Estimation of net benefit from the proposed ban la hydropower project in nghe an province, vietnam

2 Table 2.1 Benefit of flood control of Klang river basin flood mitigation project ……….…… 26 Table 2.2 Key dimensions and key impacts of access to good irrigation water ……….…….. LIST OF

ESTIMATION OF NET BENEFIT FROM THE PROPOSED BAN LA HYDROPOWER

PROJECT IN NGHE AN PROVINCE, VIET NAM

NGUYEN THI HOANG HOA

ACKNOWLEDGEMENTS

Firstly, I would like to thank DANIDA funded WaterSPS Subcomponent 1.3 support to Capacity Building at the Hanoi Water resources University (HWRU), Vietnam for the sponsorship of my study

I wish to express my appreciation and gratitude to those who had helped and supported me in the project that leads to this dissertation

I wish to thank my major supervisor, Assoc Prof Dr Gabriel Tonga Noweg, for his guidance throughout my study at Unimas From him and his guidance, I have gained much knowledge and experiences, which I will pass on in my own future

I also wish to thank all my lecturers in Unimas for their assistance and advice I would also like

to thank Mr Robert Malong for his help during my Master Course

I am also grateful to my co-supervisor Dr Ngo Thi Thanh Van (HWRU) for her kind and valuable assistance during my data collection in Vietnam I am indebted to all the officers in the DANIDA and HWRU Board, Power Engineering Consulting Company No 1 (PECC1), districts officials of Nghe An province, Institute of Water resources planning (IWRP) and Aquatic Product Research Institute, Do Luong weir manager, Nam Dan sluice manager, Department of Agriculture and rural development of Nghe An province, National Central Meteo-Hydrology Forecast (NCMHF), and local people in the ten districts of Nghe An province Thank you for your friendly and warm assistance during my field trip

My special thanks go to my husband and my children, who love me enough to let me go and study abroad Thanks for their endless support and encouragement during the coursework and completion of this dissertation

TABLE OF CONTENT

Acknowledgment ii

Table of content iii

List of tables vi

List of figures viii

Abbreviation ix

Abstract xi

Abstrak xii

0T CHAPTER I0T 1

0T INTRODUCTION0T 1

0T 1.10T 0TEconomy of Viet Nam0T 1

0T 1.20T 0TDemand of energy in Viet Nam0T 2

0T 1.30T 0TPower development plan (2003-2020)0T 3

0T 1.4 General flood control in Viet Nam0T 4

0T 1.5 Irrigation0T 5

0T 1.60T 0TProblem statement0T 6

0T 1.7 Objective0T 7

0T 1.8 Significance of study0T 8

0T CHAPTER II0T 9

0T LITERATURE REVIEW0T 9

0T 2.1 Introduction0T 9

0T 2.2 Approach in sustainability development of reservoir for multiple uses0T 9

0T 2.3 Cost-benefit analysis (CBA)0T 11

0T 2.3.1 Introduction0T 11

0T 2.3.2 Cost Benefit Analysis (CBA) of dams0T 12

0T 2.3.2.1 Environmental cost-benefit0T 15

0T 2.3.2.2 Social impact mitigation cost0T 17

0T 2.3.2.30T 0TFlood control costs-benefits0T 21

0T 2.3.2.40T 0TIrrigation costs and benefits0T 24

0T CHAPTER III0T 26

0T MATERIALS AND METHODS0T 26

0T 3.1 Introduction0T 26

0T 3.2 Study area0T 27

0T 3.2.1 Location0T 27

0T 3.2.20T 0TTopography0T 29

0T 3.2.30T 0TGeology0T 29

0T 3.2.40T 0TClimate0T 30

0T 3.2.50T 0TRainfall0T 30

0T 3.2.60T 0TTemperature0T 30

0T 3.2.70T 0THumidity0T 31

0T 3.2.80T 0TRiver flow0T 31

0T 3.2.90T 0TLand use0T 31

0T 3.2.100T 0TSoil classification and soil erosion0T 32

0T 3.2.110T 0TPeople0T 33

0T 3.2.120T 0TIrrigation0T 34

0T 3.2.130T 0TFlood occurance0T 34

LIST OF TABLES

Page Table 1.1 GDP growth, GDP per capita and Population of Viet Nam from 1995

to 2003……….…… 2

Table 1.2 The power generation capacities by energy sources………… 2

Table 2.1 Benefit of flood control of Klang river basin flood mitigation project ……….…… 26

Table 2.2 Key dimensions and key impacts of access to good irrigation water ……….…… 29

Table 3.1 Land use in Ban La catchment and reservoir area………… 36

Table 3.2 Soil types of Ban La catchment area……… 37

Table 3.3 Potential erosion in Ban La catchment area……… 37

Table 3.4 Data need and data collection method……… 45

Table 4.1 Construction cost of Ban La dam……… 51

Table 4.2 Initial investment costs, annual operation and maintenance cost in percentage and value ……… 51

