvage logging need to support a range of objectives including the timely preparation of the reservoir area for inundation, an assessment of the impact of salvage logging on reservoir and downstream water quality, the maximization of revenues from the disposal of state assets, protection of forests, and land resources that will remain above the reservoir water level, and environmental and worker safety aspects of the salvage operation. Policymakers also need to address any potentially significant risks, in terms of governance and physical and incentive spillovers into the management of permanent forest areas, related to the ways in which salvage is managed and conducted. Institutional Reform The conservation and environment agencies in Laos are at a low level of authority within the administrative hierarchy. This is a key reason that mines and hydropower projects continue to be constructed within protected areas (PAs) and other high-value forest/aquatic areas in Laos with no consultation with, or informing of, the concerned management agency. The agency in charge of all PAs, which make up over 20 percent of the land area of Laos, is a unit - the National Protected Areas Unit under the Division of Natural Resource Conservation (DFRC) under the Department of Forestry under the Ministry of Agriculture and Forestry. Thus, the unit comes under the jurisdiction of a department that has 20

22 a mandate for resource extraction, which poses a conflict of interest. Protected Area Management Units at the provincial level have just been moved up to be at the same level as the Forestry Office, rather than being under the Forestry Office, and now constitute one unit to look after all protected areas in that province. This is hopefully a step towards giving a higher level of authority to protected area managers and should be replicated at the national level. Environmental management requires coordination among sectoral ministries as well as among national, provincial, and district levels of government. Integrated watershed management is an important example of how geography and common purpose can define a context that transcends administrative boundaries. Institutional structures, resources, and position need to reflect the mandates of those institutions. Unlike in most countries, no Ministry of the Environment has yet been established in Lao PDR. WREA and the National Land Management Authority (NLMA) are Authorities, and conservation comes under a Division of the Ministry of Agriculture and Forestry. It may be time to make the case for melding the Division of Forest Resource Conservation (DFRC), WREA, and the NLMA into one Ministry of the Environment, which would increase coordination and increase the political power of the agencies in charge of environmental protection, land use planning, and forest and biodiversity conservation. Incorporating Environmental Conservation into Project Design It is cheaper, easier, and more effective to retain biodiversity and ecosystem goods and services by protecting natural habitats than to try and recreate or replace them (Quintero, 2007). This is critical for environmental conservation and for protecting resources such as fish and NTFPs that are essential elements of the food security and nutrition of local villagers (see Fenton et al., 2010). Hydropower and mining tend to comprise large-scale civil works, meaning that land is lost, habitats destroyed as a result of construction, as well as during the project s development and operation. Early in the process of any project, the developer should accurately identify key, highly biodiverse habitats and plan ways to minimize the impact of the project on them. There are a number of means to do this: Avoiding key natural habitats by planning for civil works to avoid priority areas Reducing the area disturbed, for example, by making access roads and other construction routes as narrow as possible and by using minimal impact methods such as manual tree removal rather than clear felling to minimize disturbance to vegetation Planning for revegetation, appropriate waste disposal, water quality maintenance, and the creation of fish passages and habitats (see Annex 2 for mitigation options for hydropower projects). In Laos, developers are required to compensate the local population for the loss of livelihoods and to mitigate any adverse environmental effects, and their compliance is monitored by the government. The project s EIA and EMP should outline the threats to the environment posed by the hydropower or mine development and should detail the required responses and costs. For example, a mine or hydropower project that builds a road into a forested area should pay the cost of compensation (to the protected area or production forest management authority) for the loss of forest area. It should also pay for patrols and checkpoints to regulate access by outsiders to the forest area, which could result in unsustainable wood, NTFP, and wildlife extraction. Likewise, projects must mitigate and compensate for any adverse effects on water quality and quantity, which could negatively affect communities who are reliant on fresh water and fish. This could be done by constructing tailings dams to reduce chemical pollution, ensuring fish passage, and compensating for any loss of fish stock for human consumption. While there is provision for mitigation and compensation through the ESIA process, the government needs to hold developers accountable and ensure that they satisfactorily meet their mitigation and compensation commitments to avoid overall losses to the environment and local community. 21

