There are several governmental departments involved in the promotion, management and monitoring of independent power plants known as “IPP” projects in Lao PDR. The availability of green field projects ready for development depends upon demand for electricity both inside the country as well as neighboring countries where potential for export of electricity exists from time to time. The following steps highlight general information regarding the process of project implementation.

Initial Contact

Information on power sector strategy projects (list of projects ready for development) can be obtained from the Department of Electricity (DOE). Details on the process of project development, including advice on required project studies, agreement drafting, and incentives and coordination issues with the Government of Lao PDR (GOL), may be obtained from the Department of Energy Promotion and Development (EPD).  Both DOE and EPD operate under the Ministry of Energy and Mines.

 Memorandum of Understanding (MOU)

Once selection of a project has been made by the interested party, an application for investment attached with a draft MOU is required to be submitted for consideration to the Investment Promotion Department (IPD) within the Ministry of Investment and Planning. Printed application forms and draft MOU’s,  including advice on licensing procedures, may be obtained from the IPD. 

Once the application form has been processed, the applicant, or developer, will be invited to discuss the terms and conditions of the MOU as submitted. The Ministry of Investment and Planning is the designated Government signatory for the MOU while the Ministry of Energy and Mines, through the EPD, is the implementing agency on behalf of the Government.  EPD monitors performance and adherence to the obligations, including exercising the the rights of the GOL as contemplated in the MOU, Project Development Agreement (PDA), and Concession Agreement (CA). 

Upon signing the MOU, the developer is granted with a mandate to carry out technical feasibility studies (FS) and environmental and social (E&S) impact studies. Detailed guidelines for the FS and E&S studies are available in pertinent Lao laws. All correspondence, FS and E&S studies and reports are submitted to EPD for further action to be taken by various relevant governmental departments. Once the FS and E&S studies reports have satisfied the GOL and the project has been proven financially feasible, the developer will be advised to negotiate the PDA with the GOL. The MOU mandate period expires upon the earlier of 12 months or upon joint signature of the PDA.

Project Development Agreement (PDA)

It is a prerequisite that preliminary FS and E&S studies and reports contemplated in the MOU are signed off by the relevant GOL departments before the developer and the GOL sign and enter into the PDA. The PDA grants exclusive rights to the developer to develop the project.  The relevant GOL ministries will issue certificates to sign off the completion of the final FS, E&S and technical design as prerequisites for signing the CA.

During the 18-month mandate of the PDA, the developer is required to establish a special purpose company, to negotiate the concession agreement & power purchase agreement(s) and to approach potential financiers.    

The PDA shall be terminated upon signing the Concession Agreement and hence all rights and obligations of the parties to the PDA shall have been novated to parties of the CA.

Special Purpose Company (SPC)

A Special Purpose Company is usually a limited liability company which is established by the shareholders under the terms and conditions defined in the shareholders’ agreement. The company is to be registered under Lao law and jurisdiction. The company has a special purpose for operating the project facilities during the concession period.  Upon termination of the concession period, such project facilities shall be transferred to GOL at no cost.

Concession Agreement (CA)

The Concession Agreement is an agreement to be signed and entered into by the GOL and the SPC. The CA contains detailed obligations and rights of the parties including provisions of statutory taxes payable to the GOL in exchange for the concession rights and financial privileges granted by the GOL to SPC. The parties also agree on the dispute resolution mechanisms and general provisions, such as events of default, force majeure events, governing law and several other issues in the CA. In addition to the rights granted in the Concession Agreement, Lao law requires that a series of approvals are to be obtained from various GOL agencies as to permit the SPC and its contractors to carry out the necessary activities related to the construction of the project. 

The CA, as the master piece, shall not be contradicted by provisions of any counterparty agreements. All the CA and counterparty agreements will be used as collateral to raise debt financing with the lenders.  The concession period is 30 years following the effective date of the CA.

Counterparty Agreements

There are a number of counterparty agreements to which the SPC is a party. These include Power Purchase Agreement(s), Construction Contract(s) and Financing Agreement(s). The aforementioned agreements do not represent an exhaustive list but are selected examples for reference. The SPC is the party to sign such agreements with the relevant parties. The GOL reserves its rights to review the counterparty agreements to make sure that such agreements comply with the provisions of the CA as well as to ensure such agreements are not detrimental to the GOL.

Construction

While the SPC plays owner’s roles in supervising construction activities, the GOL has the right and obligation to monitor compliance of the construction activities with the CA in all aspects. The construction activities are open to monitoring by third parties (ie, Lender’s Technical Advisors or engineers, or independent monitoring agencies) which are jointly appointed by the GOL and the SPC. 

Operation

The SPC, as the owner of the project facilities, may subcontract to a separate entity to undertake the operation and maintenance works of the facilities. The GOL shall monitor the project in accordance with its rights as set forth in the CA. The monitoring mechanism is same as during the construction.

(See schematic chart IPP Project Implementation Process)