Egco, as part of an international consortium that includes Italian-Thai Development Plc, began building the Nam Theun 2 dam last November. It is due to begin supplying electricity to Thailand and Laos in the second half of 2009. Its construction and the creation of a 450-square-kilometre lake on the Khammouane Plain brought an international outcry from conservationists.

Thailand began buying electricity from the first Theun River hydroelectric project, called Theun Himboun, in 1998.

The new project, called Nam Theun 1, will be built downstream from the controversial Nam Theun 2, in the heart of Laos and 160km from the capital, Vientiane.

The deal struck by Egco involves building the dam and operating it for 27 years, with a contract to sell power to Thailand. The plant will have a total capacity of 523MW and is due to begin production in 2013.

Egco said it expected to finalise funding for the construction by the end of next year and intended to use the same construction and environmental standards it was employing for Nam Theun 2 as a model.

Senior executive vice president for asset management and planning Somyos Polachan said the Thai Energy Ministry and the Electricity Generating Authority of Thailand (Egat) recently acknowledged Egco's proposal on electricity prices for construction of the new plant.

Egco has teamed up with Malaysian construction giant Gamuda Bhd and the Lao government for a 40:40:20 investment ratio, respectively, and will reserve $700 million for the construction budget. The project will take five or six years to complete and is expected to deliver its first electricity in 2013.

Somyos said the Nam Theun 1 power plant would be of great benefit to both Thailand and Laos. The Lao government will receive revenues in accordance with the ratio of concession, tax and dividends throughout the 27 years of the agreement, while Thailand will enjoy a reduced risk of depending on other fuels for electricity generation.

At present, most power plants in Thailand burn natural gas to generate electricity, which results in increased production costs, because of rising oil prices. When comparing the production costs of natural gas, oil and hydroelectric power, the last one has a lower cost and is not affected by fluctuating oil prices. Somyos said this enabled supply authorities to forecast future electricity prices more accurately.