23 Additionally, the government can ensure that mining and hydropower projects also benefit the environment and thus create a net gain to environmental conservation (Quintero, 2007), for example, by: Creating, expanding, or strengthening protected areas Providing environmental education in the local area Sponsoring endangered species studies and other new research Strengthening institutions such as protected area units and P-WREA to ensure environmental management, compliance, and improved regulatory control. Valuing the Environment Trade-offs between environmental integrity and economic development must be made, but stronger attention should be paid to the value of particular natural areas. When decisions about hydropower or mining development are made, some areas are converted usually irreversibly from other uses. These have value, but there is often no market price that reflects such values. An important example is forests that are cut down to make room for a dam or a mine. Lao PDR values these assets as shown by the large extent of conservation status conferred to them. Forests provide not only timber but ecosystem services including a large range of non-timber forestry product that are important for rural livelihoods (see Table 4). However, since all those values are not reflected in the markets for goods and services, forests tend to be undervalued in the competition with other land uses (see Ruta, 2009). There are several ways to deal with this, and this section discusses some examples pertinent to Lao PDR. Transparency and public disclosure are important mechanisms in working toward sustainable development where environmental resources are fairly valued. Clear rules of the game that have to be followed by all parties, competitive bidding, public disclosure of financial agreements, and independent auditing of real financial flows are important in moving towards a more market-based valuation of environmental resources. Table 4: Types of Ecosystem Services from Forests Environmental Goods Food Fresh water Fuel Fiber Biodiversity conservation Medicines Regulating Services Climate regulation Flood regulation Disease regulation Water purification Supporting Services Nutrient cycling Soil formation and conservation Cultural Services Aesthetic Spiritual Educational Recreational Source: Adapted from Forest Trendset al., 2008 Revenue transfer is one way to correct for the undervaluation of forests. The government could require developers of hydropower and mining projects to allocate a portion of their revenues, or of the project s costs, to environmental protection. This would assist in the current deficit in funding for forest conservation and sustainable forestry in Laos. For example, in 2010 the annual budget for the protected area system was at around 7 cents/ha, not including salaries, and this is not adequate for the full range of 22

24 activities required to protect the forest (see Annex 3). An example of revenue transfer is the NT2 Revenue Stream, in which part of the revenue from electricity sales go to fund the health, education, infrastructure, and the environment sectors. In 2009, revenue funds were allocated to WREA to enhancing their Environmental and Social Impact Assessment, to MAF for reforestation, and to the new Department of Forest Inspection (DoFI, under MAF) for capacity building, training, and the implementation of environmental law enforcement. There is currently discussion at the Department of Forestry about whether to include in new regulations for Protection Forests a provision for a proportion of revenues from any infrastructure inside or within the watershed of the protection forest area to go towards forest management costs. Revenue transfer from hydropower projects for environmental protection is evident elsewhere in the world. For example, in Colombia, under the Amoya Hydroelectric Project, 6 percent of annual gross electricity sales are transferred to the local municipality and the agency in charge of conservation of the watershed for community development, as mandated by Colombian law. This results in financing for watershed protection (forest cover maintenance and water and soil conservation) and also the sharing of benefits with local communities (Quintero et al., 2009). Market-based approaches to environmental management, such as payments for ecosystem services (PES), are another way to put a price on the environment. PES has been defined as a voluntary transaction where a well-defined environmental service is bought by an environmental service buyer from the service provider, and only if the provider over time secures the conditional provision of that service in a case where such environmental protection activities would not otherwise occur (Adhikari, 2009 and Forest Trends et al, 2008). Ecosystems produce environmental externalities. In other words, the actions of users of a certain ecosystem can have an unintended external effect on other producers or consumers of that ecosystem. PES emerged as a way to internalize these externalities as an incentive-based mechanism that encourages good practice ecosystem management and land use and leads to an efficient outcome for the other producers/consumers. Through PES, producers of environmental services (for example, local land stewards) who contribute to forest conservation receive direct compensation (as cash or as livelihood development) from the beneficiary of the ecosystem service (for example, an ecotourism operator who requires high-quality forest and wildlife populations for successful operations). PES can involve cash payments, improved land rights, wages for services, or livelihood development, and the payment must be more than the additional benefit to the land users of alternative land use (for example, shifting cultivation, or hunting wildlife for trade) but less than the benefit to the buyer. PES is largely applied in the areas of sustainable forest management, ecotourism, biodiversity conservation, and watershed protection (for hydropower or water supply). An example of this in Laos is the annual payment scheme to three villages located in the key habitat of an endangered deer species. They receive the payment in return for not hunting the deer, not allowing hunting dogs to enter the deers forest area, halting the conversion of key habitat to agriculture, reducing burning of the forest, and monitoring deer populations (Svadlenak-Gomez et al., 2007). PES is a new concept and has only recently been implemented in Asia (Adhikari, 2009). However, in Laos the government has already been shown strong interest in PES, and there has been much discussion of this concept among the government, its development partners, and NGOs in PES workshops, working groups, and meetings. PES is being championed by high-level staff in WREA, the NLMA, and the Department of Forestry. Other actions are necessary for the PES to work properly. The literature shows that for PES to work, there needs to be government support, and an enabling policy environment (which exists in Laos, through a number of laws - see Obendorf, 2010). Another key element is community rights to land and secure tenure, which is possible in Laos, but requires financial investment in participatory land use planning (PLUP). For PES to be successful, a direct link must be shown between improved land use/conservation and the downstream benefits in other words, a cause and effect can be clearly illustrated to both service provider and buyer. PES schemes require a buyer; whether this is an ecotourism operator requiring abundant wildlife populations, a hydropower developer requiring a clean water supply, or a voluntary carbon market requiring reforestation or avoided deforestation. Also key is the need to institutionalize the 23

