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New Doubts Over Chinese Plant

By James Kynge

[Financial Times; Fri, 10 Mar 2000 22:47:45 EST, www.ft.com; From: JoelTeller@cs.com]

Demand for power from China's controversial $24.5bnThree Gorges hydro-power project, the world's largest civil engineering undertaking, may fall significantly short of supply, a former senior executive in the project has claimed.

Yuan Guolin, who until two months ago was the deputy general manager of the China Yangtze River Three Gorges Project Development Corporation, said a review was needed on whether the project could sell all its output after it began generation in 2003.

Environmentalists and human rights activists have already called the project into question, citing the potential disruption to the ecological balance of one of China's most scenic and fertile areas. They say a huge reservoir that would be created by a vast dam across the Yangtze would displace more than a million people, flood vast areas of farmland and could cause extensive silting.

Mr Yuan, a delegate to the Chinese People's Political Consultative Conference in Beijing, said one potential problem was that authorities in the 10 provinces and municipalities supposed to be customers of the Three Gorges project were planning their own power stations - which would provide a ready source of tax revenue for the local authorities.

A demand shortfall from 2003 would be especially damaging to the project because revenue from post-2003 production was supposed to finance the third phase construction of the project to last for 6 years from 2004.

Such a development could hamper efforts to raise foreign financing for the dam, putting pressure on the government to fund the US$5.5bn Beijing had initially hoped would be financed by foreign lending and international capital markets.

Another large hydro-power station, the 17bn kw/h Ertan station in south west China, is already unable to sell about 60 per cent of the power it produces, an executive said.

Li Dehou, vice-director of the Sichuan Economic and Trade Commission, which oversees the project, said the plant was offering discounts to industrial and residential users in an effort to sell more of its output.

One problem with Ertan, which was built with a $1.8bn project loan from the World Bank, is identical to the concerns described by Mr Yuan on the future of the Three Gorges.

Chongqing, the largest city in Sichuan but administratively independent from the province, had agreed at Ertan's inception to take 32 per cent of the output but was now only taking about 14 per cent.

Part of the reason for this was that Chongqing has its own power stations which generate electricity more cheaply that Ertan and which yeild tax revenue for the municipal authorities.

Mr Li said that Ertan's best hope for the future was to try to sell its output to China's eastern provinces, but he did not elaborate on how this would be done or on whether this would present another source of competition with the Three Gorges.

Contact: Doris Shen, International Rivers Network , 1847 Berkeley Way Berkeley, CA 94703; doris@irn.org; tel: 510.848.1155 ext. 317; fax: 510.848.1008

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