Commercialization of Electricité du Laos (EdL)
EdL was corporatized in 1997 but remains wholly-owned by the government of Lao PDR (GoL). While cost/profit centers within EdL have been established, financial relations between EdL and GoL are still intertwined. In January, 2005, EdL’s receivables from government customers were at 20 months of sales. In addition, the average tariff level is 17 percent below cost-recovery and substantial distortions exist across consumer categories. A rational basis for determining government subsidies for rural electrification has yet to be defined. While improvements have been recorded in loss reduction but there is further scope for financial gains with transmission and distribution losses at 16 percent. Another area for improvement is the integration of operations through further development of information systems.
There is consensus between GoL and donors that the following steps need to be undertaken: (a) the complete separation of GoL and EdL finances; (b) establishment of an appropriate tariff structure for EdL and mechanisms for regulating tariff on an ongoing basis; (c) loss reduction and demand-side management in the EdL system; and (d) establishment of transparent subsidy and cross subsidy mechanisms where necessary to achieve GoL social objectives. IDA and ADB have played a leading role in achievements to date and will continue to stress the objective of financial separation.
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Increasing Electricity Access
Rural electrification is one of the major achievements in Lao PDR with the connection rate increasing from approximately 16 percent of all households in 1995 to 38 percent of all households by the end of 2003. EdL’s planning and implementation capacities have markedly improved through the implementation of five projects funded by the IDA and the Asian Development Bank (ADB). However, as electrification moves to increasingly remote areas, grid connection becomes less viable. In response, GoL has promoted off-grid delivery models, favoring renewable technologies. GoL’s goal is to connect 90 percent of households by 2020 with intermediate targets of 60 percent in 2005 and 70 percent in 2010.
The need for further electrification remains high. The average cost for non-electrified households (on diesel, gasoline and candles) is ten times higher than what electrified households pay for lighting services. Electrified households enjoy lighting quality which is 100 times higher in terms of kilo-lumen hours.
GoL has recognized the need for a broad review of options for rural electrification to examine other implementation models for off-grid and grid extension. With IDA assistance, rural electrification studies have been conducted in the context of the government’s Power Sector Policy Implementation Strategy, as part of preparation studies for the proposed Southern Provinces Rural Electrification 2 (SPRE2) Project.
IDA’s SPRE 2 project will support the development of a rural electrification master-plan and the establishment of a rural electrification fund. These two activities will provide the rationale and mechanism for further investment for rural electrification by donor, private or government sources.
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Financing Network Expansion and Export Developments
Lao PDRs’ exports of power to Thailand are a foreign currency earner (10 percent of GDP). Power plays an important role in a country still heavily reliant on external support: in 2002/03, donor funded programs accounted for 7 percent of GDP, 39 percent of total public expenditure, and 61 percent of the capital budget. The energy sector is identified as one of the strategic growth sectors by the government including both rural electrification and strengthening of the central network with a view to power generation for exports.
Peak domestic demand at the end of 2003 was about 250 MW. Over 97 percent of total generating capacity in Lao PDR is based on hydropower resources. Surplus (partly seasonal) energy from the plants is exported to Thailand while imports cover peak hour shortages. As domestic power demand grows, exports from these plants are steadily declining. Four separate transmission systems supply the four regional centers. There is therefore no “National Grid” in Lao PDR.
Lao PDR has prodigious hydropower resources. Hydropower is the main indigenous energy resource in the country (Lao PDR has no confirmed oil or gas resources). Technical potential is estimated at 18,000MW. Only a small proportion has been developed, providing substantial exports and most of the generation needs of the country. The Nam Theun 2 hydropower project (supported by the World Bank through a partial risk guarantee) is intended to enable Lao PDR to export 995MW to Thailand in addition to 75MW for domestic use in Lao PDR.
A significant financing gap is a critical obstacle to system expansion. Capital requirements for meeting domestic demand, estimated at $66 million per year, are increasing at a time when the power sector’s traditional lenders—multilateral and bilateral agencies—are re-focusing their programs on other sectors. With IDA support, Lao PDR is conducting studies of options for mobilizing funding from both traditional and non-traditional sources including through public-private partnerships. It is expected that the uncertainty surrounding the country’s IPP program will also need to be removed before further private investment can be attracted.
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Heavy Use of Wood Fuel
Accurate, up-to-date analysis of biomass use is scarce but the dominance of wood fuel in the energy balance is visible. According to the Food and Agriculture Organization, wood fuel is the main source of energy in Laos and accounted for 89 percent of the country’s total energy consumption in 1994. Almost 93 percent of all households use wood fuel as their primary source of energy for cooking. Almost all rural households use wood fuel for cooking compared to about 68 percent of urban households. Wood fuel production has remained at roughly the same level since 1995.
