Final Report - Sunlabob · Final Report Revision O - Final – September 2004 Quality Information...

Final Report Rural Electrification Frameworks Study

Ministry of Industry and Handicrafts – Lao PDR

September 2004

Final Report Revision O - Final – September 2004

Final Report

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Ministry of Industry and Handicrafts – Lao PDR Prepared by Maunsell Ltd 47 George Street, Newmarket

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September 2004 42 642 50

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Final Report Revision O - Final – September 2004

Quality Information

Document Final Report

Ref 42 642 50

Date September 2004

Prepared by A J Tait, C W Holland, J S Kepple, J W Wilson

Reviewed by J W Wilson, A J Tait

Revision History

Authorised Revision Revision Date Details

Name/Position Signature

0 - Final 03/08/2004 A J Tait Study Manager

Final Report Revision 0 - Final - September 2004

Table of Contents

Executive Summary 1

Introduction and Objectives 1 Targets for Rural Electrification 1 Main Rural Electrification Issues 3 Review of Draft Decree on Off-Grid Promotion Fund 5 Rural Electrification Framework 5 Rural Electrification Approaches 11 Rural Electrification Master Plan 18

1.0 Introduction 25 1.1 Background and Appointment 25 1.2 Objectives and Terms of Reference 25 1.3 Reference Material Obtained and Persons Interviewed 26 1.4 Other, Related Sector Studies 26 1.5 Study Implementation 27 1.6 Structure of the Report 27 1.7 Acknowledgements 29

2.0 Current Rural Electrification Situation 30 2.1 Background 30

2.1.1 Introduction 30 2.1.2 Country Profile 30 2.1.3 Economic Overview 31 2.1.4 National Poverty Eradication Program and Poverty Reduction Fund 32

2.2 Legislative and Policy Framework 37 2.2.1 Electricity Law 37 2.2.2 Power Sector Policy 38 2.2.3 Other Relevant Laws, Policies and Regulations 40

2.3 Institutions 40 2.3.1 Organisation of the Power Sector 40 2.3.2 Ministry of Industry and Handicrafts 42 2.3.3 Provincial Departments of MIH 42 2.3.4 Electricité du Laos 43 2.3.5 State Planning Committee 43 2.3.6 Committee for Investment Management & Foreign Economic Cooperation 43 2.3.7 Science, Technology and Environment Agency 43 2.3.8 Lao National Committee for Energy 43 2.3.9 Other Ministries and Agencies 44 2.3.10 ESCOs 44 2.3.11 Other Private-Sector Involvement 45

2.4 Current Rural Electrification Systems 45 2.4.1 Overview 45

Final Report Page 5 Revision 0 - Final - September 2004

2.4.2 Main Grid Distribution System (EdL) 47 2.4.3 Isolated Distribution Grid Systems 49 2.4.4 Cross-Border Supplies 49 2.4.5 Mini and Micro Hydro Systems 49 2.4.6 Village Systems 50 2.4.7 Solar Home Systems 51 2.4.8 ‘Pico’ Hydro Personal Generators 52 2.4.9 Other Renewable Energy Technologies 52 2.4.10 Automotive Battery Systems 54 2.4.11 Dry Cell Batteries 55 2.4.12 Traditional Fuels 55

2.5 Key Rural Electrification Issues 55 3.0 Government Targets for Rural Electrification 59

3.1 Current Rural Electrification Status 59 3.2 Electrification Targets 60 3.3 Cost of Achieving the Government’s Targets 63

3.3.1 Introduction 63 3.3.2 Cost of Grid Electrification Program 63 3.3.3 Cost of off-Grid Electrification Program 64

4.0 Review of Rural Electrification Options 65 4.1 Definition of Off-Grid Electrification 65 4.2 Off-Grid Rural Electrification Promotion and Support Program 65

4.2.1 Background 65 4.2.2 Rural Energy Technologies Supported 67 4.2.3 GEF Review of OPS Program 68 4.2.4 Consultant’s Review of OPS Program 69

4.3 Private-Sector Renewable Energy Initiatives 77 4.4 Existing Mini and Micro Hydro Projects 81 4.5 Potential Mini and Micro Hydro Resources 82 4.6 Small Hydropower Project in Northern Lao PDR (JICA) 84

5.0 Review of Proposed Off-Grid Promotion Fund 86 5.1 Background 86

5.1.1 Establishment of a Fund 86 5.1.2 Scope of Our Review 86

5.2 Review of Draft Decree 87 5.2.1 Review of Concepts of the Fund 87 5.2.2 Suggested Structure for the Fund 88 5.2.3 Review of Draft Decree 89

6.0 Rural Electrification Framework 90 6.1 Introduction 90 6.2 Policies, Institutions, Technologies and Models 90


6.3 International Experience 97 6.3.1 Introduction 97 6.3.2 Vietnam – District Level Local Distribution Utilities and RARE Fund 97 6.3.3 Cambodia – Rural Electrification Enterprises 98 6.3.4 Sri Lanka – Private Sector and Community Managed Off-Grid Electrification 99 6.3.5 Bangladesh – Consumer Co-Operatives 100 6.3.6 India – Consumer Co-Operatives 101 6.3.7 The Philippines - Consumer Co-Operatives 101 6.3.8 Nepal – Community-Based Micro Hydro Program 102 6.3.9 China – Government-Owned Isolated Grids 102 6.3.10 Chile – Distribution Concessions 103 6.3.11 Uganda – Private Sector as Primary Provider of RE Services 104

6.4 Recommended Models for Lao PDR 105 6.5 Need for an ‘Anchor’ RE Institution 107 6.6 Conventional Utility Model 109

6.6.1 Overview 109 6.6.2 Organisation 109 6.6.3 Continuation / Acceleration of EdL Main Grid Expansion 110

6.7 Commercial Sales Model 111 6.7.1 Overview 111 6.7.2 Organisation and Regulation 112 6.7.3 Import Duties and Subsidies 113

6.8 Electricity Supply Company Model 113 6.8.1 Overview 113 6.8.2 Organisation, Contracting and Subsidies 114 6.8.3 Off-Grid Promotion and Support Program 117 6.8.4 Off-Grid Electrification through a New National ESCO 123

6.9 Management Services Model 124 6.9.1 Overview 124 6.9.2 Organisation and Contracting 124

6.10 Concessions Model 125 6.10.1 Overview 125 6.10.2 Organisation, Contracting and Subsidies 127 6.10.3 Rehabilitation of Existing Micro Hydro / Distribution Systems 130 6.10.4 New Mini / Micro Hydropower / Distribution Systems 132 6.10.5 New Renewable Energy Generation Plants Supplying the Main Grid 134 6.10.6 New Private-Sector Rural Distribution Systems 134

6.11 Pico Hydro Safety and Operational Awareness Development 136 6.11.1 Scope 136 6.11.2 Awareness Development Program 137

7.0 Rural Electrification Master Plan 138


7.1 Introduction 138 7.2 Approach to RE Master Plan Preparation 138 7.3 Institutional Arrangements 140 7.4 The RE Planning Process 142 7.5 Information and Database 143

7.5.1 Review of 2004 RE Survey / Database / GIS 143 7.5.2 Additional Data and Surveys to Expand the RE Database 144 7.5.3 Resource Inventory Studies 147

7.6 Grid and Off-Grid Planning 148 7.6.1 Grid Planning 148 7.6.2 Off-Grid Planning 151 7.6.3 Coordination of Grid and Off-Grid Planning 151

7.7 Preparation of RE Master Plan 152 7.7.1 Process 152 7.7.2 Planning Manual 156 7.7.3 Review of Government’s Rural Electrification Targets 157

7.8 Capacity Building and Knowledge Dissemination 157 7.8.1 Capacity Building 157 7.8.2 Review Workshops 158

7.9 Support Requirements 158 7.9.1 Provision of Computers, Software and Furniture 158 7.9.2 Terms of Reference for Future Updating of RE Master Plan 159

7.10 Technical Assistance 159 7.11 Pilot Village Electrification Plans 160

8.0 Implementation Timetable 163 8.1 Introduction 163 8.2 Timetable 163


Attachments Attachment 1 Terms of Reference for RE Frameworks Study Attachment 2 References Attachment 3 Persons Met / Interviewed Attachment 4 Electricity Law & Power Sector Policy Review Attachment 5 Existing Mini / Micro Hydro Systems Attachment 6 Potential Mini / Micro Hydro Resources Attachment 7 Existing Solar PV Installations Attachment 8 Existing Renewable Energy Technology Projects Attachment 9 Prime Minister’s Decree on the Off-Grid Promotion Fund (as submitted for signing) Attachment 10 Suggested Modifications to the Prime Minister’s Decree Attachment 11 Prime Minister’s Decree on the Poverty Reduction Fund Attachment 12 Assessment of Potential Rural Electrification Models Attachment 13 Supporting Data - Rural Electrification Planning Attachment 14 Trial Village Electrification Plans


Abbreviations: BOOT Build, operate, own and transfer BOT Build, operate, transfer BTF Build, transfer, and finance DOE Department of Electricity (of the Ministry of Industry and Handicrafts) EdL Electricité du Laos ESCO Electricity Supply Company FIMC Committee for Investment Management and Foreign Economic Cooperation GIS Geographic Information System GOL Government of Lao PDR GWh gigawatt-hour KW kilowatt LECS Lao Expenditure and Consumption Surveys LDC Lesser developed countries LNCE Lao National Committee on Energy MCTPC Ministry of Communication, Transport, Post & Construction MIH Ministry of Industry and Handicrafts – Lao PDR PDIH Provincial Department(s) of Industry and Handicrafts NPEP National Poverty Eradication Programme OPS Off-Grid Promotion and Support Program PDD Power Development Division of DOE, MIH PMD Power Management Division of DOE, MIH PRF Poverty Reduction Fund RE Rural Electrification RED Rural Electrification Division of DOE, MIH RETC Renewable Energy Technology Centre (of TRI) ROT Rehabilitate, operate, transfer SHS Solar home system SPC State Planning Committee, the agency within the Prime Minister’s Office responsible allocation of the national budget SPRE Southern Provinces Rural Electrification Project SPRE II Southern Provinces Rural Electrification II Project STEA Science, Technology and Environment Agency SWER Single wire earth return TRI Technology Research Institute (of STEA) VEAC Village Electrification Advisory Committee VEM Village Electricity Manager Wp Watts (peak)


Definitions:1

Concession. The right given to a person or organization through issuing a License pursuant to Article 11 of Electricity Law to operate an electricity enterprise. ESCO (Electricity Service Company). ESCOs are authorized by provincial authorities to facilitate or provide rural electricity supply, either off-grid technologies or through bulk purchase from Main Grids. License. A license issued pursuant to Art. 11 of the Electricity Act to a person or organization wishing to engage in an electricity enterprise. Main Grids. Electricity supply networks are defined as Main Grids if they are owned Electricité du Laos and satisfy one or more of the following criteria: • Supply a customer base with an aggregate peak demand normally in excess of 2 MW. • Involve international inter-connection. • Are otherwise so designated.

Off-Grid Fund. Fund for promotion of off-grid rural electrification development to be established by the State pursuant to Art. 41 of the Electricity Law. Off-Grid Supply. Electricity supply networks not designated as Main Grids. These are usually systems supplying a customer base with an aggregate peak demand of less than 2 MW and which have no immediate prospect of connection to a Main Grid. Off-grid supplies are categorized as follows: • Mini Systems: off-grid systems (usually involving both generation plant and MV/LV distribution network)

with capacity between about 2 MW and 200 kW. • Micro Systems: off-grid systems (usually involving both generation plant and MV/LV distribution network)

with capacity between about 200 kW and 10 kW supplying a town or several villages. • Village Systems: 2 off-grid systems (usually involving both generation plant and LV distribution network)

with capacity less than about 10 kW supplying an individual village or small cluster of villages. • Pico Systems: off-grid systems supplying to individual households, or small groups of households (e.g.

solar photo-voltaic home systems, pico-hydro units, etc.). Regulations. Decrees issued by relevant GOL ministries pursuant to Laws adopted by the National Assembly that define procedures, processes, rights, obligations and other provisions giving practical effect to the Laws. Rural Development Committee. Committee formed within the Prime Ministers Office with responsibility for rural development, including rural electrification, and now under Ministry of Agriculture and Fisheries.

1 Taken from Power Sector Policy Statement (Discussion Draft, September 2000, Revision 4), MIH, Lao PDR. 2 Suggested modification of the definition of Off-Grid to include Village Systems.


Small-scale power systems. Mini-, micro-, village- and pico- systems where the generating source can be various, for instance a solar PV station or home units, fuel generator, hydro, hybrids. Small-scale hydro systems are those that use hydro as the predominant generating source. Solar PV (Solar Photovoltaic Technology). PV refers to the use of solar radiation to generate electricity, in distinction to solar thermal technology, which generates heat (as in solar water heaters) Village Managers. Individuals responsible for planning, management and maintenance of single-village electricity schemes under the regulation of village authorities and supported by ESCOs.


Executive Summary

Introduction and Objectives

Background

This Rural Electrification Framework Study (the Study) arose from the Lao PDR Power Sector Policy Implementation Strategy, which identified the need for a broad review of options for rural electrification in the country. As a result, several studies are being undertaken to consider alternative rural electrification models suitable for Lao PDR that provide:

• Technical and commercial sustainability. • Equal access to the market for existing providers and new entrants. • Competitive processes where appropriate. • A system of licensing of enterprises which are providing off-grid and grid extension services.

In October 2003, the MIH invited proposals for the provision of consulting services relating to the Study and subsequently concluded a contract for the services with Maunsell Limited, of Auckland, New Zealand. Objectives of the Study

The main objectives of the Rural Electrification Framework Study in Lao PDR are as follows:

1. Review the existing MIH pilot project for off-grid electrification and the proposed scale-up program and recommend improvements.

2. Review MIH proposals for establishment and operation of a Rural Electrification Fund (REF) and recommend improvements.

3. Review the overall RE program of MIH / EDL and define a framework for grid and off-grid based RE appropriate under the conditions in Lao PDR.

4. Review existing inventory studies and define a framework for the preparation of a RE Master Plan.

Targets for Rural Electrification

Current Electrification Situation

The Report of the Population Count 2003 carried out by the National Statistical Centre (reference date of 01 July 2003) estimates that within urban and rural areas, some 45.1 % of households of Lao PDR have access to electricity. In rural areas the Population Count indicates a rural household electrification rate of 29.7 %.


DOE estimates that about 41 % of households are currently electrified through Main Grid connections plus off-grid systems supplied through DOE’s off-grid program. The larger electrification ratio indicated by the Population Count 2003 is probably due to the inclusion of households electrified through privately owned small diesel / petrol generators, privately owned solar PV systems and secondary supply from household connections to the EdL system (i.e. sometimes a small number of other households are fed off a single EdL household connection). Pattern of Settlement in Lao PDR

The population density in Lao PDR (21 persons / sq. km) is low compared to neighbouring countries such as Vietnam (240 persons / sq. km), Cambodia (74 persons / sq. km), Thailand (124 persons / sq. km) and China (133 persons / sq. km). Similarly, villages in Lao are smaller and more dispersed.. Excluding Vientiane Capital, an average village has 85 households and 496 people (typically 45 – 100 households, 300 - 665 people). There is (on average) one Lao village per 23 sq. km of land area, giving an average spacing between villages of about 4.8 km. This low population / village density, and the significant number of villages without road access presents a number of practical and economic difficulties in providing electrification services to rural households. Targets

The Government of Lao PDR’s goal is to increase the electrification ratio for the whole country from 41% to 90% by 2020, with intermediate targets of 45% in 2005 and 70% in 2010. This goal will be achieved through:

• On-grid household electrification – involving main transmission / distribution grid extensions to meet the 90% target, after deduction of off-grid installations.

• Off-grid household electrification – an embryonic but successful program of electrification of off-

grid households employing state, donor and private resources is underway in Lao PDR and targets electrification of 150,000 households by 2020. However this program will need to be substantially scaled-up, if this target is to be achieved by 2020.

Current projections of village and household electrification are as follows: Year

2004 2005 2010 2013 2015 2020

No. of Villages Electrified 3,464 3,574 5,584 6,433 7,024 8,906 % of Villages Electrified 31% 32% 50% 58% 63% 80% No. of Households Electrified 395,598 423,122 733,926 858,794 914,894 1,140,396 % of Households Electrified 41% 45% 70% 76% 79% 90%


Achieving the Government’s targets will require the electrification of about 745,000 (mainly rural) households over the next 15 years, equivalent to an average electrification rate of about 50,000 households / year. Of this, DOE estimates that about 645,000 households (i.e. 42,700 households / year on average) will be electrified by extension of the Main Grid, while about 150,000 households (i.e. 10,000 households / year on average) will be electrified by off-grid systems3. The estimated cost of achieving the government’s rural electrification targets is about US$ 420 million, as follows: Electrification Approach

Households Electrified (No.)

