Laos on Thursday inaugurated its biggest hydropower plant, a controversial project hailed by supporters as vital to the impoverished nation's development but long opposed by environmentalists.

The Asian Development Bank (ADB) said the move ushered in "a new era" for growth, development and poverty reduction in the communist country, where the majority of people still live on less than two dollars a day.

"The importance of this hydroelectric project to the Lao economy cannot be overemphasised," Haruhiko Kuroda, the ADB president, said at a ceremony to formally inaugurate the Nam Theun 2 power station.

Critics say tens of thousands of people continue to be affected by the project, which has been dogged by years of controversy.

After five years of construction and development costs of more than 1.4 billion dollars, the plant began supplying neighbouring Thailand with power in March.

With a generating capacity of 1,070 megawatts, the development is jointly owned by communist Laos, Electricite de France, and the Electricity Generating Public Company of Thailand.

The project on the Nam Theun River, a tributary of the Mekong, will contribute two billion dollars to the Lao treasury over its first 25 years of operation, according to the company operating the facility.

"Funds are earmarked for primary education and health service improvement, rural electrification, and other nationwide poverty alleviation programmes," said the ADB.

According to an advance copy of his speech, Kuroda said the project will also reduce Laos's dependence on international aid and contribute to deeper integration of the surrounding Greater Mekong area.

Laos, a rural-based society highly reliant on foreign donors, has a population of about six million.

The ADB said the power project will contribute seven to nine percent of the country's national budget and approximately three percent of gross domestic product (GDP) growth.

GDP last year was almost 5.6 billion dollars.

However, environmentalists have long-opposed the Nam Theun 2 project.

US-based watchdog International Rivers says there are still questions about the sustainability of livelihoods for the more than 6,000 villagers relocated for the dam, and tens of thousands more downstream.

"It's way too early to call this project a success," said Ikuko Matsumoto, Lao programme director for the group.

The ADB said the vast majority of relocated villagers consider their lives better.

"There are, of course, still challenges ahead to ensure sustainable livelihoods for affected people, monitor and respond to downstream impacts and protect the watershed area, which represents one of the few remaining wildernesses in the planet," Kuroda said.

Logging and outside commercial interests threaten the area's natural resources, posing a major challenge, said the statement from the ADB, which provided 120 million dollars of the dam's funding.

France's Foreign Trade Minister Pierre Lellouche called the project's concern for the environment and the population "exemplary."

Most power goes to Thailand but the plant also meets up to 20 percent of peak Lao electricity demand, the operator Nam Theun 2 company (NT2) said.

"NT2 has defied the doubters who claimed such a complex project couldn't be done in a poor country," said Sri Mulyani Indrawati, managing director of the World Bank Group, which supervised and monitored the development.

Eight additional dams are proposed on the mainstream Mekong River in Laos.

Those projects "could have profound and wide-ranging socioeconomic and environmental impacts", according to a study released in October by the Mekong River Commission, an inter-governmental advisory body.