Table 4.3 Basic data of Ban La hydropower project ……… 54

Table 4.4 Damage cost of historical flood events ……… 57

Table 4.5 Flood damage Vs return period ……… 57

Table 4.6 Flood routing by Ban La reservoir ……… 59

Table 4.7 Irrigated area and discharge of Do Luong system from Ca river ……… 60

Table 4.8 Irrigated area and discharge of pumping stations direct from Ca river in the NNAIS ……… 60

Table 4.9 Irrigated area and discharge of Nam Dan system from Ca river……… 61

Table 4.10 Irrigated area and discharge of pumping stations direct from Ca river in the SNAIS……… 61

Table 4.11 Irrigated failure in the future without Ban La project……… 63

Table 4.12 Irrigated failure in the future after completed Ban La project ……… 64

Table 4.13 Effective irrigated area……… 64

LIST OF TABLES (CONTINUE)

Table 4.15 Forested area permanently flooded after creation ban La

Table 4.17 Estimation of land loss by Ban La project (current

Table 4.22 The water level along Ca river before and after construction Ban La

Table 4.25 Basic data for economic assessment of Ban La hydropower project

(FSL= 200m; P = 320 MW; 5 years construction time and 10%

Table 4.26 Result of cost benefit analysis of Ban La hydropower project

Table 4.27 Results of sensitivity analysis with changes in discount rate, output

LIST OF FIGURES

Page

LIST OF ABBREVIATIONS

MmP

3

Million cubic meter

LIST OF ABBREVIATIONS (CONTINUE)

ABSTRACT

The construction and operation of Ban La hydropower project will lead to a variety of changes in the local and wider environment Many of the impacts will be beneficial, both at the regional and national level Project implementation will have some socioeconomic impacts on communities in two districts upstream and nine districts downstream from the dam Completion of Ban La project will supply water to two irrigation systems: North Nghe An Irrigation System and South Nghe An, which corner some 62,220 ha of irrigated area in Nghe An province The construction

of the project will also reduce flood peak in the downstream area and hence reducing flood damages for riverine residents in the downstream area This study evaluates economic and environmental impacts of Ban La project on local communities: upstream of the Ban La dam; flooded area and irrigation areas downstream from the proposed dam Private costs and benefits

as well as public costs and benefit are estimated for the project in order to arrive at the total net social benefits Contingent Valuation Method (CVM) is used to estimate the costs and benefits associated with intangible item or non-market goods The study found that the net present value

of social benefits at 10% discount rate and 30 years project operation period is positive (BVND 533.8) Benefit-Cost ratio is 3.18 and Internal Rate of Return (IRR) is 11% Sensitivity analysis is also performed to detect responsiveness of the investment to changes in discount rate, changes in output of the project as well as different scenarios of project lifespan

Abstrak

Pembinaan empangan hidro Ban La dijangka akan membawa berbagai kesan, terutamanya faedah terus dan juga sampingan kepada penduduk setempat khasnya Kesan sosioekonomi akan dirasai di dua buah daerah (Tuong Duong dan Ky Son) dibahagian hulu empangan dan juga 9

Abstrak

Pembinaan empangan hidro Ban La dijangka akan membawa berbagai kesan, terutamanya faedah terus dan juga sampingan kepada penduduk setempat khasnya Kesan sosioekonomi akan dirasai di dua buah daerah (Tuong Duong dan Ky Son) dibahagian hulu empangan dan juga 9 daerah di kawasan hilir empangan Antara faedah yang akan dinikmati ialah dalam bentuk kemudahan sistem pengairan (North Nghe An Irrigation dan South Nghe An Irrigation) yang meliputi 62,220 hektar tanah pertanian Kajian yang dijalankan ini adalah bertujuan untuk menilai kesan pembinaan empangan Ban La dari segi kesan sosioekonominya Analisis pelaburan dijadikan asas penilaian ini dimana segala elemen faedah dan kos diambil kira Faedah dan kos barangan sumber asli dan alam sekitar dinilai dengan kaedah penilaian kontinjen Hasil kajian mendapati projek mempunyai nilai faedah sosial kini berjumlah BVND 533.8 Nisbah faedah-kos pelaburan ini adalah 3.18 dan kadar pulangan dalam adalah 11% Ini bermaksud projek tersebut adalah baik dan berupaya memberi sumbangan positif kepada sosioekonomi penduduk tempatan.