25 transfer mechanism to reward the service provider. Low transaction costs are important, so mobilizing the participation of an entire community, rather than just individual households, is more likely to lead to success (Adhikari, 2009). A third party is often required to initiate PES, and in Laos, this could be an NGO, a protected area management authority, or the management body of production or protection forest. One of the key ecosystems services provided by forests in Laos, a potential significant area for PES schemes and/or revenue transfer, is watershed protection (through fresh water provision, flood regulation, and soil conservation). High integrity and functional watersheds are vital for effective hydropower projects. Some options for generating income for environmental protection at the watershed level could be project-by-project negotiations with hydropower development companies to pay for watershed protection (in other words, for the forest management needed to maintain those ecosystem services). No examples of payment for watershed protection exist in Laos as yet. One relevant example comes from Nepal, where it was demonstrated that the Kulekhani Watershed was a source of sediment influx into the reservoir of a hydropower plant. The soil erosion rate in agricultural land was at 73 metric tons/hectare/year compared to 1 metric tons/hectare/year for forested land, and as such, the total storage capacity of the reservoir had been reduced by 23 million m 3 over a period of around 15 years (Adhikari, 2009). Actions taken to improve upstream land use practices reduced siltation and water flows to the reservoir in the dry season. The Nepal Electricity Authority requires a portion of revenue from hydropower projects to be paid to the central government, and of this, 12 percent was allocated to the local government of the watershed and hydropower plant area. Of this revenue, it was required that 50 percent be spent in the watershed. Such a scheme could be envisioned for Laos, with revenue fed back to watershed management authorities (whether PAFO or protected area management units) and local communities in the watershed to ensure forest conservation and compatible land use practices and to avoid forest loss and resultant siltation and reduced water flows to reservoirs. This would require credible scientific information to link watershed services to land use practices and forest conservation, revenue sharing to local levels by central government and/or voluntary payment for watershed services by the hydropower company, land use changes and forest conservation by forest managers (including both government managers and local villagers), and potentially also involvement from WREA and the Department of Forestry Inspection to ensure compliance to agreements. The initiative for Reducing Emissions from Deforestation and Forest Degradation (REDD) has the potential to reduce the rate of forest loss in Laos and enhance the management of forests, including protected areas and potentially production forests, through stronger law enforcement and monitoring (Global Canopy Programme, 2009). Through REDD, a country can reduce its carbon emissions by reducing deforestation and degradation by moving towards sustained forest cover and by motivating local communities and management authorities to stop land uses that cause loss or degradation of natural forest. Communities and agencies can be rewarded for these actions by selling the avoided carbon loss as carbon credits through the voluntary carbon market. A REDD framework is being developed in Laos through the Department of Forestry. The World Bank and other donors are providing funding to help Laos determine how to develop a reference scenario of deforestation and degradation; how to monitor, report on, and verify systems required for global REDD markets; and assess the institutional arrangements and coordination mechanisms necessary to deliver REDD. A number of pilot projects are being implemented, through donor funding. For example, the German Technical Cooperation (GTZ), the German Development Bank (KfW), and the German Development Service (DED) are proposing a project to reduce emissions from deforestation and degradation in Nam Phoui and Nam Et Phou Louey NPAs to be implemented by provincial and district officials and the Wildlife Conservation Society (REDD Taskforce of Lao PDR, 2009). This project will be a milestone for the Government of Lao as the first large REDD project in Lao PDR. In all, MOUs have been signed with around $50 million in financing for REDD preparation and pilot projects in 2009, all from donor funding (Clarke, 2010). However, if REDD projects are entirely donor-funded and do not involve the carbon market, there will be less international scrutiny and no need for independent verification. As a part of REDD, it is important to 24

26 create financial incentives at the local level for conservation and forest protection for local communities who have historically been involved in degradation and deforestation. CONCLUSION In conclusion, there is very considerable potential for Lao PDR to benefit from the development of hydropower and mining, but there must be a number of improvements in environmental protection to ensure the long-term, sustainable use of these natural resources. The sustainable use of natural resources and the minimization of environmental degradation from hydropower and mining are essential both for conserving biodiversity and for safeguarding rural livelihoods. The average Lao villager s reliance on wild meats as a source of protein is very high: up to 80 percent of fish and more than 20 percent of meat consumed by the population come from the wild (depending on the location of the village). Since stunting and malnourishment of children is highest (more than 50 percent) among those households that are most reliant on wild food, changes brought about by large-scale development and the disappearance of forest and aquatic life could lead to serious negative consequences for poverty and nutrition (see Fenton et al., 2010). Likewise, Lao PDR is in a global biodiversity hotspot, the Indo-Burma Hotspot (Conservation International, 2007), and safeguarding the biodiversity of Laos is important not only for the local area but also for global conservation. A number of measures to increase the sustainability of the natural resources sector have been suggested here for discussion. Among others, the most important actions were identified as follows: The implementation of the existing legislation, especially of the Decree on Environmental Impact Assessment (2010), is paramount. Implementation capacity for environmental and social impact assessment procedures needs to be strengthened within WREA and other relevant ministries. Without these procedures, the projected flood of development investments will cause long-term environmental damage and natural resource loss. Environment and Social Impact Assessments (ESIA) must be carried out by approved firms and evaluated by WREA before approval or the issuing of concessions, or the commencement of work in hydropower or mining projects. Capacity needs to be built within WREA so that it can require developers to produce high-quality ESIAs and so that it can evaluate them effectively. There also a need for a clear delineation of responsibilities between each agency involved (for example, WREA and the MEM) and between each level of government as well as coordination to ensure that different agencies and levels of government are consistent in their interpretation and implementation of legislative requirements. Institutional reform is needed to increase the authority of conservation and environmental protection agencies, as well as to eliminate the conflict of interests when these agencies are located in the ministries that are leading natural resource extraction. For example, instead of being under the Forestry Office as in the past, Protected Area Management Units at the provincial level have just been given the same status as the Forestry Office and there is now only one unit to look after all protected areas in each province. This is hopefully a step towards giving more authority to managers of protected area and could be replicated at the national level. Some conservation provisions need to be required in the project design. In cases where ESIA has shown the need for mitigation of environmental impacts, such provisions 25

