Oxford study warns developing countries against dam projects

March 10, 2014 (Financial Times) — An ill-advised splurge on large dams across the developing world is likely to saddle countries with big debts, according to Oxford university researchers who have found such projects typically cost nearly twice as much as first estimated and rarely finish on time.
The findings are based on a study of 245 dams built in 65 countries since 1934, making it one of the most comprehensive analyses since a wave of mega-dams began around seven years ago, ending a 20-year lull in such works.

Such projects, including Brazil’s Belo Monte dam in the Amazon and the Gilgel Gibe III dam in Ethiopia, promise to boost renewable energy in countries eager to increase their electricity supplies without burning more fossil fuels.

However, they often arouse opposition because they can require thousands to be uprooted from their homes and flood fragile ecosystems.
Anti-dam campaigners will be bolstered by the Oxford study, which found large dam construction costs were on average more than 90 per cent higher than initial budgets, while eight out of 10 suffered a schedule over-run.
It concludes the Brazilian and Ethiopian dams, and similar ones in Pakistan, Myanmar and elsewhere, are likely to face “large cost and schedule overruns seriously undermining their economic viability”.

The research authors include Professor Bent Flyvbjerg, a prominent critic of the optimistic assumptions behind mega-projects such as the Olympic Games and new railway infrastructure.

“Our paper should not be seen as being against hydropower,” he said, adding there were many good examples of smaller hydroelectric projects in countries such as Norway and Portugal that made sound economic sense.
However, the financial and economic impact of huge dams in developing countries can be dire, Prof Flyvbjerg said, and their social and environmental effects are “often horrendous”.
“Taken together, that means it does not make much sense to build them,” he said.
The reason so many projects do proceed is that the experts who make forecasts about them “can be usefully grouped into ‘fools’ or ‘liars’”, he said, explaining fools were recklessly optimistic while liars deliberately mislead to get projects going.
Part of the problem for developing countries is they often have to borrow a lot for imported goods or services to build big dams, putting pressure on public finances that can be exacerbated by sudden exchange rate swings.
The Itaipu dam Brazil built in the 1970s suffered a 240 per cent cost over-run that impaired the country’s finances for three decades, said Prof Flyvbjerg. Colombia’s Chivor hydropower project endured a 32 per cent cost over-run after the peso depreciated nearly 90 per cent against the dollar.
Such risks are less of a problem in wealthier countries such as the US, home of the Hoover dam that is often cited as a success story.
Dam proponents frequently argue they have learnt from past mistakes and can avoid the financial problems that plagued older dams.
However, the Oxford study, published in the Energy Policy journal, suggests the magnitude of cost overruns has not declined over time and dam budgets today are as wrong as at any time during the 70 years for which there is data.
“If leaders of emerging economies are truly interested in the welfare of their citizens, they are better off laying grand visions of mega-dams aside,” said Atif Ansar, co-author of the study.
Source: FT