lao people’s democratic republic: energy sector assessment, strategy, and road map 2013 update

8/13/2019 Lao Peoples Democratic Republic: Energy Sector Assessment, Strategy, and Road Map 2013 Update

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Energy Sector Assessment, Strategy,

and Road Map

Lao Peoples Democratic Republic

2013 Update


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Energy Sector Assessment, Strategy,

and Road Map

Lao Peoples Democratic Republic

2013 Update


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Printed on recycled paper

2013 Asian Development Bank

All rights reserved. Published 2013.

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Cataloging-In-Publication Data

Asian Development Bank.

Lao Peoples Democratic Republic: Energy sector assessment, strategy, and road map 2013 Update

Mandaluyong City, Philippines: Asian Development Bank, 2013.

1. Energy sector. 2. Lao Peoples Democratic Republic. I. Asian Development Bank.

Te views expressed in this publication are those o the authors and do not necessarily reflect the views and policies o the

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iii

Contents

List of Tables, Figures, and Boxes iv

Currency Equivalents v

Weights and Measures v

Abbreviations vi

Acknowledgments vii

I. Sector Assessment: Context and Strategic Issues 1

A. Introduction 1

B. Overall Sector Context 1

C. Core Sector Issues 6

II. Sector Strategy 13

A. Government Strategy, Policy, and Plans 13

B. ADB Sector Support Program and Experience 13

C. Other Development Partner Support 15

D. ADB Sel-Evaluation 16

E. ADB Sector Forward Strategy 17

III. Sector Road Map and Results Framework 21

Appendixes

1. Sector Problem Analysis 22

2. Sector Issues, Government Actions, and ADB Support 23

3. Data ables and Figures 25

References 43


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iv

Tables, Figures, and Boxes

Tables

1 Key Economic Indicators 2

2 Key Energy Indicators 2

3 Generating Capacity 3

4 Electricit du Laos System Capacity (2012) 8

5 Investment Requirement 10

6 Revenue rom Power Export (Example o Nam heun 2 Project) 11

A2.1 Links between Sector Issues, Government Plan, Gaps, and

ADB Summary Assessment o Plan Feasibility 23

A2.2 Summary o Sector Issues, Government Action, Development Partner and

ADB Support, and Key Lessons 24

A3.1 Power Projects under Construction 25

A3.2 Hydropower Projects with Project Development Agreements 26

A3.3 Hydropower Projects at Feasibility or Memorandum o Understanding Stage 28

A3.4 Hydropower Plants under Electricit du Laos Administration 31

A3.5 Independent Hydropower Plants or Export 31

A3.6a ransmission Lines Development Plan in Northern Area, 20102020 32

A3.6b ransmission Lines Development Plan in Central Area, 20102020 34

A3.6c ransmission Lines Development Plan in Southern Area, 20102020 35

A3.7a Long List o Sector Needs 37

A3.7b ADB-Approved Loans and Grants or the Energy Sector in the

Lao Peoples Democratic Republic, 19942012 40

A3.7c ADB-Approved echnical Assistance Projects in the Energy Sector in the

Lao Peoples Democratic Republic, 19942012 41

A3.7d ADB Projects in Pipeline, 20112013 42

Figures

1 Organizational Chart 6

2 Domestic Electricity Demand Forecast, 20102020 9

Boxes

1 he Lao Peoples Democratic Republic Demand-Side Management and

Energy Eiciency Program 16

A3.1 Renewable Energy Policy arget 30


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v

Currency Equivalents(as of 15 March 2013)

Currency Unit = kip (KN)

KN1.00 = $0.000129971

$1.00 = KN7,694.00

Weights and Measures

cct-km circuit kilometer

GWh gigawatt-hour

km kilometer

km2 square kilometer

kgoe kilogram o oil equivalent

ktoe kiloton o oil equivalent

kV kilovolt

kWh kilowatt-hour

mtoe million tons o oil equivalent

MVA megavolt-ampere

MW megawatt


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vi

Abbreviations

ADB Asian Development Bank

ASR assessment, strategy, and road map

CPS country partnership strategy

DEB Department o Energy Business

DEPP Department o Energy Policy and Planning

DOM Department o Mines

DSM demand-side managementEEC energy efficiency and conservation

EDL Electricit du Laos

EDL-GEN EDL Generation Public Company

EGA Electricity Generating Authority o Tailand

GMS Greater Mekong Subregion

HPP hydropower plant

IPP independent power producer

IREP Institute o Renewable Energy Promotion

JICA Japan International Cooperation Agency

Lao PDR Lao Peoples Democratic Republic

LHSE Lao Holding State Enterprise

MEM Ministry o Energy and Mines

MONRE Ministry o Natural Resources and the Environment

NSEDP National Socio-Economic Development Plan

PPP publicprivate partnership

SPP small power producer


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vii

Acknowledgments

Tis report was prepared by a team led by Duy-Tanh Bui (senior energy economist, Energy Division[SEEN], Southeast Asia Department [SERD]), with team members Phoxay Phommachanh (projectofficer [energy], Lao Resident Mission) and Tiphasone Donekhamyoy (associate project analyst, LaoResident Mission). Guidance and support were provided by SERD management: Kunio Senga (directorgeneral, SERD), Jong-Inn Kim (officer-in-charge, SEEN/SERD), Chi Nai Chong (country director, LaoResident Mission), Anthony Jude (senior advisor, Regional Sustainable Department and ormer director,SEEN/SERD), Richard Bolt (advisor, Office o the Director General, SERD), and Rehan Kausar (unithead, project administration, SEEN/SERD).

Te team wishes to thank Pradeep Tarakan (climate change specialist, SEEN/SERD) as the reportspeer reviewer and the ollowing staff or their support in preparing and editing the report: AngelicaLuz Fernando (associate operations officer, SEEN/SERD) and Janice Alalay (operations assistant, SEEN/SERD).

Te team wishes to thank the Department o Energy Planning and Policy, Ministry o Energy andMines, and Electricit du Laos o the Lao Peoples Democratic Republic or their inputs and discussionsduring preparation o the report. Te team also thanks colleagues rom the ADB Department o ExternalRelations or their support in preparation o the report.


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1

I Sector Assessment:

Context and Strategic Issues

A. Introduction

1. Tis energy sector assessment, strategy, and road map (ASR) highlights developmentconstraints and challenges in the energy sector in the Lao Peoples Democratic Republic (Lao PDR).Consistent with the governments plans and strategy, the ASR proposes support actions or the sectorduring the period to 2020. It also provides sector background inormation, which will be updated asneeded, or investment and technical assistance operations. Te ASR is a working paper based on asystematic review o the Lao PDR energy sector and consultations with the government and otherdevelopment partners.

2. Te ASR is linked to the Asian Development Bank (ADB) country partnership strategy (CPS)or the Lao PDR, 20122016.1Te CPS, approved by the ADB Board in 2011, sets out principles orassistance and partnership between ADB and the Lao PDR. Te CPS is aligned with the governmentspolicies and priorities in the Seventh Five-Year National Socio-Economic Development Plan (NSEDP),20112015. Further, the ASR draws upon ADBs Strategy 2020, which sets out a ramework or ADBsoverall operations or 20082020.2

B. Overall Sector Context

3. Te Lao PDR is a country rich in natural resources, traditionally agrarian but in transitionto becoming a more urbanized, market-oriented economy increasingly integrated with neighboringcountries in the Greater Mekong Subregion (GMS). Between 2002 and 2012, the Lao PDR has experiencedrobust economic growth averaging 7%8% annually. Mining and hydropower investments have increasedsignificantly in recent years, making important contributions to economic growth. Hydropower outputrose by almost 20% in 2011, spurred on by the commissioning o new plants, including the 615 megawatt(MW) Nam Ngum 2. Gross national income has more than doubled since 2006.

4. With a population o only 6.4 million people, the overall population density is very lowat about 26 people per square kilometer (km2). Almost three-quarters o the population live in ruralareas. Numerous ethnic groups live in remote, mountainous regions with very limited access to services(including electricity) and markets. able 1 shows key economic indicators or 2011. Te average incomein the Lao PDR is marginally over $1,200 (Atlas method), and approximately 25% o the population livesbelow the poverty line (less than $1 daily in purchasing power parity terms).

5. Te main objectives of the governments NSEDP for 20112015 include rapid economic growthand poverty eradication; achievement of the Millennium Development Goals by 2015; graduation fromleast-developed country status by 2020; and sustainable economic, social, and environmental development.

1 ADB. 2011. Country Partnership Strategy: Lao Peoples Democratic Republic, 20122016. Manila.

2 ADB. 2008. Strategy 2020: Te Long-erm Strategic Framework of the Asian Development Bank, 20082020. Manila.


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2 Lao Peoples Democratic Republic: Energy Sector Assessment, Strategy, and Road Map 2013 Update

6. Te NSEDP, 20112015 identifies the energy sector as a strategic development actor, both orthe short and longer terms. Its perormance is vital to meeting the countrys energy requirements, notablywith respect to the still-elusive goal o nationwide electrification. Development o the sector is central tomodernization and industrialization o the country, which is the primary basis or raising living standards

and poverty reduction. In light o its huge hydropower potential and extensive coal deposits, the Lao PDRis seen as a uture battery or the GMS.