CHAPTER I

INTRODUCTION

1.1 Economy of Viet Nam

Viet Nam’s modern economy evolves from the burden of military action and political upheavals After partition in 1954, North Viet Nam and South Viet Nam each developed their own economic structure separately, reflecting different economic systems with different resources and different trading patterns The North operated under a highly centralized and planned economy, whereas the South maintained a free- market economy With the reunification of Viet Nam in 1976, North Viet Nam’s centrally planned and controlled economy was introduced and adopted in the south of Viet Nam

Since 1986, the “innovative” and “opened-door” policy practiced by the Vietnamese Government has attracted foreign investors to come to do businesses and promote both the state and private economic elements, which spur the economic development of Viet Nam It has changed to the market- oriented economy since then Having a stable political regime, the Gross Domestic Product (GDP) growth rate of Viet Nam from 1991 to 2002 has reached an average figure of 7.5% GDP per capita of Viet Nam was USD 490 in 2003 The GDP per capita and its population growth from 1995 to 2003 is shown in the Table 1.1

Table 1.1 GDP growths, GDP per capita and Population of Viet Nam from 1995 to 2003

(Sources: General Statistics Office of Viet Nam (2004)

1.2 Demand of energy in Viet Nam

The economic growth in Viet Nam is strongly indicated by the increase in the demand for energy Electricity generation plants in Viet Nam at present are from petroleum, natural gas, hydropower, coal and diesel However, the dependence on oil for electricity generation has declined significantly in recent year The Viet Nam government’s policy is to encourage the exploitation

of renewable energy resources, such as hydropower

The peak electricity demand recorded in 2002 was 8,700 MW, while the total capacity of all kinds of power plant connected to the network was 8,749 MW The electricity generation comprises of the following (Table 1.2)

Table 1.2: Power generation capacities by energy sources

0B

Source: Tran (2004)

Economic growth and industrialization has pushed Viet Nam’s demand for electricity up, at an average annual rate of 14-15% in the past few years This demand is projected to grow yearly at 13-15% till 2010 According to the government estimates, around 70-80 billion kilowatts of power will be needed by 2010 Thereafter, the demand is expected to reach between 160 and 200 billion kilowatts in 2020 (Central Government Administration Power Report, 2002a)

1.3 Power development plan (2003-2020)

The development of energy resource in Viet Nam will have to be in tandem with the acceleration

of the nation’s industrial growth, particularly the growth emphasis on the development of intensive and energy based industries

energy-In recent years, sustainable development has become the central concept of formulating strategies for future economic progress While raising the real per capital income remains the basic development goal, there is now increasing emphasis on balancing this goal with the “quality of life” or “well-being” This makes the development of an efficient and economic energy system even more challenging because of the need to reconcile the energy and the environmental policy objectives

Based on the above forecasted demand, the development programme of power generation for the period 2003-2020, the plan for expansion of power supply are:

(1) To meet the country’s rising energy need

(2) To develop balanced development of the resources (hydro, coal and gas fired thermal)

in order to explore effectively the primary energy sources and at the same time limit the adverse impact on the environment and ecology, and

(3) To reduce the use of fossil fuel This is one of the causes of serious environmental problem today (Central Government Administration Power Report, 2002 b)

Hydropower has been proven to be safe, relatively clean, efficient and a renewable source of energy compared to oil fired generation and natural gas- fired generation Unlike nuclear and fossil fuels, hydroelectric is by nature less damaging to the environment as the generation process does not result in continuous waste production or emission of air pollutant Hydropower is also one of the cheapest power and its reservoir have high recreational value They are extensively used for fishing, water supply, irrigation, flood control and soil erosion control

1.4 General flood control in Viet Nam

Water related disasters, including floods and drought, have serious economic implication in the world, both for individual households and national economies More and more people in the world are affected through homelessness, injury, disease, loss of property and death The vast majority of the millions of Asians affected annually by flood are the poor Frequent flooding gives them no opportunity to break out of the cycle of poverty In addition, floods often cause marginally better-off people to descend into poverty as a result of flood related losses (Linder, 2002)

Flooding is a major water management problem, which each year causes a great loss of human life, property damages and loss of agriculture and other output in the flood prone areas Climate change and upstream watershed changes both within Viet Nam and other upstream countries have created associated problems such as flash floods with great damage (Fox, 2001)

Viet Nam is one of the most disaster prone countries in the world because of it geographical and topographical features The country suffers from almost all types of disaster, among which water disasters induced by typhoons and floods are the most frequent and severe Every year disasters claim hundreds of human lives and cause millions of dollar of economic loss in the country (Nguyen and Le, 2002) Flood control is necessary to increase food production and also for economic development Government of Viet Nam has always put disaster management, particularly flood and storm control as top priority in it agenda

a rural problem; nearly 85 per cent of the country’s poor live in rural areas whose primary source

of livelihood is agriculture As poverty is widespread in the rural areas, a top priority was laid down in the comprehensive poverty reduction and growth strategy to accelerate agriculture growth and rural income, thereby improve the living condition of rural population Irrigation is a lifeline for agricultural development especially for Viet Nam where about 80 per cent of cropland

is planted with rice, which is predominantly an irrigated crop One of the best outcomes for improvement to the existing irrigation system will lead to a better availability of irrigation water, thereby empowering rice farmers through increased in rice yields and in farm incomes (Janaiah, 2004)

