It highlights what the group says are shortcomings and delays in programmes to compensate thousands of villagers on the Nakai Plateau and communities downstream affected by the $1.45 billion project in mountainous central Laos.

Stretching 200 km (125 miles) along the plateau, the 1,070-megawatt dam is the centrepiece of the tiny, landlocked country's plan to become a "battery" for the region and help pull its 5.8 million people out of poverty.

Nam Theun 2 is 70 percent complete and on track to begin operations in 2009, but the relocation of more than 6,200 villagers and plans to restore their livelihoods and those of thousands of others are behind schedule, the report said.

"Villagers, particularly those living downstream, are not ready to face Nam Theun 2's impacts and time is running short," said Shannon Lawrence, the group's Lao programme director, referring to the reservoir flooding expected to begin in June.

A $16 million budget was inadequate to compensate more than 120,000 villagers downstream for loss of fisheries, "let alone to provide livelihood alternatives and flood and erosion protection", the report said.

The World Bank, a key backer of the dam 280 km (175 miles) southeast of Vientiane, said "there have been challenges in making sure the social and environmental aspects progressed at the same rate as the construction".

But Lao country manager Patchamuthu Illangovan said it was stepping up efforts to ensure affected people were looked after.

"Already, the project has provided significantly better housing to the affected people, better schools, better health clinics and better roads on the plateau," he said.

"It will deliver much more, to all the people of Laos, in the years ahead".