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Electricity from hydropower plants was not produced in Lao PDR until the late 1960s. Some small hydroelectric plants serving small isolated local grids were commissioned at the time. By contrast, today the electricity sector is the country’s third largest export earner.
Before 1993 only three hydropower plants had been developed and brought into operation. The power sector was subsequently opened up to foreign investment. In June 1993, the Government of the Lao PDR and the Government of the Kingdom of Thailand signed the first Memorandum of Understanding (MOU) to support the development of power projects in the Lao PDR through the supply of up to 1,500MW of electricity to Thailand. To accommodate the steady increase in demand for electricity in Thailand the two Governments extended the MOU several times up to December 2007 when the most recent agreement saw the power purchase scheme expanded to cover the supply of 7000MW of electric power to Thailand by 2020.
In 1998, the Government of Laos also signed an MOU with the Government of Vietnam covering the development of power projects in Lao PDR for the supply of 2000MW of electric power to Vietnam. The scope of this agreement and the levels of agreed supply have also been scaled upwards to 5000MW since the original agreement.
To date mining and mineral processing sector has been emerging in Laos. Consequently, demand for electricity in the country is notably increasing. To respond such demand two IPPs are under construction aiming at supplying domestic grid and several other projects are under feasibility studies.
As a consequence of the regional economic recession in the late 1990s demand for electricity in Thailand was static for a period. Several independent power plants (IPP) projects in Lao PDR were delayed or suspended during this period of economic crisis as a result. When the demand for electricity started to pick up again in 2002, the IPP development in Lao PDR started to get back on track. In 1999 the Lao Government established the Lao National Committee for Energy (LNCE) succeeding the committee for Energy and Electric Power (CEEP). The duties of the LNCE were set out as follows:
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To provide coordination and consultation on behalf of and to the government in regard to the management, development, marketing, monitoring, and resolving energy problems to sectoral and local suppliers and consumers in compliance with Electricity Law, Law on Environmental Protection, and other laws having connections with the National Socio-Economic Development Plan.
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To provide support to and promotion of energy programs as well as other development programs that have connections with energy, investment cooperation of the government, purchase and sales of electricity to overseas partners aiming to reach the highest profit level and creation of attractive conditions for foreign investors in the Lao PDR.
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To supervise and monitor the implementation of energy development projects in order to ensure their compliance with policies and the Law on Investment of the Lao PDR.
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To examine and propose for approval or withdrawal energy investment permits by higher authority in accordance with the provisions of the laws of the Lao PDR or the signed contracts.
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To examine investment proposals from local and international investors especially the assessments of financial and socio-economic efficiency, environmental protection, and to take part in negotiations of various contract agreements on energy development such as memoranda of understanding, agreements on project development, concession agreements, joint investment portfolios, shareholder agreements, agreements on purchasing or sales of electricity, and others, including agreements on the import and transmission of electricity to a third country via the territory of the Lao PDR, and network connection within the region and ASEAN.
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To collaborate with developers and involved agencies of the government in resolving energy problems with an aim to facilitate smooth operations of energy development projects.
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To examine and conduct analyses of the market and electricity import policies of the purchasers.
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To conduct meetings with agencies in charge of electricity and energy from the Kingdom of Thailand, the Socialist Republic of Vietnam, the Kingdom of Cambodia and other countries, for the purpose of discussing as well as to find ways of monitoring and seeking support, methodologies and mechanisms for realization of contract agreements and memoranda of understanding on energy and electricity cooperation.
With the establishment of the Ministry of Energy and Mines in 2006, the Department of Energy Promotion and Development (EPD) was created within this new ministry and this department took over the role and functions of the LNCE. There are two Ministrial departments under the Ministry of Energy and Mines deal with Energy supply and development on Macro-Level. The DOE is on Policy side and the EPD is on development side. Functions of the DOE and EPD are provided in Tearm of Reference of MEM (EPD&DOE).
Scarcity of finance for investment in power generation has presented a bottleneck in the development plans for the sector. Historically, financing needs have been met by international financial institutions, but their support for hydropower generation has been limited in recent years. The participation of the private sector has therefore been sought and promoted through a Build-Own-Operate-Transfer (BOOT) approach. Following the implementation of Memoranda of Understanding (MOUs) that were signed with the government of Thailand and Vietnam a number of projects have been studied in respect of their feasibility, as well as social and environmental impact. Approved IPP projects that export energy to neighbouring countries are required by the government to set aside at least 10% of their total installed capacity for the supply of electricity to the local market. Concession agreements and power purchase agreements have been finalised for a number of projects. These projects are typically looking at achieving commercial operation dates by 2015-20.
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