There are many environmental parameters that are affected by hydropower development project Environmental impacts can be given positive or negative values that need to be taken into account to come up with the estimate of net costs or benefits of the project The application of cost - benefit analysis to environmental impact assessment is faced with the following problems: the uncertainly in the valuation of non-market goods such as wildlife and landscape How should this be done, and how much should the society rely on the estimates that are generated? Are we acting immorally by placing money values on such intangible items? How can the society accurately predict the effects of changes in economic activity on complex ecosystem? How can

an increase in an environmental good be valued? Can we estimate it either on the people’s maximum willingness to pay is to have this increase, or their minimum willingness to accept compensation to forgo this item If a reduction in the same good is being valued we can ask either their maximum willingness to pay to prevent such a reduction or their minimum willingness to accept compensation to tolerate it This allows a monetary value to be placed on an environmental gain or loss, which is an estimate of underlying utility gain or loss (Hanley, 2001)

Specifically, the objectives of the study are:

a- To estimate the present value cost of the Ban La dam construction to the riverine residents

b- To estimate the present value benefit of the purposed Ban La dam project to local communities

c- To calculate the Benefit-Cost ratio and Internal Rate of Return for the construction of the Ban La dam

The hypothesis in this study is that Ban La hydropower project construction is efficient, and therefore socially acceptable In testing the hypothesis, the overall net social cost and benefit from the Ban La hydropower project implementation would be determined If the net social benefit is higher than the net social cost, the Net Present Value (NPV) > 0, Benefit-Cost ratio (B/C) > 1 and Internal Rate of Return (IRR) > discount rate (r), then the hypothesis is accepted

To achieve the above objectives, several task involving different sets of estimations have to be undertaken Firstly, the estimation of private costs and benefits Secondly, the public costs and

benefits are estimated, which impact of the project on the local communities in the regional and national level Where sufficient information is available Finally, the net present value of social benefit was estimated based on the above information and the B/C; IRR were calculated

1.8 Significance of study

Implementation of hydropower project have impacts to the physical environment and the economic Economic impact study in the hydropower projects are usually undertaken to determine its effect on the income, wealth of the residents of a given geographic area as well as economic development of regional and national economy, which is usually in monetary terms This study will also provide for decision-makers with information for the feasible implementation

socio-of the project

The results of the study will give a better picture of regional economic development through the increased in agricultural area and reduction of peak flood in the study area from the proposed project It will also help to identify key planning in land use issues and priorities in the downstream zone of the hydropower project

In the study area there is large potential agricultural land At present the use of the land is limited

to one cropping because of the water shortage in the dry season Completion of the project will ensure that water will be available for irrigation In the study area there is large area in the downstream, which is prone to yearly flooding The Ban La will reduce flood peak in this area and it will lead to reduce flood damages for downstream zone The study should be estimated adequate for irrigation and flood control benefits in the downstream areas of the project

2.2 Approach in sustainability development of reservoir for multiple uses

Reservoirs contain most of the earth’s stored surface fresh water Reservoirs provide water for drinking, irrigation, industrial processes and power generation They provide habitat for numerous species of fish, aquatic life, birds, and mammals Many of these animals and plants are important sources of protein provide and income for local inhabitants Reservoir is also important for flood control and retaining sediment Dams and reservoirs are facilities with tourism potential A large number of reservoirs are in developed countries, such as North America and Western Europe, but their role may be even more significant in the formerly centrally planed economies of Eastern and central Europe, and in the developing countries of Asia, Africa, Middle East and Latin America In many of these regions population are growing rapidly and the needs

for fresh water for domestic and urban uses, irrigation, industrial processes and power generation,

as well as for the protein supplied by fish and other plant and animals are ever increasing (Ayres

While improving the real per capital income remains a basic development goal, there is now increasing emphasis on balancing this goal with “quality of life” or “well-being” This makes the development of an efficient and economic energy system even more challenging because of the need to reconcile energy and environmental policy objective

Comprehensive strategies for managing reservoir need to be designed for the unique physical and biological characteristic of the watershed, including the type of ecosystem, climate, topography, socioeconomic conditions, including the population, density and pressure on the resources, the economic and environmental objectives