Estimated Cost (US$)

Average Cost (US$ / household)

Grid Electrification 645,000 370 million 575 Off-Grid Electrification 150,000 51 million 340

Totals 745,000 421 million 533 The total cost of the off-grid component includes all costs relating to hardware / equipment purchase, system installation, program management / administration, and ongoing service / support costs. Of the total cost of about US$ 51 million4, households will provide about US$ 3 million as up-front deposits, and will pay about US$ 30 million by monthly instalments (hire-purchase). Direct subsidies (grants) of about US$ 8 million will be required for program management / administration costs along with a further (about) US$ 10 million to match the total funding requirement of US$ 51 million. About US$ 30 million in soft loan financing will be required to finance off-grid system purchases, to be repaid by householders’ monthly instalments. Main Rural Electrification Issues

The following key issues relating to rural electrification were identified and addressed as part of this Study:

3 Achieving a net off-grid electrification target of 100,000 households will require the distribution / installation of a larger number of off-grid systems since a proportion of the systems will fail due to ageing of components, physical damage, mistreatment, lack of maintenance, etc. If we assume that 33% of systems become un-serviceable over a 10 year period, then about 150,000 off-grid household systems (i.e. 10,000 systems / year on average) would need to be provided to achieve the target of 100,000 operational systems over the next 15 years. 4 The estimate makes no allowance for likely future reductions in the cost of off-grid electrification systems / components (particularly solar PV panels), or for economies of scale (particularly in program administration, overhead and technical assistance costs) that might result from an expanded off-grid implementation program, as these potential cost reductions cannot currently be estimated with any degree of certainty.


• Main Grid Coverage. Current EdL planning is focused

on the extension of the Main Grid to un-electrified

provincial and district towns. Distribution feeders

(normally at 22 kV) generally follow existing roads for

access and maintenance purposes. While MV / LV

spur lines will continue to be routed across open

country, development of feeders will be dependent on

rural road development to a significant extent.

• Existing Off-Grid Rural Electrification Technologies.

Indications are that the adoption of household pre-

electrification systems among rural households is

higher than previously estimated. If automotive battery

systems were to be considered as electrification, then

the household pre-electrification rate in Savannaket,

for example, would be close to 100 %.

• Uptake of Rural Electrification Systems. Typically, only

about 50 % of households in rural villages are taking

up solar PV systems under the OPS Program and not

all households are connecting to the Main Grid when it

is extended to new villages.

• Limited Range of Rural Electrification Models

Available. Existing rural electrification models include

main grid electrification, isolated mini-grids and two

ESCO models providing off-grid systems.

• Coordination of Main Grid, Isolated Grid, Mini-Grid and

Off-Grid Electrification. The expectation of most rural

communities is that they will be electrified from the

Main Grid or from isolated grid systems but, for many

rural consumers, this will not be economically viable.

Accordingly, the expectations of rural people (and

provincial authorities) in areas where extensions of the

Main Grid will not be viable needs to managed and

their expectations directed towards mini-grid or off-grid

solutions.

• Sustainability of Isolated Grid / Mini Grid Systems.

Some 38 isolated grid / mini grid systems powered by

mini / micro hydropower stations have been developed

throughout the country. A number of these systems

are currently non-operational, or only partially

operational, and a program to rehabilitate / repair

about 22 of these systems (serving some 6,500

households) could be considered. As part of this,

sustainability issues will need to be addressed.

• Dealing with Existing Mini-Grid or Off-Grid Systems on

Arrival of Main Grid or Isolated Grid Power. We

understand that currently there is no provision for

dealing with the takeover of existing rural electrification

systems when main grid or isolated grid systems are

extended to villages that are currently electrified by

other systems.

• Time Required to Trial and Establish New Rural

Electrification Models. It takes considerable time (i.e.

years) to trial / develop new rural electrification

approaches, and initially their impact on electrification

rates is low. Accordingly, the rural electrification

strategy should be focused on proven technologies /

models that have potential for rapid roll-out.

• Limited Private Sector Involvement in Electricity Sector

in Lao PDR. Private sector interest in the power sector

has been mainly confined to construction contracting,

and there has been only very limited involvement in the

provision of electricity services. The majority of

electrification services (both urban and rural) are being

• Low Rural Tariffs for Grid Connected Consumers. The

low tariffs currently charged to rural households, and

their low consumption means that the costs of supply

are not covered and are a drain on the financial

viability of EdL. This situation will continue until

ongoing and proposed tariff adjustments raise EdL’s


provided by EdL.

revenues to satisfactory levels.

• Commercialization of Off-Grid Technologies.

Commercialization of solar PV systems will occur as

the price reduces, and rural incomes improve, to levels

where subsidies are not required.

• Subsidies. Larger subsidies may be required to drive

the up-take of individual household systems and mini

grid systems if the Government’s RE targets are to be

met.

• Productive Use Promotion and Cross-Sectoral Linkage

Development. Better promotion of productive uses /

income generation, and better coordination with other

sector programs could result in improved development

outcomes for rural people.

• Focus on Poverty Alleviation. Previous rural

electrification initiatives within Lao PDR have generally

not focused on poverty reduction directly. Improved

consideration of poverty alleviation would help to

improve living conditions is rural areas.

Review of Draft Decree on Off-Grid Promotion Fund

During late 2003, a Decree establishing an Off-Grid Promotion Fund was drafted by a multi-ministry committee, approved by DOE and then submitted for signature to the Prime Minister. Following an initial review of the draft Decree and discussion at a workshop at DOE on 14 May, it was agreed that the World Bank would write to DOE requesting the signing of the Decree be delayed to give time for further review and refinement. Further discussions with DOE have resulted in some further adjustments of the Decree, but its primary focus is still on supporting off-grid systems. The Decree provides for the Off-Grid Promotion Fund to be converted to a Rural Electrification Fund, capable of supporting off-grid, isolated grid and main grid rural electrification within 2 years. The revised draft Decree, as signed by the Prime Minister on ?? September 2004, is included as an attachment to this report. Rural Electrification Framework

RE Implementation Models

In Lao PDR, as in many other countries, rural electrification has been implemented mainly through EdL and financed by a combination of Government funds and loans from the IFIs and donor countries. The capacity of the Government, the IFIs and donors to provide the financing required for large-scale rural electrification programs is limited and other sources of financing will be needed if the Government’s rural electrification targets are to be met. Accordingly, alternative implementation models, aimed at bringing other sources of financing to the rural electrification effort, are expected to be required.


It is important to consider, in this context, the full range of options for public-private partnerships when deciding on the best model for the sector to meet the overall objectives of:

• Changing the manner in which new investments are financed. • Increasing the efficiency and development effectiveness of those instruments. • Increasing operational efficiency while addressing equity concerns as the sector expands.

It is equally important to select a model or models that are in tune with the economic, political, social and geographical climate of the country concerned – Lao PDR in this case. Therefore, when deciding what weight to place on the experience reported from other countries, we took note of whether the model:

• Matched the economic, political and social climate in Lao PDR. • Matched the population density, average village size and geographic spread in the country. • Took account of available hydropower and other renewable energy resources. • Was in accordance with Government policy and current statutes. • Were combinations that have already proved successful and sustainable in Lao PDR. • Made best use of existing institutions and avoid creating new ones unnecessarily. • Had potential for scale-up to the required rate of implementation whilst avoiding the time and

cost of trials or pilot projects. A wide range of potential rural electrification models is found worldwide, some of which could be suitable for application in the Lao context, and some of which will not. A summary of relevant international experience with RE implementation models, which draws out experience relevant to Lao PDR, is presented in this Report, under the following headings:

• Vietnam – District Level local Distribution Utilities and RARE Fund • Cambodia – Rural Electrification Enterprises • Sri Lanka – Private Sector and Community Managed Off-Grid Electrification • Bangladesh, India and Philippines – Consumer Co-Operatives • Nepal – Community-Based Micro Hydro Program • China – Government-Owned Isolated Grids • Chile – Distribution Concessions • Uganda – Private Sector as Primary Provider of RE Services

Rural Electrification Models

Our assessment of the range of available rural electrification models, and their suitability for application in Lao PDR, is as follows:


Model / Description Observations Applicability to Lao PDR

Conventional Government-Owned Operations Conventional Utility Model

Government-owned

electricity utility extends its

grid to rural areas and

augments its generating

capacity as required. May

operate isolated grids as

well, with own generation or

cross-border supplies.

A well-proven model, internationally. Given good

management, a cost-reflective tariff and other

acceptable features, the utility can normally

procure equipment at good rates and install and

operate the network competently. RE is, however,

normally financially burdensome and requires

cross-subsidy from other market sectors. To date,

financial support has been available from the IFIs.

Other than in respect of foreign exchange risk and

tariff inadequacies that are being addressed to

some extent, EdL matches this description.

Continuation / acceleration of

main grid expansion by EdL is

recommended, in conjunction with

tariff reform.

Government-Owned Isolated Grids and Generating Plant

Government agency – in

Laos, a provincial office of

MIH or a district authority –

owns and operates an

isolated system and its

generating plant.

A well-trialled model in Lao PDR. Usually linked to

mini-hydropower development, mostly built with

the support of donor countries. Operations may

be contracted out – see under public-private

partnerships. There are about 39 systems in Lao

PDR, the responsibility of provincial government if

< 2 MW or district authorities if < 100 kW. Many of

these systems are inoperative, requiring

refurbishment or repair.

This approach is not

recommended, as previous

experience with this model in Lao

PDR (with operation by provincial

and district government agencies)

has been less than satisfactory.

Private Sector Operations Commercial Sales Model

Electricity generation /

storage systems (mainly

individual household

systems) are sold to

individual households by

private vendors.

Conventional private sector, commercial activity.

Market-driven and self-regulated. Purchase and

operating costs all paid by consumer but vendor

support sometimes available. In Lao PDR, the

purchase of low-cost individual household systems

such as automotive battery systems or pico-hydro

is common without Governmental support but less

so with more expensive systems such as such as

solar home systems or diesel gensets.

Continuation of private household

purchases of solar home systems

and pico-hydro systems (or other

RE systems such as batteries) is

recommended.

Rural Electricity Enterprises (REEs)

Diesel is the preferred type of generation because

of its low installation cost. However, supply is

often restricted to a few hours in the evening

The entrepreneurial private sector

ownership model is not

considered appropriate for Laos



Private companies or

individuals construct small

networks (mainly at low

voltage), install generators

(mostly diesel) and supply

electricity. The term

generally refers to the

Cambodian model.

because of the high cost of fuel. REEs operate for

profit and tariff / connection fee is usually high.

Operations normally cease if the main grid extends

to the area. REEs are not known to be operating

in Lao PDR although they are in Cambodia. The

Electricity Law in Lao PDR provides only for BOT

models. A change in the Law would be required to

allow the REE model, in which ownership remains

in private hands.

where the ultimate vesting of

assets in the Government is a

feature of the Law.

Electricity Supply Companies (ESCOs)

Another form of REE. In Lao

PDR, the term refers to

private companies or

individuals who contract (in

Lao PDR, with MIH) to sell

solar home systems or other

electricity generation or

storage systems to

consumers and manage the

consumers’ repayments for a

commission.

In Lao PDR, solar home systems, village hydro

and village diesel genset installations are currently

being supported by DOE’s OPS Program through

registered ESCOs using a hire-purchase

approach. The work is undertaken with financial

support from the GEF. The ESCOs are generally

individuals or small businesses operating at a

provincial or district level. The pricing of the hire-

purchase contracts includes a capital grant

(subsidy). Service support is provided by the

ESCO but the household normally pays for any

operation and maintenance costs.

Continuation of present (Lao)

ESCO activities is recommended,

but with:

• Significant scale-up of DOE’s

“Off-Grid Rural Electrification

Promotion and Support

Program”.

• Eventual conversion of the OPS

model into a national ESCO,

operating independently from

DOE.

• Support for other approved

ESCOs, if any – the

“Sunlaobob” rental model may

be an example.

Public-Private Partnerships Management Contracts

The private sector is

contracted to operate or

manage a Government-

owned entity or system or a

part of its functions.

Transfers only limited risks and responsibilities to

the private sector. The contract could cover: (a)

designated tasks, (billing and collection); or (b)

operation and / or maintenance of generation or

parts of the distribution system. This model is

used where the utility needs additional resources.

The contractor normally contributes only working

capital. EdL routinely contracts out engineering

and financial services of various types including

billing and collections in remote areas.

Operation, for EdL, of selected

small distribution systems in

remote areas or certain functions

associated with them, such as

billing and collection is

recommended

Leases Transfers more risk. Likely benefits include Not a common model and not



Some or all of the operational

activities in the Government-

owned entity or a part of it

are leased to the private

sector for an agreed period.

management expertise, improved tariff discipline

and better access to working capital. Usually most

relevant if the Government-owned utility lacks the

capability to manage its operation or if the

Government wishes to withdraw from its operation.

Agreed network extensions are normally funded by

the lessor.

currently used in Lao PDR. Not

recommended in preference to

management contracts.

Concessions

The most common (but not

the only) model is BOT –

build, operate and transfer.

Under this model, a

concession is given to the

private sector to build new

generation or distribution

systems and operate them

for an agreed period.

Ownership reverts to the

Government at the end of the

period.

Much higher risk transfer to the private sector.

Management, tariff discipline and access to capital

are all benefits. All of the major power generation

and export projects developed in Lao PDR

recently have been carried out on this basis.

Power projects developed recently for domestic

supply have been on a build-and-transfer model

but the expressed intention of the Government is

that future domestic power generation projects will

be BOT.

Recommended for application to:

• The repair and refurbishment of

existing unserviceable mini-

hydro stations by private

enterprises under a

“rehabilitate-own-transfer”

contract, or an “operation and

maintenance” contract (after

repair by others).

• Development and operation of

new mini- or micro-hydro

installations and their

associated distribution systems

by private enterprises under a

BOT contract.


new distribution systems

utilising a bulk supply from the

Main Grid by private enterprises

under a BOT contract.


new mini- or micro-hydro

installations by private

enterprises under a BOT

contract with supply to the Main

Grid under a small power

purchase (SPP) agreement.

Sale (divestiture)

Sale by the Government of

Generally only undertaken in developed countries

and as part of a major program of economic

reform often including the reduction of government

The sale of Government-owned

enterprises is not envisaged by

the Government at present and is



Government-owned entities

or parts of them to the private

sector.

debt. Not proposed in Lao PDR and no reflected

in the Electricity Law.

not proposed by us.

Community Ownership and Co-Operatives Community Ownership

Local communities, either

separately or in combination

with each other, undertake

the construction and

operation of electrical

systems. In the RE context,

this often includes local

generation.

The communities may be villages or groups of

villages. The entities that are established may or

may not have a recognised legal form (in Lao PDR

there is no legal vehicle for such operations). This

model has the advantage of local interest and

commitment, but a typically there is a lack of

managerial and technical capacity within the

organisation. Typically, also, the communities

raise no more than 5-10% of the capital cost of

establishing the system, the remainder having to

be funded by a capital grant from Government or

donor agencies.

While community-based

approaches are becoming more

common in Lao PDR, this model

is not recommended because of a

lack of experience with

community-based models, and

because small power system

operation and maintenance is

usually too complex for

community-based organisations.

Consumer Co-Operatives

A similar model to community

ownership but the body

concerned is comprised of

the consumers, not the

community.

Sometimes referred to as “co-operative societies”

although there may be no recognised legal form of

association. Based on the United States model,

RE co-operative societies were successfully

established in Bangladesh under a statute that

governs their operation. A similar approach in

India is apparently not well-regarded, and the

Philippine cooperatives (which follow the US

model) have fallen into financial difficulties.

Financing, usually from a central body, is required.

Not recommended, as there has

been little experience of co-

operative approaches in Lao

PDR, and because rural villages

are much smaller and more

sparsely spread than in other

countries in the region where this

model has been used.

Note: Community ownership and co-operatives are often found in circumstances where the private sector is not

willing to participate and where there is support in the community or amongst households for this type of structure. Need for an ‘Anchor’ RE Institution

We considered the necessity for a new body to assist with the management of rural electrification and/or to set technical standards – a so-called “anchor” institution. Policy development would not be part of its role, as this function is the responsibility of DOE / MIH. Our view is that establishment of an ‘anchor’ RE body (similar to the Rural Electricity Board in Bangladesh) is not necessary because existing organisations / institutions within


the country (primarily EdL and the OPS Program) can be scaled-up to carry out the majority of the work required. However, establishment of a Project Management Unit be within DOE is suggested. The PMU would be responsible for preparation of small RE projects to be tendered out to private sector bidders, evaluation and award of bids for the BOT contracts, contract administration / supervision, etc, for:

• The OPS Program (solar home and village hydro systems, using an ESCO approach) • A second national ESCO (if required for solar home systems) • Rehabilitation of existing micro / mini hydro isolated distribution systems (using a BOT

concession approach). • New micro / mini hydro / biomass isolated distribution systems (using a BOT concession

approach). Preparation, tendering, supervision, etc, of low-cost distribution concessions could be handled by EdL (suggested), or by the DOE’s PMU. Rural Electrification Approaches

Introduction

The following main rural electrification models, and associated technological approaches are suggested for application in Lao PDR:

• Conventional Utility Model – continuation / acceleration of EdL’s Main Grid expansion program in rural areas.

• Electricity Supply Company Model – scale-up of the OPS program and (possibly) recruitment of

a second national ESCO.

• Management Services Model – increased use of management services models, mainly within EdL.

• Concession Models – BOT concessions for: (a) rehabilitation of existing micro / mini hydro /

distribution systems; (b) new micro / mini hydro / biomass isolated distribution systems; (c) new renewable energy generation plants supplying the main grid under a small power purchase agreement, and; (d) low-cost, private-sector rural distribution concessions fed of the Main Grid.


