http://www.atimes.com/reports/BJ28Ai01.html

28 Oct 2000

Special Reports

Malaysia's Bakun project: Build and be damned

by Tony Allison

Summary

Despite a long history of controversy and difficulties, both financial and political, Malaysia is proceeding with the Bakun Hydroelectric Project (HEP) in Eastern Sarawak, although most likely on a smaller scale than originally planned.

The project, originally estimated at US$5.2 billion, was to construct what would have been the world's second-largest dam. Work was suspended at the height of the Asian economic crisis in 1997.

Unofficial estimates say that if the project is revived in full, it would cost a third more than its original price tag. Funding would have to come from state coffers as the government has assumed control of what was once a private turnkey project.

Bakun Dam was to supply 2,400 megawatts (MW) of electricity - generated from a reservoir the size of Singapore - to East Malaysia and the peninsula via undersea cables, although the latter proposal is most likely to be scrapped.

Prime Minister Mahathir Mohamad said on October 23 the project would be revived as money spent on pre-construction works should not be wasted. "We will revive it, whether full-scale or not we have not decided yet,'' he said. He added the dam was needed to meet the growing demand for electricity in Malaysia. However, most of the growth in demand for electricity is not in Sabah and Sarawak in East Malaysia where the dam is located, but in the peninsular.

Environmentalists and social activists have roundly and vigorously opposed the project, saying it will destroy a vast tract of rain forest and force more than 10,000 villagers from their homes. Many thousands have already been resettled.

The Bakun HEP was taken over by the government in 1997 and subsequently suspended by then Deputy Prime Minister and Finance Minister Anwar Ibrahim, much to the ire of Mahathir. Differences over the project are believed to have contributed to the later sacking of Anwar. Earlier, the leaders of an international consortium managing the project, ABB, had been dumped from the project in acrimonious circumstances.

Last June Mahathir said Malaysia must proceed with construction because of rising industrial demand for electricity, and work on diversion tunnels for the river was resumed. The project is now managed by the national utility company, Tenaga Nasional Berhad.

Work on the 12-meter high, 1.4-kilometer long tunnels, being undertaken by South Korea's Dong Ah Construction Ind Co Ltd, is expected to be completed in early 2001. On the current schedule the dam will be able to generate 500 MW of electricity by 2005.

The project

In its original form the HEP comprised the construction of a 2,400 MW hydroelectric dam, the transmission of its electricity, and the building of related infrastructure including access roads, a new township and an airport. The dam would bridge the Balui river, about 37 km upstream of Belaga in Sarawak. Sarawak is one of the two East Malaysian States in the northern part of the island of Borneo. The transmission of its electricity would have necessitated some 1,500 km of overland wires and four 650-km-long undersea cables under the South China Sea to Peninsula Malaysia.

The dam is to be a 205-meter-high Concrete Face Rockfill Dam (CFRD), with a length of crest of 740 meters, a base width of 560 meters and a crest width of 12 meters. This makes it one of the highest rockfill dams in the world. It will flood 69,640 hectares of land, an area bigger than Singapore. Its catchment area is over 1.5 million hectares of mainly primary forest, even though some 16 percent of Sarawak's total log production currently comes out of this area. Fifty-one percent of the land of the reservoir area is Native Customary Land (meaning it is legally owned by indigenous communities).

The project requires the relocation of up to 10,000 indigenous people, mainly of the Kayan, Kenyah, Kajang, Ukit and Penan ethnic groups. In addition, by changing water quality and river flow patterns, it would potentially affect the thousands of people living downstream of the dam, on the Rajang river, which is the longest river in Malaysia. The completion date was to have been 2003.

Malaysia's power needs

Malaysia's energy policy has traditionally been based on a four-fuel strategy - gas, oil, hydroelectric and coal. Of these, gas is dominant, with about 70 percent of the country's requirements supplied by gas-fired power plants.

However, the government will adopt a "five-fuel" policy in the Eighth Malaysia Plan (2001-2005) by placing stress on "renewable energy" as an alternative source. The move is prompted by too much reliance on gas and the pollution caused by other options. Promising areas for renewable energy include the conversion of biomass waste to energy, and in solar-power applications. Given this initiative, the opponents of Bakun will further question the need for it.

