The Three Gorges Project. Part IX. A "Fishing" Project?
The cost estimate of TGP, as shown in Table I, varies wildly. The
difference lies mostly in two factors, namely, the various expenses of the
project itself and whether to include the investment interest, whose annual
rate was about 10% in 1985 and over 16% in 1989. The cost of 16 billion
yuans for 150-meter scheme and 22 billion for 180-meter scheme were
proposed and widely circulated by "Chang Ban", without taking into account
of any interest or price inflation. Until recently, the interest of investment
had never been a serious issue in the "socialist" China. At the time when
people thought they were in a transition to communism in which even money
would be a waste, who would talk about interest rate?
Table I. Cost estimates of TGP (in billion yuans) by different expert groups.
>From Dai Qing (ed), 1989.
Organization: 150-meter scheme: 180-meter scheme:
Chang Ban (static) 15.9 22.3
Opponents (static) 30.8 * 42.1
Construction Bank ** 200-500 200-500
*: The resettlement cost estimated by the Chinese Academy of City
Planning and Design is 11 billion yuans, 3 times higher than the estimate of
**: The total investment (which includes the interest and price inflation)
estimated by The Chinese Construction Bank.
Of course, the interest does matter to a realistic China. This is even
more true for TGP, which will take at least 20 years to finish and more than
30 years to return the total investments by its electricity income. But let's
first look at the static project cost. In Chang Ban's 15.9 billion yuan for the
150-meter scheme, 12.4 billion are allocated for the construction cost (which
is relatively fixed) and only 3.5 billion for the resettlement. But the amount
of resettlement will be almost doubled within the next 20 years (due to
population growth and enlarged relocation by siltation, see Resettlement &
Inundation) and reach more than half a million. Therefore, the resettlement
cost, which is about 10,000 yuans for every person, should be at least 5-7
billion yuans. This is consistent with the estimate of the local governments.
By adding another 5 billion yuans as the cost of a related power transmission
project, the static investment reaches at least 25 billion yuans.
Similarly, the resettlement cost for 180-meter scheme will reach
above 14 billion yuans, at least twice as much as the estimate of "Chang Ban".
By adding the long distance power transmission investment, the total static
investment will be at least 36 billion yuans.
The lower limit of the total investment can be obtained by taking the
annual interest rate to be 10% and the net electricity profit to be 10 cents
per kilowatt hour (only 4 cents per kilowatt hour at present). According to
"Chang Ban", TGP will start to produce electricity after 11 years of
construction. For the 180-meter scheme, it will produce totally 300 billion
kilowatt hours in the next 8 years, when the project is supposed to be
completed. After that, the 180-meter scheme will generate nearly 90
billion kilowatt hours, and, according to our assumption, will pay back 9
billion yuans every year. Without taking into account any price inflation, my
calculation told me that it will take 32 years to pay back all the investments,
which will be more than 160 billion yuans in total. The total investments for
the 180-meter scheme calculated by the Chinese Construction Bank (CCB) are
summarized in Table II.
Table II. The total investments of the 180-meter scheme v.s. the annual price
inflation index. The interest rate is assumed to be 9.36%. From Dai Qing
Annual Electricity income Investment period Total investment
inflation (yuan/KW hr) until paid off (years) (billion yuans)
0 0.1 25 78.7
4% 0.12 32 157.5
6% 0.17 30 202.4
8% 0.22 28 231.4
10% 0.27 30 320.3
According to the estimate of CCB, the total cost of the 180-meter
scheme can be as high as 500 billion yuan if the annual investment interest
reaches 16% (with a moderate annual inflation of 8%). This is by no means an
arbitrarily forged number, as accused by the proponents of TGP; it is the
result of the verifiable calculations of the economists! Therefore, TGP can
cost up to 20 times more than what "Chang Ban" claimed. Moreover, there are
additional costs of TGP which cannot be estimated accurately. For instance,
some negative environmental effects of TGP are reversible, but to reverse
these effects will also take extra investments. The following are just a
(1) In order to balance the seasonal variation of the power output of TGP,
it is necessary to build additional thermal power plants;
(2) TGP will cause serious siltation upstream of the dam and coastal
erosion (due to the lack of silt) downstream of the dam. Large amount of
investment is needed to deal with either effects;
(3) The turbine generators will be imported from abroad. It is difficult to
estimate their prices due to the fluctuations of many factors (e.g., the
exchange rates of currencies).
(4) It is highly questionable whether such a project can be finished within
19 years, as proposed by "Chang Ban". Extending the construction time of
the dam will dramatically increase the total investment.
Probably nobody really knows how much the project will cost.
Probably the proponents of the project do not want people to know the real
cost. They can promise a low budget project in their feasibility report and
obtain the approval of the government, which is equally anxious in seeking
after political and economic profits. As far as the project starts, it must
continue no matter how much it is found out to cost later. In fact, that was
what happened to the Gezhouba project. The static cost of that project had
gone from the estimated 1.35 billion yuan to a figure 4 times as high by the
time it was completed. And that could also happen to TGP. That is why Mr.
Qian Jiaju, a respected economist and a member of "Zheng Xie", nicknamed TGP
as a "fishing" project, a phrase he invented earlier for the Gezhouba. I am
sure you can see their inherent relationship without any further explanation!