1. Energy Consumption

7. Structure of final energy use. Te primary energy source in the Lao PDR, as in manydeveloping countries in the region, is biomass. However, in terms o final energy use, biomass accountsor less than 60%, petroleum products account or about 17%, electricity or 12%, and charcoal andcoal or 14%.

8. Sector energy use.In 2012, total final energy consumption was 2,336 kilotons o oil equivalent(ktoe). Households account or 54% o total final energy consumption, the transport sector or 22%, the

commercial sector or 14%, and the industry and agriculture sectors 10%. Te high share accounted orby households reflects their reliance on biomass, which has low efficiency. It also reflects the relatively lowlevel o industrial and commercial activity. While petroleum uels are used or transport and industry,they are also used to generate electricity by households yet to be connected to the grid. All petroleumuels are imported. able 2 depicts the key energy indicators.

Table 1 Key Economic Indicators

Indicator Unit Value

Land area km2 236,800

Population million 6.4

GDP billion KN 64,960

GDP per capita $ 1,272

GDP = gross domestic product, km2= square kilometer.

Source: ADB. 2011. Key Indicators for Asia and the Pacific.Manila.

Table 2 Key Energy Indicators

Indicator Unit Value

Final energy consumption per capita kgoe 366

Total electricity consumption GWh 2,400

Total installed capacity MW 2,570

Electrification rate % 78.5

Per capita electricity consumption kWh 376

Hydropower potential MW 20,000

Coal resource million tons 700

Renewable potential MW (eq) 500

GWh = gigawatt-hour, kgoe = kilogram of oil equivalent, km2= square kilometer, kWh = kilowatt-hour, MW = megawatt.

Source: Asian Development Bank (ADB).


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Sector Assessment 3

2. Energy Resources

9. Hydropower potential. Te Mekong river subbasins in the Lao PDR have an estimated20,000 MW o technically viable hydropower capacity. By 2011, 2,570 MW o this capacity had been

developed and is operational or both domestic consumption and export. A urther 2,623 MW ocapacity, involving 12 power plants, is in various stages o construction (Appendix 3, able A3.1).Additionally, 60 new hydropower projects are in various stages o study, approval, and design(Appendix 3, ables A3.2A3.3). Hydropower plants (HPPs) provide electricity both to domesticcustomers (through the grid) and oreign markets (Tailand and Viet Nam). By 2020, when all o the12 projects presently under construction have been completed, it is expected that the Lao PDR willhave harnessed about 8,100 MW o its 20,000 MW o potential capacity (able 3).

10. Coal and lignite.Te Lao PDRs coal reserves are estimated to be about 600 million700 milliontons, occurring mostly as lignite with smaller amounts o anthracite. Te largest reserve o lignite hasbeen ound in Hongsa in Xayabouly province; it is estimated to contain about 400 million tons, or morethan hal the estimated total reserves or the country. Te mid-grade lignite is suitable or electricitygeneration and meeting other industrial thermal energy requirements. Coal consumption is currentlylimited to a cement actory, using about 35,000 tons per year, and a ew smaller users. However, thisis about to change as an independent power producer (IPP) commenced construction in 2011 o an1,800 MW coal-ueled thermal plant in Hongsa. Most o the electricity will be exported to Tailand, with100 MW reserved or sale to Electricit du Laos (EDL).

3. Renewable Energies and Energy Efficiency and Conservation

11. Apart rom large-scale hydropower, the Lao PDRs other renewable energy resources includebiomass, hydro energy (small and mini, less than 15 MW), solar energy, wind, and geothermal energyresources (Appendix 3, Box 1).

12. Biomass. Every year the agriculture and orestry sectors produce large amounts o waste,such as rice straw and husks, sawdust, and corn cobs. Te annual potential o this waste is estimatedat 500 million tons o oil equivalent (mtoe), which can be used as eedstock or power generation. Soar, biomass is only used at the household level, as more than 80% o the Lao population still relies onbiomass energy, especially or cooking; biomass is also used or small-scale rural industrial production(e.g., alcohol production and tobacco processing). Te country has high potential or biouel productionrom oily crops such as jatropha, oil palm, and soybean. Tere have been some pilot projects to plant

jatropha or biodiesel production; or example, the Kolao Company has invested in a 2,500-hectarejatropha plantation and biodiesel actory (2,000 liters per day) in Xayabouly province.

13. Solar.Te Lao PDR has an average o 200300 sunlight days per year, with more sunlight daysin the south. Te potential capacity o solar energy is estimated at around 4.55.0 kilowatt-hours (kWh)per square meter (m2) per day. Solar power plays a role in providing off-grid electric power or remoterural areas. At present, 25,000 households, mostly in remote areas, have been supplied with solar home

Table 3 Generating Capacity (megawatts)

Item 2011 2015 2020 2025

For domestic market 579 1,103 1,954 2,448

For export market (Thailand, Viet Nam) 1,987 2,261 6,209 8,925

Total 2,566 3,364 8,163 11,373

Source: Electricit du Laos Statistics. 2011.


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systems. Local companies are capable o supplying and installing solar home systems, but the quality oservice needs to be improved.

14. Small hydropower projects.Hydropower installations in the Lao PDR with capacity less than

15 MW are considered small. Although the potential total generation rom small-scale hydropowerprojects is considerable, to date only 11.5 MW has been developed. Projects with total capacity o22.5 MW are currently under construction, and a number o other projects totaling 100.0 MW are atthe easibility study stage. ADB has assisted in providing standardized procedures or tendering smallhydropower projects.

15. Energy efficiency and conservation (EEC) in the Lao PDR is at an early stage. Te governmenthas yet to develop a comprehensive national strategy or EEC. Tere has been some assistance providedby multilateral and bilateral donors, most notably the World Bank Rural Electrification Projectconcerning demand-side management.

16. With the creation o the Institute o Renewable Energy and Promotion (IREP) and Departmento Energy Management (DEM) under the Ministry o Energy and Mines, EEC initiatives are now more

coordinated. Te IREP is preparing a national EEC strategy and draf EEC laws and regulations. TeDEM is preparing requirements concerning monitoring o energy use and labeling or appliances.

4. Organization of the Energy Sector

17. Management o energy-related activities in the Lao PDR is mainly the responsibility o theMinistry o Energy and Mines (MEM), EDL, and Lao Holding State Enterprise (LHSE), with supportrom the Ministry o Finance and the Ministry o Natural Resources and the Environment (MONRE).

18. Te MEM is responsible for energy policy and overall strategic guidance, as well as managementof sector development. In 2011, the MEM, with technical assistance from ADB and other development

partners, undertook a major reorganization so as to better align departmental responsibilities, duties, andauthorities. Te newly organized departments and their tasks are summarized as follows:

(i) Department of Energy Business.Formerly the Department o Energy Promotion andDevelopment, the Department o Energy Businesses (DEB) is in charge o private sectorinvestments in the power sector. Until recently, DEB ocused mainly on supervisingprivate sector investment in large hydropower projects. With the rapid increase in privatesector investment in the Lao PDR power sector, DEB has expanded its supervisory roleto include investment in transmission projects and coal-ired thermal power projects.While DEB is involved in planning, development, and appraisal o project proposals, itsmain role is negotiating project development agreements, concession agreements, andpower purchase agreements. DEBs duties include monitoring project implementation.he department has our divisions: Administrative Division, Contract Division, Project

Development Division, and Project Monitoring Division.(ii) Department of Energy Policy and Planning. he main responsibility o the

Department o Energy Policy and Planning (DEPP) is ormulating national energypolicies and plans. he DEPP collects and analyzes energy consumption data, bothby consumer categories (industry, household, and business) and uel type. It alsoanalyzes energy supply options, based on the Lao PDRs energy resources and importand export considerations. he DEPP prepares energy balance tables, energy demandorecasts, and supply projections. Further, and importantly, the DEPP proposes andimplements pricing policies or all types o energy supply, including or electricity andpetroleum products. Another key responsibility o the DEPP is to ormulate policies and


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Sector Assessment 5

mechanisms to promote development o Lao PDR hydropower resources. In supporto the DEB, DEPP takes part in the review o easibility studies, project developmentagreements, concession agreements, and memoranda o understanding or powerprojects. he department provides assistance to investors and developers interested

in power generation and transmission or domestic consumption and export. Finally,the DEPP is responsible or ensuring sustainable development o the energy sector.In this regard, the DEPP conducts research on the impact o hydropower projects onriver lows, sediment, and ish stocks. It reviews environmental impact assessmentsand the anticipated impact o climate change on the Lao PDRs hydropower potential.he department consists o ive divisions: Administration Division, Energy PolicyDivision, Electricity Generation Planning Division, Power System Planning Division,and Environmental Engineering Division.

