Atif Ansar

Should We Build More Large Dams? The Actual Costs of Hydropower Megaproject Development

A brisk building boom of hydropower mega-dams is underway from China to Brazil. Whether benefits of new dams will outweigh costs remains unresolved despite contentious debates. We investigate this question with the “outside view” or “reference class forecasting” based on literature on decision-making under uncertainty in psychology. We find overwhelming evidence that budgets are systematically biased below actual costs of large hydropower dams—excluding inflation, substantial debt servicing, environmental, and social costs. Using the largest and most reliable reference data of its kind and multilevel statistical techniques applied to large dams for the first time, we were successful in fitting parsimonious models to predict cost and schedule overruns. The outside view suggests that in most countries large hydropower dams will be too costly in absolute terms and take too long to build to deliver a positive risk-adjusted return unless suitable risk management measures outlined in this paper can be affordably provided. Policymakers, particularly in developing countries, are advised to prefer agile energy alternatives that can be built over shorter time horizons to energy megaprojects.

Damming the rivers of the Amazon basin

More than a hundred hydropower dams have already been built in the Amazon basin and numerous proposals for further dam constructions are under consideration. The accumulated negative environmental effects of existing dams and proposed dams, if constructed, will trigger massive hydrophysical and biotic disturbances that will affect the Amazon basin’s floodplains, estuary and sediment plume. We introduce a Dam Environmental Vulnerability Index to quantify the current and potential impacts of dams in the basin. The scale of foreseeable environmental degradation indicates the need for collective action among nations and states to avoid cumulative, far-reaching impacts. We suggest institutional innovations to assess and avoid the likely impoverishment of Amazon rivers.

Does infrastructure investment lead to economic growth or economic fragility? Evidence from China

China’s three-decade infrastructure investment boom shows few signs of abating. Is China’s economic growth a consequence of its purposeful investment? Is China a prodigy in delivering infrastructure from which rich democracies could learn? The prevalent view in economics literature and policies derived from it is that a high level of infrastructure investment is a precursor to economic growth. China is especially held up as a model to emulate. Politicians in rich democracies display awe and envy of the scale of infrastructure Chinese leaders are able to build. Based on the largest dataset of its kind, this paper punctures the twin myths that (i) infrastructure creates economic value, and that (ii) China has a distinct advantage in its delivery. Far from being an engine of economic growth, the typical infrastructure investment fails to deliver a positive risk-adjusted return. Moreover, China’s track record in delivering infrastructure is no better than that of rich democracies. Investing in unproductive projects results initially in a boom, as long as construction is ongoing, followed by a bust, when forecasted benefits fail to materialize and projects therefore become a drag on the economy. Where investments are debt-financed, overinvesting in unproductive projects results in the build-up of debt, monetary expansion, instability in financial markets, and economic fragility, exactly as we see in China today. We conclude that poorly managed infrastructure investments are a main explanation of surfacing economic and financial problems in China. We predict that, unless China shifts to a lower level of higher-quality infrastructure investments, the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy. China’s infrastructure investment model is not one to follow for other countries but one to avoid.

Fluid populations, immobile assets: Synchronizing infrastructure investments with shifting demography

In this article we reconstruct and test conventional economic theory’s deductive claims about the nature of infrastructure assets and the demography of end-users who demand infrastructure outputs. We find that the conventional theory puts forward three mutually reinforcing propositions: that infrastructure assets have a natural tendency towards monopoly owing to technical economies of scale; that infrastructure outputs (such as cubic metres of water or kilowatt–hours of electricity) and end-users of these outputs are essentially homogenous; and that future demand of infrastructure is predictable with a reasonable degree of certainty. These conventional propositions in practice have promulgated a ‘bigger is better’ paradigm in the planning of infrastructure assets and networks that has entrenched the practice of building large immobile infrastructure assets. In contrast, building on evidence from multiple cases – Berlin water authority (Berliner Wasserbetriebe) and World Bank-financed water supply projects in six developing countries – we show that conventional economics theory has led to the development of poor planning practices that are yielding unfavourable outcomes in infrastructure investments. We find that the heterogeneous populations of end-users (individuals, households and organizations) are fluid across space and time. This fluidity makes immobile assets subject to frequent and costly obsolescence. Instead of being theorized as large immobile (and monopoly tending) assets, infrastructure assets should be viewed as modular, plug-and-play, increments. These modules can be flexibly assembled over time to expand or contract capacity in specific places for specific users.