Power Sector

The Lao power sector is under process of development, which aims at realizing the country’s electrification program, and at the same time export of electricity to the neighboring countries. Around ten percent of the total houses across the country will have to be electrified by the year 2020. The power sector has the potential to play a pivotal role in achieving the social and economic development objectives of the Government by expanding the availability of low cost, reliable electricity within the country and earning revenue from export sales to the region. The Government’s Policy facilitates these objectives by encouraging optimal use of the country's natural resources, promoting efficiency in power sector institutions and creating an environment conducive to responsible infrastructure investment, both public and private.

Lao PDR (Laos) is land-locked mountainous country, which has few options to diversify its energy sources. The Lao Government has the ambition to realize the development of electric power facilities as a highly appropriate method of achieving sustainable social and economic development through electrification program as well as source of income. Laos’ national borders incorporate a significant part of the Mekong River basin. Its main tributaries contribute around 35% of total inflows of the Mekong River. As the country intercepts monsoons from two directions - the Gulf of Thailand and the Gulf of Tonkin - precipitation is considerably favorable for hydropower development. This trend presents an opportunity for Laos to develop hydropower plants to meet its domestic electrification needs and also to export electricity to neighboring countries where demand for electric power has been steadily increasing.

Hydropower is seen as a cost-effective energy source in Laos which has a theoretical hydroelectric potential of about 26,500MW including the mainstream Mekong River. Of this capacity, about 18,000MW is technically exploitable, with 12,500MW found in the major Mekong sub-basins and the remainder in minor Mekong or non-Mekong basins. Around one-fifth of the country's hydropower potential has been developed over the past 30 years, but under the present government policy the rate of development will accelerate to supply electricity to the rapidly growing economies of the region.

Coal development is at its nascent stage. Renewable energy such as wind and solar is currently experimented and is not developed on a commercial basis. Oil and gas have no prospect for development in the territory of Laos. As such, the hydropower source still constitutes the best option for tapping energy sources in Laos.

Background

Electricity from hydropower plants was not produced in Lao PDR until the late 1960s. Only some small hydroelectric plants with installed capacities ranging from 50 kilowatts to 5 megawatts serving small isolated local grids were commissioned at the time. This static development resulted from low demand for electricity in the country, on one hand. Scarcity of finance for investment in power generation has presented a bottleneck in the development plans for the sector, on other. Historically, financing needs had been met by international financial institutions, but their support for hydropower generation had been limited in recent years.

By contrast, today the electricity sector is the country’s third largest export earner. The advent of rapid development of the power sector has resulted from an openness policy, which was set forth in the New Economic Mechanism (NEM) as adopted in the late 1980s. The NEM has induced the expansion of activities related to industries, services, commerce, and rural development, which in turn initiated demand for electricity in the country.  In keeping with the NEM, the power sector has been classified as a development strategy of the national economy. Furthermore, the Lao Government has recognized diverse ownerships in its economic system; private ownership and public-private partnership have been encouraged to participate in various investment-related activities in power projects. The participation of the private sector has therefore been sought and promoted through a Build-Own-Operate-Transfer (BOOT) approach, contracting-outs and other privately-managed arrangements. Included in private financing are equity investment, supply of material and equipment, provision of security, consultancy service, and power market privatization.

Institutional Setting

The Government’s administration system is unitary and is divided into 18 local provinces, including Vientiane Capital. The governmental structure is constituted by the Prime Minister’s Office, line ministries, ministry-equivalent organs, provinces forming the government of Laos at the central level; and provincial authorities and the local level. Each ministry is supported by its subordinate hierarchical departments, which are formed as ministerial structures.

Ministry of Energy and Mines is a governmental element, which is supported by seven Departments. The supporting departments are classified into three streams: general administration, mines, and energy. Those are office of the Permanent Secretary, Department of Statutory Monitoring, Department of Personnel, Department of Mines, Department of Energy Policy and Planning, Department of Energy Business, and Department of Energy Management. Each Department is headed by a director general, who may be assisted by some deputies.

All public state-owned enterprises dealing with energy and mines are registered under the overarching technical supervision of the Ministry of Energy and Mines. There are Electricité du Laos (EDL), Electricité du Laos Generation (EDL-G), Lao Holding State-Owned Enterprise (LHSE), and Electrical Construction and Installation Enterprise (ECIE).  Power companies, which are owned and operated by private owners, are monitored and managed by the Department of Energy Business.

The Department of Energy Business (About DEB)

Department of Energy Business (DEB) of Laos functions as a governmental agency, which is organized under the hierarchy of the Ministry of Energy and Mines. The Department is sub-divided into four divisions, each of which is headed by a division chief; those divisions deal with logistics and administration, project development, legal affairs, and project monitoring. DEB is supported by a management team, which consists of one Director General and three Deputies. DEB employs 45 staff members; all are Lao nationals and public servants who work on a permanent basis. DEB also retains international advisor such as lawyers, communication advisors, and engineers, who are foreign nationals and who are assigned works relevant to their services that are given on a time-contract basis.

The main duties of Department of Energy Business are:

•    To process investment proposals, and to review technical feasibility study reports, environmental assessment and mitigation plans, and other project documents.
•    To conduct financial analysis on project feasibility studies; in justifying resource usage levies, taxes, internal rate of return for equity investors, and debt service coverage ratios for commercial lenders.
•    To draft and negotiate project agreements including concession agreements, power purchase agreements, and credit facility agreements, with relevant parties.
•    To implement, and to enforce project agreements, to which the Lao government or its subordinate agencies are the parties.
•    To monitor compliance of project agreements, and project documents.
•    To facilitate the project development process in respect of coordination among stakeholders; including governmental agencies both at the centre and local level, investors, related private parties, NGOs, and neighboring governmental agencies.
•    To provide coordination, and consultation on behalf of the Lao government in regard to management, development, marketing, monitoring, and resolving energy problems related to sectoral and local suppliers and consumers in compliance with Electricity Law, Law on Environmental Protection, and other laws being enforced.
•    To provide support, and promotion of energy programs as well as other development programs that have connections with energy, investment cooperation of the government, purchase and sales of electricity to overseas partners, aimed at reaching the highest profit level and creation of attractive conditions for foreign investors in the Lao PDR.
•    To supervise, and to monitor the implementation of energy development projects in order to ensure their compliance with policies and related project agreements.
•    To examine and propose for approval or withdrawal energy investment permits by higher authority in accordance with the provisions of the laws of the Lao PDR or the signed contracts.
•    To examine, and to conduct analyses of the market and electricity import policies of the purchasers.
•    To meet with peer agencies from the Kingdom of Thailand, the Socialist Republic of Vietnam, the Kingdom of Cambodia and other countries, in order to secure support, methodologies, and mechanisms for the realization of contract agreements and memoranda of understanding on energy and electricity cooperation.