(iii) Department of Energy Management. his newly created department is in charge odrating energy-related laws, regulations, guidelines, and technical and saety standards.he DEM also monitors government agencies, state-owned enterprises, and privateoperators to ensure that they operate in accordance with the rules and regulations.Further, the DEM monitors the energy use o enterprises, actories, and buildings andpresents energy awards to the most eicient users. Another important unction o theDEM is inspecting the technical standards o electrical equipment and appliances, eitherdomestically produced or imported. he department issues energy business licenses andapproves or rejects extensions. he DEM also provides technical consultation servicesand inormation on energy administration and management.

(iv) Institute of Renewable Energy Promotion. Equivalent to a department, the IREP ismainly responsible or promoting renewable energy and conservation by implementingthe Renewable Energy Policy and Strategy prepared in 2011. In support o renewableenergy, the IREP is tasked with developing small-scale hydro, biodiesel, and biogasprojects and with preparing a manual on renewable energy production and use.In support o rural electriication, the institute ormulates and implements a ruralelectriication master plan. In support o EEC, the IREP will ormulate regulations,

guidelines, and a users manual on EEC. Its conservation targets include developingmore eicient cooking stoves and implementing a model project on EEC.

19. Electricit du Laos.EDL is a vertically integrated electricity utility and it perorms the unctionso generation, transmission, distribution, and services to all electricity customers served by the nationalgrid in the Lao PDR. EDL also holds shares in our export-oriented HPPs which are in operation anda number o other independent power projects under construction.3Recently, EDL-Generation PublicCompany (EDL-GEN), a public company owned by EDL, was put in charge o EDLs generation unctions.As another indication o the Lao PDRs market opening, in 2012 the government sold about 30% o itsstake in EDL-GEN through an initial public share offering.

20. Lao Holdings State Enterprise.LHSE was established in February 2005 by the Governmento the Lao PDR to acilitate investment in energy generation. LHSE manages the states holdings inhydroelectric power projects built by oreign and private investors. It may also hold shares in non-hydro-generation projects, including transmission projects. Currently, the hydropower projects inwhich LHSE has a stake are Nam Nghiep 1, Nam Ngum 3, Nam Teun 1, Nam Teun 2, Nam Kong 1,Xepian Xe Nam Noi, Xekong 4, Xekong 5, and Hongsa Termal Electric power project. Under thecurrent reorganization, LHSE is put under the MEM. Figure 1 provides an organization chart or theenergy sector showing the key agencies involved.

3 EDL holds 60% o the shares o the Teun Hinboun hydropower projects, 20% o the shares o the Houay Ho and Nam Lik 1/2

hydropower projects, and 25% o the shares o the Nam Ngum 2 hydropower project.


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Figure 1 Organizational Chart

DEB = Department of Energy Business, DEM = Department of Energy Management, DEPP = Department of Energy Policy and Planning, DOM = Department o f Mines,DSM = demand-side management, EDL = Electricit du Laos, EDL-GEN = EDL Generation Public Company, HPP = hydropower plant, IPP = independent powerproducer, IREP = Institute of Renewable Energy Promotion, LHSE = Lao Holding State Enterprise, O&M = operation and maintenance.

Source: Ministry of Energy and Mines.

DEPP

LHSE EDL

EDL-GEN

IREP DEMProvincial

AuthoritiesDOM

IPP project

development

IPP contracts

IPP monitoring

Equity financing

for IPPs

Energy policy

Power system

planning

Environmental

engineering

Generation

Transmission

Distribution

O&M

Finance

Business

DSM

Renewable

energies

development

Energy efficiency

and conservation

Rural electrification

Energy regulation

Technical and

safety standards

Energy monitoring

of state-owned

and private

enterprises

DEB

Rural

electrification

Mini grid

Small HPP

Off-grid

renewable

energy

Energy

mining

Ministry of Energy and Mines

C. Core Sector Issues

21. Until recent reorms, development o the energy sector was held back by the limited capacity othe MEM and poor overall organization o agencies responsible or the sector.

22. Beore the reorganization in 2011, MEM unctions were structured as three departments:Department o Electricity, Department o Energy Promotion and Development, and Department oMines. Te ocus o both the Department o Electricity and Department o Energy Promotion andDevelopment was on the electricity subsector. MEMs broader responsibilities, including policyormulation, planning, development, and efficient use o all orms o energy, were not properly addressed.

23. Te Lao PDR lacks a comprehensive national energy policy, setting out a systematic approachto energy planning, policy ormulation, and sector development. Formulation o a national energy policyis urgently needed and is a priority or the MEM. With a firm national energy policy as a ramework, theMEM will be better placed to undertake its responsibilities or energy planning and strategic guidance.Te MEM is mandated to determine current and uture demand or energy, and to analyze cross-sectorissues such as energy substitution. Systematic planning would lead to efficient utilization and economicdevelopment o all energy resources, beyond the present planning approach which is largely ocused ondevelopment o the Lao PDRs hydropower export potential.

24. Te MEMs capacity to promote renewable energy and energy efficiency is limited. Its staffneed to be able to conduct resource assessments and mapping to (i) better acilitate on-grid and off-gridelectricity generation, (ii) coordinate research and planning concerning pricing policies, and (iii) establishprocedures or streamlined review o private investment proposals. Further, capacity or promotion oenergy demand-side management (DSM), energy auditing, and regulatory interventions (such as energylabeling o appliances) needs to be strengthened.

25. Royalties, taxes, and dividends rom the export o hydropower is an important source o revenueor the government. Foreign and private sector investors are participating extensively in developing the


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Sector Assessment 7

Lao PDRs hydropower export potential. In addition, the government encourages oreign and privatesector investors to develop projects or the supply o electricity to the domestic market. As notedearlier, the DEB is responsible or promoting and overseeing the involvement o oreign and privatesector investors in power generation. Experience in numerous power projects over the past decade

has resulted in the DEB acquiring skills in planning, technical evaluation, and project implementationand monitoring. However, the department remains relatively weak in our critical areas: social andenvironmental assessments, managing arbitration proceedings, financial modeling and analysis, andstrategic leadership.

26. Te Lao PDRs vast hydropower potential, ortuitously located in the center o the GMS,provides the opportunity or it to be a battery or energy-deficit neighboring countries. Pursuit othis opportunity requires optimal development o the countrys hydropower resources, retaining ampleelectricity or rural electrification and harnessing the potential on a sustainable basis. Te energy sector,in short, is very much dominated by interest in hydropower.

1. Electric Power Subsector

a. Current Status

27. Te electric power industry in the Lao PDR consists essentially o EDL, a state-owned utility,and IPPs. EDL owns, manages, and operates generation, transmission, distribution, and supply oelectricity or domestic consumption. In 2010, EDL established a generating companyEDL-GENwhich is in charge o generating power and operating the power plants that belong to EDL. Most IPPsproduce electricity or export to neighboring countries, with small percentages retained or domesticconsumption. Both EDL and IPPs have experienced rapid growth in recent years. For example, theSe Xet 2 plant was commissioned in 2009 and the Nam Song extension was commissioned in 2011,adding 82 MW to EDLs generating capacity. Between 2009 and 2012, three large independent powerplants were commissioned: Nam Teun 2 (1,070 MW), Nam Ngum 2 (615 MW), and the Teun Hinbounextension (200 MW). EDL draws a total o 130 MW rom these plants or the domestic market.

b. Generation

28. EDLs own generating capacity is almost 100% hydro based. Te utility has 10 HPPs (able 4),mostly o small capacity (less than 50 MW). Its largest power plant is Nam Ngum 1 (155 MW),commissioned in 1971. In 2012, EDLs generating capacity totaled 391 MW, producing 2,083 gigawatt-hours (GWh) o electricity. EDLs own generation is insufficient or supplying the domestic market,hence it buys power rom a number o domestic IPPs. Currently, the largest domestic IPP is the NamLik 1/2 HPP, with a capacity o 100 MW, generating 562 GWh per year.

c. Transmission and Distribution

29. Prior to 2009, EDLs operations in the Lao PDRs 17 provinces were divided into ourareasnorthern, central 1, central 2, and southern. Each area had a 115 kilovolt (kV) grid but theywere not interconnected. During the 20092011 period the 115 kV network has been expanded andinterconnected, consolidating to three areas (central 1 and 2 have been combined). In total, there are now2,500 kilometers (km) o 115 kV transmission lines. Te transmission and distribution network includes38 115/22 kV substations with transormer capacity o 1,343 megavolt-amperes (MVA). Te transmissionand transormer capacity are concentrated in the central region, which serves the Vientiane Capital andLuang Prabang.


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30. In addition to EDLs network, the provincial authorities operate 85 mini grids, supplied eitherwith diesel generators or small hydropower stations. Tese acilities primarily serve remote areas not yetin the EDL grid. In addition, EDL imports power rom neighboring countries to help serve these areas;imported power is generally at the medium-voltage level (22 kV and 35 kV). Presently, the Lao PDRhas 13 cross-border connections or importing electricity rom the Peoples Republic o China (three),Tailand (five) and Viet Nam (five). In 2011, EDL imported 747 GWh o electricity in this manner.

d. Power for Export

31. As o 2012, there were our export IPP HPPs with combined capacity o 2,262 MW: HouayHo, 152 MW; Teun Hinboun, 420 MW; Nam Teun 2, 1,075 MW; and Nam Ngum 2, 615 MW(Appendix 3, able 5). In 2012, they produced 9,864 GWh, o which 8,867 GWh was exported toTailand and 997 GWh supplied the domestic market.