27 should be required in the project design (such as tailing dams to reduce chemical pollution). Advantageous to both project cost efficiency and environmental protection is the early identification of the key environmental impacts and strategic planning of mitigation of the cumulative impacts, such as: avoiding key natural habitat areas, minimizing the access routes and providing monitoring and enforcement if they lead to a protected area, using minimal impact methods such as manual tree removal, and ameliorating the areas of impact through, for example, re-vegetation, appropriate waste disposal, water quality maintenance, and/or the creation of fish passages and habitats. Forest conservation needs to be emphasized. There are many connections between the management of forest resources and the development of hydropower in Lao PDR.A particularly important set of issues that is seriously in need of review involve the salvage use of forest resources affected by reservoir inundation. Salvage logged timber is a major component of the national timber harvest in Lao PDR, some years accounting for more than 50 percent of log production. Policies and practices that control the sale and disposal of these valuable assets will affect the viability and credibility of hydropower development and will also have important consequences for the success of the government's efforts to develop market-oriented sustainable forest management. The management of salvage sales need to be assigned to an authority capable of drawing on multi-sectoral expertise to prepare plans that can be publicly disclosed. Sales should not commence in advance of final approval and financial close of the power project. Also, concessions for salvage logging should be planned and completed in advance of reservoir inundation, they should be based on professional assessments of timber volumes and values, and they should employ competitively selected contractors for logging and site preparation and separately for the competitive sale of logs. Concessions for salvage logging should be conditional on concessions for the development project to avoid salvage logging occurring in the event of a development not obtaining financing. 26

28 REFERENCES Adhikari, B. (2009). Market-Based Approaches to Environmental Management: A Review of Lessons from Payment for Ecosystem Services in Asia, Asian Development Bank Institute, Japan. ASEAN Regional Centre for Biodiversity Conservation (2009). Mekong River Lao PDR Wetlands. [Accessed 27 December 2009] Boland, N., R. Kunanayagam, and A. Walker (2001). Lao PDR Mining Sector: Social and Environmental Sustainability, Report of the World Bank Group Fact-Finding Mission. Unpublished report, World Bank, Lao PDR. CBD (2006). Convention on Biological Diversity Article 2: Use of Terms. Available at: [accessed 10 May 2010] Clarke, M. (2010). SUFORD (Sustainable Forestry for Rural Development) Technical Advisor. Personal communication. Conservation International (2007). Biodiversity Hotspots, Indo Burma. Available at: [accessed 23 April 2010]. Department of Geology (2009). Geological Strategy Development Plan in and , Ministry of Energy and Mining, Vientiane, Lao PDR (unpublished). Department of Mines (2008). Annual Mine Report 2008, Ministry of Energy and Mining, Vientiane, Lao PDR Duckworth, W. et al. (1999). Wildlife in Lao PDR: 1999 Status Report, IUCN/WCS/CPAWM, Vientiane, Lao PDR Fenton, N., M. Lindelow, A. Heinimann, and I. Thomas, I. (2010b). The Socio-geography of Mining and Hydro in Lao PDR: Technical Report on Analysis Combining GIS Information with Socioeconomic Data, Lao PDR Development Report 2009 Background Paper. Fenton, N., M. Lindelow, J. Krahn, and B. Larsen (2010). Natural Resources, Poverty, Food and Nutrition in Lao PDR: A Stock-taking. Lao PDR Development Report 2009 Background Paper. Forest Trends, The Katoomba Group, and UNEP (2008). Payments for Ecosystem Services. Forest Trends and The Katoomba Group, Washington DC and United Nations Environment Programme, Nairobi, Kenya. Forest Trends and The Katoomba Group (2008a). Getting Started: A Primer, Forest Trends and The Katoomba Group, Washington DC, USA. Gibson, D. and H. Carlsson Rex (2010). Improving Hydropower and Mining Resettlement Performance in Lao PDR: Examining Potential for Benefit-Sharing Approaches, Lao PDR Development Report 2009 Background Paper, World Bank, Washington DC. Global Canopy Programme (2009). Little REDD Book. Oxford, UK. 27