A country typically experiences growth in electricity demand at approximately 1.5 times the rate of its economic growth. Malaysia is currently in the second year of a strong recovery from the effects of the Asian financial crisis of 1997-98. Following a 7.5 percent decline in real gross domestic product in 1998, Malaysia experienced real GDP growth of 5.4 percent in 1999. Real GDP growth for 2000 is projected at 5.8 percent. Oil and gas production accounts for more than 8 percent of Malaysia's total GDP.

Malaysia currently has approximately 14,000 MW of electric generation capacity. In 1998, the country generated about 57.4 billion kilowatthours of electricity. In addition, four power projects are scheduled to be commissioned after 2000: Yan Power Plant (1,200 MW), Lumut Power Plant (2,100 MW), Perlis Power Plant (650 MW), and Kulim Power Plant (450 MW).

Bakun had been slated to send 70 percent of its generated power (officially stated as an average output of 1,770 MW) from Sarawak to Kuala Lumpur through the construction of 664 km of overhead lines in eastern Malaysia, 640 km of submarine cables and 456 km of distribution infrastructure in Peninsular Malaysia. In addition, expansion plans included a high-voltage line south to Johor Baharu and north to Perlis, near the western Thai border.

The development of the Bakun HEP was aimed to create a more balanced generation mix, with hydro sources accounting for 19.7 percent by the year 2005. The project is touted as one of the most hydrologically efficient base-load plants in the world, with a ratio of firm energy to average energy of 92.5 percent.

Malaysia is reforming its power sector to make it more competitive and to lower costs. Currently, three state-owned utilities dominate power generation and distribution. The market was opened to independent power producers (IPPs) in 1994, and 15 IPPs were licensed. Tenaga Nasional Berhad, the manager of the HEP, began in 1999 to divest some of its generation units.

Opposition

The Bakun HEP has been mired in controversy since it was first proposed in the early 1980s. Apart from the question of its necessity, its financial viability and its environmental costs, questions have been raised from the beginning about its potentially disastrous social impacts as it would flood an area the size of Singapore and some 15 indigenous communities involving more than 1,500 families and nearly 10,000 people would have to be resettled.

The project is opposed by many in the indigenous communities of Malaysia, together with the opposition Democratic Action Party (DAP) political party, the Coalition of Concerned NGOs on Bakun (Gabungan) - a coalition of over 40 Malaysian NGOs, including the World Wildlife Fund For Nature (WWF) Malaysia and the Environmental Protection Society of Malaysia (EPSM) - and many other NGOs and individuals around the world. Some of the key criticisms include:

1. Bakun's electricity would be neither the cheapest nor the cleanest available in the country.
   
   

2. The siting of a dam designed to supply Peninsular Malaysia with electricity in a remote part of Sarawak is highly dubious. Among other things, it means the project would rely on the transmission of electricity via long overland and undersea cables whose security and viability may be vulnerable, and whose environmental impact is incalculable.
   
   

3. There was the perception that the official projections of Bakun's electricity output were wildly optimistic. The project was based on a number of assumptions regarding, for example, efficiency of the dam, rainfall, streamflow, sedimentation rates, likelihood of earthquakes, maintenance costs, speed of construction, and downstream effects; the miscalculation of any one of which would throw the viability of the project into doubt.
   
   

4. The planning of the dam was conducted with no public accessibility to vital feasibility studies, no process of public feedback on the Environmental Impact Assessment (EIA) process and limited consultation procedures with the indigenous peoples. Feasibility studies and reports commissioned by the government on the Bakun project have been classified under the Official Secrets Act, meaning it is a criminal offense for anyone to see or use their information. Not all of the appendices, interim and final reports of the EIAs have been made accessible to the general public. Project proponents have refused to meet critics in any open discussion.
   

5. Adverse environmental and social impacts as well as the risk to the safety and livelihood of the people living downstream due to possible sudden releases from the reservoir and the potential of a dam failure are feared.
   

6. The design does not adequately address the dangers of overtopping, sedimentation and reservoir-induced seismicity.
   

Malaysian Prime Minister Mahathir Mohamad has steadfastly defended the project, saying it was the "government's way of helping the poor". He has also attacked critics of the project as unpatriotic and irresponsible, and has blamed "foreign" hands for stirring unrest.

EIA reports: The project promoter was required under the Environmental Quality Act 1974 and the Natural Resources and Environment (Amendment) Ordinance, 1993 of Sarawak, to submit EIA reports, detailing the possible impacts and the mitigating measures. The Natural Resources and Environment Board (NREB), Sarawak and the Department of Environment, Ministry of Science, Technology and Environment were the responsible authorities for approving the EIA reports and in ensuring that the project promoter complied with any mitigation measures as stipulated in the EIA reports.

