Dam problems - The financial costs

They're dam expensive

Dams are expensive and like many other large infrastructure projects, a large proportion of dam projects suffer from cost overruns. Indeed, the World Commission on Dams found the average cost overrun of 81 large dam projects to be 56%.

Schedule slippage is often the cause: if a project runs over time, it invariably goes over budget. 'Completed on time, within budget and to specification' is rarely achieved in dam construction.

Over-estimating the benefits; under-estimating the cost
Besides this, many projects suffer from over-optimistic benefit projections - such as power generated, irrigation, domestic and industrial water supplies, navigation and recreation - which make a project more financially attractive. But at the same time the potential costs of risks, varying from the impacts of climate change to the local political situation, are often underestimated.

The financing plan for a large hydropower dam has to be tailor-made. Generally, a variety of financial institutions - private and public, domestic and foreign - are involved. Consequently, no single financial institution or type of institution can be singled out as the most important financiers of large dam projects worldwide.

High risk, high reward?
The decision by the World Bank in 2003 to re-engage with, what they refer to as, "high-reward / high risk hydraulic infrastructure" is important, as in many cases the lack of involvement of multilateral development banks is a deterrent for private banks to become involved.

And although the World Bank has policies in place to prevent and mitigate environmental and social impacts, it has not adopted the WCD guidelines and there are still serious concerns as to how these policies are implemented in practice. The Nam Theun II dam in Laos is likely to be a test case for this.