It should be noted that no changes to the commercial sales model are suggested. Further details of each of the selected models are provided in the following sections: Conventional Utility Model - Main Grid Expansion

Under this model, the Government-owned electricity utility extends its grid to rural areas and augments its generating capacity as required. The utility may also operate isolated grids, supplied from its own generation or cross-border supplies. EdL has connected the majority of electrified rural households in the country so far and has well-established facilities in the Central 1, Central 2 and Southern Provinces. It is also establishing itself in the northern provinces through the ADB assisted Northern Area Power Development Project, which is extending the transmission and distribution grid significantly in that area. In general, the electrification of provincial towns has now been substantially completed, and the grid expansion program is now focussing on the electrification of district towns, and villages within reach of the distribution lines that inter-connect provincial and district towns. The continuation and acceleration of the Main Grid expansion program, generally following the current approach, will be required if the Government’s RE targets are to be met. This will require scale-up from the current rate of grid connection of households of about 15,000 households / year to about 50,000 households / year. A number of significant issues constrain the expansion of the Main Grid (and will need to be resolved) as follows:

• The willingness of households to pay for connection fees and house wiring costs. EdL’s experience is that reducing the connection fee leads to a significant increase in the connection rate, but the matter is complicated by perceptions of present and prospective tariffs. Our view is that connection charges should be set in consideration of actual costs, and expressed willingness-to-pay, as indicated by socio-economic surveys.

• The rate at which the present low tariff to rural households is increased. The 2004 RE Survey

suggests a willingness-to-pay for lighting, radio and TV of US$ 1.30 – 1.80 / household / month compared with current, typical EdL monthly charges of US$ 0.80 – 1.70 / month. This suggests that there is some room for tariff increases, particularly when the vast improvement in lighting quality is factored in. 5 As well there may be propensity for tariff structure alterations, to reduce the quantities of electricity supplied under the lowest tariff category.

5 A program of gradual increase in electricity tariffs is currently being implemented. We understand that the ongoing Tariff Study (EdL / Electrowatt) will address issues associated with electricity tariffs and the effects of the grid electrification program on EdL’s financial viability.


• The increased rate of distribution grid construction, and the strain this places on EdL’s resources. This can be managed through the recruitment / development of additional project management staff and support staff within EdL and the increased use of consultants.

• The strain that rural electrification puts on EdL’s finances and the absence of a transparent

mechanism for subsidising RE that is financially not viable. While there is currently an element of cross-subsidisation (mainly from commercial / industrial consumers to small households) in the current tariff structure, and the channelling of the Government’s dividends from IPP projects could be considered as a bulk subsidisation of EdL, there are currently no direct mechanisms for subsidisation of rural grid expansion. 6

• A shortfall in available funding for capital works. 7

• Experience in other countries with low population densities and small dispersed communities

indicates that electrification via 3-phase, MV / LV kV distribution systems will probably not be economic in many areas, unless significant levels of productive / commercial uses are available. The adoption of lower cost distribution systems (such as single phase and SWER systems) will allow the Main Grid to be extended beyond the economic limit of 3-phase, MV / LV kV systems.

Electricity Supply Company Model

In Lao PDR, ESCOs refer to companies or individuals, generally operating at the provincial level, who contract to sell solar home systems or other electricity generation or storage systems to consumers and manage the consumers repayments, for a commission. The existing OPS Program Office (located in DOE) currently acts in the role of a national ESCO, managing / administering the OPS Program. Sales, installation, service support and customer repayment services are provided by eight, small, provincial ESCOs (normally small businesses or entrepreneurs) covering seven provinces. The program is currently providing off-grid systems at the rate of about 2,200 systems / year to seven provinces. Delivery of systems will need to be scaled up to around 10,000 systems per year, and extended to cover all provinces, if the Government’s off-grid electrification targets are to be achieved. Scale-up of the OPS Program is suggested through a 3-stage process, as follows:

6 The issue of subsidisation of rural electricity grid extension is being considered as part of the Tariff Study, which will recommend a subsidy policy that will enable EdL to operate on a commercial basis while also delivering affordable electricity to as many consumers in Lao as possible. 7 The ongoing Financing Strategy Study will address the issue of funding for ongoing grid expansion after completion of the ADB assisted Northern Area Power Development project and the World Bank assisted SPRE II Project.


• Stage 1: Pre - SPRE II (July ‘04 – June ’05). During this interim stage, in which the program will continue to be funded by IDA / GEF under the SPRE I Project, the program will be expanded to cover all 17 provinces (and the Xaisomboun SR) by recruitment of additional provincial ESCOs. A Project Management Unit will be established within DOE and will prepare terms of reference to allow the out-sourcing (on a competitive basis) of the management of the existing OPS Program to a private sector organisation. The current OPS Operation Manual will be updated and refined. DOE should also review the existing subsidy levels for off-grid systems, to more closely match up-front deposits and monthly hire-purchase repayments with willingness-to-pay, and to achieve full recovery of the costs of the off-grid program to the extent practical.

• Stage 2: SPRE II – Phase 1 (July ‘05 – Dec ’07). During this stage, the out-sourcing of the

management of the OPS Program during SPRE II – Phase 1will be completed, with a target of electrifying 10,000 households through off-grid systems. The Off-Grid Promotion Fund will be established, and consultants recruited to provide the services required of the Fund Manager and Fund Secretariat. As the Fund becomes established, the current direct funding of the OPS (by IDA / GEF) will be channelled through the Off-Grid Promotion Fund and the operation of the re-flow account will be transferred to the Fund. One of the prime objectives of the Off-Grid Promotion Fund will be to raise additional financing to support a much expanded off-grid program during SPRE II – Phase 2.

• Stage 3: SPRE II – Phase 2 (Jan ‘08 – onwards). During this stage, the DOE Project

Management Unit will complete the out-sourcing of the management of the OPS Program and a second national ESCO (if required) during SPRE II – Phase 2, and mobilisation of the selected management contractors. The Off-Grid Promotion Fund will be converted (by issue of a follow-up Presidential Decree) into a Rural Electrification Fund, able to provide financing for off-grid, isolated grid and main grid electrification.

While the existing off-grid program in Lao PDR is still small, our view is that the Government may be unwise to concentrate its entire off-grid program through one implementing organisation. We would suggest the organisational arrangements allow for the out-sourcing of a second national ESCO in the future, if the performance of the OPS Program is not satisfactory, or if it is necessary to increase the off-grid targets8. This would allow some flexibility in the delivery of off-grid electrification services. Management Services Model

Under this model, private sector organisations are contracted to manage a part or all of a Government-owned entity or system, or a part of its functions. This approach transfers only limited risks and responsibilities to the private sector, but often brings improved management or additional resources (where this is required). In some cases, contracting out management services can help to lower operating costs. Normally, management 8 Our view is that the number of households to be electrified through off-grid systems is likely to increase once the RE Master Plan is completed and the RE targets reviewed.


services contractors would contribute only working capital. Management services contracts could cover, for example:

• Designated tasks such as billing and collection in defined areas. • Operation and maintenance of generating stations or defined sections of the distribution system. • Corporate functions, such as accounting services, project management services, etc. • Management, billing / collection, operation and maintenance of the existing, operational micro

hydro / distribution systems owned at the provincial / district government level. In Lao PDR, EdL currently contracts out engineering and financial services, including billing and collections in remote areas. We suggest that EdL consider increased use of management services contracts, where this brings improved management, or where additional resources are required. Such an approach would also help to encourage and develop entrepreneurs / small businesses in rural areas. Concessions Model

Under this model, a concession would be given to a developer to build new generation and/or distribution systems to supply consumers, usually in a defined area, and operate the systems for an agreed period. Ownership would revert to the Government at the end of the concession period. The developer would usually be contracted under a BOT form of contract (the Electricity Act allows for BOT models, but not for BOO models). The Government and EdL have significant experience of large-scale hydropower BOT contracts, much of which is applicable to BOT contracting of rural electrification projects (albeit on a much smaller scale). Concessions transfer much of the development and operating risks to the private sector, and all (or a majority) of the financing required for the development is provided from private sector sources. However, the returns on investment expected by the developer are likely to be significant, and the consumer tariff levels required to sustain such returns are likely to be beyond the willingness-to-pay of most rural households. Accordingly, subsidies will be required to reduce tariffs to affordable levels and to provide sufficient return on investment in most cases. In Lao PDR, four main concession approaches can be considered:

• Rehabilitation of existing micro hydro / distribution grid systems. In this case, existing non-operational or poorly-operating micro hydro generating stations and their associated distribution grids / consumer connections would be given to a private sector developer / operator, who would rehabilitate them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government.


• New micro / mini hydro / distribution grid systems. In this case, new micro / mini hydro

generating sites and an associated distribution concession area would be given to a private sector developer / operator, who would construct them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government.

• New renewable energy generation plants supplying the Main Grid. In this case, new mini / small

hydro sites or mini biomass resources would be developed by private sector entities, who would construct them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. Electricity produced from the stations would be sold into the Main Grid system under a standard small power purchase agreement with EdL.

• Private sector rural distribution systems. In this case, defined distribution concession areas

would be given to private sector developer / operator, who would construct distribution systems (probably utilising lower cost single phase or SWER distribution systems to supply consumers), operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. An agreement for EdL to sell electricity from the Main Grid to the concession at a ‘bulk’ rate would be required.

In all cases, after transfer back to the Government, the ongoing operation of the systems (i.e. billing, operation and maintenance) could be contracted out under a management services contract. Rehabilitation of Existing Micro Hydro / Distribution Grid Systems Some 39 existing micro hydro systems (with an aggregate capacity of 2,381 kW) capable of serving more than 12,000 rural households via simple, isolated distribution systems have been developed within the country. Of these, 18 micro hydro systems (with an aggregate capacity of 565 kW and capable of serving about 4,100 households) are currently not operational, and about 11 of these are considered suitable for rehabilitation. As well, about 11 of the operational systems (with an aggregate capacity of 765 kW and capable of serving about 3,800 households) are in need of repair / refurbishment to restore their operational ability and efficiency. The sunk costs of the non-operational projects and the operational projects requiring repair is significant and it is suggested that an assessment be initiated to properly investigate the potential for repair and refurbishment of these systems. The assessment would investigate technical, environmental and social aspects and be aimed at identifying a program of rehabilitation and repair, and establishing the scope, viability, institutional arrangements and implementation / tendering arrangements of the program. New Micro / Mini Hydro / Distribution Systems A listing of potential mini hydro systems (up to 5 MW capacity) has been prepared from information provided by DOE, and is included in this Report. The list contains about 50 potential sites totalling about 60 MW of capacity, many of which are located in the northern provinces and will be investigated under the JICA Small


Hydro Project in Northern Lao PDR Study (up to 10 viable mini / micro hydro projects will be taken to feasibility level). Some 15 sites in the southern and central provinces (mainly Bokeo, Savannakhet, Khammouane and Xaisomboun) have been identified, and we suggest that; (a) map studies / reconnaissance surveys be carried out to identify further resources capable of feeding demand centres that will not be electrified through the Main Grid, and; (b) some of these potential resources be assessed in more detail to establish their likely viability. A mini / micro hydro program that feeds power into the main EdL grid is unlikely to be viable, except (possibly) in very specific situations, such as; (a) at the end of a long transmission line or feeder to improve system stability; (b) to replace a diesel generator that provides voltage support; (c) to improve system stability; (d) to reduce line losses, or; (e) where the mini / micro hydro is economically viable and strongly supported by EdL. This is because the large-scale hydro plants being developed by EdL will generally produce electricity at lower cost than mini hydro generation. A full discussion of organisational, institutional and contractual aspects of this approach is given in the ‘Lao PDR Financing Strategy Study - Final Report’. 9 New Renewable Energy Generation Plants Supplying the Main Grid A full discussion of this approach is given in the Final Report of the Power Sector Financing Strategy Study – Lao PDR, Maunsell Limited, October 2004. Private-Sector Rural Distribution Systems In order to improve the rate of rural electrification, we recommend that private sector involvement should be sought for establishing and running electricity supply systems, taking their electrical supply from the Main Grid. The licensee would construct small, low-cost distribution systems serving rural villages or households, and would operate and maintain the system. The licensee would also charge for electricity delivered for the period of the licence. A suitable rate would need to be agreed for bulk electricity supply from the grid, reflecting the cost of generation and delivery but taking into account EdL’s savings in not handling the final stage of distribution and collection. The licensee could be an entrepreneur, a local business, a business from outside Lao PDR, a society of consumers, or any other suitable vehicle. A construction subsidy may need to be offered to licensees to reduce their investment costs and tariffs may need to be higher than EdL’s to provide an adequate return on investment. Subsidies should not, however, be provided for operation and maintenance costs. The low-cost systems envisaged might involve the use of single-phase or single-wire-earth-return (SWER) systems, since their use would minimize the cost of construction. Standards could be adopted from other countries experienced in the use of these systems and adapted to conditions in Lao PDR. Either system can be designed to allow for modification, over time, as load grows. The standards of workmanship and operation

9 A full discussion of the small power purchase approach is given in Lao PDR Financing Strategy Study - Final Report, Maunsell Limited, September 2004.


would need to be monitored to ensure compatibility with the grid as a whole and to ensure the safety of workers, consumers and the public. Since this model is not established in Lao PDR, it would need to be trialled (a pilot project is suggested). If successful it will have the advantage of bringing further resources to the sector and of extending skills in electricity distribution. Pico Hydro Safety and Operational Awareness Development

As in the hilly areas of North Vietnam, significant numbers of low-cost, Chinese-manufactured ‘pico’ hydro units (typically of 100 - 300 watts output) are in use in Lao PDR, more particularly in the northern provinces. These units provide a relatively unsafe supply, are unreliable and have a relatively short lifespan. Despite these drawbacks, anecdotal indications are that ‘pico’ hydro usage rates of over 50 % of households are common in many villages in the northern provinces, thus bringing basic lighting to significant numbers of people, many of whom are ethnic minorities. An awareness building program, to build knowledge of electrical safety, and disseminate information on the correct installation of pico hydro units and correct / safe wiring of houses, is recommended. The program would best be financed with grant funding, possibly through a NGO or bilateral donor. Rural Electrification Master Plan

Main Elements

The Rural Electrification Master Plan will consist of two main elements:

• A RE Database and GIS that will contain the basic data required, down to the village level, for effective rural electrification planning. The RE Database / GIS was partly set-up previously, but needs to be developed further and ‘populated’ with data relating to all rural villages in the country, renewable energy resources, etc.

• A RE Master Plan that describes the most economical method of providing electricity to each

village in the country, along with the priority (time-line) for electrification. Both the RE Database / GIS and the RE Master Plan will need to be updated periodically (preferably annually) as the electrification of the country progresses and as the socio-economic situation and demand for electrification in rural areas of Lao PDR develops.


Approach

EdL is currently managing the planning and expansion of the Main Grid, and has the necessary data, computer programs and skilled personnel to carry out this task. As MIH / DOE assumes the role of preparing the RE Master Plan, EdL will loose some of its current planning independence and will need to direct its RE activities in accordance with the RE Master Plan. The following broad approach to rural electrification planning is recommended:

• MIH / DOE will be responsible for preparing the RE Master Plan in consultation with EdL, the PDIHs and other stakeholders. This will be a feasibility-level plan that will identify electrification implementation priorities for all villages, provide an indicative implementation timeline based on the electrification priorities covering a 15 year period and will identify suitable implementation approaches for various areas (such as EdL grid extension, concession, ESCO, etc.).

• The current rural electrification planning approach will be adjusted to include consideration of

the relative economic benefits of the various RE models / technologies, so that the RE Master Plan is developed on a least-cost basis.

• EdL will continue to manage the detailed planning / expansion of the Main Grid in accordance

with the requirements of the RE Master Plan, and will publish its detailed rural distribution grid expansion plans in the Power Development Plan on an annual basis, as it does at present. The PDP should be expanded to contain a list of villages that EdL will electrify within the next year, next 2 years, next 5 years, next 10 years, etc.

• Provincial, district and village authorities have responsibility under the Electricity Act for planning

of smaller, off-grid systems. Planning for these systems, and coordination with other systems, will be included as part of the RE master planning process, but in consultation with provincial and district authorities and the DOE.

• All villages that will not be electrified under either the EdL main grid expansion, or under

provincial / district distribution systems, will then become the domain of off-grid electrification systems (i.e. individual household systems and village systems), and the programs for off-grid electrification will be directed towards these areas.

• The various electrification approaches (main grid, provincial / district grid and off-grid) will need

to be coordinated by DOE to prevent overlap and duplication of electricity services, as the Master Plan develops in the future.

• Where extension of the main electricity grids over-runs existing isolated provincial / district

schemes in the future, means of incorporating these systems into the main grid will be required.


Organisation

The organisational arrangement proposed for preparation of the RE Master Plan is indicated in the following diagram:

Master Plan Organisation

DOE will be responsible for the coordination of off-grid and Main Grid system planning / implementation, to avoid overlap of electricity services. Since EdL and DOE will both be modifying the RE Database / GIS, clearly defined scopes will need to be agreed with respect to database management and sharing database updates. While EdL’s system planning division is adequately staffed, additional staff will be required within DOE for RE database management and RE master planning. Staffing levels for the DOE master planning function and computer hardware / software requirements for DOE / EdL are suggested in the main report. Engagement of an experienced consultant to assist DOE with establishment of the RE database and initial preparation of the RE master plan is suggested. Subsequent maintenance of the RE database and updating of the RE master plan would be by DOE. Master Planning Framework

The following diagram summarises the framework for the RE Master Plan preparation, highlighting the components that need to be prepared and brought together to produce the Master Plan. As the figure shows,


an important initial step in the process will be the further development of the RE database / GIS, through the completion of supplementary RE surveys and resource inventory studies.

RE Master Planning Framework

RE Database Development

The existing RE database10 will be reviewed, refined and expanded, generally as follows:

• A list of all rural villages within the country, along with their geographical location and unique identifier will be obtained from the National Statistical Centre11 and entered into the database. This list will modify the current EdL list, in which villages are not always positively identified.