32. Each o the our export IPPs has dedicated transmission lines linking the power plants concernedto their designated export markets: (i) Teun Hinboun to Sakhonnakhon (Electricity GeneratingAuthority o Tailand [EGA], Tailand) 230 kV, 176 km; (ii) Houay Ho to Ubon 2 (EGA, Tailand)230 kV, 230 km; (iii) Nam Teun 2 to Roi Et (EGA, Tailand) 500 kV, 300 km; and (iv) Nabong toUdon 3 (EGA, Tailand), 500 kV, 100 km. A new line has also been constructed to export power romXekaman 3 HPP to Viet Nam: Xekaman 3 to Tanh My (Viet Nam Electricity, Viet Nam) 230 kV, 150 km.

2. Subsector Challenges

33. Subsector challenges include meeting domestic demand, expanding generation andtransmission capacity in a sustainable manner, and overcoming financial constraints.

a. Meeting a Fast-Growing Domestic Electricity Demand

34. Domestic demand or electricity is expected to increase rapidly, by 15%18% annually,reflecting the governments policy to accelerate rural electrification and industrial development.

Table 4 Electricit du Laos System Capacity (2012)

Plant Name MW

Nam Dong Hydropower 1.0

Nam Ko Hydropower 1.5

Nam Leuk Hydropower 60.0

Nam Ngay Hydropower 1.2

Nam Mang 3 Hydropower 40.0

Nam Ngum 1 Hydropower 155.0

Selabam Hydropower 5.0

Se Xet 1 Hydropower 45.0

Se Xet 2 Hydropower 76.0

Nam Song extension 6.0

Total 390.7

MW = megawatts.

Source: Electricit du Laos Statistics. 2011.


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Sector Assessment 9

Currently, electricity consumption in the Lao PDR is very low (2,400 GWh o energy consumed and528 MW peak load in 2011). Households account or about 40% o electricity consumption whilecommercial and industrial enterprises account or almost 50%.

35. Te governments rural electrification program is targeting provision o electricity servicesto 90% o households by 2020. Tis in itsel will require a substantial increase in generation andtransmission capacity. More significant, though, will be the impact on demand as a result o theplanned expansion o mining activities (especially bauxite mining and processing), cement production,construction o a railway, and the opening o six special economic zones. By 2020, domestic demandor power is projected to reach 2,670 MW (3,570 MW i bauxite processing is included), comparedwith 584 MW today. Tis represents a ourold to sixold increase in domestic demand (Figure 2).Further compounding the challenge o meeting the increase in domestic demand, the supply sourcesare largely in the north and south while the growth in demand will be most rapid in the central region.Heavy investment in transmission and distribution systems will need to accompany major investmentsin power generation.

Figure 2 Domestic Electricity Demand Forecast, 20102020

SLACO = Sino-Lao Aluminum Corporation.

Source: ADB.

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Megawatts

Peak demand

Excluding SLACO Including SLACO

b. Investment Requirements

i. Generation Expansion

36. EDLs Power Development Plan or meeting the domestic demand projections includes relianceon three sources o supply: (i) expansion o EDLs generating capacity, (ii) increased purchases romexport IPPs, and (iii) increased purchases rom small power producers (SPPs) and domestic IPPs. Duringthe period to 2016, EDL plans to construct 300 MW o new capacity in the northern region, 114 MW in


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the central region, and 170 MW in the southern region. Even i this impressive expansion plan is realized,EDL will not be able to ully meet the expected increase in domestic demand; it will have to purchasepower rom SPPs and IPPs. EDL is investing in domestic independent power plants, which are underconstruction, and will receive electricity rom these plants, e.g., Nam Ngum 5 (10%), Nam Nghiep 2

(10%), and Xekaman 3 (10%). I a smelter or aluminum production goes ahead, EDL purchases romSPPs and IPPs in the southern region will need to be significantly higher.

ii. Transmission and Distribution Network Development

37. In parallel to increasing its generating capacity, EDL needs to considerably expand itstransmission and distribution network. EDL will develop most o the additional transmission linesand substations required, and all o the distribution acilities. EDL is responsible or delivering powerto final domestic consumers regardless o whether it generates the power or purchases it rom SPPsand/or IPPs. Foreign and private sector investors already play a major role in both generation andtransmission in the Lao PDR, and are expected to make a major contribution to expansion o thetransmission network. It is estimated that between 2011 and 2015 about 5,500 km o transmission linewill be constructed, including 3,922 km to be constructed by EDL and 1,567 km by private developers.

Another 1,515 km will be added to the transmission network (552 km by EDL and 963 km by privatedevelopers) during 20162020. In total, an estimated 12,250 circuit-km o additional transmissionlines will be installed by 2020 (Appendix 3, ables A3.6aA3.6c). A similar level o construction isrequired or substations, including substations to transorm power rom the 115 kV level down to22 kV and then to the 400 volt level.

3. Subsector Constraints

38. Clearly, the above rapid expansion o power generation, transmission, and distributionwill be very demanding on EDLs staff and financial resources. While EDLs technical capability hasimproved quite strongly over the past decade or more, it is still not at the level needed to cope withsuch expansion. In turn, the financial requirements needed are huge and are well beyond EDLs reach.

Tese two constraints will have to be overcome i the Lao PDR is to achieve its electrification andindustrialization goals.

a. Financial Resources Constraints

39. It is estimated that EDL will need to mobilize $1.45 billion or increased generation and$2.1 billion or expansion o the transmission system, including or substations (able 5).

Table 5 Investment Requirement($ million)

Generation Amount

EDL 1,451

Independent power producer (for domestic consumption) 8,370

Independent power producer (for export) 16,119

Subtotal 25,940

Transmission and distribution 2,134

Total 28,074

EDL = Electricit du Laos.

Source: ADB.


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Sector Assessment 11

Table 6 Revenue from Power Export (Example of Nam Theun 2 Project)($ million)

Item 2010 2011 2012Royalties 9.02 11.66 14.91

Dividends 14.67 15.50

Total 9.02 26.33 30.41

Source: Nam Theun 2 Power Company.

40. EDLs sources o revenue are rom the sale o electricity and dividends rom the IPPs in whichEDL holds shares (at present our HPPs).4For many years, however, the electricity tariff has been set ata low level, seriously undermining EDLs financial position, and arrears by some government agencieshave urther weakened EDLs financial situation. ADB and the World Bank advisory consultations have

led to the government deciding to increase electricity tariffs to cover production and transmission anddistribution costs. According to the governments decision o March 2012, electricity tariffs will increaseon average by 2% or more annually. For example, high electricity use residential consumers will payKN1,019 per kWh in 2017 compared with KN773 per kWh in 2011an increase o more than 30%.

b. Meeting Demand for Power Export

41. Power export to neighboring countries is an important policy objective o the Lao energy sector.Te Lao PDR has signed memoranda o understanding with Tailand and Viet Nam, under which theLao PDR will export 7,000 MW o hydropower to Tailand and 3,000 MW to Viet Nam by 2020. Sincethe commissioning o the Teun Hinboun, Nam Teun 2, and Nam Ngum 2 HPPs, power exports havebecome a vital source o income or the Lao PDR.

42. Revenues generated rom electricity exports are in the orm o royalties, taxes, and dividends.Tese revenues help the government improve unding or education, health, and other social servicescritical to poverty reduction. In the ramework o the Nam Teun 2 project, the government, withassistance rom ADB and the World Bank, designed a revenue management scheme under whichrevenues received rom the project will be channeled to eligible rural development and poverty reductionprograms. Te scheme includes a set o eligibility criteria, procedures or appraisal, and approval oprograms to be unded by revenues rom the project. Since commercial operation started in 2010, theproject has been an important source o revenue or the government (able 6).

43. Tere are, however, challenges associated with large hydropower projects that have to beaddressed:

(i) ensuring that negative social and environmental impacts are properly assessed andminimized,

(ii) balancing domestic consumption needs and export opportunities,

(iii) optimizing trade-os between short-term beneits (e.g., dividends rom equityparticipation in IPPs) and longer-term beneits (e.g., uniied transmission network withinterconnection to GMS countries), and

(iv) mobilizing and managing inancial resources in a manner that avoids damage to othercomponents o the economy (e.g., exchange rate eects on agriculture and other exports).

4 EDL receives electricity equivalent o 60 MW rom Teun Hinboun and 20 MW rom Nam Lik 1/2. For the rest o its share

holdings, EDL receives cash dividends.