29 Government of Lao PDR (2000) Policy on Water and Water Resources, Government of Lao PDR, Vientiane, Lao PDR. Government of Lao PDR (2001). Forestry Strategy to 2020, Government of Lao PDR, Vientiane, Lao PDR. Government of Lao PDR (2004). National Growth and Poverty Eradication Strategy, Government of Lao PDR, Vientiane, Lao PDR. Government of Lao PDR (2005). National Policy on Environmental and Social Sustainability of the Hydropower Sector in Lao PDR, Government of Lao PDR, Vientiane, Lao PDR. Government of Lao PDR (2010). Power Project in Lao PDR. Available at: [Accessed April 20, 2010]. Government of Lao PDR (2008). Strategic Development of Energy and Mining Sectors, Ministry of Energy and Mines, Vientiane, Lao PDR. IFC (2007). Environmental Health and Safety Guidelines for Mining. International Finance Corporation, World Bank Group, Washington DC. International Center for Environmental Management (2003). Lao PDR National Report on Protected Areas and Development, ICEM, Queensland, Australia. Ledec, G. and J.D. Quintero (2003). Good Dams and Bad Dams: Environmental Criteria for Site Selection of Hydroelectric Projects. Latin America and the Caribbean Region, Sustainable Development Working Paper No. 16, Latin America and the Caribbean Region, World Bank, Washington DC. National Assembly (2007). Forestry Law, No. 6/NA, 24 December 2007, Government of Lao PDR, Vientiane, Lao PDR. Oberndorf, R.B. (2010). Legislation Directly Relevant to Supporting PES Arrangements in the Lao PDR, Blue Moon Fund, Lao PDR. Quintero, J. (2007). Mainstreaming Conservation in Infrastructure Projects case Studies from Latin America. World Bank, Washington DC. Quintero, J., R. Roca, A.J. Morgan, and A. Mathur (2009). Smart Green Infrastructure in Tiger Conservation Landscapes: A Multi-Level Approach, in Kathmandu Global Tiger Workshop October Nepal Proceedings, Global Tiger Initiative, Nepal. REDD Taskforce of Lao PDR (2009). Annual Review of REDD+ in Lao PDR, SUFORD and REDD Taskforce, Vientiane, Lao PDR. Ruta, G. (2009). Natural Resource Management for Sustainable Development in Lao PDR, Lao PDR Development Report 2009 Background Paper, World Bank, Washington DC. Sadler, B. (1996). International Study of the Effectiveness of Environmental Assessment. Environmental Assessment in a Changing World: Evaluating Practice to improve Performance, Canadian Environmental Assessment Agency and International Association for Impact Assessment. 28

30 Soussan, J. (2009). Background Scoping Paper for a Strategic Environmental Assessment of Proposed Hydropower Developments on the Mekong Mainstream in the Lower Mekong Basin, Stockholm Environment Institute Asia. Svadlenak-Gomez, K., T. Clements, C. Foley, N. Kazakov, D. Lewis, D. Miquelle, and R. Stenhouse (2007). Paying for Results: WCS experience with direct incentives for conservation, TransLinks, September Available at Van den Toorn, W. (2009). Natural Resources and Sustainable Development in Laos, Draft Final Consultant s Report, The European Union s DCI-Asia Program for Laos. World Bank (1998a). Environmental Assessment of Mining Projects. Environmental Assessment Sourcebook Update No. 22. World Bank, Washington DC. World Bank (1998b). Pollution Prevention and Abatement Handbook: Toward Cleaner Production. World Bank, Washington DC. World Bank (2005). Lao PDR Economic Monitor World Bank, Vientiane, Lao PDR. World Bank (2009). Project Appraisal Document on a Proposed Grant to the Lao People s Democratic Republic for a Technical Assistance for Capacity Building in the Hydropower and Mining Sectors Project. Report NO LA. World Bank, Washington DC. World Commission on Dams (2000). Dams and Development: A New Framework for Decision Making, Earthscan Publications, Ltd, London, UK. WREA (2008). Paper on Water Resources Management in Lao PDR, presented at the July 2008 Meeting of the Project on Asian Environmental Review. Wu, J.C. (2007) Minerals Yearbook Laos, US Geological Survey, USA. 29

31 Annex 1. Maps Figure 1: Current and planned hydropower and mining projects in Lao PDR, with an underlay of the National Protected Area system, Protection Forest, and Production Forest Areas Source: CDE/NCCR North-South and Mekongmaps (2010). 30

32 Figure 2. Department of Geology (DGeo) Special Mineral Preservations areas as designated by Government of Lao PDR These areas are believed to have significant mineral resource potential. The apparent intention of the government is to keep these areas as a strategic reserve, but they are likely to be vulnerable to land loss in the future. 31

