2.5 Economics: Is the Three Gorges Dam benefiting China’s economy?
The justification for putting the TGDP forward is the emphasis on the “more efficient use of resources and the capacity of the project to generate more benefits than costs” (Oliver-Smith, 2010, p.161). For the big dam proponents, the ultimate justification rests on its economic success. As Oliver-Smith (2010, p.162) brilliantly put it, “Ultimately, all the environmental destruction, the losses and pain of the displaced, and the inept and underfunded resettlement of millions of people are justified by assessments of the economic viability of projects that are manifestly false and impossible to realize once the project is completed.”
It is often said that hydroelectricity is cheap to produce once after the dams are built. Paradoxically, the bigger the project are, the more inherently problems they cause (McCully, 2000). This is also the most common argument which dam opponents held in terms of trying to expose the systematic exaggeration of the projects benefits by the dam promoters, while they systematical provided over the underestimation of financial, social and the environmental costs of dams (WCD, 2000; McCully, 2001; WWF, 2003). Once a huge dam such as the Three Gorges Dam is built, the prohibitive cost of building it and the long time it takes to build them ensures that it will inevitably be regarded as too costly to cease operating it. Professor Laura calls this the “gratuitously self-propagating character of high technology” (Laura & Smith, 2008, p.26). By this he means, from an economic and a ‘psycho-cultural’ perspective, the more money spends on something, the harder to give it up. In this sense, the amount of investment put into a project becomes the covert but spurious criterion used for sustaining its continued existence even if there is evidence found that most large dams fail to reach their performance targets (WCD, 2000; McCully, 2001; Laura & Smith, 2008).
2.5.1 Socializing the Costs, Privatizing the Benefits
Dam projects, particularly the larger ones, frequently experience schedule slippage and cost overruns, and also end up performing poorly in terms of economic gains if the externalities are counted as part of the cost (WCD, 2000; WWF, 2003; Flyvbjerg et al., 2003; Oliver-smith, 2010).
The completion of the TGDP has been a prohibitively expensive practice, as are its ongoing maintenance and running costs. Cost estimates for the dam have varied widely over the past 20 years of its construction period. The budget estimation for the Three Gorges Project in the 1980s feasibility report was 36 billion Yuan (about US $ 6 billion known as the ‘static investment’). In 1992, the time the TGDP was approved by the National People’s Congress, it became 57 billion Yuan (about US $ 9.5 billion) (Dai, 2011). The most officially admitted figure is 240 billion Yuan (US $40 billion) known as the ‘dynamic investment’ (i.e., the total cost, accounting for inflation and interest), representing between 1 percent and 3 percent of China’s total investment in fixed assets during its construction (Webber, 2011). Among the whole cost, the fund for dam construction related has been estimated to be in the vicinity of 180 billion Yuan (US $30 billion) (CTGPC, 2003). And another 60 billion Yuan (US $10 billion) has been spent on the inundation treatment (flooding), and resettlement program. Other sources, however, estimated the actual costs to be three times higher than the official figures, around US $75 billion dollars (Topping, 1998; McCully, 2001; Dai, 2009). The evidence shows that the actual funds spent on the completion of TGDP have ended up being monumentally higher than predicted. In fact, only the cost of dam construction, the electric-power network and resettlement programs are considered to be ‘within’ the budget. The costs related to inundated lands and factories, cultural heritage protection of all kinds, loss of biodiversity and fisheries and environmental protection programs are generally underestimated, or not accounted for as project budget at all (WWF, 2003). For instance, the environmental defensive and preventative expenditures including pollution treatment in the reservoir and replacement costs are not included in the official budget, let alone the dam construction related disaster relief fund (McCartney et al., 2001; Dai, 2011). Unarguably, the environmental and social costs will continue to grow in the years coming. More funding will be spent on the reoccurring landslides in the Reservoir area and more people will be relocated due to the environmental degradation caused by resettlement practice (Yauch, 2010).
To obtain funds for building the dam and funding the resettlement programme, the Chinese government initially approached several international lending organizations for funding. However, after the fierce debates over Sardar Sarovar Dam in India, both the World Bank and the Chinese government was afraid of the occurring of a similar situation with the Three Gorges Dam, and therefore the World Bank refrained from financing it (Bosshard, et al., 2003). The Asian Development Bank and the US Export-Import Bank (with the World Bank, three of them are generally recognized as the main donor for the great development projects in developing countries) then followed the suit, all refrained from funding the Three Gorges Dam, due to widespread criticism regarding the environmental and social injustice issues associated with the project.
Sources for funding TGDP include the Three Gorges Dam Construction Fund set up by the government specifically for the TGDP, profits from Gezhouba Hydropower Plant (40 km downstream of the Three Gorges Dam), policy loans about 3 billion Yuan (US $0.5 billion) each year from the China Development Bank, loans from China Construction Bank and Minsheng Bank, foreign commercial banks and corporate bonds from Brazil, Canada, France, Germany, Japan, Sweden, and Switzerland. Revenue also came from Three Gorges Dam before and after it was fully operational through levying an additional charge for each kilowatt per hour of electricity power sales throughout the whole country (CTGPC, 2002; Webber, 2011).