The publication of the EIA did little to reassure critics. Not only did it specifically exclude assessment of the impact on the communities, but the assessment of the project generally was full of omissions, mistakes and questionable assumptions. In issuing the EIA report, the government ensured that it could be inspected only in Kuching, the state capital of Sarawak, and two small towns in the vicinity of the proposed dam, shutting out those campaigning against it from having access to the report, which was also made available in these three centers at an exorbitant cost and only in English.

At one stage the Malaysian High Court even declared the project invalid. It ruled that the decision to implement the project had not been reached through any form of public participation. The government's reaction was to dismiss the decision as "technical".

The High Court found that the government had subverted the basic rights of the indigenous peoples to comment on the EIA before approval. The issue was brought to the court by three members of a native tribe who would have been the direct victims of the project. The ruling was later dismissed on appeal.

History of the project

Studies relating to the hydropower potential of the Rejang River Basin, in which Bakun is situated, began in the 1960s. The Bakun HEP, which was to be a part of a series of dams, was subject to several dozen separate studies covering technical, economic and environmental aspects. The government began serious discussion on the project in the late 1980s, but decided against it in 1990, for the following reasons:

1. Recession and slow economic growth in the mid 1980s dampened the government's optimism on the growth of electricity demand;
   

2. The availability of gas for electricity generation caused the project to lose its status as the least-cost option for Peninsula Malaysia until the year 2000.

A review of the project undertaken in 1992 concluded that the project was economically viable and should be implemented, for full commissioning by 2005. Based on this review, the government agreed in September 1993 that the project be started.

Prime Minister Mahathir said at the time: "Bakun will not only provide the cheapest source of energy but will also serve as a catalyst to the country's industrialization program." This included being able to supply energy to fuel an aluminum smelter in Bintulu. Other official reasons given at the time for its revival were:

1. To generate employment and valuable spin-off industries for Sarawak, which were expected to add 3.0 percent to that state's growth per year;
   

2. To bring the indigenous peoples "into the mainstream of development" through resettlement;
   
   

3. To provide much needed infrastructure to a remote part of Sarawak, which will become a valuable tourist destination.

A public-listed company, Ekran Berhad, submitted a conceptual proposal to the government to implement the project on a privatized turnkey and fast-track basis for commissioning by 2003. Ekran's chairman, Ting Pek Khiing, was known to be close to Prime Minister Mahathir Mohamad and other leading politicians. Subsequently, the government issued an invitation to Ekran Berhad to submit a detailed project proposal.

This was reviewed with the assistance of international consulting firm, Harza Engineering LP of the United States. Subsequently, a letter of intent was issued to Ekran Berhad to undertake preliminary works to implement the project, including the preparation of tender documents, prequalification of contractors, invitation to bid and submission of EIA reports.

In view of the huge capital outlay involved, the government decided the project be undertaken by a joint-venture company. The State Government of Sarawak, Tenaga Nasional Berhad (TNB), Sarawak Electricity Supply Corporation (Sesco), Malaysia Mining Corporation Bhd (MMC) and others were invited to participate in the venture, to be led by Ekran Berhad. Its responsibilities included the sub-contracting of all necessary works related to the project, and the raising of the finance. The Sarawak State government, however, was responsible for the resettlement of the affected indigenous communities.

In order to meet the commissioning target of 2003, the government allowed Ekran Berhad to proceed with the preparatory works. The government requested Ekran Berhad to begin work on the 12-metre high, 1.4-km-long river diversion tunnels first, since they were a critical component of the project.

For the main works, Ekran Berhad invited bids based on a tender document which was prepared by the company and reviewed by the government. The bidders were required to submit tenders on a lump sum design-build basis. For this bidding exercise, the project was divided into two packages - hydro and transmission. Bidders were allowed to submit tenders for either separate individual packages or combined packages.

On June 13, 1996 the Malaysian government announced the awarding of the tender to an international consortium led by ABB, an international electrical engineering company which was the result of a merger between the European engineering giants Asea of Sweden and Brown Boveri of Switzerland. ABB was to construct the hydro-electric power generation plant and transmission system at Bakun. With its value of more than $5.5 billion, it was the largest single project ever handled by ABB.