• A basic survey of all rural villages will be carried out to collect basic socio-economic and RE

data for inclusion in the database. The survey work will be carried out by DIH provincial staff,

10 A RE Database template, populated with data relating to about 300 villages in the southern / central provinces was prepared as part of the 2004 RE Survey. 11 The National Statistical Centre is currently preparing a list of all villages in Lao PDR as part of preparation for the 2005 Census.


who will be trained to train district staff to undertake the surveys. Data obtained will be collated by provincial DIH staff on computers to be provided under the RE Master Plan consultant contract and transmitted to DOE.

• A comprehensive socio-economic / RE survey of about 300 representative rural villages (about

3,000 households) will be carried out to obtain detailed socio-economic and RE data, and spatial layouts of the villages. The survey format will be based on the 2004 RE Survey, the 1999 ESMAP survey and layout surveys to the

• Details of the existing EdL transmission distribution system will be entered, along with details of

significant rural loads, captive plants, export IPP projects, etc.

• Renewable resource studies, aimed at establishing the likely viability of potential renewable resources, including: - Assessment of the rehabilitation / repair of existing micro hydro distribution systems. - Master plan study on small hydropower in northern Laos (currently being undertaken under

JICA funding). - Mini / micro hydro resource assessment in seven southern and central provinces. - Biomass resource assessment.

• Other relevant data, including topographical mapping, road network development, poverty data,

planning data issued by other Ministries (school construction rehabilitation, health centre development, market development, etc).

Master Planning Process

The RE Master Plan should be developed on an economic least-cost basis, taking account of likely electrical demand and willingness-to-pay. Main Grid electrification will then be directed towards villages that have higher demand / willingness-to-pay for both household and productive consumption, to minimise the effect of RE on EdL’s financial position. The master planning process will involve:

• Preparation of cost estimates, on a lifetime cost basis, of the various rural electrification technologies (for both main grid and off-grid implementation models) that could be applied in Lao PDR, and estimation of the cost of supply at the distribution feeder level, plus technical / non-technical losses, etc.

• Preparation / updating of electricity demand estimates for main grid and isolated grid systems,

mainly based on the current EdL estimations / data. Some data logging is suggested to build confidence in the estimates.


• Evaluation of the various RE approaches on an economic basis, using estimates of willingness-

to-pay, etc, derived from the comprehensive socio-economic / RE survey, and determination of simple criteria that can be used to facilitate the RE planning process.

• Review of EdL’s current transmission / distribution grid electrification planning and revision /

adjustment as necessary to fit with the planning criteria determined. This will include identification of areas where isolated distribution systems would be most economic, and areas where low-cost distribution system approaches (e.g. SWER, single-phase) can be applied. The review will also consider viable renewable energy resources that could be used to feed into isolated grid systems, support the stability of long feeders, etc.

• For villages that are outside the economic extent of main grid electrification, the most likely

means of off-grid electrification will be determined. For a large proportion of villages, this is likely to involve solar PV systems, but: - Villages where village hydro systems could be applied will be identified based on the

proximity of streams / rivers, and hydrological and topographical characteristics. - Villages where village biomass systems could be applied will be identified based on the

proximity of identified resources. - Villages where village wind power systems could be considered will be identified based on

wind speed maps (wind resources are poor in most of the country). Outputs of the RE Master Plan will include lists of all rural villages with summaries of their main characteristics, current electrification status, planned electrification approach, approximate timing of electrification, etc. Maps will be prepared showing the locations of all rural villages, planned extent of the main transmission / distribution system, planned extent of isolated distribution systems, locations of renewable resources, locations / extent of off-grid systems, etc. Estimates of the cost of the rural electrification program and a suggested implementation timetable / financing flow. A planning manual will be prepared, outlining the principles and detailed methodology to be used for updating / maintaining the RE Database and RE Master Plan periodically. As well, the Government’s rural electrification targets will be reviewed and recommendations for adjustment of the targets made, if required. Capacity Building and Knowledge Dissemination

Training programs will be prepared and delivered to:

• DOE and EdL staff, on preparation, maintenance and upgrading of the RE Database and RE Master Plan.

• Provincial DIH staff, on application of the basic data surveys, collation of data and training of district authority staff in application of the survey.


• District authority staff, on application of the basic data surveys. Following approval of the RE Master Plan by DOE, the information in the Plan will be disseminated to national, provincial and district organisations, through a series of workshops in central and provincial areas of the country. Flow Chart

The RE master plan study process is encapsulated in the following flow diagram:

RE Master Plan Flow Chart


1.0 Introduction

1.1 Background and Appointment

This Rural Electrification Frameworks in Lao PDR Study (the Study) arose from the Power Sector Policy Implementation Strategy, which identified the need for a broad review of options for rural electrification in the country. As a result, studies were undertaken to consider alternative rural electrification models suitable for Lao PDR that provide:

• Technical and commercial sustainability. • Equal access to the market for existing providers and new entrants. • Competitive processes where appropriate. • A system of licensing of enterprises which are providing off-grid and grid extension services.

The models will also consider:

• Consumer willingness-to-pay. • Consumer tariff issues including the role and structure of subsidies in making projects

commercially viable and tariffs affordable. • Establishment and operation of a rural electrification fund. • Economic and social consequences of rural electrification within target areas.

On 24 October 2003, the MIH invited proposals for the provision of consulting services relating to a Study of Rural Electrification Frameworks in Lao PDR and subsequently concluded a contract for the services with Maunsell Limited, of Auckland, New Zealand. 1.2 Objectives and Terms of Reference

The goal of the Study was to design a framework for developing a Rural Electrification Master Plan for Lao PDR. The Master Plan, which will be prepared under subsequent work, will determine the most economical method of providing electricity for each village in the country and will prioritise villages for electrification. The Study and development of the RE Master Plan needs to be supported by inventory studies of various electricity generation resources (such as hydropower, wind, biomass, solar PV, cross-border grid extensions, etc). These inventory studies will be being undertaken by others, in parallel with the preparation of the Master Plan. The main objectives of the Study were to:

1. Review the existing MIH pilot project for off-grid electrification and the proposed scale-up program and recommend improvements.

2. Review MIH proposals for establishment and operation of a Rural Electrification Fund (REF) and

recommend improvements.


3. Review the overall RE program of MIH / EDL and define a framework for grid and off-grid based RE appropriate under the conditions in Lao PDR.

4. Review existing inventory studies and define a framework for the preparation of a RE Master Plan.

The terms of reference for the RE Frameworks Study are included in Attachment 1 – Terms of Reference. 1.3 Reference Material Obtained and Persons Interviewed

The reference material obtained and reviewed during the course of the Study is listed in Attachment 2 - References. The persons met / interviewed during the course of the Study are listed in Attachment 3 - Persons Met / Interviewed. 1.4 Other, Related Sector Studies

The RE Frameworks Study is part of a suite of studies aimed at developing a wider strategy for the future development of the power sector in Lao PDR. DOE / MIH and EdL have appointed external advisors to facilitate review of the studies. The studies are summarised as follows: No. Study Implementing

Agency / Consultant Approx. Start / Completion Dates

World Bank Supervision Provided By:

World Bank (PHRD) Supported Studies 1 RE Socio-Economic Survey

and Establishment of an RE Database

DOE / Decon / System-Europe

February 2004 / June 2004

Mr Voravate Tuntivate

2 RE Frameworks Study

DOE / Maunsell Limited

12 February 2004 / 30 July 2004

Mr William Derbyshire

3 Power Sector Financing Strategy

DOE / Maunsell Limited

19 April 2004 / November 2004

-

4 Tariff Study

EdL / Electrowatt

April 2004 / Mr Robert Vernstrom

5 Distribution System Loss Reduction Study

EdL / Tepco

April 2004 / -

Other, Relevant Studies 6 Master Plan Study on Small

Hydropower in Northern Laos

JICA / Nippon Koei February 2004 / December 2005

-

7 Power System Development Plan

World Bank / Lahmeyer – Maunsell

September 2003 – June 2004

8 IPP Development and Institutional Re-Structuring

ADB Consultant recruitment underway


The RE Frameworks Study was administered / supervised by DOE. Funding for the RE Frameworks Study was provided through the Policy and Human Resources Development (PHRD) Fund, which is administered by the World Bank on behalf of the Japanese Government. 1.5 Study Implementation

The RE Frameworks Study commenced on 12 February 2004, with a target completion date of end-July 2004. • An Inception Report was submitted on schedule in mid-April 2004. By agreement with DOE, the

content of the Inception Report was extended to present initial findings and directions, so as to facilitate earlier review and comment on key elements of the Study.

• The Inception Report was presented to a group comprising MIH / DOE, EdL and World Bank

personnel, in Vientiane in mid-May 2004. • A Discussion of Proposals for Establishment of a Rural Electrification Fund was presented in

mid-May. • A draft Final Report was submitted on schedule at the end of June 2004. Comments received

on the Inception Report from DOE and the World Bank were incorporated in the draft Final Report.

• The draft Final Report was presented to a group comprising MIH / DOE, EdL, PDIH, LNCE and

World Bank personnel, and other stakeholders, at the Lang Xang Hotel in Vientiane in the 3rd quarter of July 2004.

• The Final Report (this report) was submitted at the end of August 2004. Comments received on

the Inception Report from DOE and the World Bank were incorporated in the Final Report. The time for the submission of the Final Report was extended due to the delay in the planned commencement of the SPRE II Project (from January 2004 – July 2004), and to allow inclusion of relevant data from the delayed RE Socio-Economic Survey (which was being carried out by others).

1.6 Structure of the Report

The Final Report is structured in the following main sections:

• Section 1 – Introduction, (this section) provides an introduction to the study, gives reference to data obtained / reviewed and persons interviewed during the course of the study, describes


other sector related studies that will interact with the RE Frameworks Study and outlines the structure of the Final Report.

• Section 2 – Current Rural Electrification Situation, provides a brief physical and economic profile

of Lao PDR, a description of the National Poverty Eradication Program (one of he Government’s most important initiatives), an overview of the laws and policies as they apply to rural electrification, an overview of the institutional structure of the power sector, and a summary of the RE technologies / approaches currently being applied throughout the country. Key issues that need to be considered in respect of rural electrification are then identified.

• Section 3 – Government Targets for Rural Electrification, summarises the Government’s rural

electrification targets, and comments on the estimated cost of achieving the targets.

• Section 4 – Review of Rural Electrification Options, provides reviews of various approaches that could be applied to increase rural electrification within the country, including the existing Off-Grid Rural Electrification Promotion and Support Program, existing private sector initiatives in off-grid rural electrification, existing and potential renewable energy resource use in the country (mainly hydro power and based on the limited amount of data currently available), and a preliminary examination of the ongoing JICA-assisted Masterplan Study on Small Hydropower in Northern Laos.

• Section 5 - Proposed Off-Grid Rural Electrification Fund, reviews the draft Prime Ministers

Decree on the Off-Grid Promotion Fund that was submitted for signature in late 2003, and suggests a number of modifications of the Decree to improve its attractiveness to potential donors, soft lenders and international financing institutions. The final Prime Ministers Decree, as agreed following discussions between DOE and the World Bank, is included in Attachment 10.

• Section 6 - Rural Electrification Framework, provides details and assessments of a range of

potential electrification models that could be applied in the country, and then selects and describes implementation models that could be applied within the country, including: (a) continuation / accelleration of the existing main grid expansion program; (b) electricity supply company models; (c) management services models, and; (d) concessions models. A small assignment to improve pico hydro safety and develop operational awareness is also described intis sectiuon, and could be suitable for implemntation by a NGO or bi-lateral donor.

• Section 7 – Rural Electrification Master Plan, provides details of the proposed approach to rural

electrification planning, and development / updating of a Rural Electrification Database / GIS and a RE Master Plan covering all villages within the country. A number of village electrification plans were completed to test the suitability of the rural electrification data currently held by DOE / EdL for RE planning and the outcomes of these trials are also described in this section and in Attachment 14.


• Section 8 – Implementation Timetable. An implementation timetable for the RE Master Plan

Study and associated resource assessments is included in this section.

• Attachments – Supporting data is included in the Attachments to the Report. In particular:

− The Terms of Reference for the RE Frameworks Study are included in Attachment 1. − List of reference material obtained and persons met / interviewed are included in

Attachments 2 and 3. − A review / summary of the Electricity Law & Power Sector Policy is included in Attachment

4. − Details of existing and potential renewable energy resources (mini / micro hydro, solar PV,

biogas, wind and solar PV), based on the limited data available, are provided in Attachments 4 – 8 inclusive.

− The Prime Ministers Decree on the Off-Grid Promotion Fund opriginally submitted for signing, along with suggested modifications of the Decree and a copy of the similar Prime Minister’s Decree on the Poverty Reduction Fund are included in Attachments 9 – 11 inclusive.

− The detailed review of / assessment of rural electrification models that could potentially be applied in Lao PDR is included in Attachment 12.

− Supporting information relating to the preparation of the Rural Electrification Master Plan is included in Attachment 13.

− The trial village electrification plans prepared to test the suitability of existing data for RE planning is included in Attachment 14.

1.7 Acknowledgements

This Report was prepared by Alistair Tait, Jeffrey Wilson, Conrad Holland and John Kepple of Maunsell Limited, Auckland, New Zealand. The authors wish to thank Mr. Houmphone Bulyaphol, Director, Electricity Department, Ministry of Industry and Handicrafts, and his staff, for their full cooperation and support throughout the Study. The Report also benefited from advice provided by the staff of Electricité du Laos, and the Off-Grid Promotion and Support Office of the DOE. Mr Barry Trembath and Mr Morten Larson of the World Bank, and Mr William Derbyshire, a consultant to the Bank, also provided valuable inputs to the Study on behalf of the Bank.


2.0 Current Rural Electrification Situation

2.1 Background

2.1.1 Introduction

Villagers in rural Lao PDR look forward to new opportunities for themselves and their children. They seek more knowledge of the world, better health, new ways to raise their incomes, and easier ways to study at home and at school. Electricity is generally recognized as helpful in realizing these opportunities. Accordingly, the Government of Lao PDR has established the target of electrifying 90 % of the households in the country by 2020. Current planning is that some 80 % of all families in the country will be connected to the main electricity grids by 2020. Another 10 % of the rural population (about 100,000 households) will be supplied from off-grid, stand-alone electricity generators, mostly privately owned. In the medium-term, this number is likely to be larger (around 150,000 households), as it will take time for the grid to be extended into remote areas. However, in the longer-term, the number of off-grid connections is expected to reduce, as the grid is extended further into remote areas. In addition to traditional fuel usage, rural villagers commonly use stand-alone devices, such as battery chargers, diesel generator sets, and personal hydro turbines for one house or a small group. When asked if these work well, they often mention that power is unreliable, there are serious accidents, and the equipment is time-consuming and expensive to maintain. Nevertheless off-grid power is an initiative people are already taking, investing their time and money in making electricity on their own. Rural electrification is an important priority for Lao PDR because it can contribute to the long-term development of rural areas. Although it is clear from past studies that rural electrification in isolation does not cause economic development, the evidence suggests that it is a necessary pre-condition for development in economically active regions. 2.1.2 Country Profile

Lao PDR is a land-locked country in the heart of Southeast Asia. Encompassing 236,800 square kilometres and sharing borders with China in the north, Cambodia in the south, Vietnam in the east, Myanmar in the north-west and Thailand in the west it provides a land link to all of the countries in the region. It connects its five neighbours to each other and has the potential to be a valuable transportation link. Laos is characterized by two main geographical zones: - the central plains along the Mekong River and the mountainous regions to the north, east and south. The climate is governed by two monsoons, bringing rain from May to September and a dry season from November to February.


As of July 2003, Lao PDR had a population of approximately 5.34 million people,12 with a growth rate of about 2.7 % per year. The population comprises three main ethnic groups: the Lao Loum (lowland), 68 %, the Lao Theung (low mountains), 22 %, and Lao Sung (high mountains), 10%. The population density is 23 persons per square kilometre and roughly 85 % of the population lives in rural areas. The adult literacy rate is 62 % and life expectancy at birth is 57 years for males and 61 years for females. The major cities are Vientiane, the capital, Savannakhet, Pakse and Luang Prabang. Buddhism is the dominant religion with more than 85 % of the population as believers. The official language is Lao. The administrative system of the country includes about 11,000 villages in 142 districts in 16 provinces, 1 city (Vientiane) and 1 special region (Xaisomboon). Education is compulsory through age 12. The education system is organized with six years of primary education starting at age six, three years of middle and three years of high school. University enrolments have been expanding rapidly over the past decade.

2.1.3 Economic Overview

Since the late 1980s, the government’s economic policy has been to move rapidly from a centralized, planned economy toward an open, liberalized, market-oriented economic system. The foreign exchange markets were also opened and formal exchange controls lifted, and the Lao currency (kip) now floats freely based on supply and demand. In 1995, in response to the Asian economic crisis, the kip devalued (from about US$ 1.00 = 726 kip) to its current value of around US$ 1.00 = 10,000 kip. The inflation rate also increased markedly, peaking at about 142 % per year in 1998, but is currently around 7 % per year. GNP in 2001 was US$ 310 per capita in 2001 and is estimated to have increased to about US$ 370 per capita in 2004. Agriculture provides about 50 % of the GNP. Real GDP growth over the last few years has been in the range of 5.5 – 6.5 % / year. External debt as a percentage of GDP has risen, but is thought to have peaked and a decline is predicted 2005. The trade balance is stable and the current account deficit as a percentage of GDP is therefore also expected to decline. Indicator

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Real GDP growth %

7.0 5.9 8.1 7.0 6.8 6.9 4.0 7.3 5.7 5.5 5.8 6.0 6.5

Average inflation %

6.0 8.9 6.8 25.7 7.3 26.6 142 86.5 30.0 7.8 10.6 n/a n/a

12 Source: 2003 Population Count, National Statistical Centre, Committee for Planning and Cooperation, as at July 2003.


Lao PDR is the recipient of about US$ 200 million annually in international grant support, which is largely targeted at social and environmental projects designed to alleviate poverty in the country. 2.1.4 National Poverty Eradication Program and Poverty Reduction Fund

The National Poverty Eradication Programme is central to the national development agenda. The NPEP encapsulates the essence of the Lao PDR’s approach towards achieving the goal set in 1996 by the 6th Party Congress: that is, exiting the group of LDCs by 2020. Lao PDR’s long-term national development goal is to be achieved through sustained equitable economic growth and social development, while safeguarding the country’s social, cultural, economic and political identity. The foundations for reaching this goal have been laid during the past 28 years of peace and development in the country by (a) moving consistently towards a market-oriented economy; (b) building-up the needed infrastructure throughout the country, and; (c) improving the well-being of the people through greater food security, extension of social services and environment conservation, while enhancing the spiritual and cultural life of the multi-ethnic population. The 7th Party Congress (March 2001) defined the following guidelines for poverty eradication and sustainable economic growth:

• The socio-economic development of the country must be balanced between the three pillars of economic growth, socio-cultural development and environmental preservation.