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44. As described earlier, IPPs build and own dedicated high-voltage transmission lines directlyconnected to demand centers outside the country but not connected to the Lao PDR network. Many morelines are being planned by investors to serve electricity exports to Tailand and Viet Nam, including theHongsaMae Moh (EGA Tailand) transmission line. Tese dedicated lines cross the Lao countryside

without providing service to any customers or towns en route, and do not assist in improving the nationalgrid. Te IPPs and importers ofen use reliability and stability concerns as reasons or not connectingto the Lao national grid. Tese concerns can and will be effectively addressed in the longer term byimproving the stability and reliability o the Lao network, as well as by implementing binding grid codesand technical perormance standards among GMS countries.


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13

II Sector Strategy

A. Government Strategy, Policy, and Plans

45. As noted in the background context or this report, the Seventh NSEDP includes the ollowingobjectives: poverty eradication; sustainable economic growth and rural development; achievement othe Millennium Development Goals by 2015; graduation rom least-developed country status by 2020;and sustainable economic, social, and environmental development. Energy efficiency is emphasized,including through regional integration, to help optimize energy generation and use among GMScountries. Development o the energy sector will ocus on the twin goals o meeting domestic demandand realizing the Lao PDRs electricity export potential. Investment in hydropower and other renewableenergy sources will be a priority.

46. Te NSEDP sets specific targets or the energy sector, including eight new hydropower stationswith an installed capacity o 2,862 MW (15,321 GWh annual production); expansion o the on-gridand off-grid transmission networks to reach 80% o households by 2015; integration o the powergrids between the northern, central, and southern parts o the country; and construction o a 500 kVtransmission line system with neighboring countries, especially Tailand and Viet Nam.

47. Te NSEDP also includes measures necessary to achieve the specified targets: improving thelegal and regulatory ramework, streamlining coordination procedures among government agencies,developing a strategic orward investment plan or the sector, strengthening human resources in the

Lao PDRs energy agencies, and mobilizing the necessary financial resources. While EDL has prepared apower development plan, ormulation o a national energy policy is still a work in progress.

B. ADB Sector Support Program and Experience

48. Te Asian Development Banks (ADB) country partnership strategy (CPS) 20122016 or theLao PDR is designed to promote pro-poor sustainable growth, oster inclusive social development, andsupport good governance. Key themes to be addressed through ADB activities include capacity building,empowering women, promoting private sector development, improving environmental management,and seeking greater synergies between regional and national programs. Te CPS indicates that ADBassistance will ocus on (i) policy and institutional reorm, (ii) strategic investments in priority sectors,(iii) improved public expenditure management, and (iv) a national sector-specific approach rather than aregional geographic approach.

49. Te CPS points out that the Lao PDR is well endowed with a vast quantity of economically viablehydropower resources and has already established a strong GMS presence in the export of electricity.Forging suitable publicprivate partnerships (PPPs) to develop the countrys vast hydropower resourcesin an environmentally, socially, and fiscally responsible manner is central to the countrys long-termdevelopment.


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50. ADB experience.Trough its long-term engagement, ADB has made substantial contributionsto development o the Lao PDRs energy sector. ADBs total assistance rom 1971 to 2012 amountedto $602 million in loans and grants5 and almost $15 million in technical assistance (Appendix 3,ables A3.7bA3.7c). Between 2000 and 2011, ADB approved support or our major energy projects:

(i) Nam Teun 2 HPP, (ii) Northern Area Rural Power Distribution project, (iii) GMSNorthern Powerransmission project, and (iv) GMS Nam Ngum 3 hydropower project. 6ADB support to the Lao PDRenergy sector has ocused mainly on the ollowing:

(i) Helping the Lao PDR increase its generation capacity. his assisted the country inmeeting increasing demand or electricity by households and industry. In so doing,ADB emphasized development o hydropower in an environmentally sustainablemanner through PPPs. Notable examples o ADBs role in promoting PPPs are theinancing arrangements or supporting the heun Hinboun, Nam heun 2, and NamNgum 3 hydroelectric projects,7whereby ADB provided both public sector loans to thegovernment and private sector loans to the project companies. ADB inancing providedsecurity to private investors while ensuring best practices in social and environmentalmatters. otal loans to the energy sector, including or PPPs, was $497 million by the endo 2012.

(ii) Helping the Lao PDR significantly expand its transmission and distributionnetwork. his directly contributes to achieving the rural electriication objectives othe government. ADB projects ocused on providing electricity access to the rural poorthrough its Power-to-Poor program.8otal loans and grants or this dimension o ADBssupport amounted to $84 million.

(iii) Enhancing the capacity of EDLs staff in technical and procurement matters. hisincluded training in social saeguard policies (e.g., ADB and World Bank policies) andstrengthening capacity o MEM and MONRE sta in monitoring the implementation osocial and environmental protection programs.

51. ADB support in the Lao PDR will continue to ocus on stimulating economic growth and

achieving poverty eradication. ADB will continue supporting the governments initiatives to (i) increasehousehold access to electricity, (ii) build a national unified transmission and distribution networkwith cross-border interconnections, and (iii) develop hydropower in an environmentally and sociallysustainable manner.

52. ADB support will be provided primarily through the GMS Program of Economic Development,which will work with ADBs Private Sector Operations Department to promote opportunities for PPPs forinvesting in the energy sector. ADB will also draw on its new financial instruments, including partial riskand other forms of guarantees, to help improve the availability and terms of financing for private-sector-ledpower generation projects.

53. Under the GMS program, ADB will continue to acilitate cross-border grid interconnectionsand power trade with countries bordering the Lao PDR. It will also contribute to strengthening and

5 Tis includes private sector loans to the Nam Teun 2 project ($50 million) and Nam Ngum 3 project ($200 million).

6 ADB. 2003. Loan to the Lao Peoples Democratic Republic (PDR) for the Northern Area Rural Power Distribution Project. Manila

(Loan 2005); ADB. 2005. Loan to the Lao PDR for the Greater Mekong Subregion (GMS) Nam Teun 2 Hydropower Development

Project.Manila (Loan 2162); ADB. 2010. Grant to the Lao PDR for the GMS Northern Power ransmission Project.Manila (Grant

No. 0195); ADB. 2011. Loan to the Lao PDR for the Nam Ngum 3 Hydropower Project. Manila (Loan 2818/2819).

7 ADB. 1994. Loan to Lao PDR for the Teun-Hinboun Hydropower Project. Manila (L1329); ADB. 2005. Loan to the Lao PDR

for the Greater Mekong Subregion (GMS) Nam Teun 2 Hydropower Development Project.Manila (Loan 2162); ADB. 2011. Loan

to the Lao PDR for the Nam Ngum 3 Hydropower Project. Manila (Loan 2818/2819).

8 ADB. 2010. Grant to the Lao PDR for the GMS Northern Power ransmission Project.Manila (Grant No. 0195).


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Sector Strategy 15

expanding the national transmission grid. Priority will be accorded to high-voltage transmissionacilities to help the Lao PDR build a nationally unified transmission and distribution network thatis technically suitable or interconnection with GMS countries. ADB will also support promotion orenewable energy and energy efficiency through regional technical assistance projects. ADB expects that

its activities will lead to steady improvement in the national electrification ratio and increased electricityexports, thereby contributing to the governments revenue base and ability to provide services critical topoverty reduction.

C. Other Development Partner Support

54. Other major external supporters o the Lao PDRs energy sector are the World Bank,the Japan International Cooperation Agency (JICA), and the Government o Finland. Additionaldevelopment partners include the Australian Agency or International Development, KW o Germany,the Peoples Republic o China, the Republic o Korea, and the Swedish International DevelopmentCooperation Agency.

55. Te World Bank is engaged in technical assistance and in financing energy projects. TeWorld Banks technical assistance is ocused on tariff reorm and energy efficiency. Investment supportis ocused on energy efficiency and loss reduction, and rural electrification. Currently, the ollowingprograms are active:

(i) Strengthening capacity building for the hydropower and mining sectors.A trainingcenter or the hydropower and mining sectors will be established, supervised by theMEM. raining will include mapping o resource areas and understanding o theregulatory ramework and procedures.

(ii) Electricity tariff study.he study is an update o a previous study which reviews thetari structure, tari levels, and adherence to covenants. It also assesses the inancialresources needed to realize the ambitious investment plans or the sector.

(iii) Rural electrification.Phases 1 and 2 o the World Banks rural electriication projectwere implemented during 20052012. he project was designed to both increase accessto electricity or rural households in targeted provinces and improve the inancialperormance o the power sector. he project extends electriication to about 42,000rural households through connection to EDLs grid and provides electriication to about10,000 households through o-grid technologies.

(iv) Load dispatch center.he World Bank is providing technical assistance and inancialassistance to establish three load dispatch centers (north, central, and south); the centralregions dispatch center will also unction as the national load dispatch center. Financingsupplementary to that provided by the World Bank is being negotiated with the ChinaExportImport Bank.

(v) Demand-side management.he World Bank is assisting EDL to continue DSM initiatives.

Initially, 10 ministries (buildings) will be selected and energy audits will be conducted.