33 Annex 2. Hydropower, Mining, and the Environment Table A1: Environmental Effects and Mitigation Options for Hydropower Projects Environmental Impact Dam and Reservoir Loss of Natural Habitats To flooding and other project components, such as borrow pits. Some reservoirs permanently flood extensive natural habitats. Large reservoirs in the tropics are especially likely to cause species losses. Particularly hard-hit are riverine forests and other riparian ecosystems. Mitigation/Compensation Option To offset loss of natural habitats, one or more compensatory protected areas can be established and managed under the project. If an existing area is protected on paper only (e.g. the case of Nakai Nam Theun NPA at NT2 Project), a useful option is to strengthen the project s on-the-ground protection and management. The area protected under the project should be of comparable or greater size and ecological quality to the natural area lost to the project. Loss of Terrestrial Wildlife The loss of terrestrial wildlife to drowning during reservoir filling is a consequence of flooding terrestrial natural habitats Deterioration of Water Quality Damming of rivers can cause water quality to deteriorate due to reduced oxygenation and dilution of pollutants by relatively stagnant reservoirs (compared to fast-flowing rivers), flooding of biomass (especially forests) and resulting underwater decay, and/or reservoir stratification (where deeper lake waters lack oxygen). Downriver Hydrological Changes Major downriver hydrological changes can destroy riparian ecosystems dependent on periodic natural flooding and can exacerbate water pollution during low flow periods. Reduced sediment and nutrient loads downriver of dams can increase river-edge erosion. If water is diverted to another portion of the river or to a different river, this can affect fish and other fauna and flora dependent on the river and can damage agriculture and human water supplies. Effects on Fish and Other Aquatic Life Reservoirs can positively affect certain fish species (and fisheries) by increasing the area of available aquatic habitat. However, the net impact is often negative because: (a) the dam blocks upriver fish migrations and Under the World Bank s Natural Habitats Policy, hydroelectric and other projects should not be sited where they would cause significant conversion or degradation of critical natural habitats that do not occur elsewhere (and, hence, cannot be adequately compensated for). Wildlife rescue efforts rarely succeed in restoring wild populations. The captured and relocated animals typically starve, are killed by predators or hunters, or fail to reproduce successfully due to the limited carrying capacity of their new habitats. Wildlife rescue is justified on conservation grounds if (a) the species rescued is globally threatened with extinction and (b) the relocation habitat is ecologically suitable and effectively protected. Water pollution control measures (sewage treatment plants or enforcement of industrial regulations) may be needed to improve reservoir water quality. Selective forest clearing within the impoundment area should be completed before the reservoir is filled if biomass decay is likely to be an issue. Any adverse impact can be minimized through careful management of water releases. From an ecological standpoint, the ideal water release pattern would usually closely mimic the natural flooding regime. Dams that generate baseload electricity are typically more capable of replicating near-natural downriver flows than those that produce peaking power (where daily water releases may fluctuate sharply, often to the detriment of aquatic organisms that are adapted to less frequent flow changes). Environmental management plans for hydroelectric projects should specify environmental water releases. Management of water releases may be needed for the survival of certain fish species in and below the reservoir. Fish passage facilities (fish ladders, elevators, or trap-and-truck operations) can help migratory fish to move upriver past a dam but are usually of limited effectiveness. 32

34 downriver passage (b) many river-adapted fish and other aquatic species cannot survive in artificial lakes (c) changes in downriver flow patterns adversely affect many species (d) water quality deterioration in or below reservoirs (usually low oxygen levels) kills fish and benthic organisms and damages aquatic habitats. Floating Aquatic Vegetation Floating aquatic vegetation can rapidly proliferate in eutrophic reservoirs, degrading the habitat for most species of fish and other aquatic life and improving the breeding grounds for mosquitoes and othernuisance species and disease vectors. It can also lead to water being unsafe for villagers to use. Greenhouse Gases Carbon dioxide and methane are released into the atmosphere from reservoirs that flood forests and other biomass, slowly if flooded organic matter decomposes or rapidly if the forest is cut and burned before being filled with water.. Most hydro projects generate sufficient electricity to more than offset the greenhouse gases that would otherwise have been produced by burning fossil fuels in power plants. Impact of Associated Civil Works Access Roads New access roads to hydroelectric dams can involve deforestation and thus, a loss of biodiversity and accelerated erosion. New roads through or near protected areas can lead to increased illegal extraction of timber, NTFPs, and wildlife. Construction Camps and Workers Construction camps close to forest areas can lead to increased illegal extraction of timber, NTFPs, and wildlife, either directly by workers or by increasing demand locally. Power Transmission Lines Power transmission line rights-of-way often reduce and fragment forests; indirectly, they occasionally facilitate further deforestation by increasing physical access to the forest. Large birds are sometimes killed in collisions with Fish hatcheries can be useful for maintaining populations of native species that can survive but not successfully reproduce within the reservoir. Non-native species should not be introduced to the reservoir as they will out-compete native species. Fishing regulation is often essential to maintain viable populations of commercially valuable species. Pollution control and pre-impoundment selective forest clearing will make reservoirs less conducive to aquatic weed growth. Physical removal or containment of floating aquatic weeds is effective but imposes a high and recurrent expense for large reservoirs. Occasional drawdown of reservoir water levels may be used to kill aquatic weeds. Chemical poisoning is best avoided. Greenhouse gas releases from reservoirs can be reduced if timber and fuel wood are salvaged before the reservoir is filled. However, this can be associated with high extraction and transportation costs, marketing constraints, or political and economic pressures not to delay reservoir filling. Ideally, dam sites should be chosen in areas that minimize the flooding of forests. Any new access roads should be located in the least environmentally damaging corridors. Forests and other environmentally sensitive areas along the chosen road corridor should receive legal and on-the-ground protection. Road engineering should involve proper drainage to protect waterways and minimize erosion. Environmental rules for contractors (including penalties for noncompliance) should cover gravel extraction, waste disposal, avoiding water pollution, and other construction practices. Where access roads have entered protected areas and had a negative impact (e.g. the case of Nam Theun 1 in Nam Kading NPA), the government should require the company to pay compensation for loss of forest, as well as paying for mitigation (e.g., checkpoints and patrols along the road to stop wildlife trade and illegal logging). Environmental rules for contractors (including penalties for non-compliance) should cover the location of construction camps (i.e. not in or close to protected areas) and worker behavior (such as no hunting) Power lines should be located to minimize these concerns and built using good environmental practices (as with roads). Electrocution (mainly of large birds of prey) should be avoided by designing bird-friendly towers and by ensuring proper spacing of conducting wires. 33