Stakeholders in reservoir resources may include fishermen, farmers, electrical power generators,

or the public as a whole Involving stakeholders elicits a wide variety of views and in addition, it fosters commitment to the final option selected When persons who are affected by project, are involved in discussing the options and understanding the risks and benefits- costs, they are far more likely to accept the ultimate decisions and to behave in accordance with the decision

and managing them It enhances creativity Stakeholders can often provide a range of measures to reduce a project’s environmental impact, avoid conflicts, minimize confrontation, and generate alternative (Ayres et al, 1997)

2.3 Cost-benefit analysis (CBA)

2.3.1 Introduction

Cost - Benefit Analysis (CBA) is a widely practiced technique of project appraisal (Perman et al., 1999) Cost – Benefit Analysis is a resource management tool used to test the economic feasibility of projects The application of CBA in a wide range of fields, including natural resources development, criminal justice, foreign aid, and welfare analysis CBA determines feasibility by subtracting the total cost incurred over the life of the project from projected total revenue earned from the project CBA is useful in comparing alternative development project (Lawrence, 1994) In many cases, CBA is used as a tool to provide public, officials and managers with information to assist them in exercising their own judgment on the feasibility of public project (Smith, 1995)

Cost-Benefit Analysis approach to evaluate environmental policies face difficulties on two levels First, CBA relies on cost estimates that represent qualities that are not validly measurable This problem is exacerbated when incommensurable costs and benefits are weighed on the same monetary scale, which makes final decision on whether or not to proceed with particular policies seems deceptively simple The second problem with CBA is its reliance on co-modification of both human and elements of these ‘subjects’ in economic terms such as their non- economic values can be undermined As we learn to think of other people and the environment in economic terms, we may lose our ability of appreciate them for their other characteristics (Spevak, 1997)

2.3.2 Cost Benefit Analysis (CBA) of dams

Cost- Benefit analysis of water resources development as well as of other development project involves several stages (Hanley & Spash, 1993):

(1) Definition of project: This definition will include the reallocation of resources being proposed and the population of gainers and losers to be considered

(2) Identification of project impacts: Once the project is defined, the next step is to identify all those impacts resulting from it implementation, which include a listing of all resources used in implementing the project In this stage, the net impacts of the project are identified

(3) Which Impacts is Economically Relevant: Since the question “what to count” is bound

up in neo-classical welfare economics, in particular in the social welfare function which society is interested in maximizing The aim of CBA is to select projects, which add to the total of social utility, by increasing the value of consumable and nice views by more than any associated depletion in the level of other utility-generating good CBA can in fact select the best, (most efficient) projects from a list (portfolio) of alternatives Thus, what are counted as positive impacts, which from now on will be referred to as benefits

What are counted as cost that is negative impacts Environmental impacts of projects will

be count so long as they either (i) cause at least one person in the relevant population to become more or less happy; and (ii) change the level or quality of output of some positively valued commodity

(4) Physical quantification of relevant impacts: These involve the determination of the physical amounts of cost and benefit that flows for a project, and identifying when they will occur

(5) Monetary valuation of relevant effects: The common unit in CBA is money Markets generate the relative values of all traded goods and services as relative prices; the remaining tasks for the CBA analyst are then to: (i) predict prices for value flows

(relative values in common unit) where it does not exist Bringing environmental values into business and political calculations as an everyday input to decision-making is a major goal of environmental CBA

(6) Discounting of cost and benefit flows: Once all relevant cost and benefit flows that can

be expressed in monetary amounts have been so expressed, it is necessary to convert them all into present value (PV) terms This necessity arises out of the time value of money; or time preference This is true even if inflation is zero in every time period, so long as the time preference rate (discount rate) is positive

(7) Applying the net present value test: The main purpose of CBA is to help select projects and policies, which are efficient in term of their use of resources

The Net Present Value (NPV) of a project is:

Ct Bt

T is life of project (Randall, 1987)

The criterion for project acceptance is NPV>0 Any project passing the NPV test is deemed to be an improvement in social welfare There are a number of alternatives to the NPV criterion The two most commonly employed are the Internal Rate of Return (IRR) and the Benefit- Cost ratio (B/C) The decisions rule becomes: proceed if the Benefit – Cost ratio exceeds unity The Benefit - Cost ratio is another way of presenting the NPV

of a project The IRR is a measure frequently employed in financial investment appraisal

It is the rate of interest which, if use as the discount rate for a project, would yield a NPV

of zero It is interpreted as the rate of return on the resources used up in the project, to be compared with the opportunity cost of investment funds, which might be the market rate

of interest However, the IRR is imperfect as a measure of resource allocation for two principal reasons: First, many project can generate multiple IRRs from the same data set,

so the analyst does not know which to select as the decision making criterion Second, the IRR is unreliable when comparing performance across many projects in a portfolio (8) Sensitivity analysis: The NPV test described above tell us about the relative efficiency of

a given project, given the data input to the calculations If this data changes, then clearly the results of the NPV test will change too This

means recalculating NPV when the values of certain key parameters are changed These parameters will include:

- The discount rate

- Physical quantities and qualities of inputs

- Shadow prices of these inputs

- Physical quantities and qualities of outputs

- Shadow prices of these output, and

- Project life span

For a multipurpose dam project, identify all the costs and benefits of project and compare with the case of the dam not being built Costs and benefits to include are direct and indirect value, costs and benefits if fall within our traditional understanding of market good is called direct costs and direct benefits For example, cost and benefit of the dam, the direct costs include construction costs, lost of farmland, operation and maintenance There would also be opportunity costs for submerged land (lost farmland, dislocated families, lost cultural resources and natural areas and

have been produced under the next cheapest alternative Other benefits include flood control; water supply and recreation from the newly – created reservoir For those goods not trade in market, such as cultural, it is called the indirect Cost - benefit Analysis practitioners rely on several techniques to assign monetary values (Spevak, 1997)

Contingent Valuation Method (CVM) is a direct method in that it involves asking a sample of the relevant population questions about their Willing To Pay (WTP) or Willing To Accept compensation (WTA) It is sometime referred to as a stated preference method This approach can reveal both use and non-use values More complicated valuations can be calculated using conjoint analysis With this method, fishermen might be asked to compare the relative values to them of two hypothetical fishing trips The trip may be described would identify how many fish are caught

Its main use is to provide input to analyses of change in the level of provision of public good or bad, and especially of environmental ‘commodities’ which have the characteristic of non-

excludability and non-divisibility On the other hand, the CVM has two advantages over indirect methods First, it can deal with both use and non-use values Second, in principle, CVM answers

to WTP or WTA question go direct to theoretically correct monetary measures of utility changes The steps involved in applying the CVM can be stated as follows:

(1) Creating a survey instrument for the elicitation of individuals WTP/WTA This can be broken down into three distinct, but related, components:

(a) Designing the hypothetical scenario,

(b) Deciding whether to ask about WTP/WTA

(c) Creating a scenario about the means of payment or compensation

(2) Using the survey instrument with a sample of the population of interest

(3) Analyzing the responses to the survey This can be seen as having two components: (a) Using the sample data on WTP/WTA to estimate average WTP/WTA for the population,

(b) Assessing the survey results so as to judge the accuracy of this estimate

(4) Computing total WTP/WTA for the population of interest for use in an economic cost benefit analysis (Perman et al., 2003)

However CVM has some disadvantages following: Firstly, the results vary with how the questions are asked Relatively subtle differences in wording, in the order of the questions being asked or in the supporting evidence given, can substantially affect the answers of respondents Secondly, some results are not consistent with basis tenets of economic theory Economists expect that the value of a certain quantity of goods will increase as that quantity increases Respondents in CVM studies have not always behaved as economist expert Thirdly, studies sometime appear to produce unreasonable answers Particularly when such responses are hypothetical, as they are in CVM, respondents may not meaningfully consider what expenses they will forego to pay for such contribution Fourth, respondents may give ‘strategic’ answers to

fully understand or trust the information provided by survey The responses requested on CVM survey are unlike typical choices made by consumers (Office of Technology Assessment US congress, 1994)

2.3.2.2 Social impact mitigation cost

Any development project that introduces significant changes in the patterns of use of land, water,

or other natural resources may entail some adverse impacts on people who are currently using such resources and associated economic, social, cultural, and religious facilities A large variety

of projects involve acquisition or redirection of use of lands that are owned or utilized by individuals and communities Examples of such projects are (i) construction of dams for irrigation and hydroelectric power generation; (ii) construction of highways, railways, and irrigation canal networks; (iii) construction of transmission lines and other facilities requiring rights-of-way; (iv) construction of airports and so on

Many of these projects may be of crucial importance for local, regional, and national development However, they may also give rise to conflicts between long-term national development goals and interests of communities and individuals who are immediately and adversely affected It is important to weigh the benefits against the costs of adverse impacts by examining development options that entail either no resettlement or minimal social and economic dislocation, and to find the means to reconcile the conflicting interests Where resettlement is unavoidable, concrete measures must be taken to (i) protect the lives and welfare of those displaced by the projects; (ii) reduce and redress the loss of economic potential incurred by the affected people, and the local and regional economies; and (iii) assist in developing the economic, social, and cultural potential of the people and the communities so affected (Asian Development Bank, 1998)

Many development projects that require involuntary displacement of people generally have adverse economic, social, and environmental impacts on the displaced people Homes are abandoned, production systems are dismantled, and productive assets and income sources are lost Displaced people may be relocated to environments where their skills may be less applicable, the competition for resources may be greater, and host populations may be hostile or culturally incompatible Well-established community structures, social networks, and kinship ties may be broken or weakened Cultural identity, traditional authority, and the potential for mutual help may be diminished For survival, displaced people may be forced to over-exploit ecologically fragile areas, exacerbating environmental degradation The adverse impacts on host populations may also be significant The absence of appropriate development measures for compensation, resettlement, and rehabilitation of the displaced people may (i) cause severe long-term hardship, impoverishment, and even decimation of the affected communities; (ii) adversely affect the host populations; and (iii) lead to severe environmental damage