56. JICAs ocus areas o assistance have included planning and easibility studies o HPPs andinvestment support or power transmission and distribution.9 o help oster industrialization andpoverty reduction, JICAs assistance will include (i) expanding power acilities including transmissionnetworks, (ii) promoting rural electrification, and (iii) supporting institution building and humanresource development.

9 All projects unded by Japan Bank or International Cooperation, which was merged with JICA, are listed and identified in this

report as JICA projects.


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57. JICA only supports those initiatives that improve services to customers in the Lao PDR; JICAs

assistance is, thereore, limited to projects and programs executed by EDL and excludes projects or theexport o electricity.

58. Te ocus or Government o Finland support is renewable energy. A project titled Preparationo Renewable Energy Strategy and Capacity Building has recently been completed. Support also includedcapacity building or energy efficiency.

59. Tis review o assistance by the Lao PDRs development partners (Appendix 2, able 2.2)indicates that the assistance has been in line with the policies and plans o the government to increaseelectrification, improve transmission, urther interconnect the regional grids, increase hydropowergenerating capacity, and strengthen institutional capacity. Greater support, however, is needed in theollowing areas: small hydropower development and engagement o the private sector in such efforts;capacity building in national energy planning, policy analysis, and inormation management; and energy

efficiency, including DSM. ADB will consider undertaking new activities in the area o energy planning,energy efficiency, and associated capacity building to complement the work being done by the WorldBank. Similarly, on renewable energy development, ADB will complement the work being initiated by theGovernment o Finland.

D. ADB Self-Evaluation

60. Self-evaluation.A sector assistance program evaluation report conducted in 201010 assessedADBs assistance to the Lao PDR energy sector successful, based on relevance, efficiency, effectiveness,sustainability, development impact, and strategic positioning.11ADB interventions have been consistentwith government policies, programs, and priorities and have enabled positive outcomes at the national

level (e.g., boosting oreign exchange earnings) and the local level (e.g., increasing electricity access).

61. Te sector assistance program evaluation report or the energy sector recommended theollowing:

(i) ADBs public and private sector operations should continue to provide inancialassistance, particularly or large hydropower projects meeting environmental and socialsaeguards and or grid expansion and rural electriication projects.

10 ADB. 2010. Energy Sector in Lao Peoples Democratic Republic Program Evaluation Report. Manila.

11 A weighted score o 2.1 was assessed out o a total o 3.0. A score o between 1.6 and less than 2.7 is rated successful.

Box 1 The Lao Peoples Democratic Republic Demand-Side Management andEnergy Efficiency Program

The Lao Peoples Democratic Republic demand-side management and energy efficiency program (DSM/EE) was supportedunder the World Banks Rural Electrification Project Phase 1. Implementation of DSM/EE Phase 1A commenced in February

2007 and was completed in September 2008. This phase included establishment and building capacity of a DSM cell withinElectricit du Laos (EDL), focusing on public sector consumption (which accounts for most of EDLs current billing arrears),developing an energy use database, conducting energy audits in selected public buildings, implementing energy efficiencymeasures in pilot sites, launching a public awareness campaign, and developing a results monitoring program for the DSM/EEcomponent of the Rural Electrification Project Phase 1.

DSM/EE Phase 1B included revising the DSM/EE program plan for 20082012, preparing career development and capacitybuilding plans for the DSM cell staff and energy coordinators, implementing energy efficiency measures for the initial 50 auditedbuildings, implementing an air-conditioner maintenance program, conducting detailed audits in selected hospitals, expandingthe energy database to include all public sector accounts, designing residential sector efficient lighting programs, and conductingappliance saturation surveys to facilitate an appliance energy standards and labeling program.


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Sector Strategy 17

(ii) ADBs capacity building interventions should ocus on increasing electricity access,improving operational and inancial eiciency o the power utility, and bettermanagement o large hydropower projects.

(iii) ADB should conduct policy dialog in support o ormulating a comprehensive energy

policy and the integration o power systems in the GMS.

62. Lessons learned.Based on the above, the ollowing lessons are relevant to the energy sector:

(i) One-o and/or stand-alone capacity building interventions are ineective in addressingenvironmental and social concerns linked to the energy sector. A continuous streamo interventions is necessary to improve the capability o MONRE, including at theprovincial and local levels, to address environmental and social impact analysis andmanagement capabilities. ADBs capacity building interventions should enable MONREto certiy only well-prepared environmental and social studies, ascertain that theindings rom stakeholder consultations are properly taken into account in the proposedenvironmental and social impact mitigation plan, assure that the hydropower developersallocate suicient inancial resources to manage environmental and social risks, and

support inputs to the MEM in negotiating the concession agreements.

Environmental and social interventions regarding energy projects need to be careullydesigned, taking into account the large number o issues, stakeholders, and interestgroups and the extensive geographic area involved. Compliance with environmentaland social saeguards may be more sustainable i the responsibilities are sharedamong the government, developer, and sponsor according to their capabilities andcomparative advantage. ADB monitoring o environmental and social implementationis critical to ascertaining compliance o hydropower projects with environmental andsocial saeguards. ADB experience with the heun Hinboun and Nam heun 2 HPPsdemonstrates that, even ater loan closure, environmental and social saeguards mustcontinue to be closely monitored and enorced. he Nam heun 2 concession agreementmakes speciic provision or this.

(ii) Aordability o electricity taris is critical to achieving the governments goals o ruralelectriication and 90% electricity access. EDL needs to pursue measures that will helpto reduce the cost o supply (and hence mitigate the need to raise taris), includingreducing technical and nontechnical transmission and distribution losses, more strictlymanaging accounts receivable, implementing DSM measures, and extending credit orpayment o service connection costs.

E. ADB Sector Forward Strategy

1. Knowledge Gaps

63. Tere is a significant knowledge gap between the current capacity o the energy sector and itsenvisaged role as a major spur to socioeconomic development in the Lao PDR. Tis gap is illustrated bythe lack o a national energy policy ramework, without which it is very difficult to reconcile consumer,producer, and market needs and orces.

64. Te knowledge gap is urther illustrated by limitations in the governments capacity to keeppace with IPP developments, and in balancing long-term objectives and short-term perspectives (e.g.,increased electricity exports independent o development o the national transmission network).

65. ADBs orward strategy in support o the Lao PDR energy sector is based on prioritizationo the list o desired actions, interventions, and projects. able A3.7a in Appendix 3 gives a list o


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Sector Strategy 19

Te Lao PDR has reached the stage where development o a national high-voltage network is essential.Planned activities include development o the Nabong 500 kV substation and transmission acilityin the central region, and the Ban Hatxan Pleiku 500 kV transmission line in the southern region.Financing o hydropower projects with publicprivate participation will be continued through ADBs

Private Sector Operations Department.

ii. Nonlending Products

70. Promoting renewable energy and energy efficiency.ADB technical assistance or renewableenergy and energy efficiency will ocus on support or capacity building in the MEM. Specific areas otechnical assistance will include the ollowing:

(i) Renewable energy:

(a) support or the comprehensive renewable energy strategy and action plan;

(b) investment support or small hydropower projects;

(c) a mechanism to enable local investors to develop small HPPs and supply the grid

(or mini grids), using a yet-to-be-developed standardized agreement and pricingpolicy; and

(d) o-grid projects.

(ii) Energy eiciency:

(a) promotion o o-grid projects;

(b) support or a comprehensive energy eiciency strategy and action plan;

(c) continued implementation o energy eiciency initiatives or government buildings;

(d) capacity to conduct energy audits and ormulate projects;

(e) energy eiciency standards and labeling; and

() legislation to promote energy eiciency.

71. GMS regional cooperation ocuses on developing the regional electricity trade in anenvironmentally sustainable manner. Tis is to make use o the diverse regional energy resources andoptimize power supply in meeting varying demand profiles across the subregion. ADB strongly supportsregional power trade as an important element o its emphasis on regional economic cooperation. Tenext development in this regard is establishment o a regional power coordination center to representthe GMS countries on coordination matters, prepare technical standards and grid codes or intercountryconnections, and enhance the regulatory ramework o GMS countries or advancement o a regionalpower market.

b. Resource Needs

i. Lending Products

72. Te government plans to tender 12 HPPs over the period until 2020, including Nam Ngum 3,Nam Nghiep 1, Nam Nghiep 2, Nam Teun 1, Xepian Xenamnoi, Xekaman 4, and the Xekong HPP.Te total investment required or these projects is estimated to be $4 billion. Te ADB Private SectorOperations Department will consider providing loans to these HPPs, subject to their compliance withADB technical economic and financial requirements and, very importantly, ADBs Saeguard PolicyStatement (2009). It is estimated that the total financing support in this sector amounts to $400 millionor the Nam Nghiep 1 and Xepian Xe Nam Noi projects.