Commercialization of Electricité du Laos (EdL)
EdL was corporatized in 1997 but remains wholly-owned by the government of Lao PDR (GoL). While cost/profit centers within EdL have been established, financial relations between EdL and GoL are still intertwined. In January, 2005, EdL’s receivables from government customers were at 20 months of sales. In addition, the average tariff level is 17 percent below cost-recovery and substantial distortions exist across consumer categories. A rational basis for determining government subsidies for rural electrification has yet to be defined. While improvements have been recorded in loss reduction but there is further scope for financial gains with transmission and distribution losses at 16 percent. Another area for improvement is the integration of operations through further development of information systems.
There is consensus between GoL and donors that the following steps need to be undertaken: (a) the complete separation of GoL and EdL finances; (b) establishment of an appropriate tariff structure for EdL and mechanisms for regulating tariff on an ongoing basis; (c) loss reduction and demand-side management in the EdL system; and (d) establishment of transparent subsidy and cross subsidy mechanisms where necessary to achieve GoL social objectives. IDA and ADB have played a leading role in achievements to date and will continue to stress the objective of financial separation.
Back to top
Increasing Electricity Access
Rural electrification is one of the major achievements in Lao PDR with the connection rate increasing from approximately 16 percent of all households in 1995 to 38 percent of all households by the end of 2003. EdL’s planning and implementation capacities have markedly improved through the implementation of five projects funded by the IDA and the Asian Development Bank (ADB). However, as electrification moves to increasingly remote areas, grid connection becomes less viable. In response, GoL has promoted off-grid delivery models, favoring renewable technologies. GoL’s goal is to connect 90 percent of households by 2020 with intermediate targets of 60 percent in 2005 and 70 percent in 2010.
The need for further electrification remains high. The average cost for non-electrified households (on diesel, gasoline and candles) is ten times higher than what electrified households pay for lighting services. Electrified households enjoy lighting quality which is 100 times higher in terms of kilo-lumen hours.
GoL has recognized the need for a broad review of options for rural electrification to examine other implementation models for off-grid and grid extension. With IDA assistance, rural electrification studies have been conducted in the context of the government’s Power Sector Policy Implementation Strategy, as part of preparation studies for the proposed Southern Provinces Rural Electrification 2 (SPRE2) Project.
IDA’s SPRE 2 project will support the development of a rural electrification master-plan and the establishment of a rural electrification fund. These two activities will provide the rationale and mechanism for further investment for rural electrification by donor, private or government sources.
Back to top
Financing Network Expansion and Export Developments
Lao PDRs’ exports of power to Thailand are a foreign currency earner (10 percent of GDP). Power plays an important role in a country still heavily reliant on external support: in 2002/03, donor funded programs accounted for 7 percent of GDP, 39 percent of total public expenditure, and 61 percent of the capital budget. The energy sector is identified as one of the strategic growth sectors by the government including both rural electrification and strengthening of the central network with a view to power generation for exports.
Peak domestic demand at the end of 2003 was about 250 MW. Over 97 percent of total generating capacity in Lao PDR is based on hydropower resources. Surplus (partly seasonal) energy from the plants is exported to Thailand while imports cover peak hour shortages. As domestic power demand grows, exports from these plants are steadily declining. Four separate transmission systems supply the four regional centers. There is therefore no “National Grid” in Lao PDR.
Lao PDR has prodigious hydropower resources. Hydropower is the main indigenous energy resource in the country (Lao PDR has no confirmed oil or gas resources). Technical potential is estimated at 18,000MW. Only a small proportion has been developed, providing substantial exports and most of the generation needs of the country. The Nam Theun 2 hydropower project (supported by the World Bank through a partial risk guarantee) is intended to enable Lao PDR to export 995MW to Thailand in addition to 75MW for domestic use in Lao PDR.
A significant financing gap is a critical obstacle to system expansion. Capital requirements for meeting domestic demand, estimated at $66 million per year, are increasing at a time when the power sector’s traditional lenders—multilateral and bilateral agencies—are re-focusing their programs on other sectors. With IDA support, Lao PDR is conducting studies of options for mobilizing funding from both traditional and non-traditional sources including through public-private partnerships. It is expected that the uncertainty surrounding the country’s IPP program will also need to be removed before further private investment can be attracted.
Back to top
Heavy Use of Wood Fuel
Accurate, up-to-date analysis of biomass use is scarce but the dominance of wood fuel in the energy balance is visible. According to the Food and Agriculture Organization, wood fuel is the main source of energy in Laos and accounted for 89 percent of the country’s total energy consumption in 1994. Almost 93 percent of all households use wood fuel as their primary source of energy for cooking. Almost all rural households use wood fuel for cooking compared to about 68 percent of urban households. Wood fuel production has remained at roughly the same level since 1995.
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