35 power lines or by electrocution. Quarries and Borrow Pits Quarries and borrow pits are used to provide material to construct the dam and complementary works. They can considerably increase the area of natural habitats or agricultural lands that are lost to a hydroelectric project. Source: Adapted from Ledec and Quintero, Quarries and borrow pits should be sited within the future inundation zone. Where this is not feasible, the pits should be rehabilitated after use, ideally for conservation purposes such as wetland habitats. Best practice rehabilitation measure should be used (i.e. before quarrying, native plant should be rescued and the top soil propagated, removed, and stored so it can be returned in the rehabilitation phase). 34

36 Table A2: Environmental and Social Impacts of Mining POTENTIAL IMPACTS Air Quality Increased ambient particulates (TSP & PM-10) Increased ambient Sulfur dioxide (SO2) Increased ambient Oxides of Nitrogen (NOx) Increased ambient heavy metals Hydrology, hydrogeology & water quality Altered hydrologic regimes Altered hydrogeological regimes Increased heavy metals, acidity or pollution Increased turbidity (suspended solids) Risk of groundwater contamination Ecology and biodiversity Loss of natural habitats & biodiversity (OP 4.04) Loss of rare and endangered species Effects of induced development on ecology Effects on riverine ecology and fisheries Impacts due to effluents or emissions Social concerns Resettlement issues (OD 4.30) Effects on indigenous peoples (OD 4.20) Loss of cultural heritage or religious sites Loss of livelihood Induced development issues Effects on aesthetics and landform Noise issues Occupational & public health concerns Occupational health and safety concerns Hazards from process chemicals or explosives Potential increase in disease vectors Increased potential for respiratory disorders Resource issues Effects of subsidence on surface resources Agricultural land losses Loss of forestry resources (OP 4.36) Effects on surface water resources (OP 4.07) Effects on ground water resources (OP 4.07) Disruption to infrastructure Effects on fisheries Source: World Bank (1998a). MINING ACTIVITIES Exploration and ore extraction Exploration drilling Resettlement (if necessary) Extraction and waster rock removal / disposal Rock blasting and ore removal Mine dewatering Placer and dredge mining Small scale artisanal mining Ore processing and plant site Plant site, materials handling, etc. Stockling Beneficiation Phytometalurgical processing Hydrometallurgical processing Water usage (all industrial and domestic) Use and storage of process chemicals Tailings containment/disposal Infrastructure, access and energy Access roads, rail and transmission lines Wastewater treatment and disposal Pipelines for slurries or concentrates Power sources and transmission lines Construction camps, town site Decommissioning Regrading and recontouring Stabilization of waste dumps and tailing Mine closure