• Socio-economic development must be based on sound macro-economic management and

institutional strengthening and must be harmoniously distributed between sector and regional development, and between urban and rural development, so as to fully and efficiently utilise human and natural resources.

• The national development potential and strengths must be combined with regional and global

opportunities in order to enable participation by Lao PDR in regional and international economic integration.

• Socio-economic development must be closely linked with national security and stability.

Within these guidelines, the main objectives of the long-term development strategy include; (a) sustaining economic growth at an average rate of about 7 per cent (to triple the per-capita income of the multi-ethnic Lao population by 2020); (b) halving poverty levels by 2005 and eradicating mass poverty by 2010, and; (c) eliminating opium production by 2005 and phasing-out shifting cultivation by 2010. To attain these objectives, the Government has outlined the following strategic priorities:


• Maintaining an appropriate level of economic growth for the medium and long-term period in response to demographic trends.

• Enhancing human resource development through education, particularly basic education at all

levels and including the formal and informal sector as well as vocational training. • Developing and modernising social and economic infrastructure in order to facilitate economic

development in each region of the country and to accelerate the Lao PDR’s regional and international economic integration.

• Facilitating access to electricity for people in all areas and regions of the country in order

to foster integrated economic development. • Promoting industries utilising domestic natural resources, and actively promoting small and

medium-sized enterprises (SMEs) and handicrafts production. • Developing and promoting all economic sectors, particularly the private sector and including

foreign direct investment in order to expand business opportunities, with emphasis on export-oriented sectors that have a comparative advantage.

• Enhancing market linkages and trade facilitation. • Strengthening existing legal and regulatory frameworks. • Creating favorable conditions and mechanisms for improving financial institutions and further

capital market development. • Promoting economic co-operation with all partners and countries.

While not a main initiative towards poverty eradication, rural electrification is seen as a necessary pre-condition for the achievement of significant improvements in living conditions and education, and provides significant opportunity for improvement of household incomes through small productive enterprises. As such, the Government has established the target of providing electrification services to 90 % of the population by 2020, to support the poverty eradication initiatives of the NPEP. As part of the national poverty eradication effort, the Government has established the Poverty Reduction Fund (PRF) via the Prime Minister’s Decree PM/073 of 31 May 2002 and the Fund commenced operations in April 2003. The objectives of the Fund include: (a) building capacity and empowering poor villages in poor districts to implement their own public investments in a decentralised and transparent manner; (b) strengthening local institutions to support participatory decision-making and conflict resolution at the village, sub district (khet) and


district levels (and including women, the poor and ethnic minorities); and (c) assisting villagers to develop community infrastructure and gain improved access to services. The principles of the PRF include:

• Simplicity. Methods and techniques taught should be simple, and villagers should be able to do everything themselves and to maintain everything according to their needs and potentials.

• Village Choice. Many different kinds of sub-project are possible (although some are not

supported). • Participation. Villagers should make decisions together, and cooperate with each other to

implement sub-projects. Villagers should also be prepared to contribute local materials, and provide labour for project implementation, as they are able to.

• Ownership. The villagers will plan, implement, manage and maintain the sub-project. • Transparency and Accountability. Among other things, regular meetings will be held and an

information board will be used to publish information about the project, so that people can follow what is going on and avoid corruption of the project.

• Wise Investment. Allocate funds properly for real needs. Make sure that poor villagers benefit

from the project, and that the outputs of the project are sustainable. • Empathy. Siding with the poor and disadvantaged. The poorest people in the village should get

help. The PRF provides funding assistance to communities as grants for approved sub-projects. Sub-projects must conform to the Fund objectives and be eligible activities. Grants are generally limited to a maximum of US$ 25,000 / sub-project / village, except that this can be increased to US$ 50,000 / sub-project / village where a number of nearby villages are jointly involved. The PRF is initially working in 10 districts in three provinces only (Huaphanh, Savannakhet and Champasak), but the scope of operation will later be expanded to cover five provinces, 24 districts and 2,700 villages. The Off-Grid Rural Electrification and Support Program supported by DOE operates in two of the provinces currently supported by the Fund (i.e. Huapanh and Champasak). While community micro-hydro and solar PV systems can be supported under the PRF, gasoline or diesel generators are expressly excluded. In a number of cases, villages have expressed a desire for electrification as their highest priority, and as the PRF does not currently have implementation skills in this area it has called on the Off-Grid Rural Electrification and Support Program to assist with project implementation. Thus a cross-sectoral link between the two programs is expected to develop.


The PRF is financed by a low-interest loan (repayable over 40 years) of US$ 19.345 million from the World Bank plus a contribution from the Government of US$ 1.33 million, to give a total fund of some US$ 21.7 million. It is anticipated that these funds will be implemented over a period of five years. There are no other funders, and the PRF currently operates in the mode of a typical IFI-funded project. However the Prime Minister’s Decree establishing the PRF provides for the entry of other funding agencies and we understand that the GoL hopes to be able to attract contributions to the Fund from other donors / soft lenders in the future. A total of 72 districts (out of a total of 142 districts) within Lao PDR have been identified as poor, and 42 of the poor districts have been identified as having priority13. The poor districts are indicated on the diagram on the following page:

13 Priority districts identified under the National Poverty Eradication Program.



2.2 Legislative and Policy Framework

2.2.1 Electricity Law

The Electricity Law which became effective on 29 August 1997, sets out the regime for the administration, production, transmission and distribution of electricity, including export and import, through the use of a productive natural resources potential to contribute to the implementation of the national socio-economic development plan and to upgrade the living standards of the people’ (Article 1). Amongst other things it provides a suitable framework for the promotion and implementation of rural electrification. With respect to concessions for electricity activities, it is stipulated that investment is by the state solely or with foreign parties. Co-operative investments are allowed. Modalities may be:

• Build, operate, own and transfer (BOOT). • Build, operate, transfer (BOT). • Build, transfer, and finance (BTF). • Operation by the State Electricity Company. • Some other form.

However, in the section relating to concessions, the law stipulates that small-scale hydro generators under 2 MW, and thermal electricity generators under 500 kW, are exceptions to concession applications. As the majority of rural electrification projects will be under 2 MW (or under 500 kW in the case of diesel generators), concessions for such projects will not generally be required. The law stipulates that MIH, the provincial and district authorities and the village administrative authorities have co-ordinating and supervisory duties and rights. Electrification projects between 100 kW and 2 MW capacity are handled by the respective PDIH (with approval from MIH), and projects under 100 kW are handled at the district authority level (with approval from PDIH / MIH). In village schemes (generally less than about 10 kW), the village chief has the right and duty to facilitate parties who are undertaking electricity enterprises. This represents current practice, in that small entrepreneurs (ESCOs) use solar PV, thermal and micro hydro generators for very small commercial distribution networks, operated as private investments, presumably with district authorization through the village chief. These systems assign operational control and ownership to customers and to village scheme managers. In rural areas generally, surveys are undertaken by DOE, while approvals may be given by the provincial and district authorities after referral to DOE / MIH. Construction may be undertaken by the provincial authorities, DOE / MIH, or private parties for transfer later or thereafter to the provincial authorities. No mention is made specifically of operational aspects or which types of parties can operate systems.


The law stipulates that electricity pricing is specific to several types of electricity supply, one of which is rural and remote area supply. Prices are subject to socio-economic conditions. The Government agrees to and approves pricing levels for each type of electricity supply, allowing for periodic revisions of these levels. The law stipulates that an off-grid fund may be established by the State, financed from various sources, including the State, the people, and foreign or domestic assistance. The State may have a policy of reducing or exempting equipment, operation, and vehicles, from taxes and duties in order to facilitate off-grid development. A more detailed review of the Electricity Law, as it applies to rural electrification, is given in Attachment 4.

2.2.2 Power Sector Policy

Power sector policy is outlined in the Government’s Power Sector Policy Statement, September 2000 (revision 4). The main power sector priorities are to:

(i) Maintain and expand an affordable, reliable and sustainable electricity supply in Lao PDR to promote economic and social development.

(ii) Promote power generation for export to provide revenues to meet the Government’s development objectives.

(iii) Develop and enhance the legal and regulatory framework to effectively direct and facilitate power sector development.

(iv) Reform institutions and institutional structures to clarify responsibilities, strengthen commercial functions and streamline administration.

The key aspects of the policy statement, as it applies to rural electrification, are as follows:

• Low cost and reliable electricity is needed to promote social development and to overcome Lao PDR’s comparative disadvantages in attracting industry and investment. GoL policy is to increase national electrification as quickly as possible while extending electrification opportunities in all provinces and to all segments of the population (including low-income groups in remote and isolated areas) and maintaining or improving service to existing electricity customers.

• EdL will (within its mandate) promote extensions to its main grids, giving preference to projects

that accelerate social and economic development and alleviate poverty in rural areas, without detracting from its commercial performance.

• Much of Lao PDR lies beyond the economic reach of the main grids and the Policy therefore

promotes commercially prudent and sustainable electrification in off-grid areas to improve socio-economic conditions and reduce poverty within isolated rural communities. Government policy is


to develop methods by which connections can be affordable in rural areas, and by which the number of connections can be increased rapidly.

• It is recognised that promotion of off-grid supply requires coordination, oversight and regulation,

and the role and capacity of the Rural Electrification Division will be developed to provide such services, and achieve a clear separation between off-grid and main grid supply. RED responsibilities include formulating subsidy mechanisms, setting guideline prices, licensing ESCOs in collaboration with provincial authorities and donors, monitoring ESCO activities, regulating the off-grid fund, procurement inputs, preparation of standards and guidelines, and so on.

• The Policy provides for development of mechanisms for assurance of reliable performance and

expansion of supply, particularly mechanisms based on incentive systems. Village Managers and ESCOs will be motivated to maintain reliability and increase connections by appropriate remuneration mechanisms using tariff payments structured to recover costs, mobilize village resources and attract donor assistance (e.g. micro-credit support).

• The Policy aims to reduce the use of imported fuels for electricity generation by substituting

indigenous energy sources, principally hydropower but also solar, coal and biomass.

• The Policy recognizes that the provincial authorities and MIH branch offices require enhanced institutional capacity to facilitate the expansion of off-grid activity. Specific policies include encouraging ESCOs in their main tasks of planning, operating and supporting new schemes, attracting international donor funding for disbursement to identified projects as equipment subsidies, micro-credit, start-up finance, etc and in other forms as appropriate.

• The Policy indicates that procedures and capital subsidies will be developed to lower the

effective cost of equipment (e.g. centralized procurement, local manufacture, standard designs, tax exemptions) so that tariffs, set on a site-by-site basis to recover unsubsidised capital costs and all recurrent costs, will be affordable

• The Policy indicates that tariff policy is to move to cost recovery pricing over a period of time.

Transparency and predictability of electricity pricing will help present and potential customers make informed decisions about electricity usage and investments. GOL’s social policies may involve declared cross subsidies between customer categories, e.g. lifeline tariff.

• The Policy states that ‘The Electricity Law provides a suitable basis for promotion of off-grid

supplies. Certain clarifications, and some review and revisions are necessary to take account of growing commitment and policy developments in this area. Specific policies include: - Updating off-grid components of electricity law and introducing regulations to give effect to

policy.


- Developing ownership and implementation modalities to encourage expansion and self-sufficiency of off-grid schemes.

- Adopting flexible pricing within the framework established by regulation. - Introducing systematic and sufficient capital subsidy and tax incentives to establish off-grid

developments on a sound commercial and affordable footing. - Preparing regulations governing application of disbursements from the off grid fund.

• The Policy recognises that the capacity of DOE and provincial and district offices to oversee off-

grid fund disbursements and monitoring will need to be strengthened, and additional staff may be required.

A more detailed review of the Power Sector Policy Statement, as it applies to rural electrification, is given in Attachment 4. 2.2.3 Other Relevant Laws, Policies and Regulations

A program of legislative reform has been in progress in Lao PDR for more than a decade, aimed at creating amongst other things a legal environment that encourages investment in the country. In addition to the Electricity Law (1997) already discussed, relevant legislation includes the:

• Law on Foreign Investment (1988) • Contract Law (1990) • Commercial Bank and Financial Institutions Act (1992) • Customs Law (1994) • Labor Law (1994) • Business Law (1994) • Law on the Promotion and Management of Foreign Investment (1994) • Secured Transaction Law (1994) • Water & Water Resources Law (1996) • Environmental Protection Law (1999) and the • Rules for Consideration and Approval of Foreign Investment Projects in Lao PDR (2002).

2.3 Institutions

2.3.1 Organisation of the Power Sector

The organisation of the power sector and related agencies in Lao PDR is shown in the following figure:


Divisions within Department of Electricity:Power System Planning Div.Rural Electrification Div.Social and Environment Div.Electricity Management Div.Administration Div.

Notes:a/ Industry, Geology and Mines, Handicrafts, Inspection, Administration, Personnel.

Business Ventures

Generation Distribution ServicesDevelopment

Admin & Finance

Internal Audit GM's Office

General Manager

Board of Directors

Electricité du Laos

Power Sector Construction Companies

Ministry of Industry & Handicrafts

Cabinet Secretariat

Council of Ministers Prime Minister's Office Cabinet

Ministry of Agriculture & Forestry

Min of Transport, Communications &

ConstructionMinistry of Finance

Committee of Investment Management & Foreign Economic Co-operation

Science, Technology & Environment Agency

National Committee for Energy

Department of Electricity

State Planning Committee

Other Departments a/

Provincial Departments

Electricity Units


2.3.2 Ministry of Industry and Handicrafts

Overall responsibility for power sector development is vested with the Department of Electricity (DOE) of the MIH. Under the Electricity Law (Article 43) MIH has primary responsibility for policy formulation and strategic planning which are undertaken jointly with the Science, Technology and Environment Agency, the Committee for Investment Management and Foreign Economic Co-operation, and other relevant agencies. It also has responsibility for preparing and implementing legislation and regulations, collecting and processing data on electricity generating potential, preparing recommendations on tariff levels for submission to GoL, administering and inspecting electricity enterprises, and seeking funding for electricity sector development, particularly from foreign parties. DOE’s duties are divided between the Power Development Division, the Electricity Management Division and the Rural Electrification Division (RED), the focal unit for off-grid electrification. RED co-ordinates and implements projects that are not intended for connection to the main grids. It does this in accordance with the jurisdiction of the Provincial and District offices of MIH. The work of the RED encompasses small-scale power systems including thermal, hydro, and dissemination of solar photovoltaic technology. The Power Development Division and Electricity Management Division perform design, project management and advisory services in relation to mini and small off-grid hydropower projects and otherwise provide technical support to the electricity units of MIH’s provincial departments. DOE / MIH has no direct responsibility for operating or maintaining power projects or for projects connected to the main grids as these are the responsibility of EdL. 2.3.3 Provincial Departments of MIH

Some provincial and district authorities own and operate isolated rural grids supplying towns, villages and remote communities from small-scale hydropower, diesel and solar generators. In some cases, individuals own and operate very small distribution networks supplying groups of houses within a village. Isolated grids of capacity less than 2 MW fall within the jurisdiction of the provincial authorities and the Provincial Departments of MIH. Very small off-grid systems of less than 100 kW, including solar photo-voltaic, micro-hydro and pico-hydro, are within the jurisdiction of the district authorities and the Provincial Departments of MIH.