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73. A number o high-voltage transmission lines are planned or exporting electricity to Tailandand Viet Nam. ADB will consider providing loans to the government or construction o thesetransmission lines and incorporating them with the EDL network. It is estimated that about $300 millionwill be needed to finance development o the Nabong 500 kV substation and transmission acility in the

central region and the Ban Hatxan Pleiku 500 kV transmission line in the southern region.

ii. Nonlending Products

74. It is proposed that $3 million will be provided in technical assistance in support o EEC-relatedcapacity building and implementing the renewable energy policy and strategy, including comprehensiveresource assessment; promotion o applications o solar energy; and small and mini hydro, especially oroff-grid rural uses.

75. Risk and assumptions.Te undamental assumption or ADBs proposed strategy o support orthe energy sector is that the government will implement the NSEDP, 20112016, which includes targetsor provision o reliable and sustainable energy or domestic and export markets. Since a comprehensivenational energy policy is still under preparation, the Power Development Plan or 20102030 serves as

the basis or ADBs energy strategy or the Lao PDR.

76. As highlighted in this report, there are many challenges that must be addressed in endeavoringto achieve the governments targets or the energy sector. Financing is a key challenge and one orwhich ADB can make an important contributionthrough leveraging both public and private sectorunding. It is assumed that other development partners will continue to support the energy sector in acollaborative manner with ADB.

77. ADBs proposed strategy o support or the Lao PDR energy sector is subject to three mainrisks. First, the Lao PDR has a limited capability to manage energy projects. Skilled human resourcesare required to actively participate in project identification and development in assessing social andenvironmental impacts, project appraisal, and project implementation and management. Second, thereis the risk that the influx o private developers looking or business in the Lao PDR will increase the

risk that government agencies will make the wrong choiceschoosing easy projects at the expense oenvironmental protection and social impact mitigation. Tird, and related to the first two risks, delaysin securing IPPs would impact negatively on the governments export target. For the ADB program, thiswould affect support or a unified national transmission network, as well as or high-voltage transmissioninterconnection projects.

78. Te proposed ADB strategy in support o the Lao PDR energy sector integrates risk mitigation.Te importance o capacity building or MEM and EDL staff is emphasized. With appropriate training,staff o the MEM and EDL will be better able to appraise and approve the most technically sound andeconomically efficient project proposals. In the same manner, well-trained and experienced staff o keygovernment agencies (e.g., the MEM and MONRE) will be able to properly prioritize power projects andensure that project developers apply the best practices in meeting social and environmental saeguards.Te proposed ADB strategy includes nonlending program support or capacity building to mitigate thefirst and second risks. Te third risk will be mitigated through synchronization o project implementation.Te ADB strategy includes support in partnership with both the public sector (or transmission networkprojects) and the private sector (or hydropower projects).

79. In summary, the proposed ADB strategy in support o the Lao PDR energy sector is based onthe needs o the country as identified by the government. While there are some risks associated withimplementation o the strategy, appropriate risk mitigation measures have been incorporated.


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21

III Sector Road Map and

Results Framework

Sector Results Framework (Energy Sector, 20122017)

Country Sector Outcomes Country Sector Outputs ADB Sector Operations

Outcomes

with ADB

Contribution

Indicators with

Targets and

Baselines

Sector Outputs

with ADB

Contribution

Indicators with

Incremental

Targets

Planned and

Ongoing ADB

Interventions

Main Outputs

Expected from

ADB Interventions

Improved physicalinfrastructure

and enhancedinstitutional,regulatory, andhuman resourcecapacity to providereliable andsustainable energy/electricity supply

National transmissionand distribution

network unified withhigh-voltage systemby 2020

Capacity for effectiveenergy policyformulation andplanning in placeby 2017

Effective institutionalframeworkestablished by 2017for coordinating theprocess for tendering

hydropower projectsfor export; focuson improving thecapacity of the DEBand MONRE

Renewable energyand EEC frameworksby 2017

Increased gridconnection

includinghigh-voltagenetwork and ruralelectrification

Institutions andinstitutionalcapacityestablished forrenewable energyand energyefficiency andconservation

Improved

coordinationand approval ofhydropower forexport betweenDEB and Ministryof Energy andMines and othergovernmentagencies

Increased useof renewableenergy andpractice of EEC

90% householdshaving access to

grid electricity by2020; 400 kmof 115 kV and100 km of 500 kVtransmission linesbuilt by 2020

A divisionin charge ofrenewable energydevelopment underthe Department ofElectricity; resourceand technicalassessment forsmall hydro,biomass, solar, andwind power projects

National EECstrategy and actionplan prepared; fullimplementation ofenergy efficiencyinitiatives forgovernmentbuildings

Detailed householdand industry energyconsumptionsurveys and audits

Planned key

activity areas

Transmission anddistribution networkincluding high voltage(85% of funds)

Capacity building forrenewable energy and EEC(15% of funds)

Pipeline projects with

estimated amounts

Nam Ngum 3 hydroproject(SERD: $115.4 million;PSOD: $400 million)

Nam Nghiep 1 hydroproject ($200 million)

Na Bong Substation andTransmission Facilities($130 million)

Ban Hatxan Pleiku500 kV TransmissionProject ($130 million)

Ongoing projects with

approved amounts

Northern PowerTransmission Project($20 million and$37 million cofinancing)

Small and minihydropower for electricitysupply in rural areas

Planned key

activity areas

About 400 kmtransmission anddistribution line builtincluding 100 km of500 kV lines

National policy onrenewable energy

National policy on EEC

Pipeline projects

440 MW hydropowerstation built

270 MW hydropower

station built2,000 megavolt-ampere substationbuilt

27 km 500 kV lineacquired

70 km 500 kV linebuilt

Electricit du Laosable to operatehigh-voltagesubstations

Ongoing projects

400 km of 115 kVline built

16,000 householdsprovided with accessto grid electricity

ADB = Asian Development Bank, DEB = Department of Energy Businesses, EEC = energy efficiency and conservation, km = kilometer, kV = kilovolt, MONRE = Ministryof Natural Resources and the Environment, MW = megawatts, PSOD = Private Sector Operations Department, SERD = Southeast Asia Department.

Source: ADB.


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22

Appendix 1

Sector Problem Analysis

Source: ADB.

Inadequate infrastructure, regulatory, and human capacity to meetsector development needs

Nationalimpacts

Socioeconomic development targets such as rural electrification and graduation fromleast-developed country status not met in time

Sectorimpacts

Maincauses

Coreproblem

Deficientoutputs

Unreliable and inefficientpower supply for industrialization

and rural electrification

Lack of national planningcapability for long-term

sector development

Comprehensiveenergy policydoes not exist

Plans for energyother than electricity

do not exist

Weak promotion ofrenewable energy andenergy conservation

Unsustainable utilizationof energy resources

(hydro and renewable)

Insufficient Ministryof Energy and Minescapacity, knowledge,

and strategy for utilizinghydro potential for export

in sustainable manner

Department of EnergyBusinesses (DEB) handlestendering of independent

power producers (IPPs) caseby case without planning

and standardization

Ineffective coordinationbetween DEB and the

Ministry of NaturalResources and the

Environment in managingsocial and environmental

impacts of IPPs

Electricit du Laos (EDL)human resource, technical,

and financial capability

lack system expansion andintegration requirements

EDLs transmissionnetworks not integrated

EDL develops and managesonly 115 kilovolt and below

network. High-voltagetransmission lines belong to

private IPPs

Electricity tariff does notfully recover costs


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23

Appendix 2

Sector Issues, Government Actions,and ADB Support

Table A2.1 Links between Sector Issues, Government Plan, Gaps, andADB Summary Assessment of Plan Feasibility

Core Sector/

Subsector Issues

(Constraints and Problems) Government Plan

Policy, Institutional,

Investment Action, and

Resource Gap Needs

Remarks

(On Plan Relevance and

Feasibility, Implications)

Lack of national planningcapability and institution toundertake long-term sectordevelopment

Preparation of acomprehensive nationalenergy policy withassistance of JICA

Regular update ofPower Development Plan

Government reorganizedDepartment of Electricity

Department of Energy Policyand Planning established,in charge of policyformulation

DEPP needs to establisha standardized procedurefor energy policy makingand PDP

Establishment of DEPP is astep in the right direction

Assigning DEPPresponsibilities for nationalenergy policy and powerdevelopment planning issustainable

Insufficient MEM capacityand strategy for developinghydro potential for export ina sustainable manner

No clear plan to improvethe situation

DEB and MEM still appraise

projects on case-by-casebasis without standardizedset of criteria and procedures

Often developers identifypossible projects and makeproposals to DEB

Need to establishstandardized set of criteria forlarge IPP hydropower projects

Financing need is large

EDLs human resource andtechnical and financialcapability lack systemexpansion and integrationrequirements

Reorganize EDL towardunbundling (EDL-GENcreated)

Mobilize financing fromdiversified sourcesleveraging development

partner support

Educate staff throughproject implementation

Need support for sectorreorganization

Need support in electricitypricing mechanism

Need financing support

(loans and grants)

Government program forenhancement of EDL financialand technical capability isrelevant and feasible

DEB = Department of Energy Businesses, DEPP = Department of Energy Policy and Planning, EDL = Electricit du Laos, EDL-GEN = EDLGeneration Public Company, IPP = independent power producer, JICA = Japan International Cooperation Agency, MEM = Ministry of Energy andMines, PDP = power development plan.

