Project promoters deceive the decision-makers and the public with strategic misrepresentations.
Researchers at Oxford University have found that planners and policymakers systematically underestimate the costs and time required to implement large dam projects.
The actual costs of large dams were 96% higher than the estimate, on average, and implementation took 44% longer than scheduled.
The new report thus explicitly states that large dams are not economical: "We find that even before accounting for negative impacts on human society and environment, the actual construction costs of large dams are too high to yield a positive return."
The study is based on the most comprehensive economic analysis of large dams ever undertaken. "Large dams" refers to dams with a wall height in excess of 15m.
Since 1934, no improvement in economic assessments
The study, which is based on a representative sample of 245 large hydropower dams built in 65 different countries between 1934 and 2007, concludes that cost and time overruns have not improved over time.
"Dam budgets today are as wrong as at any time during the 70 years for which data exist", said Atif Ansar, a co-author of the study. "Dam planners seem to not learn from the past.
"For example, Brazil's" Itaipu dam, built in the 1970s, suffered a +240% cost overrun that impaired the nation's public finances for three decades. Despite producing much-needed electricity, Itaipu will likely never pay back the costs incurred to build it.
"Regardless, Brazil is currently building the controversial Belo Monte hydroelectric project, which has proved non-viable even before opening and awaits a fate like Itaipu's. China, Indonesia, Pakistan and other nations show similar amnesic behaviour regarding the building of dams."
Liars and fools
The study cites two reasons for these immense cost and time overruns: firstly, both experts and laypersons are systematically "too optimistic about the time, costs, and benefits of a decision". Secondly, project promoters deceive the decision-makers and the public with strategic misrepresentations.
Professor Bent Flyvbjerg, also a co-author, commented on the causes of the highly inaccurate budgets for dams: "Experts making forecasts about megaprojects can be usefully grouped into 'fools' or 'liars'.
"Fools are the reckless optimists who see the future with rose-tinted glasses. These forecasting fools ignore hard facts and uncertainty, betting the family silver on gambles with very low probability of success.
"Liars deliberately mislead the public for private gain, fiscal or political, by painting overly-positive prospects of an investment, just to get it going. The systematically poor outcomes of large dams suggest that 'fools' and 'liars' have been at the helm."
ASEAN Renewable Energy Week
The new study was released in time for the ASEAN Renewable Energy Week 2014, which started yesterday in Kuala Lumpur. And Malaysia is taking the opportunity to promote its dams to Southeast Asia's Energy Ministers as they plan their future energy policies.
But Malaysia's most recently completed hydropower project, the Bakun Dam in Sarawak, scores considerably worse than the average large dam.
It was originally meant to cost RM2.5 bn ($800m) , and now official expenditure figures have risen to RM7.4 bn ($2.4bn). However the Oxford study assesses its total cost of the Bakun Dam at RM15.325 bn ($5bn).
As for construction time, works began in 1994 and the dam was meant to be operational in 2003. It was actually completed in 2011, but even today, not all eight turbines are operational.
Citizens pay the price
Calculations by the Bruno Manser Fund (BMF) show that the time overrun at the Bakun Dam was almost 90% and the cost overrun was 200% to 500%.
As the Bakun Dam was financed by the federal government - mainly through the Employees Provident Fund and the Pensions Fund - Malaysia's citizens are having to pay the price for the over-optimistic forecasts of the Bakun Dam promoters.
With the Sarawak Corridor of Renewable Energy (SCORE), Sarawak is implementing a whole series of uneconomic large dams of this type. The projected costs of US$105 billion for SCORE are therefore likely to rise. The proposed Baram Dam is likely to cost more than RM5 bn ($1.3bn) rather than the budgeted RM3 bn ($900bn).
"Sarawak is playing for high stakes, while the population bears the risks", comments the BMF.
Small and quick is economic
To minimize these risks associated with large dams, the Oxford study advises countries at a lower level of economic development to implement energy alternatives that have a shorter implementation span and a smaller budget than large dams.
"The ASEAN Ministers meeting in Kuala Lumpur ought to take these findings seriously", says the BMF.
"The time is ripe for turning the focus away from mega-projects that involve great financial risks and moving towards small-scale energy sources that incur lower environmental and social costs."
The study is published in Energy Policy: 'Should we build more large dams? The actual costs of hydropower megaproject development'.
More information on the Bakun dam: Bruno Manser Fonds, Socinstrasse 37 4051 Basel Switzerland.