Officials from CTGPC estimated that the cost recovery was expected to occur between 2015 and 2017, when the dam would have generated electricity estimated to amount to US $35 billion (International Water Power and Dam Construction, 2007). In order to supply the Three Gorges Construction Fund by electric contribution, the additional charges which started since 1992, depended on whether the region was the beneficiary of the TGDP and the degree of poverty of the region. In general, the provinces receiving electric-power from the Three Gorges Dam will pay additional charge than the provinces receiving no electric-power (Tibet was the only province exempt from paying the extra charge) (CTGPC, 2002&2003). The payment of this special charge have been extended under the name of “the State Key Water Project Construction Fund” since the completion of the Three Gorges Dam in 2009 (CTGPC, 2003; Yauch, 2010). By the end of 2006, the fund had received about 72.7 billion Yuan (US $10.6 billion). However, the information on how this large amount of money has been spent was not disclosed (Yauch, 2010). In addition, central government decided to raise the price for industrial use in 15 areas due to the drought in 2011, when the output of hydroelectric power was compromised, according to China Daily (Lan et al., 2011).
The profit gained from the dam’s 26 generators go into China Yangtze Power Co Ltd., a Shanghai Stock Exchange -listed subsidiary of the TGP Development Corporation, which owned by Yangtze Power’s parent company (69.5 percent of share) and Huaneng Power, China National Nuclear Corporation and China National Petroleum. In year 2009 alone, the company’s net profit reached to US $922 million (CTGPC, 2002&2003; Yauch, 2010; Webber, 2011).
There are costs of so-called externalities, such as environmental degradation and further displacement. The costs of rehabilitation of these externalities should be included in the cost of a hydroelectric dam, and if all factors are taken into account, the real costs including environmental costs will far exceed the designated cost on paper as I mentioned above (Reddy, 1999). Unfortunately, this is not the case in the TGDP, because the environmental and social impacts are not fully included in the financial analysis (Stock, 2009). The result of the benefits distribution and the costs bearing is very much Chinese-style — where the profits are privatized by aforementioned big national owned companies while the costs are socialized and borne by the common good, especially those displaced and direct and indirect dam affected populations (Stock, 2009; Yauch, 2010).
2.5.2 Exaggeration of power production and unequal distribution of electricity
There is an important difference between a power plant’s capacity and its actual energy output (McCully, 2001). The power generated from dams become more unreliable and they often produce less electricity than promised because the capacity of delivering hydropower is confined by the capacity of flood control, due to conflicting operating modes (McCully, 2001; WWF, 2003).
2.5.3 Conundrum of Flood Control, Navigation and Energy Generation
Large dams such as Three Gorges Dam with multiple purposes tend to be under-achieving of its targets. Maximizing hydropower output, means keeping the water levels in the reservoir high; flood control requires keeping the levels remaining it low to provide space for catching the next flood. In this sense, a dam cannot be both partially empty to maximize power production and to absorb the flood water at the same time (WWF, 2003). Other trade-offs include storing water for the dry season during the normal flood season which requires to prepare for capturing flood seasonal flows (McCully, 2001). Despite these trade-offs, dam promoters tend to emphasize and propagandize only the benefits brought by each purpose at its maximum, as if that individual purpose was the dam’s only function (McCully, 2001; Ledec & Quintero, 2003).
Many experts argue that a dam like Three Gorges Dam in this location can only be effective in preventing flood caused by heavy rain in the upper catchment above the dam by cutting flood peak. When there is far too much water flooding into both the upper and middle reaches of the Yangtze simultaneously, the capacity of flood control by the Three Gorges Project is questioned (McCully, 2001; Chetham, 2002; Dai, 2011). For example, in the summer of 1998, a 50-year extensive flood with a total floodwater as much as 660 billion cubic meters — half from the upper reaches of the Yangtze and half from tributaries below the dam, caused 3,704 dead, 15 million homeless and US $26 billion in economic loss (Great Wall across the Yangtze, 2009). Although at the time the Three Gorges Dam was not fully completed, the ability of flood regulation was questioned. Learning the lessons from the floods in 1998, it was decided to empty the Three Gorges Dam Reservoir in drought season in 2010 earlier than scheduled to prepare for the flood whose magnitude was less than the one in 1998. However, it had to be done by compromising its power generation output. Still, this early 2010 floods, along with the landslides caused by the flooding, caused loss of lives and properties in metropolis of Chongqing due to the backwater from the Three Gorges Dam Reservoir (Dai, 2011)
The improvement of navigation on the Yangtze is touted as one of three main reasons (the other two are flood control and power generation) of the construction of the Three Gorges Dam. It is claimed that it enables as large as 10,000 tons ships to reach as far back as the inland port of Chongqing, compared to the 3,000 tons vessels before the construction of the Three Gorges Dam. However, in practice, Chongqing port is still outreached by the large ships due to the backwater sedimentation and seasonal reservoir drawdown. In addition, since dam construction began, several million passengers travelling by ships have been experiencing long delays, i.e. three hours, for ships waiting to pass through the five stages of ship locks (Dai, 2011). In the dry season, cargo ships are held up due to the low water level in the reservoir (McCully, 2001; Dai, 2011). For instance, from November 2004 to June 2005, the problems of the navigation on the Yangtze lasted as long as 160 days — with shipping completely halted for 67 days (Dai, 2011).