Capacity-Building Support for the Sustainable Development of the Hydropower Sector in Lao PDR

Lao PDR is in the midst of an economic transformation that comes with great development opportunities but also presents important challenges. Primary among these challenges is the sustainability of hydropower development for the Greater Mekong Sub-region (GMS) power market. The hydropower potential of the Lao PDR is substantial compared to its population and expected power needs, and the hydropower and mining sectors are the core drivers of growth for the Laotian economy, accounting for 25 percent of government revenue in 2012. Hydropower in particular is growing rapidly, with the installed generating capacity rising from 200MW in 1996 to 700MW in 2006, and to more than 3,200MW today. This rapid pace of development is expected to continue, with 17 projects currently under construction and 56 more under consideration. 

 

Independent power producers (IPPs) and other private-sector investors have been engaged in power-generation activities in Lao since 1998. As a result, the development of the hydropower sector has been ad hoc and investor driven rather than strategic, which would require a clear policy framework and sector strategy. In order to address these challenges ensure that the rapid development of hydropower happens in a sustainable manner, the Government of Lao PDR has been working on establishing relevant laws and regulations, such as investor law and energy law.

 

The government has also prepared key management tools, such as agreement documents for hydropower concessions, and issued the Policy on Sustainable Hydropower Development. All of these are works in progress, and further measures are needed to complete the necessary hydropower-development institutional, legal and regulatory framework and to build the government’s capacity to deal with the challenges of large, fast-paced hydropower projects. One major outstanding requirement is strengthening the engagement and capacity of the government to oversee hydropower-sector development from a fiscal perspective, considering the country’s significant fiscal constraints and concomitant need for careful fiscal planning and management.   

 

Since 2014, PPIAF has supported the government in meeting these challenges. The assistance has been complementary to an ongoing International Development Association (IDA) project (the “Technical Assistance for Capacity Building in the Hydropower and Mining Sectors Project”), with co-financing support from the Government of Australia.  The PPIAF assistance focuses on two key fronts: 

 

 

On February 26-27, 2015, the MoF and MEM held an inter-ministerial meeting, which included a roundtable with high-level authorities and a technical workshop on fiscal regime for the hydropower and mining sector, so that the internal stakeholders could have a common understanding and build consensus regarding fiscal arrangements for the sectors. PPIAF supported the government in designing the event.

 

The PPIAF consultant presented international practices on hydro-royalty arrangements, as well as draft hydro-royalty regime for Lao PDR, in order to facilitate the discussion. The workshop re-affirmed the importance of establishing clear, transparent and non-discriminatory policy principles and provided an open forum for stakeholders to raise and discuss key operational challenges stemming from the current fiscal regime. Stakeholders also expressed the need to improve inter-ministerial coordination on fiscal issues. 

 

As a result of the workshop, an MoF “Decision on Policy Direction for the Hydropower and Mining Fiscal Regimes” has been approved, with key inputs from PPIAF. It reflects the strong commitment of the MoF and MEM to advance the fiscal management agenda. 

 

Going forward, PPIAF will remain engaged with the government to further contribute to capacity-building support, in cooperation with the IDA-supported project. More information will be provided on the PPIAF web site as progress is made.