WORLD BANK PRESS REVIEW: Friday, April 01, 2005

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World Bank Approves Financing For $1.2 Billion Laos Dam Project
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The World Bank on Thursday approved financing support for the
controversial $1.2 billion Nam Theun 2 dam project in Laos, reports Dow
Jones.

World Bank President James Wolfensohn said the dam will provide needed
income in a country where most people earn less than a dollar a day. "To
get out of this poverty trap, the country has few options," Wolfensohn
said in a statement. "We believe that a sound approach to selling
hydroelectricity, supported by improved government policies, is the best
way for the country to increase the amount of money it can invest in
health, education and basic infrastructure."

World Bank approval comes at a critical time for the project. The
consortium of companies building the dam have until May to secure
financing for the project before a series of penalties kick in. The
project requires $855 million in loans, accompanied by $330 million of
equity from shareholders including French and Thai companies and the
government of Laos. World Bank support for the project comes in the form
of a $20 million grant, a $50 million loan partial risk guarantee, and a
$200 million Multilateral Investment Guarantee Agency loan guarantee.
Other multilateral organizations also are expected to assist the project.
In addition to the dam project, the Bank also approved a $10 million
poverty reduction support credit, comprised of a $5.5 million grant and a
$4.5 million long-term, low-interest loan. The money will go into the
Laotian government's general fund, for use on a range of education, health
and other poverty-related projects.

Laos will earn money from the dam in three ways: a water user charge from
the dam's owners, corporate income taxes on the dam's owners, and
dividends from its 25 percent share in the corporation. Work on the Nam
Theun II dam already has started. World Bank staff said the decision to
start work was a risk taken by the developing companies, in the hopes that
financing would come through. The dam will take about five years to build
and start operation in 2010. Power prices and sales volume are locked in
for the first 13 years of operation to insulate the project from volatile
prices or other seasonal effects.

Agence France Presse reports that it is the first major hydro power
project approved by the bank in a decade and the first venture following a
2000 watershed report by the independent World Commission on Dams setting
criteria for big energy and water projects. "We have spent the best part
of a decade studying the project and evaluating the risks," Wolfensohn
said. The Nam Theun 2 hydroelectric project is expected to provide the
poorest country in Asia with up to $150 million in additional annual
revenue. Most of the electricity generated would be sold to neighboring
Thailand. "We believe that a sound approach to selling hydroelectricity,
supported by improved government policies, is the best way for the country
to increase the amount of money it can invest in health, education and
basic infrastructure for the benefit of the poor," Wolfensohn said.
Spending on basic health and education in Laos will jump by as much as 30
percent in the project's first year of operation, the bank said. Proceeds
from the sell of electricity will be earmarked for health, education, and
other anti-poverty initiatives.

The news agency adds that the project is a joint venture between the Laos
government and the Nam Theun 2 Power Company, spearheaded by EDFI, the
global arm of French state-owned Electricite de France, which holds a 35
percent key stake. The Lao government and Thailand's Electricity
Generating Public Co. Ltd. hold a 25 percent stake each while another 15
percent equity came from joint venture Italian-Thai Development Public Co.
Ltd..

In a related piece, Agence France Presse reports the Lao government Friday
welcomed the World Bank's decision to support the dam. Foreign ministry
spokesman Yong Chanthalangsy said the 1,070-megawatt dam was seen as
essential for the development of Asia's poorest country. Ludovic
Delplanque, spokesman for the Nam Theun 2 Power Company (NTPC), the
joint-venture in charge of the dam, said several other private and state
financial partners were expected to follow the World Bank in the days to
come. "Over 100 contracts (with partners and contractors) are currently
being signed," he said. "The bank's decision opens the door for the $1.25
billion necessary to build the dam to be available in the weeks to come".

The news agency also notes that some 153 non-governmental organizations
from 42 countries had sent a petition urging the bank not to support the
dam, which would flood an area the size of Singapore and involve the
relocation of at least 6,200 people. In an apparent bid to allay some of
the concerns, the bank has mandated that an untouched forest reserve nine
times the size of the area being flooded be set aside as a biodiversity
conservation area and those relocated be provided improved housing and
better incomes. The government spokesman said Laos was committed to
involve local communities in the project and mitigate social and
environmental risks. It has also pledged transparency towards shareholders
and proper management of the revenues.

United States also proposed ways to better measure whether aid to specific countries succeeded in improving education, health and other areas. Those new benchmarks were adopted on Tuesday. The donors decided that grants would be given only to the very poorest nations, and that loans would go to those nations that could eventually repay them.