Source: ADB.


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24 Appendix 2

Table A2.2 Summary of Sector Issues, Government Action, Development Partner and ADB Support,and Key Lessons

Core Issue and Government Action Other Development Partner Support ADB Support

Need to increase EDL generating capacity to

meet fast-growing demand

Government and EDL to implement PowerDevelopment Plan 20102030

Development partners (e.g., World Bank and JICA)

provide support for small off-grid hydro generatingcapacity for remote areas

Bilateral partners fund some hydropower projects

ADB financed a number of

hydropower generating plants

Need to develop hydropower for export togenerate revenue for country development

Government to call on diversified financing andtechnical sources

Development partners participate in financing a numberof large hydropower projects

ADB provides support for selectedlarge hydropower projects andleads the assessment, mitigation,and monitoring of social andenvironmental impacts

Need to build a unified national transmissionnetwork and strong distribution system coveringthe entire country for universal electrification

Government is implementing ruralelectrification programs

Development of 115 kV and lower voltage level receivedstrong support from many development partners

The World Bank provided technical assistance and

funding for rural electrification in the south and nationaldispatching centers

JICA supports rural electrification and integration of115 kV systems

ADB strongly supported nationalelectrification by providingtwo consecutive loans forconstructing 115 kV transmission

and distribution systems innorthern region

ADB support will continue upongovernment request

Need to develop high-voltage transmissionsystem for interconnection with neighboringcountries for integration within GMS

Government is working with ADB in buildingup technical know-how, and financinginterconnections with Thailand and Viet Nam

None ADB to finance high-voltagetransmission line projects:the NabongUdon Thaniinterconnection and the BanHatxanPleiku interconnection

Need to regularly conduct and update power

master planning

Government established the Department ofEnergy Planning and Policy under MEM

JICA provided technical assistance and studies on power

master plan

Not yet

Need to regularly update National Energy Policy Policy formulation supported by JICA and the World Bank ADB plans to support

Need for institutional and organizational capacityimprovement of energy and power sector

World Bank and JICA strong support In plan

Need to establish appropriate electricity pricingmechanism to sustain power sector expansionand encourage electricity savings

Government established the Department ofEnergy Planning and Policy and called on

development partners to support

The World Bank provided technical assistance forelectricity tariff study, resulting in tariff reform

Not yet

Need to establish a national policy frameworkfor EEC

None ADB provided a support to studythe framework

Demand-side management Support by the World Bank

Need to establish a national policy framework fordevelopment and promotion of renewable energy

Support by the Government of Finland ADB plans to support

ADB = Asian Development Bank, EEC = energy efficiency and conservation, EDL = Electricit du Laos, DEPP = Department of Energy Policy and Planning,GMS = Greater Mekong Subregion, JICA = Japan International Cooperation Agency, kV = kilovolt, MEM = Ministry of Energy and Mines.

Source: ADB.


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26 Appendix 3

Table A3.2 Hydropower Projects with Project Development Agreements

No. Project Name

Location

(Province)

Installed

Capacity

(MW) COD Investor Market

1 Don SahongHydropower (Mekong)

Champasack 240 TBD (i) EDL (Lao PDR) 20% Lao PDR/ Thailand(ii) Mega First (Malaysia) 80%

2 Nam BengHydropower

Oudomxay 34 2015 China National Electrical EquipmentCorporation (PRC)

Lao PDR

3 Nam Kong 1Hydropower

Attapeu 75 TBD (i) LHSE (Lao PDR) 20% Thailand

(ii) Region Oil (Russia) 80%

4 Nam Kong 2Hydropower

Attapeu 66 2015 Hoang Anh Gia Lai Lao PDR

5 Nam Lik 1Hydropower

Vientiane 60 2015 (i) EDL (Lao PDR) 20% Lao PDR

(ii) Hydro Engineering Company(Thailand) 80%

6 Nam Mang 1Hydropower Bolikhamxay 57 2015 Far-East Industrial Company Lao PDR

7 Nam MoHydropower

Xiengkhouang 120 TBD (i) NH. CIT 65% Viet Nam

(ii) VLECG 35%

8 Nam Nghiep 1Hydropower

Bolikhamxay 289 2018 (i) LHSE (Lao PDR) 25% Lao PDR/ Thailand(ii) Kansai & Nippon Keoi (Japan)

45%

(iii) EGAT Inter (Thailand) 30%

9 Nam Ngum 3Hydropower

Vientiane/Xiengkhouang

460 2018 (i) LHSE (Lao PDR) 23% Thailand

(ii) Marubeni (Japan) 25%

(iii) Ratchaburi (Thailand) 25%

(iv) GMS (Thailand) 27%10 Nam Phay

HydropowerVientiane 86 TBD Norinco International Corporation

(PRC)Lao PDR

11 Namphoun Xayabouly 50 TBD SOK Corporation Lao PDR

12 Nam PhakHydropower

Champasack 45 TBD (i) EDL (Lao PDR) 20% Lao PDR

(ii) Kobec Green Power Company(Japan) 80%

13 Nam PhaHydropower

Luangnamtha/Bokoe

130 TBD AP Bizlink Group (Malaysian) Lao PDR

14 Nam Seuang 1Hydropower

Luangprabang 94 2017 Bru Thai International Lao PDR/ Thailand

15 Nam Seuang 2

Hydropower

Luangprabang 96 2017 Bru Thai International Lao PDR/

Thailand16 Nam Sum 1 Houaphanh 194 TBD Saigon Investment Group Lao PDR/

Viet Nam

17 Nam Sum 3 Houaphanh 196 TBD Saigon Investment Group Lao PDR/ Thailand

18 Nam Tha 1 Bokeo 168 TBD (i) Government of Lao PDR 25% Lao PDR

(ii) China Southern Grid 75%

continued on next page


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Data Tables and Figures 27

Table A3.2 Continued

No. Project Name

Location

(Province)

Installed

Capacity

(MW) COD Investor Market

19 Pakbeng (Mekong)Hydropower

Oudomxay/Xayabouly

921 2018 (i) Government of Lao PDR 19% Lao PDR/ Thailand(ii) Datang Overseas Investment

81%

20 Phou Ngoy (Mekong)Hydropower

Champasack 651 2018 Charoen Energy and Water Asia Thailand/Lao PDR

21 Sanakham (Mekong)Hydropower

Xayabouly/Vientiane

660 2018 (i) Government of Lao PDR 19% Thailand/Lao PDR(ii) Datang Overseas Investment

81%

22 Se Kong 4Hydropower

Xekong 300 TBD (i) Region Oil (Russia) 80% Thailand

(ii) LHSE (Lao PDR) 20%

23 Se Kong 5Hydropower

Xekong 330 TBD (i) Region Oil (Russia) 80% Thailand

(ii) Strategic partners to be invited24 Nam Pod Xiengkhouang 15 TBD ACE Consultant Lao PDR

25 Xepian-XenamnoyHydropower

Attapeu/Champasak

400 2018 (i) LHSE (Lao PDR) 24% Lao PDR/ Thailand(ii) SK Engineering & Construction

(Republic of Korea) 26%

(iii) Korea Western Power 25%

(iv) Rachaburi Electric GeneratingHolding 25%

COD = expected commercial operation date, EDL = Electricit du Laos, Lao PDR = Lao Peoples Democratic Republic, LHSE = Lao Holding StateEnterprise, MW = megawatts, PRC = Peoples Republic o f China, TBD = to be determined.

Source: ADB.


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28 Appendix 3

Table A3.3 Hydropower Projects at Feasibility or Memorandum of Understanding Stage

No. Project Name

Location

(Province)

Installed

Capacity

(MW) Investor Market

1 Ban Khoum (Mekong) Hydropower Champasack 1,872.0 (i) Italian Thai Thailand/Lao PDR(ii) Asia Corporation Holdings

2 Dake e meule Hydropower Xekong 130.0 (i) EDL 25% Viet Nam/Lao PDR

(ii) Viet-Lao Power Company 75%

3 Houay Champi Hydropower Champasack 5.0 SV Group Lao PDR

4 Louangprabang (Mekong)Hydropower

Luangprabang 1,200.0 Petrovietnam Power Corporation Lao PDR/Viet Nam

5 Nam Bak 1 Hydropower Vientiane 160.0 Nam Ngum 2 Power Company Thailand

6 Nam Bak 2 Hydropower Vientiane 40.0 Nam Ngum 2 Power Company Lao PDR/Thailand

7 Nam Feuang Hydropower Vientiane 28.0 Yuan Provincial Power Investment Lao PDR

8 Nam Ham Hydropower Xayabouly 3.5 (i) EDL 20% Lao PDR

(ii) Cobri Company 80%

9 Nam Kong 3 Hydropower Attapeu 45.0 Hoang Anh Gia Lai La

lao people’s democratic republic: energy sector assessment, strategy, and road map 2013 update

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