Economic implications of large dams

The economic benefit of large dams is a point of contention which revolves around their perceived benefits and costs. To critics, these benefits are overstated to make large dams attractive to investors and the public (Pearce, 1999; McCully, 2001). The benefits are also not equitably distributed because they favour industries and cities dwellers (ibid). Using the example of hydropower dams to elaborate on

overstating the benefits of large dams, McCully (2001) states that projected generation capacities are so grossly exaggerated that the dams never meet their stated targets. For instance, he claims that the Aswan dam was to generate about 10,000 GWh/yr of electricity but in fact generates 7,161 GWh/yr (ibid). In the case of irrigation, McCully (2001) and Singh (1997) argue that most irrigation areas are degraded, waterlogged and saline. The concentration of irrigated farms on cash and export crops to the detriment of domestic food crop production, coupled with low prices for agricultural primary produce on the world market because of reduced government subsidies for irrigated agriculture have severely curtailed production (ibid). This suggests that large dams’ contribution to productivity is insignificant and exaggerated because they do not meet their anticipated targets.

Therefore McCully (2001) dismisses large dams’ contributions to other economic areas. For instance, McCully calls that the argument that large dams control floods a myth because in some cases floods have worsened and large dams’ contribution to water supplies in towns and cities is negligible (ibid). He also states that it is not the case that large dams improve river transport and the navigation improvements because small boats and canoes cannot safely travel on the lakes, that alleged increases in fishery catches from reservoirs are unsubstantiated and that the benefits associated with recreation are based on the vested interests of their promoters (ibid). These assertions imply that large dams have not been beneficial to society economically.

Inequity in the distribution of benefits is another criticism of the economic performance of large dams. McCully (2001) argues that most large dam beneficiaries are well-connected and resourced elites who are capable of paying for pipe-borne water, irrigation services and electricity from hydropower and flood control dams. In most cases local people are denied access to the benefits generated by dams although they pay the greatest cost for and are most in need of them (Singh, 1997). These perceived inequities in benefit distribution suggest that large dams are not entirely economically beneficial or sustainable.

However, the arguments that large dams have made an insignificant contribution to economic development are believed by Ersumer (1999) and Varma (1999) to be untrue. Comparing the performance of dams built for different purposes against one universal standard is arguably wrong, as the value of goods and services provided by each are different. Using Turkey’s 678 large dams to illustrate their economic benefits, Ersumer (1999) states that large hydroelectric power dams create benefits worth $4 billion annually for the national economy compared to the possible loss of $40 billion the economy would suffer without them. Varma (1999) says that electricity generated from Hirakud Dam on the Mahanadi River in Orissa State in India has attracted steel, cement, paper, textile and other auxiliary industries and is

boosting economic development in the area, and new centres of advanced studies in engineering, medicine, and university have opened in the Orissa state because of the Hirakud Dam. These arguments imply that large dams bring significant direct and indirect economic benefits to the locations in which they are built.

Large irrigation reservoirs’ performance in cash and staple crop production and financial returns are said to be consequential to the viability of irrigation schemes. Rice productivity at the Hirakud Dam in India is said to have increased from one to three tonnes per hectare and farmers’ incomes from irrigated land have grown by more than 60 percent compared to those from non-irrigated land (Varma, 1999). Ersumer (1999) reports that Turkish farmers believe from experience that large irrigation dams bring prosperity and wealth. Therefore it is important that large irrigation dams are economically driven and managed (van Robbroeck, 1999). The benefits of increased income and productivity from large irrigation dams to farmers in Turkey seem to further demonstrate dams’ economic contribution to development.

Large flood control dams have significantly prevented the destruction of lives and property. The Hirakud Dam in India, for instance is said to have moderated the 1961 and 1982 floods, which could have affected mostly economically disadvantaged people’s lives, crops, and property (Varma, 1999). This implies that large flood control dams do not serve only the elite in cities because floods impacts are greater on the poor.

Criticism of large dam technology also relates to cost overruns against planned estimates. According to the WCD (2000a), large dams are plagued by cost overruns, construction delays and deficits in meeting stated targets. Pearce (1992) points out how the cost of the Yacyreta hydro plant in Brazil rose from $1.5 to $12 billion on completion. Singh (1997) finds that the costs of all large dam projects in India exceed their original estimates. Some of the cost overruns are attributed to foreign expertise, income and equipment, which devalue the benefits gained by developing countries from hydro projects but encourage rich countries to ‘subsidise dam construction overseas with aid loans’ (McCully, 2001: 135). For instance, the Diama and Manantali Dams used $784 million of their budgeted $800 million to pay expatriate firms, mostly from Europe (ibid). Dams’ cost over-runs and delays lead generations of citizens and governments of developing countries into debt and perpetuate a vicious cycle of poverty instead of the prosperity promised by their construction (ibid).

However, it has been argued that cost overruns and delays are not limited to large dam construction because roads, tunnels and other large, medium and small infrastructural projects the world over

experience the same (van Robbroeck, 1999). In the UK, for instance, about 75 percent of state-funded projects were reported to be behind schedule (ICID, 2001). Cost overruns are dependent on not project size but on factors like management, market conditions, planning of resource allocation, extent and intensity of initial investigations, and the technology available or deployed: several small dam project costs also far exceed the original estimates (ICID, 2001). ICOLD (1997) explains that the costs of large dams are inclusive of impacts on the natural and social environments and are weighed against the project benefits – enhanced assets, project revenue, environmental compatibility, social advantages, the cost of selected alternatives and multi-purpose benefits that aid the entire economy.