2.3.4 Electricité du Laos

EdL is a state-owned corporation under MIH that owns and operates the main generation, transmission and distribution assets in Lao PDR and manages electricity imports and exports. EdL also has a project development role as the implementing agency for GoL’s main generation, transmission and distribution projects except in the case of IPP generation projects where it currently takes the role of the GoL’s shareholder. EdL’s financial condition is improving as a result of recent financial restructuring and tariff improvements. Its financial problems arise mainly from low domestic tariffs (which have been below the cost of supply for many years), high debt service costs and exchange rate losses suffered as a result of the devaluation of the Kip in the 1990s. 2.3.5 State Planning Committee

SPC is the agency responsible for allocating the national budget. Established within the Prime Minister’s Office, SPC performs a coordination role in directing the application of funds, including ODA funds, in accordance with GOL policy and priorities. 2.3.6 Committee for Investment Management & Foreign Economic Cooperation

The administration and regulation of foreign investment is the responsibility of FIMC, a high level committee chaired by the Prime Minister and including a Deputy Prime Minister, Minister of Industry & Handicrafts and Minister of Finance as permanent members, together with other ministers as appropriate. FIMC is established within the Prime Minister’s Office and is the first point of contact for foreign investors seeking a license to develop an electricity enterprise. 2.3.7 Science, Technology and Environment Agency

STEA is the main coordinating agency for environmental planning and management in all sectors. Its responsibilities are set out in Article 36 of the Environmental Protection Law and include the establishment of strategies for implementing environmental policy, issuing and revoking of licences to organisations involved in providing environmental services, receiving and evaluating environmental impact assessments and other environmental reports from sponsors of development projects, and regulation of agencies to curtail or modify activities that are having an adverse effect on the environment. 2.3.8 Lao National Committee for Energy

LNCE has powers to manage the development and marketing of electricity throughout the country ‘to ensure effective implementation of strategic plans for energy and electric power development in Lao PDR’. It negotiates on behalf of the GoL and reports to it on matters concerning investment in power projects, regional grid inter-connection, export sales of electricity and contracts with project sponsors. It is also reported as being


responsible for the promotion of investment in the power sector and meeting market demand for power in neighbouring countries. 2.3.9 Other Ministries and Agencies

The Ministry of Finance (MOF) is responsible for formulating and implementing GOL’s fiscal and monetary policies either by direct control or through the Central Bank of Lao PDR. Amongst other things, MOF approves loans and issues sovereign guarantees on behalf of GOL in compliance with GOL’s loan covenants. The Ministry of Agriculture & Forestry, Ministry of Transport Communication & Construction and other ministries and agencies are involved in the planning, review and development of power projects as appropriate. 2.3.10 ESCOs

The development of private sector operations is quite limited in Lao PDR and is confined mainly to small provincial Electricity Service Company (ESCO) operations set up under the DOE Off-Grid Rural Electrification Promotion and Support Program. These ESCOs are generally individual entrepreneurs or small businesses (although we understand some ESCOs are state entities) with an interest in rural electrification and who have been trained in the promotion, support and maintenance of solar PV systems, village hydro or village genset (diesel) technologies. The majority of their business is in subsidised solar PV systems. ESCO coverage under the DOE program is currently limited to six provinces (Vientiane, Oudomxai, Luang Namtha, Champasak, Luang Phrabang, Xieng Khouang and Xaiyabuly) but there is potential to increase the scale of their operations. The private, Lao-registered, company Sunlabob, which promotes, sells and hires solar PV systems (and other renewable energy technologies), operates a franchise system (mainly with individual entrepreneurs) that covers most areas of the country. The franchises promote and sell solar PV systems and work with Village Committees to provide solar PV systems in rural areas on a rental basis. Uptake of solar PV systems on this basis has been limited to date because the rental, which is unsubsidised, is too high for other than the more wealthy households / villages. There is potential to increase the scale of this operation if a subsidy is available to lower the monthly rental. The rental model should be particularly suitable for ‘pre-electrification’ of households that are to be connected to the main grids within the short- to medium-term as the equipment can be removed and transferred to other users when the grid service becomes available. In 1999/2000, the DOE Off-Grid Rural Electrification Promotion and Support Program, which was then part of EdL, sought to recruit / establish larger private sector ESCO organisations capable of providing wide coverage of the provinces but the initiative was not successful. The program then proceeded, using the individual entrepreneurs and small businesses. The conclusion reached at that time was that local businesses and entrepreneurs were not interested in investing significant capital sums in rural electrification systems but would provide working capital. To some


extent this could have been due to the poorer economic conditions prevailing at that time but it was also considered that a lack of entrepreneurial aptitude was a contributing factor. 14 This experience was in contrast to the significant private sector involvement in small rural power systems in Cambodia but similar to the relatively low level of private sector investment found in Vietnam – although there is significant community / cooperative investment in small electricity distribution systems in rural towns in Vietnam. 15 2.3.11 Other Private-Sector Involvement

Other than in large IPP projects and in contract work for the construction of overhead lines, there is little private sector involvement or investment in the power sector in Lao PDR. On average, there are one or two private contracting companies in each province, with experience with 22 kV and low voltage line construction, service drop installation and house wiring.16 The situation varies between provinces. In the Northern areas, EdL’s provincial depots are less well established than in Central and Southern areas where EdL’s provincial branch offices have benefited from significant ODA funding. We anticipate that there will be some private sector interest in O & M contracting in relation to rural electrification systems but that the level of interest will not be great. There may, however, be greater potential for investment by Thai companies interested in a wider range of opportunities and projects, Vietnamese contractors active in Lao PDR in other sectors – roads and buildings – or Chinese contractors active in Lao PDR, particularly in the northern provinces. 2.4 Current Rural Electrification Systems

2.4.1 Overview

Current rural electrification systems and technologies in use in Lao PDR include:

• Main Grid distribution systems owned and operated by EdL, which distribute electricity to most provincial centres and to district centres and villages within economic reach of the system.

14 Low allowable tariffs may also have discouraged entrepreneurs. Tariffs are watched closely by Govt. and it may be that local entrepreneurs felt that acceptable tariff levels could not be achieved. This is in stark contrast to the situation in Cambodia, where small Rural Electricity Enterprises have established small generation / distribution systems that charge very high tariffs (US$ 0.30 – 0.90 / kWh). However the history and political situation of Cambodia is different, and Laotian entrepreneurs do not appear to have the same latitude as their Cambodian colleagues. 15 The political systems of Vietnam and Laos are very similar, and entrepreneurial spirit in Lao PDR and Vietnam are generally similar. 16 As advised by Mr. Phonthong Inthapang SVT Electrical Engineering Co. Luangphrabang Rd. Ban Watchantha, Vientiane, President of the Lao Chamber of Commerce, Electrical Installation and Construction Chapter.


• Isolated / mini distribution grid systems, powered by either diesel generating sets, cross-border supplies, mini hydro power stations (i.e. 100 kW – 5 MW) or micro hydro power installations (i.e. < 100 kW). These systems are generally focussed on provincial or district towns that are beyond the reach of the main distribution system, and are in some cases owned / operated by EdL and in most cases owned / operated at the provincial or district level.

• A small number of village grid systems (powered by micro hydro or micro diesel gensets,

typically of capacity 1 – 10 kW) that supply micro-grid distribution systems serving villages, or small clusters of villages, that are beyond the economic reach of main or isolated distribution systems.

• Solar PV systems supplying individual households, health clinics, institutional facilities, etc. • Pico hydro generator units, generally supplying individual households, or small groups of

households. These systems are generally found only in the northern provinces of Phongsali, Houaphanh, Louang Phrabang, Louang Namtha and Xieng Khouang.

• Battery systems based on motorcycle, car and truck batteries, generally supplying individual

householders. Small rural enterprises provide battery re-charging services to householders. • Traditional fuels / lighting (kerosene, candles, dry cell batteries, etc.), which are typically found in

most rural households. There are a few instances of wind power or biomass systems operating in the country but these have generally been promoted by donor agencies through the Technology Research Institute, a division of STEA. A socio-economic survey carried out in 1999 as part of an ESMAP study17 provides the most recent data on the use of rural electrification technologies in Lao PDR. The currently-ongoing RE Socio-Economic Survey18 provides an updated ‘snapshot’ of the rural electrification situation in seven central / southern provinces of Lao PDR. The following sections provide further commentary on the current RE situation in Lao PDR.

17 Institutional Development of Off-Grid Electrification, June 1999, ESMAP 18 This survey (by Decon) covers areas electrified under SPRE I and planned for electrification under SPRE II only, and is confined to the seven central / southern provinces of Bolikhamsxay, Khammouane, Savannakhet, Saravanh, Xekong, Champasack and Attapue. It does not provide any data on the other 9 provinces within Lao PDR.


2.4.2 Main Grid Distribution System (EdL)

The main grid, owned and operated by EdL, distributes electricity to most provincial centres and to district centres, villages and households within economic reach of the system. Planning for the expansion of the grid is outlined in the Power Development Plan19 (PDP) updated annually.20 Grid extension projects include:

• The ongoing World Bank-assisted SPRE Project, which will be completed in June 2004, and is expected to extend grid connections to 50,000 households in rural areas of Central and Southern Lao by its completion date. This project also supports the Off-Grid Rural Electrification Promotion and Support Program that is expected to have extended off-grid electrification systems to some 5,300 rural households by August 2004.

• The recently commenced second ADB-assisted Power Transmission and Distribution Project

(Northern Area Rural Power Distribution - LAO 31341-01) which will extend the grid to the major northern centres in the provinces of Oudomxai and Luangnamtha (both 2006), and Phongsaly (2009), and connect an additional 33,800 rural households.

• The proposed World Bank-assisted SPRE II project which is expected to commence in 2005

and will extend grid connections to an additional 93,000 rural households in 1,300 villages and about 30,000 households through off-grid connection utilizing solar, village hydros, diesel gensets or other mini-grid options.

The further development of the transmission system is being planned under a JICA-financed technical assistance and a World Bank (PHRD) funded loss reduction program is under way.21 EdL’s power system planning diagram (2004 – 2020) indicates their current proposals for extension of the Main Grid:

19 The Power Development Plan is produced by the System Planning Office of the Development Division of EdL and is updated annually. The latest version is dated March 2004 and covers the planning period 2004 – 2013. 20 A technical description of the grid is contained in the EdL Distribution Design Manual, Meritec Ltd, August 2001. 21 There is currently debate over the quality of supply on some EdL rural distribution feeders. Some indications are that voltage drop on some feeders is excessive but there is contradicting evidence as well. Investigations will be carried out under the loss reduction study and quality of supply criteria will be outlined.



2.4.3 Isolated Distribution Grid Systems

A number of isolated distribution grid systems, not connected to the Main Grid and powered by either diesel generating sets, cross-border supplies, mini hydro power stations (i.e. 200 kW – 2 MW) or micro hydro power installations (i.e. < 200 kW) are found within the country. These systems are generally focussed on provincial or district towns that are currently beyond the reach of the main distribution systems. Where owned by EdL, these systems have generally been constructed to EdL’s distribution design standards. However smaller distribution systems, owned at village or district level, have often been constructed to lower standards, sometimes using untreated timber poles, inadequate conductor sizes or the like. Further technical details and best practice recommendations for isolated mini distribution grids are contained in the technical design standards established by the Off-Grid Rural Electrification Promotion and Support Program and in the ESMAP Mini Grid Design Manual. 22 2.4.4 Cross-Border Supplies

Cross-border feeders from Thailand, China and Vietnam supply isolated systems serving provincial towns as follows:

• Thailand, 115 kV, Savanakhet, Champasak, Bolikhamsay. Peak 0.0320 US$/kWh, Off Peak 0.0302 US$ / kWh.

• Thailand, 22 kV, Khammouane. Peak 0.060 US$/kWh, Off Peak 0.0350 US$ / kWh. • Thailand, 22 kV, Bokeo, Xaiyabouly (2). Peak 0.08 US$/kWh, Off Peak, 0.0325 US$ / kWh. • Vietnam, 35 kV, Huaphanh, Bolikhamsay, Sepong, Savanakhet. Flat Rate 0.060 US$ / kWh23. • China, 35 kV, Luangnamtha.

Cross border supplies, especially from Vietnam, may suffer from poor voltage and interruptions. 2.4.5 Mini and Micro Hydro Systems

Four mini hydropower projects with an aggregate capacity of 5.3 MW have been completed to date within Lao PDR, and are operational except for one mini-hydro station that has been damaged by flooding. A further, 2.25 MW mini hydro project is currently under construction. Two of the operational mini hydros feed directly into EdL grid systems, while the third operational plant feeds into a provincial grid. Some 39 micro hydro systems (with individual capacities in the range 5 – 250 kW and an aggregate capacity of 2,381 kW) capable of serving some 12,000 rural households have been developed within the country, and are

22 Mini Grid Design Manual – ESMAP 2000, Appendix 2, Case Study, Ban Nam Thung, Luang Nam Tha, North West Laos. 23 EdL Annual Report, 2002, pg 18, Import Tariffs. The Thailand and Vietnam import tariffs only are provided.


operated and maintained at the provincial or district level. However, there is a history of failure with the micro-hydro systems, 18 of which are not functional and 11 of which are operational but require repair. It is currently estimated that about 22 of the existing micro hydro systems could be effectively rehabilitated and repaired, and returned to service, restoring electricity services to about 6,000 households, but appropriate institutional and contracting arrangements would need to be developed and implemented to ensure that the previous failures are not repeated. A list of existing micro and mini schemes, and their current status, is given in Attachment 5. There is some potential for further mini and micro hydro development within the country, mainly to supply isolated grids and displace diesel generation or more costly cross-border supplies. A list of potential mini and micro hydropower sites (resources) is given in Attachment 6 (but note that detailed data relating to many of the sites is not available). The economics of developing mini / micro hydro schemes to feed into the main grid is unlikely to be attractive, given that the cost of supply from the main generating stations in Lao is relatively low. A JICA-funded study, to prepare a plan for development of up to 10 mini hydro projects to serve district centres in eight northern provinces commenced in February 2004 and is due for completion in December 2005. This study is considering / investigating many of the sites listed in Attachment 6. 2.4.6 Village Systems

There is some potential for village systems (powered by micro hydro or diesel gensets) to supply micro-grid distribution systems serving villages, or small clusters of villages, that are beyond the economic reach of main or isolated distribution systems. To our knowledge only two such systems have been installed in recent years, one a micro hydro system supplying 58 households in Luang Prabang and the other a diesel genset system supplying 94 households in Xieng Khouang. Both systems were installed under the DOE Off-Grid Rural Electrification Promotion and Support Program and are reported to be operating effectively using the operational model developed for the OPS Program. The installed capacity for these systems is typically in the range 5 – 10 kW. The uptake of village systems has been slow, primarily because:

• The village hydro resource needs to be located very close to the village to minimise distribution system costs, and while many villages have steams running close by, often the flow and available head is insufficient to provide the required power. Sometimes, suitable sites can be found a few kilometres from the village, but then the cost of the connecting transmission line often makes the development too costly. A small diesel genset is required in almost all village hydro installations to provide continuity of supply during the dry season. As well, the complexity of establishing, operating and maintaining village hydro systems is higher, implementation times


are longer and the systems are difficult for ESCOs to ‘sell’ to villagers (compared with the alternative of solar home systems) since they require the support of the community as a whole. It has been suggested that increased technical support and payment of higher incentives to ESCOs could produce an increase in the number of village hydro systems being developed, however our view is that the potential of a village hydro program is very limited. This is discussed further in Section 4.2 below.

• Small diesel (or petrol) gensets are apparently unpopular with villagers due to perceptions

associated with fuel cost uncertainty, the cost of transporting fuel to the village and noise. The poor perception of diesel generation at the village level is clearly an impediment to this model.

2.4.7 Solar Home Systems

Penetration of solar PV electrification systems into rural households in Lao PDR is currently low, but there is increasing interest as solar PV system costs fall and awareness of their benefits increases amongst rural communities. The systems generally operate well in the southern and central areas, but are less satisfactory in northern areas where cloud cover is high and solar insolation is lower. Typically, 20, 30, 40 and 50 Wp solar PV systems are supplied depending on household wealth and demand for lighting and other small appliances. Solar home systems are provided through two main avenues, as follows:

• The Off-Grid Rural Electrification Promotion and Support Program is supported under the ongoing World Bank assisted SPRE Project and is expected to have extended off-grid electrification systems to some 5,300 remote, rural households by the completion date of August 2004. The program was conceived as a pilot project, but its implementation success is such that it is considered suitable for further support, and scale-up under the forthcoming SPRE II Project. Systems are supplied to households through a network of agents on a hire-purchase basis, and maintenance training and support is provided to ensure system sustainability.

• A small number of commercial suppliers, mainly based in Vientiane, but sometimes with

franchises or agencies in provincial towns. These suppliers generally sell systems to commercial customers, NGOs, Government installations, wealthy rural householders, etc.

The cost of solar PV units has been reducing steadily over recent years. System costs are expected to reduce further as manufacturing / distribution economies-of-scale are achieved, although probably not at the rate of decrease experienced over the last few years.24 We understand that GoL charges 20% import duty on solar PV units, which adds significantly to their cost. 24 The Off-Grid Promotion and Support Program observes that solar home system costs reduced by some 20% over the one-year period mid 2003 – mid-2004.


2.4.8 ‘Pico’ Hydro Personal Generators

As in the hilly areas of North Vietnam, significant numbers of Chinese-manufactured personal hydro generators (‘pico’ hydro units, typically of 100 - 300 watts output) are in use in Lao PDR, more particularly in the hilly, north-eastern provinces. Anecdotal evidence is that pico hydro usage of over 50 % of households is common in many villages inn the north-east. Pico hydro units are usually purchased for individual household use and are low-cost, but can be electrically un-safe (they have resulted in electrocutions), require frequent repair, have a lifespan of only around 3 years, are suitable only for lighting since poor voltage regulation makes the use of appliances difficult, are often installed incorrectly leading to poor performance and lowered output, need to be removed during flooding to avoid inundation, and often there is too little water to generate during the dry season (those installed in irrigation channels may function only during the irrigation season). Despite these drawbacks, their low cost (less than US$ 30 / unit) means that they are affordable and have been purchased by significant numbers of people in the poorest provinces. Pico hydro units are imported by local businesses from China and Vietnam, and sold by retailers in small rural towns (northern provinces only). Skills to repair units are generally available where pico hydro use is reasonably common. It is understood that no import duties are charged on these units (compared with 20% duty on SHS units), and this may contribute towards keeping the unit cost low. 2.4.9 Other Renewable Energy Technologies

The Technology Research Institute of the Science and Technology Agency, through its Renewable Energy Technology Centre supports research and development into energy technologies in support of the Government’s socio-economic development objectives. To date it has supported research, generally with the assistance of the GOL and international donor agencies, into the following areas25:

• Solar Energy (Photovoltaic and Thermal). Solar PV systems have been installed in a small number of households in villages in Houaphanh and Vientiane and also in a number of provincial administration / immigration offices. Two solar PV battery-charging stations have been established as pilot projects in Savannakhet. A solar refrigeration system has been installed at a Department of Agriculture and Forestry office in Oudomxay province. A 300 Wp solar pumping system has been installed at RETC, along with a solar water heater. Some adaptive research on DC ballast and charge controllers for solar PV systems has been completed. Training of village technicians in installation and maintenance of solar home systems has been supported.

