LAO PDR: Support to EDL Financial Recovery

The Lao People’s Democratic Republic (PDR) has achieved remarkable progress in the power sector over the past 20 years. In the mid-1990s, the electrification rate was only 15 percent and installed capacity was only 200 megawatts (MW). Today, the electrification rate is 92 percent and installed capacity is close to 10,000 MW. Lao PDR is now able to supply power, not only for domestic use, but also for export to neighboring countries, making it a key driver for economic growth, as well as a source of clean energy for the region. Private sector investment has played an important role in harnessing the country’s energy potential, particularly with respect to hydropower. Foreign direct investment by export-oriented independent power producers has benefited Lao PDR through royalty and tax payments and promoted electrification by mandating power producers supply a small portion of the energy to serve the domestic load. The World Bank-supported Nam Theun 2 Hydropower Project is internationally regarded as a successful example of sustainable hydropower development. However, Lao PDR has also been successful in attracting private investment for smaller hydropower projects, which sell electricity to Électricité du Laos (EDL), the state-owned national power utility. Power from these domestic IPPs is used by EDL primarily to serve domestic demand, but also to export to neighboring countries.
Unfortunately, persistent structural issues in the Lao PDR energy sector governance, planning and business model are now threatening its financial sustainability. These structural issues have resulted in significant financial distress that threatens the macro-fiscal stability of the country. The situation is further aggravated by the economic slowdown due to the COVID-19 crisis.
The Lao PDR power sector is now at a crossroads and will need to take important actions to address the many structural issues. One of the main challenges encountered during the previous and ongoing World Bank engagements with EDL has been the lack of readily available and good-quality financial and accounting data. Data collection, aggregation, and updating appears to be a challenge for EDL, due to weak accounting practices, weak corporate governance, inadequate IT systems, and staff capacity.
To address these issues, the World Bank Governance Global Practice, including its macroeconomics team, has been working together with the European Union (EU) and International Monetary Fund (IMF) on supporting the Lao PDR Ministry of Finance in the development of a new Chart of Accounts. EDL top management indicated a strong commitment to improving corporate management and accounting practices and explicitly requested for technical assistance to achieve these objectives. As such, the primary objective of the PPIAF assistance was to assess the adequacy of EDL’s current Chart of Accounts and advise on best practices to produce reliable financial statements in line with international standards. 
The activity ultimately led to a strengthening of EDL’s Financial Management Information System and built staff capacity to effectively use its systems. These outcomes are critical for addressing risks by more effectively managing funding sources to ultimately increase the creditworthiness of EDL. The findings of this work also contributed to a broader assessment of SOEs in Lao PDR. Furthermore, the activity has allowed for the more effective use and distribution of hydropower, ultimately allowing for the export of clean energy to neighboring countries and contributing to the reduction of carbon emissions by helping to optimize the use of renewable resources in the country.