37 Annex 3: Forests in Lao PDR In Laos, 41.5 percent of total land area is covered by forest (World Bank, 2005), a total area of 9.8 million hectares. Forest is defined by the Lao Government as canopy cover over 20 percent (which falls within FAO definitions, but many countries use 10 percent cover to define forest). In 1970, the Lao forest cover consisted of around 70 percent of the land (17 million ha), which declined to around 47 percent by 1985, and to 41.5 percent at the last official survey in 2001 (Table A2). In 2004, a figure of forest loss at 53,000 ha per annum was calculated (World Bank, 2005), and it is unknown whether this has increased or decreased since then. A new, rapid country-wide survey will be conducted by Department of Forestry in early Forests in Laos represent a variety of ecoregions (Figure A2) and harbor a diversity of wildlife species. The main forest habitats include the evergreen forest of the Annamite Mountain chain and Central Indochina Karst both of which have high levels of endemism the Dry Dipterocarp Forests in lowland southern Laos, the distinct Bolovens Plateau ecosystems, and the Northern Highlands, which are biologically distinct from the Annamite chain (ICEM, 2003). Laos has the highest number of large mammal species in Southeast Asia, including the Asian Elephant, 13 species of primates, 9 species of deer, 8 cat species, including the Indochinese Tiger, and 6 bovid, including the rare and endemic Kouprey (Duckworth et al., 1999). In 1999, 1,140 animals of Laos were reviewed, and 319 are considered nationally or globally significant due to their limited range and/or numbers (World Bank, 2005). Forests in Laos are classified in three categories: Protection forest: for the protection of water resources, riparian areas, roadsides, and soil and as areas that are strategically important for national defense, natural disaster protection, and environmental protection (Forestry Law, 2007, Article 10). They are divided into total protection zones (areas at high risk of environmental degradation, for example, a slope of over 35 degrees), which are strictly protected and where any activity is prohibited, and controlled use zones, where there is not a high risk of environmental impact and in these areas people can collect wood and NTFPs (Forestry Law, 2007, Article 23). These protection forest areas are important as much of the land in Laos is susceptible to soil erosion due to its topography, and the protection forest also provides corridors between protected areas. Conservation forest: for the conservation of biodiversity, ecosystems, scenery, and sites valuable for, for instance, tourism or cultural reasons (Forestry Law, 2007, Article 11). It includes total protection zones, which are areas of key habitat and where it is strictly prohibited to conduct forestry, hunt wildlife, or harvesting NTFPs or to enter unauthorized. The controlled use zone can be used for NTFP collection and hunting of non-protected species with traditional tools, in certain seasons, and only for subsistence use. Conservation forest includes the protected area system and also village Conservation Forest areas, which can be located outside of protected areas (Forestry Law, 2007, Article 24). Conservation forest can also be corridor zones and buffer zones for protected areas. Of the 9.8 million hectares of forest area in Laos, half is in the protected area system, designated as National Protected Areas (NPAs), Provincial Protected Areas (PPAs), and District Protected Areas (DPAs). The 21 National Protected Areas account for over 20 percent of the total land area of Laos (Table A2).

38 Production forest: natural and planted forests for wood production to satisfy the national socioeconomic plan and for poverty eradication (Forestry Law, 2007, Article 12 and 25). Management plans and monitoring are required (Forestry Law, 2007, Article 25). Of the 9.8 million hectares of forest in Laos, one-third consists of Production Forest Areas (PFAs). The Production Forest Areas are meant to have formal arrangements with local communities to share with them some of the revenues from sustainable logging to benefit local development. This has been implemented in PFAs in nine provinces though the Sustainable Forestry and Rural Development Project (SUFORD), which is implemented by the Department of Forestry and local communities with financing and technical support from the World Bank and the Ministry of Foreign Affairs of Finland. Table A2: Forest Cover in Lao PDR by Category Forest Category Ha (million) % of total forest % cover of country Protection Forest Production Forest National Protected Areas Provincial and District PAs Total forest cover Source: SUFORD staff. The current government budget allocation for natural resource management in Laos is low for example, the protected area system, which accounts for half of all forest in Laos, is funded at a level of US$0.07/ha of protected area. This public financing is supplemented by the international donor community, to an extent that Laos relies on foreign funding to finance the management of its natural resources. The base government funding needs to be increased if Lao PDR is to be able to meet its goals of sustainable natural resource use and management. As well as increasing the budget allocation from the State treasury and continuing to seek donor funding, a number of other options are possible. Issues in forestry: Low level of funding and resources for forest conservation. There was an approved budget of 3 billion kip (US$352,941) for the conservation of the protected area system in FY09/10. However, it is not certain that this level of funding was actually made available. This is equivalent to US$0.07 per hectare of protected area land. Funding for conservation is supplemented by international donors and NGOs. Legislation requires around 15 staff per protected area, but currently there are usually only three to five staff per protected area. A study in 2005 listed an average of 4.8 national staff and 45.3 provincial staff per million hectares of national protected areas (World Bank, 2005). Inadequate controls over salvage logging. Commercial logging is allowed not just in PFAs but also in areas designated by the government for the construction of infrastructure (Forestry Law, 2007, Article 43 and 49). In practice, more than half of the annual timber harvest comes from outside PFAs. In some areas, timber has been harvested before the infrastructure was developed or fully developed. In the absence of adequate planning and controls, roads and dams can be used as a pretext to extract valuable timber. 1

39 Lack of deterrence for forest and wildlife crime. Under the Forestry Law of 2007 (Article 125), for any non-criminal violation of forestry law to the value of more than 1 million kip (US$118), the fine is equivalent of the value of the timber or resource based on actual market price. A second violation results in a fine that is double the market value of the resource. For a violation valued less than 1 million kip, a precaution and/or education is given to the offender. Committing a crime such as illegal logging or forest clearance results in a fine double the value of the forest product based on market price. These fines are low, and there is also little chance of being caught, as law enforcement, even where effective, is mainly targeting people who are extracting NTFPs or wildlife or timber in other words, rural villagers rather than traders or buyers of illegal products. Figure A1: Ecoregions of Lao PDR Source: ICEM,