25 Taken from Report on Activities of Technology Research Institute, 1999 – 2004, May 2004.


• Biogas. A number of biogas digesters (16 m3 and 8 m3 capacites) have been constructed and installed in RETC, Samneua Hospital and three schools. A feasibility study of a support program for domestic biogas plants for rural households has been completed.

• Biomass. Research involving the establishment and operation of a 160 kW rice husk biomass

gasification project is ongoing under NEDO support. Some research into the use of / drying of agricultural wastes for energy production is being undertaken.

• Clean Coal Technology. Research into clean coal technologies has been completed.

• Improved Cooking Stove. An improved efficiency stove for wood and charcoal has been

developed and the use of clean coal in cooking stoves has been investigated. • Wind Energy. A 300 W wind pumping project has been supported. • Small Hydropower. Research into pico hydro technology (0.5 – 1 kW) is ongoing, and research

into the application of mini hydro technology in Luang Namtha (with CIDA) is ongoing. In addition, the RETC supports dissemination of information on renewable energy technologies within the country. Summary details of most of the renewable energy technology projects supported under RETC are given in Attachment 8 – Existing Renewable Energy Technologies. With the exceptions of solar PV and small hydropower, all of the remaining renewable energy technologies are in the very early stages of investigation. There is very minimal application of rural electrification systems / technologies based on wind power, biomass, biogas or coal / lignite operating in Lao PDR. Data contained within the Wind Energy Resource Atlas of South-East Asia26 indicates that wind velocities in Lao PDR are generally too low to support economic wind power developments, except possibly in the hilly country alongside the Vietnam border in parts of Bolikhamxay, Khammouane, Savannakhet and Saravan Provinces. It is possible that some village-scale wind power developments (of a few kW capacity) could be viable, although diesel backup generation would be required to maintain continuity of supply. Larger wind power developments (with capacities of more than 1 MW) in specific locations may also be possible, although transmission connection to the main grid would be required since there would be insufficient local demand to absorb the output of larger wind generators. There is little experience of biomass systems in Lao PDR, although RETC have established a 160 kW pilot gasification plant using rice husk under NEDO financial support. We understand that there is potential for gasification of agricultural wastes in a number of rural areas of Lao PDR, but are not aware of any studies that have sough to identify and quantify the available resource. In rural areas, rice is generally processed in a large 26 Wind Energy Resource Atlas of South-East Asia, February 2002, prepared for World Bank ASTAE by TruWind Solutions Ltd, Albany, New York.


number of relatively small, dispersed mills, and the available rice husk supply is thus widely distributed. This militates against the development of biomass plants, as economic viability is generally only attained when a significant and concentrated supply of rice husk (and other agricultural wastes) is available. Rice husk also has alternative uses as a component of animal feed, and when rice husk is burned the remaining ash is used as a component of fertilizer. A significant number of opportunities for biomass / biogas generation have been identified based on wastes from pig farms and saw mills. The large-scale biomass digester programs common in rural areas of Nepal and India, and which produce (predominantly) methane gas that can be used for cooking / heating, have not yet graduated to Lao, although the RETC has constructed / established a small number of biogas digester units on a trial basis. Animal and human excreta is generally available within rural areas, and there would appear to be potential for a larger biogas digester program within the country (RETC have completed a feasibility study of a support program for domestiv biogas plants in rural households in Lao PDR). It is understood that there are no cultural inhibitions towards use of biomass digesters based on human and animal excreta. Lignite reserves, sufficient for about 2,000 MW of installed generating capacity, have been identified in the country. Anthracitic and bituminous coal is also available, providing a possible long-term option for around 500 MW of generation. These reserves are generally more suitable for larger-scale generation than those needed to support rural electrification. 2.4.10 Automotive Battery Systems

Battery systems based on motorcycle, car or truck batteries are in common usage throughout rural Lao, and are usually purchased / owned by individual households to provide lighting for a few hours during the evenings, and perhaps to power a radio or small television set. Battery recharging is generally through small commercial battery charging enterprises, usually utilising small diesel (or petrol) gen-sets, which charge for their services on a commercial basis. Recharging costs for a typical 70 Ah car battery are typically Kip 3,200 – 4,300 / charge27. Battery charging is also carried out by small scale entrepreneurs, generally at the end of the grid system who charge batteries for households (but in some cases using diesel gensets) who: (a) who can not afford to be connected to the grid in the local village; or (b) for non grid connected households who are within a bike ride or motorcycle ride from the battery charger. Low-cost automotive batteries, and associated 12-volt bulbs and wiring, are widely available throughout rural areas and the uptake of battery electrification systems is on a purely commercial basis. Battery life under this use is short, and replacement is required at about annual intervals.

27 Taken from RE Survey Preliminary Findings Report (by Decon).


Overall costs for battery lighting systems are high, when both recharging costs and battery replacement costs are considered. Despite this, uptake of battery systems among rural households is significant (30 – 40 % of households use automotive battery systems in the central / southern provinces). The improper disposal of used batteries can result in potential environmental problems, although their re-cycling value is significant in terms of typical rural incomes, and indications are that a significant proportion of used batteries are in fact recycled. 2.4.11 Dry Cell Batteries

Dry cell batteries are commonly available in rural areas, and are purchased to power radios, cassette players, torches, etc. 2.4.12 Traditional Fuels

Traditional fuels (kerosene, candles, fire-torches, etc,) are used in many rural households for lighting. These fuels provide poor quality lighting at relatively high cost. Firewood is still generally used for cooking / heating in most (i.e. 80 – 100%) rural households and we understand is leading to forest depletion in some areas as populations increase and sustainable firewood gathering practices come under pressure. The health hazards associated with traditional fuel / firewood usage, particularly for women and children, are well-documented. 2.5 Key Rural Electrification Issues

To conclude this section describing the current rural electrification situation in Lao PDR, we list the key RE issues that were considered in finalizing the following sections of this report:

• Main Grid Coverage. Current EdL planning is focused on the extension of the Main Grid to provincial and district towns that are currently not electrified. Distribution feeder construction (normally at 22 kV) generally follows the roads to provide access for maintenance purposes. While MV / LV spur lines will continue to be routed short distances across open country to villages that do not have road access, future development of feeders will be dependent on rural road development to a significant extent, and future planning of distribution systems should take into account rural road planning.

• Existing Off-Grid Rural Electrification Technologies. Indications are that the adoption of

household pre-electrification systems among rural households will be at a higher rate than the relatively low levels indicated by the 1999 ESMAP survey and that the increase will be mainly in automotive battery systems and in personal ‘pico’ hydro generators. For example, if automotive


battery systems were to be considered as electrification, then the household pre-electrification rate in Savannaket, for example, would be close to 100 %.

• Uptake of Rural Electrification Systems. Typically, only about 50 % of households in rural

villages are taking up solar PV systems under the OPS Program and not all households are connecting to the Main Grid when it is extended to new villages. If this rate of uptake continues, then national household connection rates may be constrained to around 60 %.

• Subsidies. Bigger subsidies may be required to drive the up-take of individual household

systems and mini grid systems if the Government’s RE targets are to be met.

• Coordination of Main Grid, Isolated Grid, Mini-Grid and Off-Grid Electrification. Current RE planning does not differentiate between those villages that will be electrified by extension of the Main Grid and those that will be electrified by other methods. The expectation of most rural communities is that they will be electrified from the Main Grid or from isolated grid systems (and this is supported by GoL policy) but, for many rural consumers, this will not be viable. Accordingly, the expectations of rural people (and provincial authorities) in areas where extensions of the Main Grid will not be viable needs to managed and their expectations directed towards mini-grid or off-grid solutions.

• Limited Range of Rural Electrification Implementation Models Available. Virtually all rural

electrification in Lao PDR has been implemented under the traditional electricity utility (Main Grid) model with a much smaller proportion implemented under the DOE-sponsored Off-Grid Rural Electrification Promotion and Support Project (which is essentially a small ESCO model mainly applying solar PV technology). A number of isolated grid / mini-grid systems were developed during the late 1980s / early 1990s, the majority community operated, but their operations have generally not been sustained. A private sector company (Sunlabob) has established a small solar PV rental model using a franchise approach but it is currently unsubsidized and its charges are too high to allow widespread up-take by rural households. This limited range of models is in contrast with other, similar, countries where the range of RE models is larger.

• Dealing with Existing Mini-Grid or Off-Grid Systems on Arrival of Main Grid or Isolated Grid

Power. We understand that currently there is no provision for dealing with the takeover of existing rural electrification systems when main grid or isolated grid systems are extended to villages that are currently electrified by other systems. This applies mainly to isolated grid and mini-grid systems, as individual household systems (SHS, pico hydro) can be re-sold by their owners to other un-electrified households or the rentals terminated. While we understand that lack of means of dealing with takeovers is not currently causing difficulties, this situation may arise more often as the Main Grid is extended. This issue could be dealt with by appropriate


long-term planning and application of rental solar home systems for pre-grid electrification, rather than hire-purchase systems.

• Sustainability of Isolated Grid / Mini Grid Systems. Some 38 isolated grid / mini grid systems

powered by mini / micro hydropower stations have been developed throughout the country. A number of these systems are currently non-operational, or only partially operational, and a program to rehabilitate / repair about 22 of these systems (serving some 6,500 households) could be considered. Most of the failed schemes are operated at the community level. In comparison, the mini hydro stations operated by EdL have performed much better. Any rehabilitation program would need to address the institutional and engineering failures that led to the breakdown of these stations, and provide means of ensuring that the smaller systems remain sustainable.

• Time Taken to Trial and Establish New Rural Electrification Models. It takes years to design,

develop, trial and establish new rural electrification technologies and, initially, the uptake of the new electrification technologies is low. Accordingly, the rural electrification strategy should be focused on existing technologies that have potential for rapid roll-out, if the Government’s rural electrification targets are to be achieved.

• Limited Private Sector Involvement. To date, private sector interest in the power sector has

been mainly confined to the development of large generating projects and to contracting work associated with the construction contracting of lines and there has been only limited involvement in the provision of electricity supply, with the majority of electrification services (both urban and rural) being provided by EdL. This is in contrast with Cambodia, where over 600 Rural Electricity Enterprises have been established by private individuals and small enterprises to supply electricity to consumers in rural towns and villages. Greater private sector involvement may be able to be encouraged.

• Low Rural Tariffs for Grid Connected Consumers. The low tariffs currently charged to rural

households, and the relatively low consumption rates prevailing, means that rural electricity services are a financial drain on EdL. The charge that applies to the majority of rural customers is 106 Kip / kWh (as of April 2004 for residential customers in the 0 - 50 kWh tariff category), equivalent to about 1 US cent / kWh at the current exchange rate of 10,000 Kip / US$. This is much lower that tariffs for grid-connected consumers in neighboring countries and much lower than the cost of supply:


Country

Residential ** (US cents / kWh)

Commercial ** (US cents / kWh)

Lao PDR 0.55 - 3.80 4.18 - 5.22 Cambodia 9.17 - 17.03 12.58 - 15.72 Thailand 3.41 - 7.47 2.94 - 7.47 Vietnam 2.92 - 8.17 4.24 - 13.96

** As of 24 September 2003 (in US cents/kWh)28

• Commercialization of Off-Grid Technologies. Time will be required for prospective reductions in the price of solar PV systems to be realized and for rural incomes to improve to levels where subsidies are not required, and thus to a time when solar PV system sales become commercially sustainable (in the same way that automotive battery systems and pico hydro units are now commercially sustainable). The need for subsidies is likely to reduce over time and the subsidies that remain will need to be directed increasingly to low-income households if they are to be efficient in their impact. Mechanisms will be needed to review subsidies from time to time with this in mind.

• Productive Use and Cross-Sectoral Linkages. The electrification of rural households is often

viewed as an end in itself. However, in the broader context of rural development, electrification is purely an ingredient in achieving balanced development outcomes. In comparison with some other international RE programs, the electrification approaches used in Lao PDR do not yet incorporate strong income generation / productive use promotion elements, or link strongly with programs in other sectors (such as health, education, water supply, etc). We would suggest that better promotion of productive uses / income generation, and better coordination with other sector programs could result in improved development outcomes for rural Laotians.

• Focus on Poverty Alleviation. Previous rural electrification initiatives within Lao PDR have

generally not focused on reducing poverty directly in rural areas. Improved consideration of poverty alleviation in the formulation of rural electrification initiatives, consistent with the Governments declared focus on poverty alleviation, would help to improve living conditions is rural areas.

• Focus on Poverty Alleviation. Previous rural electrification initiatives within Lao PDR have generally not focused on reducing poverty directly in rural areas. Improved consideration of poverty alleviation in the formulation of rural electrification initiatives, consistent with the Governments declared focus on poverty alleviation, would help to improve living conditions is rural areas.

28 http://www.aseanenergy.org/publications_statistics/electricity_database/electricity-database.htm


3.0 Government Targets for Rural Electrification

3.1 Current Rural Electrification Status

DOE statistics indicate a current electrification rate for the whole country of 41 % of households. This is based on EdL / DOE records of household connections plus off-grid systems installed under DOE’s programs. The Report of the Population Count 2003 carried out by the National Statistical Centre (published Feb 2004), and with a reference date of 01 July 2003 provides information on the current electrification situation in the country, summarised as follows:

Households Using Electricity (%) Province Urban Rural Total

Households (no.)

Villages (no.)

Districts (no.)

Population (no.)

Vientiane Capital 97.2 81.1 94.2 114,793 496 9 637,041 Phongsaly 72.6 5.9 14.7 27,573 607 7 162,716 Luangnamtha 74.6 17.0 28.6 24,965 401 5 138,297 Oudomxay 64.9 6.3 18.0 40,987 657 7 251,632 Bokeo 89.9 22.7 28.2 24,126 364 6 136,222 Luangprabang 85.0 17.3 30.4 66,632 887 11 391,088 Huaphanh 91.8 44.7 51.5 41,614 839 8 272,310 Xayabury 62.8 14.8 25.3 59,112 495 10 330,116 Xiengkhaung 50.5 23.8 29.4 34,527 537 7 223,247 Vientiane 91.0 50.9 58.9 63,533 590 12 365,416 Borikhamxay 89.3 40.3 51.5 36,624 323 6 215,674 Khammuane 82.9 46.0 52.6 60,933 804 9 325,263 Savannakhet 89.7 32.4 47.3 125,955 1,542 15 782,617 Saravane 84.1 30.7 34.6 53,506 724 8 309,471 Sekong 61.3 23.2 29.8 13,694 262 4 79,457 Champasack 81.2 25.5 37.7 101,186 924 10 578,669 Attapeu 56.5 5.2 11.9 19,053 211 5 103,782 Xaysomboun SR 73.7 15.6 24.6 5,639 89 3 35,133 86.7 29.7 45.1 914,452 10,752 142 5,338,151 Notes: 1. An urban area is classified (By the National Statistical Centre) as having more than 100 households,

more than 600 people, an all-season access road, more than 70% of households with tap water

supply, more than 70% of households with electricity, and a daily market.

2. According to this definition, 1,292 villages (12%) are located in urban areas, and 9,460 villages (88%)

are located in rural areas.

3. 1,406,170 people (26.4%) reside in urban areas and 3,931,441 people (73.6%) reside in rural areas. The larger electrification ratio (45.1%) indicated by the population count 2003 is probably due to the inclusion of households electrified through privately owned small diesel / petrol generators, privately owned solar PV


systems and secondary supply from household connections to the EdL system (i.e. sometimes a small number of other households are fed off a single EdL household connection). The Report of the Population Count 2003 indicates a rural household electrification rate of 29.7 %. 3.2 Electrification Targets

The Government’s goal is to increase the electrification ratio for the whole country from the current level of about 41 % to 90 % by 2020, with intermediate targets of 45 % in 2005 and 70 % in 2010. This goal will be achieved through a combination of:

• Main Grid electrification – involving grid extensions to meet the 90% target, after deduction of the number of off-grid installations completed.

• Off-grid household electrification – an embryonic but successful program of off-grid household

electrification using Government, donor and private resources is underway in Lao PDR and targets electrification of 150,000 households (i.e. about 12 % of households) by 2020.

