Since independence in 1975, Lao PDR, a landlocked country in the heart of the Greater Mekong region, has achieved significant and rapid economic development. In recent years, the country’s GDP has grown by an annual average rate of 7%. Internal policy reforms, natural resource endowments and close proximity to some of the world’s fastest growing economies like China and Vietnam have propelled this advancement. However, the country still remains one of the poorest in the East Asia and Pacific region and according to the OECD, is one of the world’s least developed countries (DAC I). A key aspect of sustaining economic growth and alleviating poverty will be the need for increased investment and access to core infrastructure and services In light of the country’s land-locked location and emphasizing the importance of regional integration to economic development, the government aims to transition from a “land-locked” to a “land-linked” country. An improved highway network would move the country one step closer to achieving its land-linked vision.
PPIAF has supported the government in developing its highway network since mid-2012, starting with a sector needs assessment study, which identified the upgrading of the country’s National Road 13 (NR13) as a priority investment project. Subsequently, in 2013, PPIAF undertook and completed a PPP options analysis study that assessed the viability of using a PPP model for delivering the project. The findings of this study informed the development of a full feasibility study which is currently implemented with financial support from International Development Association (IDA). Meanwhile the government has appointed the International Finance Corporation (IFC) as a transaction advisor undertake a full structuring and market sounding exercise to prepare the project for investment. At this stage, it is estimated that around $150-$200m of private capital will be sought from private sector investors.
While the feasibility study and transaction structuring has been under preparation since early 2014, PPIAF has assisted the government to build the institutional readiness and capacity that is required for them to become an effective grantor to a PPP project for the NR 13 and hopefully many other projects. This program of institutional support is envisaged to encompass the following areas:
- Development of a tolling/road-user policy: Tolls will be a major funding source for the project, but the government will need assistance to ensure that a policy is adopted that ensures the tariff regime is reasonable, equitable and underpinned by clearly stated principles (e.g. discount regimes for local residents living near toll plazas)
- Development of a Business Case: This is a guidance document to help the government make key decisions through the project cycle of major infrastructure projects. The business case also aims to demonstrate that the most efficient and effective option for the government is to engage the private sector in the proposed NR 13 PPP Pilot Project by analyzing strategic, economic, commercial, financial and management aspects of the Project.
On October 29, 2014, the Ministry of Public Works and Transport (MPWT), a responsible ministry, held a stakeholder workshop to present the current status of the NR 13 PPP Project preparation to their management, Prime Minister Office and relevant ministries such as Ministry of Finance, Ministry of Planning and Investment and concerned provinces, in order to obtain their endorsement of the Project. PPIAF participated in the workshop to support MPWT to present the Business Case. The PPIAF team made a presentation on financial analysis of highway PPP projects based on the PPIAF Highway Toolkit Graphical Financial Model to assist government officials in implementing procedures to promote PPPs in highway sector.
Going forward, PPIAF will remain engaged with the government to further improve their institutional readiness while the feasibility study is under preparation and the transaction is structured. The project information can be found on the government website.