As consortium leader, ABB was responsible for the overall project management and supply of all electrical equipment, including six 420-megawatt hydro-generators and a complete 500-kilovolt High-Voltage Direct Current (HVDC) transmission system to connect the power plant in Sarawak to the centers of population in Peninsular Malaysia - a total distance of more than 1,300 km, of which half will be via three submarine cables under the South China Sea.

ABB's consortium partner for the civil works was Companhia Brasileira de Projetos e Obras (CBPO) of Brazil, a large civil engineering company belonging to the Odebrecht Group and which was to be responsible for the construction of the dam and power house. In addition, substantial work was to be carried out by Malaysian companies and other groups from Asia, Latin America and Europe. ABB agreed to follow the Malaysian government policy of transferring and sharing technology. Engineering consultants from Germany (Lahmeyer) and the United States (Harza) helped with feasibility studies, dam design and overall project supervision.

By 1997 the project faced major difficulties. Financing was proving to be a problem, with reports of lack of payments and uncertain deadlines, and Malaysian government agencies were forced to take up large share-holdings, meaning taxpayers' money was being used. Conditions at the dam site were said to be bad, and although never officially confirmed, there were said to have been a number of fatal accidents. Delays caused by problems with the diversion tunnels had already indicated the unjustified optimism of original schedules, and the schedule for the resettlement of the indigenous people was repeatedly delayed.

In 1997, the contract with ABB was withdrawn after an bitter row with the project developers, Ekran Berhad, mainly over the issue of time/cost estimates and who was to be responsible for any extra payments in the event of overruns, and on Ekran's insistence on using subcontractors linked to it without going through the tendering process. Subsequently, the project was suspended, due in part to the economic crisis in Southeast Asia and to investor fears over its high financial risks.

The immediate impact of the loss of the construction contract was a write-off of $100 million in ABB's third-quarter results. In terms of market share, ABB slipped from first to third place in the hydro generator market for the world's largest projects, behind its rivals, General Electric and Siemens.

By December 1997, with the project stalled, then Deputy Prime Minister and Finance Minister Anwar Ibrahim announced its indefinite suspension, along with all other major infrastructure projects in the country. It was unusual for Anwar and not Mahathir to make this decision. Some analysts suspect that Anwar wanted to preempt measures that might be taken by the recently formed National Economic Action Council, formed to tackle problems flowing from the Asian economic crisis. There was concerns that well-connected businessmen in Malaysia would be appointed to the council and that they would take steps to protect their interests at the expense of national interest.

Political fallout: The HEP is believed to have been one of the factors causing the fallout between Prime Minister Mahathir and Anwar, his anointed successor. During the country's general election in November 1999, Sarawak Chief Minister Tan Sri Abdul Taib Mahmud accused Anwar of sabotaging Bakun and other large development projects in Sarawak. Taib said that in front of the prime minister Anwar supported all development projects in Sarawak, but that behind his back he criticized and cancelled these projects.

In early November 1999, Anwar testified in the High Court - where he was being charged with s###my - that he had clashed with Mahathir when he disagreed with the prime minister's directive to him to use treasury funds to compensate Ekran without proper audit and procedures as it was not the duty of the finance minister to "plunder" public funds to save any company. Anwar said the prime minister was angry with him over the matter and this led to "bad blood" between them, culminating in his dismissal on September 2, 1998.

Revival

In mid-1999 work resumed on the river diversion tunnels, a major component of the project, which are due be completed by early 2001. The Malaysian government has taken control of the project, under the management of national utility company, Tenaga Nasional Berhad. To date, financial compensation totaling more than $250 million is believed to have been paid to Bakun Hydroelectric Corp, Ekran and other parties. It is estimated that 9,000 people have already been relocated, where they face high costs of living and social problems.

In November 1999 the Tenaga Nasional Berhad and Sarawak Electricity Supply Corporation (Sesco) were asked to review the scope and scale of the revived project. It is believed that the subsea transmission line concept has been abandoned, and the government is exploring the possibility of sales of electricity to Brunei and Indonesia. It is likely the project will be scaled down from its original 2,400 MW capacity, but to what extent is still unclear.

Critics say that both Sarawak and Sabah, where the power will have to be sold should the undersea option be canned, already have enough electricity and they are certain to remount their sustained campaign to have the project scrapped.

(Special to Asia Times Online)