Developing benchmarks to measure the effectiveness of aid was a victory for the Bush administration. Paul H. O'Neill, the former Treasury Secretary, first pushed for more rigorous performance standards in 2001. He complained that the World Bank had ''spent an awful large amount of money in the name of development without a great degree of success.''

The increased financing was a particular goal of the European countries that say they fear the world's wealthiest nations are falling behind in their promises to meet the United Nations' goals on reducing poverty. The largest increases in pledges were made by European nations: France, Britain, Spain and the Nordic countries.

Reuters also reports that the Bush administration wants Congress to approve $950 million a year over three years for IDA. That would represent a 12 percent increase over the previous US commitment to the fund.

The United States said the agreement commits the World Bank to greater openness and effectiveness. The Bush administration believes bank commitments to make details of assessments of poorer countries public and to report more extensively on progress by countries receiving assistance from the fund will result in a more effective use of resources.

Lamb said "Whatever its faults and shortcoming, there is a perception that IDA is the leading instrument that we've got that works and has implementation capacity. There was a consensus that people wanted to see a strong IDA at the center of the aid system.”

The Irish Examiner, Agence France Presse and the St. Paul Pioneer Press also report on the IDA


Agency Gives World's Poorest People Loans, Insurance

The poorest people in Africa and Asia are to be given access to home loans and insurance by the Aga Khan Development Network to help drag them out of poverty and rebuild their lives after a disaster such as the devastating tsunami, Reuters reports.

The scheme would go beyond the small loans, known as microcredit and often as little as $50, given to farmers and entrepreneurs to set them up in business. The Aga Khan Development Network said Tuesday at a UN press conference it aimed to expand its work to products including health insurance, education and small housing loans, savings accounts, and small businesses loans to the poorest people.

"Microcredit has helped millions of poor people in developing countries but they remain at the mercy of a death or serious injury of a family member, the loss of a crop or livestock or a natural disaster such as the recent tsunami," said Prince Karim, the present Aga Khan, sponsor of the plan and hereditary imam of the Shia Ismaili Muslims. "The assets of borrowers, accumulated through great effort over many years, can be destroyed overnight. Families are then forced to make the same difficult climb out of poverty a second or even third time. The poor need access to just about every product and service that people and businesses need in the developed world.”

The Financial Times reports that the creation of an agency aimed at expanding microfinance services in some of the world's poorest communities by the Aga Khan development network was supported by the World Bank and donor governments.

The Aga Khan agency for microfinance will bring together the network's existing microfinance activities, now operating in 10 countries, and develop products relating to micro-insurance. James Wolfensohn, the World Bank president, said microfinance had "a demonstrated, powerful impact in improving the livelihood of the poor, and a crucial role in reducing poverty.” Microcredit was reaching some 80 million people around the world and indirectly benefiting up to 500 million people in their families and communities. The target should be to reach all the world's 3 billion poor people with financial services tailored to their needs, Wolfensohn said.

The Aga Khan microfinance agency, focused on central and south Asia, Egypt, Syria and parts of Africa, is a small lender - the development network made 25,000 micro loans last year totaling $35 million. But the agency has attracted World Bank and other interest with its plan to develop microfinance products, and the integration of microfinance into the network's broader development program. For instance, the agency will extend current programs that lend to small businesses seeking to benefit from the economic stimulus to their neighborhoods following the restoration of cultural assets under the network's aegis.

Voice of America further reports that Wolfensohn, says the Aga Khan is taking the concept of small loans, or micro-credits, to another level. He says once poor people start making some money, they need more financial products, such as insurance. They want savings for their children's education. But, Wolfensohn notes, these products are not easy to obtain. "In most parts of sub-Saharan Africa, the average per capita expenditure per year on health is $5. So we are not talking about the sort of expenditure that you have in Switzerland or in the United States. But, for poor people, even to have protection to $50 or $100 makes a difference. And, so we are seeking to develop these products so that poor people can have the advantage of the same range of financial products that rich people have. And, frankly, poor people need it much more."

Agence France Presse reports that critics have charged that microcredits reach only a fraction of the world's poorest and fail to address the root causes of poverty, while some bankers have doubted its commercial viability. But backers say it offers an opportunity for the poor who want to help themselves. A World Bank study has indicated that successful microcredit programs for women in Bangladesh could help them to develop a business from a $100 loan, double family income and climb out of poverty in five years.

Wolfensohn cautioned that microcredit programs needed to be well managed. Some governments also had been unnecessarily reticent about adapting their legal framework to allow microcredit agencies to function, he added.