The contents and level of detail of resettlement plans, which will vary with circumstances, especially the magnitude of resettlement, should normally include a statement of objectives, policies, and strategy, and should cover the following essential elements: (i) organizational responsibilities; (ii) community participation and integration with host populations; (iii) socioeconomic survey; (iv) legal framework including mechanisms for resolution of conflicts and appeals procedures; (v) identification of alternative sites and selection; (vi) valuation of and compensation for lost assets; (vii) land ownership, tenure, acquisition, and transfer; (viii) access

to training, employment, and credit; (ix) shelter, infrastructure, and social services; (x) environmental protection and management; and (xi) implementation schedule, monitoring, and evaluation

Involuntary resettlement should be an important consideration in project identification The three important elements of involuntary resettlement are (i) compensation for lost assets and loss of

livelihood and income, (ii) assistance for relocation including provision of relocation sites with appropriate facilities and services, and (iii) assistance for rehabilitation to achieve at least the same level of well-being with the project as without it Some or all of these elements may be present in projects involving involuntary resettlement For any project that requires relocating people, resettlement should be an integral part of project design and should be dealt with from the earliest stages of the project cycle, taking into account the following basic principles:

i Involuntary resettlement should be avoided where possible

ii Where population displacement is unavoidable, exploring all viable project options to minimize it

iii If individuals or a community must lose their land, means of livelihood, social support systems, or way of life in order that a project might proceed, they should be compensated and assisted so that their economic and social future will generally be at least as favorable with the project as without it Appropriate land, housing, infrastructure, and other compensation, comparable to the without project situation, should be provided to the adversely affected population, including indigenous groups, ethnic minorities, and pastoralists who may have usufruct or customary rights to the land or other resources taken for the project

iv Any involuntary resettlement should, as far as possible, be conceived and executed as a part of a development project or program and resettlement plans should be prepared with appropriate time bound actions and budgets Resettlers should be provided sufficient resources and opportunities to reestablish their homes and livelihoods as soon as possible

v The affected people should be fully informed and closely consulted on resettlement and compensation options Where adversely affected people are particularly vulnerable, resettlement and compensation decisions should be preceded by a social preparation phase to build up the capacity of the vulnerable people to deal with the issues

vi Appropriate patterns of social organization should be promoted, and existing social and cultural institutions of resettlers and their hosts should be supported and used to the greatest extent possible Resettlers should be integrated economically and socially into host communities so that adverse impacts on host communities are minimized One of the effective ways of achieving this integration may be by extending development benefits to host communities

vii The absence of formal legal title to land by some affected groups should not be a barrier

to compensation Affected persons entitled to compensation and rehabilitation should be identified and recorded as early as possible, preferably at the project identification stage,

in order to prevent an influx of illegal encroachers, squatters, and other nonresidents who wish to take advantage of such benefits Particular attention should be paid to the needs

of the poorest affected persons including those without legal title to assets, headed households and other vulnerable groups, such as indigenous peoples, and appropriate assistance provided to help them improve their status

female-viii The full costs of resettlement and compensation, including the costs of social preparation

and livelihood programs as well as the incremental benefits over the "without project" situation, should be included in the presentation of Project costs and benefits

ix To better assure timely availability of required resources and to ensure compliance with involuntary resettlement procedures during implementation, eligible costs of resettlement and compensation may be considered for inclusion in Bank loan financing for the project,

if requested (Asian Development Bank, 1998)

Cost estimates should be prepared for these activities They should be budgeted, and implementation of the activities should be scheduled with time-bound actions in coordination with the civil works for the main investment project The resettlement plan should have an executive summary

The implementation of hydropower project would change the character of the whole upper catchment The population of the area above will be relocated This would result in disruption of their existing social, economic and cultural relation In addition, they have to adapt to a new way

of life in the new settlement area

All hydropower projects involve more or less significant disruptions to existing patterns of livelihoods, such as use of land and other natural resources, income generation and living conditions Most hydropower projects also involve the resettlement of people In this context, a fundamental principle for identifying socio-economic mitigation and enhancement measures has been the concept of "change for development" This implies that affected people and communities in the short term should at least not have their situation negatively affected and, in the medium to long term, should have their opportunities for improved living standards enhanced Particular attention is given to improve the situation of poor and vulnerable people in the concerned communities (Phan, 2001)

