A Lao man, his face and hands hardened by the sun and years of fishing, tends his water buffalo by the Theun River and wonders what his life will be like "after the flood".

That's how he refers to the water that has started rising behind the Nam Theun 2 dam, turning an area more than four times the size of Paris - including the land his family has tilled for generations - into a stagnant reservoir.

Will he, and the more than 6,000 others who have been displaced, be better off thanks to the Nam Theun 2 hydropower project, as the Lao government, the dam developers and the World Bank contend? Or will they face an uncertain future of rice shortages, reduced fish catches, and, ultimately, deeper poverty?

These questions loom large as the Nam Theun 2 Power Company, headed by Electricité de France, closes the dam gates this month on the largest single investment ever in the small country of Laos.

The dam received funding from the World Bank in 2005 after 16 years of studies and negotiations, marking the institution's return to the mega-dam business following a decade-long hiatus.

Hydropower projects are built to produce electricity, or to generate money from power exports, for their host countries. Both are worthy objectives, although whether or not a large dam is the best means to deliver power or revenue needs to be assessed carefully in each case.

Big dams have frequently had high social and environmental costs and long-term economic trade-offs, such as lost fisheries, tourism potential and flooded agricultural and forest land.

Most projects have failed to fully compensate affected people for their losses and adequately mitigate environmental impacts. Local people have rarely had a meaningful say in whether or how a dam is implemented, or received their fair share of any project benefits.

But Electricité de France, together with the Lao government, the World Bank and other backers, promised that Nam Theun 2 would be different. They called it a "poverty-reduction project."

Although the one in 50 Laotians villagers living near the Nam Theun 2 reservoir and downstream rivers will face fisheries and farmland losses, water quality problems and other hardships, the company committed to ensure that their incomes would at least be restored.

The World Bank asserted that the cash-strapped Lao government would use the revenues from Nam Theun 2's electricity exports to Thailand solely to benefit the poor.

These promises helped seal the deal, bringing in European development agencies, banks and export credit agencies with hundreds of millions of dollars in grants, loans and insurance for the $1.45 billion project.

But while Nam Theun 2's engineering deadlines have been met, social and environmental programs have stumbled ever since construction started, making life more difficult for Lao villagers.

Legal agreements have been violated and social and environmental commitments have been broken. In breach of World Bank policies, for example, the project took rice paddy fields and other land from close to 2,000 villagers almost two years ago, and still has not provided replacements.

How the Lao government will use Nam Theun 2's revenue remains to be seen once power production begins in 18 months. But in a country ranked as one of the 10 most corrupt by Transparency International, the trickle-down strategy is a risky one, especially since the World Bank's and other donors' limited leverage declines further as the project nears completion.

Nam Theun 2 is not the worst dam ever built, though, frankly, the bar has been set quite low. Resettled villagers are enjoying sturdier houses and better water supply, and the project has gone further than most in terms of independent monitoring and public reporting.

But it is failing on its most critical "poverty-reduction" claim: the company has yet to define, adequately fund and implement viable programmes to ensure that resettlers and the more than 120,000 villagers downstream will be able to feed their families and earn a living once Nam Theun 2 is completed.

Rather than being a new "model", the experience with Nam Theun 2 to date only reinforces lessons learned from other large hydropower projects.

The first is that social and environmental obligations in big infrastructure projects must be accompanied by adequate resources and enforcement mechanisms.

These components should be considered a core part of the project, not an afterthought. Failure to meet social and environmental commitments must carry the same penalties as failure to meet engineering deadlines, and project lenders should stop disbursements when covenants are violated.

The second is that even with all the social and environmental funding and the best intentions in the world, government capacity and commitment cannot be manufactured. If the host government is unable or unwilling to manage the impacts - or the revenue - from the project, a big dam will increase poverty rather than reduce it by destroying the natural resources on which rural populations depend.

Will Nam Theun 2 deliver on its promises to the Lao people? The outlook is worrying, though the answer may still be years away.

Unfortunately, the people best placed to respond are the ones most rarely asked: the villagers watching the water rise behind the dam where their river used to be.

Shannon Lawrence is the Lao programme director for International Rivers, a U.S.-based environmental and human rights non-governmental organisation.

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