Enviroment: The Economics: The economics; Future generations will pay price for pounds 16bn project

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The Independent Online
The total cost of the Three Gorges Dam is estimated at 203 billion yuan (pounds 16bn), funded by a levy on all existing electricity sales, profits from the nearby Gezhouba Dam, and central government finance. Revenue from selling electricity when the first set of turbines start up in 2003 will help fund the final phase.

There is no World Bank or Asian Development Bank backing, because China did not want to subject the project to rigorous international environmental appraisal. Plans to raise money on the international bond markets were shelved because the issue seemed unlikely to attract investors.

So far, the project is on schedule and on budget, but the planned 2009 completion date is ambitious. Even after that, it will be a very expensive way to produce electricity, with high upkeep costs; the siltation problem, for instance, means that the 26 giant turbines will have to be replaced every 30 years, admitted one Chinese official.

Already, the dam is transforming the economy of the region. On the negative side, some 632 sq km of agricultural land is to be submerged, and river transport faces disruption now that all vessels must travel through the diversion channel, and the dislocation of relocating 1.2 million people has disrupted economic patterns.

On the other hand, the huge investment and associated infrastructure projects has ignited a frenzy of activity. About 50,000 migrant workers have found employment at the dam site alone. All the way along the river up to Chongqing city, thousands more are toiling on new roads, airports, cities, towns and factories. According to the theory, when the reservoir is flooded, much larger vessels will be able to journey all the way to Chongqing, thus boosting trade into China's interior provinces. Forgotten regions are suddenly the focus for the biggest surge of investment in Chinese history.

In the meantime, the project needs foreign technology. Many of the world's biggest engineering and hydro-power companies - like Siemens, ABB and Caterpillar - have bid for contracts. As usual, the government is driving very tough bargains; profit margins are often non-existent, Peking insists on a high level of technology transfer, and then demands a financing package as well.

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