2.3.2.3 Flood control costs-benefits

Benefits are measured primarily as the reduction of flood damages expected after completion of a proposed dam or flood control structure In the USA, benefits are estimated, consistent with Corps of Engineering Manual and are estimated with the aid of the Corps HEC model The model simulates flood damage through time based on geographic and economic data describing structures within a floodplain and hydrologic data relative to the probabilities of different flood event (U.S.Environmental Protection Agency, 2002)

Universally, the rationale for flood control project is based on economic considerations linked to avoidance of both direct and indirect losses (including such intangibles as injury, illness, malnutrition, interference with income-earning activities and other opportunities foregone) The

projects have sound economic rationales supported by strong arguments linked to protecting peoples’ lives and well being However, little account has been taken of the beneficial impact of floods, including the rejuvenation of wetlands as breeding grounds for aquatic plants, fish and animal (vital sources of income and food for the poor) enrichment of soil by river-borne sediments and nutrients beneficial to agriculture, and replenishment of reservoirs and groundwater table as reserves against dry season water shortages (Fox, 2003)

In the cost-benefit analysis of the Klang river basin flood mitigation project in Malaysia, it was shown that the economic benefits of the project consist of directly quantifiable benefits, indirect benefits (indirect use values), and nonuse values (DID, Malaysia, 2003) The major benefits are

in the Table 2.1

Another aspect of cost in hydropower dam project is related to the delicate balance between flood control and power generation Flood control conflicts with power generation Generally speaking, the higher the level of water in reservoir, the more power can be generated To implementation of flood control function, this could be done delaying emptying of the reservoir, which has to be done prior to the flood season (Nguyen et al., 2003)

Table 2.1 Benefit of flood control of Klang river basin flood mitigation project

Integrated river basin

• Sediment reduced from2.3 million tons to 1.5 million tons

• Aesthetic value

pollution reduced by 50 percent by 2003)

Reduction in sediment

removal costs

Solid waste management

3

P

/year)

• Cost saving: $0.6 million/yr

yr for 1,800 ha at $ 12.76/mt initially

• Tourism: 15,000

• Flood retardation $ 0.3 million/yr

• Carbon sequestration

persons/yr each spending $10

• Biodiversity:

$15/ha-yr Soil erosion demonstration

• Health benefits

• Aesthetic values

• Soil erosion reduced

• Solid waste reduced

Increased fish production

• River and wetland

2003

• Offshore

Source: Federal Department of Irrigation and Drainage (DID) Malaysia (2003)

2.3.2.4 Irrigation costs and benefits

Cost- Benefit Analysis as in the system of economic analysis, anything that reduces national income is a cost and anything that increased national income is a benefit Project analysis tries to identify and value the cost and benefit that will arise with the proposed project and to compare them with the situation as it would be without the project A change in output without the project can take place in two kinds of situation The most common is when production in the area is already on-going, even if only slowly, and will probably continue to grow during the life of project The objective of the project is to increase growth by intensifying production A change in

investment Of course, if no change in output is expected in the project area without the project, then the distinction between the “before and after” comparison and the “with and without” comparison is less crucial In some projects the prospects for increasing production without new investment are minimal In the Kemubu irrigation project in Northeastern Malaysia, a pump irrigation scheme was built that permitted farmer to produce a second rice crop during the dry season Without the project, most of the area was used for grazing, and with the help of residual moisture or small pumps some was used produce tobacco and other cash crops Production was not likely to increase because of the limited amount of water available With the project now is operation, rice is grown in the dry season Of course the value of the second rice crop could not

be taken as the total benefit from the project From this value the value forgone from the grazing and the production of cash crop must be deducted Only the incremental value could be attributed

to the new investment in this project (Gittinger, 1982)

The case study in Sri Lanka’s Uda Walawe left bank irrigation system was demonstrated how irrigation water was assessed by all household located within the irrigation system The study identified the key dimensions and their key impacts of gaining access to good irrigation water (Table 2.2)

Table 2.2 Key dimensions and key impacts of access to good irrigation water

• Increased crop areas

• Increased crop intensity

• Increased crop diversification

• Opportunity for year-round cropping

• Increased family consumption of food

• Stabilization of farm family income

• Reduced food prices

opportunities

• Off farm

• Stabilization of employment opportunities

• Increased rural wage rates

• Increased opportunities to produced and retain food for home consumption

• Reduced level consumption shortfall

• Reduced risk of crop failure

• Reduced seasonality effects of production

• Reduced indebtedness

• Increased resources for health and education

• Improved overall resource base

Source: Hussain et al (2002)

The Ban La Hydroelectric project was constructed with the objectives to generate power, for flood control and to increase irrigation water downstream areas during the dry season The location of the project is as shown in the Figure 3.1

Figure 3.1 Location of the study area

Map of Viet Nam

Ca river catchment

Ban La hydroelectric