Electricity from hydropower plants was not produced in Lao PDR until the late 1960s. Only some small hydroelectric plants with installed capacities ranging from 50 kilowatts to 5 megawatts serving small isolated local grids were commissioned at the time. This static development resulted from low demand for electricity in the country, on one hand. Scarcity of finance for investment in power generation has presented a bottleneck in the development plans for the sector, on other. Historically, financing needs had been met by international financial institutions, but their support for hydropower generation had been limited in recent years.
By contrast, today the electricity sector is the country’s third largest export earner. The advent of rapid development of the power sector has resulted from an openness policy, which was set forth in the New Economic Mechanism (NEM) as adopted in the late 1980s. The NEM has induced the expansion of activities related to industries, services, commerce, and rural development, which in turn initiated demand for electricity in the country. In keeping with the NEM, the power sector has been classified as a development strategy of the national economy. Furthermore, the Lao Government has recognized diverse ownerships in its economic system; private ownership and public-private partnership have been encouraged to participate in various investment-related activities in power projects. The participation of the private sector has therefore been sought and promoted through a Build-Own-Operate-Transfer (BOOT) approach, contracting-outs and other privately-managed arrangements. Included in private financing are equity investment, supply of material and equipment, provision of security, consultancy service, and power market privatization.