Nakai consultation poster (Courtesy Nam Theun 2 Hydroelectric project)

The World Bank has approved a $1.3 billion hydroelectric project in Laos, after a decade of deliberations. The dam will potentially bring great economic benefits to the Laotian people, but environmental groups fear social and environmental costs will outweigh benefits.

The decision by the World Bank's 24-member board makes the Nam Theun 2 dam the the first major hydroelectric project the bank has approved in the past 10 years.

The project on the Nakai Plateau in central Laos will dam the Nam Theun River, which flows from the mountains near Vietnam to the Mekong River. It is expected to flood 450-square kilometers of land once construction is complete in 2009, and more than 6,000 people are due to be relocated.

Water from its reservoir will generate 1,000 megawatts of electricity - enough to light more than 750,000 homes. The plan is for Laos to sell most of the power to neighboring Thailand to fuel the booming economy there, earning $80 million, or one-fifth the current Laotian budget.

The funds are said to be earmarked for such areas as health and education for the Laotian people, who with an average per-capita income of only $300 a year, are among the region's poorest.

The World Bank spokesman in Singapore, Peter Stephens, says poverty alleviation is at the heart of World Bank support.

"We are only interested in doing what we can to help some of the poorest people in Asia get more money so they can have a better life - and that's the purpose of the Nam Thuen 2 hydro-electric project," he said.

But the project is controversial. Environmental groups have predicted that the costs from the project will outweigh any benefits.

Aviva Imhof, Southeast Asia program director for the environmental group International Rivers Network, questions whether the additional money will really reach the people it is supposed to benefit.

"We have not really seen any evidence that the Laos leadership has the commitment that benefits of large natural resource projects will go towards the entire nation," she said.

The U.S.-based Environmental Defense League has called the dam a "high-risk, low-reward" project that will have "questionable economic justification" and "severe negative impact" on the people and the environment.

But some other environmental groups have said they can support the project, provided independent agencies can ensure that the power company and the Laotian Government meet their pledges to improve people's lives.