The planned electrification ratios were reviewed as part of the preparation of EdL’s Power System Development Plan 2004-13 (PDP 2004-13) dated March 2004. The following electrification planning data is extracted from the PDP. Estimated village electrification rates, to meet the Government’s targets, are as follows:

Estimated Electrification Ratio for Villages (2004-2020)

11,168 11,168 11,168 11,168 11,168 11,168

3464 3574

55846433

7024

8906

-

2,000

4,000

6,000

8,000

10,000

12,000

2004 2005 2010 2013 2015 2020

Year

No.

of E

lect

rifie

d Vi

llage

s

Total VillageElectrified villages


Year

2004 2005 2010 2013 2015 2020

No. of Villages Electrified 3,464 3,574 5,584 6,433 7,024 8,906 % of Villages Electrified 31% 32% 50% 58% 63% 80% Estimated household electrification rates are as follows:

Estimated Electrification Ratio for Households (2004-2020)

918249 9402701048465

1137475 1158093

1267107

395598 423122

733926

858794914894

1140396

0200000400000600000

800000100000012000001400000

2004 2005 2010 2013 2015 2020

Year

No.

of H

ouse

hold

s

Total Households

Estimated ElectrifiedHouseholds

Year

2004 2005 2010 2013 2015 2020

No. of Households Electrified 395,598 423,122 733,926 858,794 914,894 1,140,396 % of Households Electrified 43% 45% 70% 76% 79% 90% EdL’s Power System Development Plan does not differentiate between electrification of households using off-grid technologies and grid connections, however DOE recognizes that about 100,000 households will never be able to be economically electrified from the Main Grid. This target has been established on an arbitrary basis, since RE planning has not sufficiently advanced to allow a better estimate to be prepared. As well, DOE estimates (on an arbitrary basis) that about 50,000 off-grid household systems will be installed in areas that will eventually be served by the Main Grid. Some of these ‘pre-grid’ systems will be moved on29 to other un-

29 i.e. Off-grid systems owned by households would normally be on-sold to other, un-electrified households on arrival of the main grid. Off-grid systems under hire-purchase arrangements would normally be recovered by the ESCO and re-assigned to other households, or on-sold. Off-grid systems under rental arrangements would be taken back by the ESCO and rented to another household.


electrified households as the Main Grid is extended further into rural areas, whilst others will be utilised by households that do not want to connect to the Main Grid. The following diagram distinguishes between the estimated requirements for grid and off-grid household supplies to meet the Government’s electrification targets.

Estimated Electrification Ratio by Households

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2004

2006

2008

2010

2012

2014

2016

2018

2020

Year

Elec

trifi

catio

n R

atio

Off-GridGrid

Achieving the Government’s targets will require the electrification of about 745,000 (mainly rural) households over the next 15 years, equivalent to an average electrification rate of about 50,000 households / year. Of this, DOE estimates that about 645,000 households (i.e. 42,700 households / year on average) will be electrified by extension of the Main Grid, while about 150,000 households (i.e. 10,000 households / year on average) will be electrified by off-grid systems30.

30 Achieving a net off-grid electrification target of 100,000 households will require the distribution / installation of a larger number of off-grid systems since a proportion of the systems will fail due to ageing of components, physical damage, mistreatment, lack of maintenance, etc. If we assume that 33% of systems become un-serviceable over a 10 year period, then about 150,000 off-grid household systems (i.e. 10,000 systems / year on average) would need to be provided to achieve the target of 100,000 operational systems over the next 15 years.


3.3 Cost of Achieving the Government’s Targets

3.3.1 Introduction

The indicative, overall cost of achieving the Government’s rural electrification targets is estimated in this section. The main costs are summarized as follows: Electrification Approach

Households Electrified (No.)

Estimated Cost (US$)

Average Cost (US$ / household)

Grid Electrification 645,000 370 million 575 Off-Grid Electrification 150,00031 51 million 343

Totals 745,000 421 million 565 3.3.2 Cost of Grid Electrification Program

The PDP 2004-13 includes about 2,000 km of 115 kV lines and about twenty 115/22 kV substations. These will be used to inter-connect and extend existing distribution networks that will be built under a series of separate rural electrification projects targeted to electrify 465,000 households. The capital investment requirements for this program are estimated as follows: Main Grid Extension Component

Foreign Cost (US$ million)

Local Cost (US$ million)

Total Cost (US$ million)

Sub-transmission 105.8 26.5 132.3 Sub-stations 53.9 7.7 61.6 Distribution rehabilitation 11.0 11.0 Rural electrification 45.3 63.0

Total 204.3 62.9 267.2 This equates to an average expenditure, including sub-transmission and excluding house wiring, of around US$ 575 / household at current prices32. However grid electrification of some 645,000 households will be required to achieve the Government’s targets, and on this basis, total expenditure on rural electrification of about US$ 370 million will be required.

31 We suggest that about 150,000 off-grid systems will need to be provided to achieve a net electrification of 100,000 households, as described above. 32 For comparison, the main grid electrification component under SPRE II – Phase 1 is estimated at US$ 527 / household, excluding house wiring (US$ 639 / household including house wiring) and SPRE II – Phase 2 is estimated at US$ 621 / household, excluding house wiring (US$ 722 / household including house wiring).


3.3.3 Cost of off-Grid Electrification Program

The off-grid electrification component will include purchase of off-grid system hardware / equipment, system installation, program management / overheads, and international and local technical assistance. The cost of the component, based on an assumed distribution33 of system types / capacities is estimated as follows: No. System Total Cost of

System plus Service Support

Proportion Systems Provided

Total Costs

(US$ / hh) (%) (No.) (US$) 1 Solar Home System – 10 Wp 211 10 % 15,000 3,165,000 2 Solar Home System – 20 Wp 270 15 % 22,500 6,075,000 3 Solar Home System – 30 Wp 328 20 % 30,000 9,840,000 4 Solar Home System – 40 Wp 386 35 % 52,500 20,265,000 5 Solar Home System – 50 Wp 444 15 % 22,500 9,990,000 6 Village Hydro Systems 276 5 % 7,500 2,070,000

Totals

100 %

130,000

51,405,000 This equates to a total cost of about US$ 343 / household, at current prices. Of this:

- The average cost of the off-grid equipment is around US$ 163 / household - The average cost of the off-grid equipment, planning, installation and program management /

administration is around US$ 259 / system. - The cost of service support over 10 years is around US$ 84 / household.

Of the total cost of about US$ 51 million34, households will provide about US$ 3 million as up-front deposits, and will pay about US$ 30 million by monthly instalments (hire-purchase). Direct subsidies (grants) of about US$ 8 million will be required for program management / administration costs along with a further (about) US$ 10 million to match the total funding requirement of US$ 51 million. About US$ 30 million in soft loan financing will be required to finance off-grid system purchases, to be repaid by householders’ monthly instalments.

33 The assumed distribution approximates the current distribution of system sales, but with the addition of a 10 Wp, low-cost solar home system. 34 The estimate makes no allowance for likely future reductions in the cost of off-grid electrification systems / components (particularly solar PV panels), or for economies of scale (particularly in program administration, overhead and technical assistance costs) that might result from an expanded off-grid implementation program, as these potential cost reductions cannot currently be estimated with any degree of certainty.


4.0 Review of Rural Electrification Options

4.1 Definition of Off-Grid Electrification

If off-grid electrification is considered to include all forms of off-grid systems (including pico-hydro and battery household electrification systems), then the rural electrification ratio will be significantly higher than current estimates. For example, if automotive battery systems were included as off-grid electrification systems, then the household electrification ratio in Savannakhet would be close to 100%. However, for the purposes of this Study, we have assumed that off-grid electrification includes all electrification systems that are not connected to the EdL grid system, but excluding automotive battery systems and pico hydro systems. Thus solar home systems, village hydro, village gensets, isolated grid systems, etc, would fall within the definition of off-grid electrification. Pico-hydro systems, which produce electricity at 240 volts and can have adequate capacity to run household lighting and some small appliances, could also be considered to fit within the definition of off-grid electrification. However, there is debate over this because of the poor power quality that is often associated with these units (voltage levels fluctuate significantly because most pico hydro units do not have controllers). Our view is that pico hydro units with controllers should be considered as a robust rural electrification technology, whereas un-regulated pico hydro systems should not. 4.2 Off-Grid Rural Electrification Promotion and Support Program

4.2.1 Background

The Off-Grid Renewable Energy Electrification Promotion and Support Pilot Project (OPS Program) is a sub-component of the Southern Provinces Rural Electrification I Project. Implementation of the sub-component began in 1999 and the project is due for completion in August 2004. It is funded by a GEF grant of US$ 744,000 and an IDA credit of US$ 900,000 (subsequently increased by US$ 370,000 released from contingency funds). Its aims are to establish capacity for the sustainable implementation of off-grid systems through the involvement of the private sector, with an emphasis on cost recovery from operations and the use of low-cost technologies. The sub-component was designed as a pilot project, to develop an off-grid delivery system and test it in 46 villages. An off-grid team within EdL initially implemented the project. Ten pilot installations were undertaken and were extremely valuable in developing low-cost and robust technologies and delivery mechanisms using village entrepreneurs. The need to take policy and regulatory decisions as part of the development of the system, as well as the need for on-going support visits to villages, led to the transfer of responsibility for the sub-component to the Department of Electricity within the MIH. An Off-Grid Promotion and Support Office was established under the DOE, staffed with a MIH project manager, three local consultants and an international consultant, under contract to DOE.


OPS investigated various models for establishing Energy Service Companies. Initial attempts to implement national ESCOs failed due to the reluctance of private companies and NGOs to adopt this role. OPS then adopted a model involving the appointment of new provincial ESCOs, contracted to OPS and supporting a network of Village Electrification Managers (VEMs). The ESCOs and VEMs are required to follow a participatory planning process designed by OPS and to install and service systems, as well as collecting payments for remittance to OPS. Performance based payments to the ESCOs and VEMs are linked to their performance in planning, installation, payment collection and reporting. The program is focussed on 7 provinces only, including Champassak, Luang Namtha, Luang Phrabang, Sayaboury, Vientiane and Xieng Khouan. The model is illustrated below:

MIH Rural Electrification Model

Off-Grid Promotion and Support Office (OPS)

Provincial Department of Industry and Handicrafts

(PDIH)

Energy Services Company (ESCO)

Village Electricity Manager (VEM)

Village Electricity Advisory Committee

(VEAC)

Customers

IDA

VEAC Operational Support Payments

Installation / Post-Installation / VEM Operational Support Payments

Customer Installation Fees / Hire Purchase Payments

Customer Installation Fees / Hire Purchase Payments [2]

Planning / Installation / Post-Installation / ESCO Operational Rebates

Equipment suppliers

IDA Credit Procurement [1]

Key

payment flows

contract

Notes[1] ESCOs are expected to assume responsibility for procurement as their capacity develops

[2] In practice, VEMs generally pay hire purchase payments to ESCOs, retaining a portion to cover payments due to the VEM, and ESCOs onpay hire purchase payments to OPS, similarly retaining a portion to cover payments due to the ESCO


4.2.2 Rural Energy Technologies Supported

One non-renewable and two renewable energy technologies are being supported under the program, as follows:

• Individual solar home systems of 20, 30, 40 and 50 Wp capacities. • Micro hydro / micro distribution grids. • Micro diesel gensets / micro distribution grids.

Of these, the vast majority of technologies installed are solar home systems, although one village hydro / micro distribution grid (serving 58 consumers) and one village diesel genset / micro distribution grid (serving 94 consumers) have been completed. A summary of the status of the program, as of end of April 2004, is as follows:

Operational Subscribers

Waiting Subscribers3

Total Subscribers

Province ESCO Established

Type

Villages H’holds Villages H’holds Villages H’holds Champassak

Sep-02 SHS 18 1,060 1 189 19 1,249

Luang Namtha

Apr-02 SHS 31 771 1 130 32 901

Luang Prabang

None1 VH 1 58 0 0 1 58

Oudomxai

Apr-02 SHS 18 625 26 537 44 1,162

Sayabouri2

Aug-03 SHS 0 0 9 409 9 409

Vientiane

Apr-02 SHS 29 743 0 0 29 743

Xieng Khouan

Mar-03 GS 1 94 1 94 2 188

Total

98 3351 38 1,359 136 4,710

1 Established as a pilot project under EdL. VEM is contracted directly to DOE.

2 Two ESCO contracts, covering separate districts, have been awarded.

3 Waiting subscribers have paid a deposit for system, but are waiting for their system to be supplied and installed.

4 VH = village hydro system, GS = diesel genset system, SHS = solar home system.


The anticipated outcome is that 136 villages and 4,710 households will be electrified by end of August 2004. This compares favourably with the targets established at SPRE appraisal, of 46 villages and 4,600 households to be electrified by end of June 2004. The reason for the significant increase in villages electrified is that the number of households per village is less than estimated at appraisal, and the uptake by households has also been less (typically around 35 households / village take up electrification – equivalent to about 50% of the households in each village). The majority of the households have been electrified over the time period Jul 2002 – August 2004 (2.1 years) indicating an average rate of about 2,200 households / year. The average program expenditure per household was US$ 270 / household35. 4.2.3 GEF Review of OPS Program

The GEF initiated a review of the Off-Grid Rural Electrification Promotion and Support Program in November / December 200336. The review examined the project both in terms of the criteria set by GEF and the criteria set by the World Bank at project appraisal. The review concluded that that the OPS Program has developed a successful model for rural electrification in Lao PDR, which will exceed its targets, has delivered a significant expansion in rural electrification, has developed effective procurement monitoring, management and financial systems, has developed a base of skilled and trained staff, has developed an implementation partnership between the private and public sectors, and has succeeded in recovering the costs of operation of the model from consumers. The review also commented that the program uses appropriate, low-cost equipment that has generally proved robust in service. The reviewers considered that the project provides a strong basis for the future expansion of the program. The review assigned an overall project rating of ‘Satisfactory’, and also gave ratings of ‘Satisfactory’ in the areas of sustainability and achievement of objectives. Other conclusions of the review included:

• In the short-term there is risk that valuable expertise and skills will be lost if concessionary funds are not made available to continue the program and for limited installations during the interim period, until an expanded program can be commenced under the SPRE II Project.

• In the longer-term, the constraints associated with OPS’s position as a government office has

led to operational delays and difficulties. These delays / difficulties are expected to worsen under an expanded program.

35 i.e. total program cost of US$ 1,270,000 divided by 4,710 households. Excludes household up-front payment / deposit (typically US$ 16 - 25). 36 Lao PDR: Evaluation of Off-Grid Renewable Energy Electrification Pilot Demonstration Project – Draft Report, December 2003, Economic Consulting Associates.


• The program remains very much dependent on the availability of concessionary finance and has found it difficult to attract significant investments from the private sector in Lao.

• There has been a strong bias towards the use of SHS technology, and uptake of micro hydro

and micro genset systems has been very low. • The current consumer prices and payments to ESCOs and VEMs are uniform across the

country, and as a result favour more accessible and richer households. • There are weaknesses in monitoring and enforcement mechanisms, but these are due to

administrative barriers (arising from OPS’s position as a government office), rather than a lack of appropriate systems and procedures.

4.2.4 Consultant’s Review of OPS Program

In addition to the findings of the GEF review (with which we concur), the Terms of Reference require a review of the OPS Program and its Operation Manual under a number of categories. The proposed scaling-up of the OPS Program requires revision and documentation of the systems developed during the pilot project, to provide operational guidance and a ‘terms of reference’ for the staff administering and managing to Program. A March 2004 version of the OPS Operation Manual was provided by the OPS office, and broad comments on it were included in the Inception Report for this Study. To a large extent the comments made (plus comments made by DOE and others) were taken up by OPS in a subsequent revision of the OPS Operation Manual (Revision 3a – 14 April 2004). Our comments on the OPS Program, arranged by category, are summarised as follows: Category

Comments

Legal and Regulatory

Arrangements

• The Electricity Law provides for the establishment of a Rural Electrification Fund to

assist in the financing of rural electrification activities.

• The signing of the Prime Minister’s Decree on the Off-Grid Promotion Fund will be

required to establish the necessary regulatory environment for the establishment of the

Fund. This will allow for off-grid rural electrification services under the OPS Program

to be contracted out to a national ESCO, the establishment of the Fund as a separate

entity, and the eventual contracting of a second national ESCO (if required to achieve

the Government’s rural electrification targets).

• It is understood that the Prime Minister’s Decree on the Off-Grid Promotion Fund

provides for its conversion into a Rural Electrification Fund, covering both off-grid and


Category

Comments

on-grid rural electrification, within two years from the establishment of the Off-Grid

Promotion Fund.

Institutional,

Governance and

Accountability

Arrangements

• The OPS Program’s position as a government office has caused some difficulties in its

being able to undertake its role. These are likely to worsen under an expanded

programme. Accordingly, the OPS Program and the Off-Grid Promotion Fund should

be separated, as the skills and competencies required for operation of the OPS

Program (which generally involve project management / implementation) are not

similar to the skills / competencies required of an Off-Grid Promotion Fund (which

involve fund management, accounting, establishment of subsidy levels, etc). The OPS

Program should thus move to function as a national ESCO contracted to DOE and

reporting to / supervised by a Project Management Unit to be established within DOE.

Funding for the OPS Program would be provided through Off-Grid Promotion Fund.

Operation Manual for

Off-Grid Program –

Lao PDR – Draft 3a –

14 April 2004

• The Operation Manual, as it is currently written, combines the functions of the OPS

Program with the proposed Off-Grid Promotion Fund. A separate Operations Manual

for the Off-Grid Promotion Fund should be prepared as part of its establishment in

SPRE II – Phase 1. Accordingly the Operation Manual for the OPS Program should

be re-written to exclude functionality relating to the proposed Off-Grid Promotion

Fund37.

• Payment / contracting signing authorities are with senior officers of MIH, and non-

availability of signatories has led to implementation and payment delays. It is

recommended that appropriate delegation of signatories be arranged, so that

payments can be processed without delay (we understand that this is currently being

addressed38).

• In Section 1.3 (Target Areas) of the Manual, the Program should be limited to the

areas (villages) prescribed for off-grid electrification in the Rural Electrification Master

Plan (once the Master Plan is established). In the meantime the Program should

generally be directed towards villages that are outside EdL’s current (10-year) Main

Grid electrification planning, and any isolated grid planning at provincial / district level.

• A number of clauses in Section 2 (part of 2.2, 2.3 and 2.4) relate to the Off-Grid

Promotion Fund and are not required.

37 For example, Sections 2.2, 2.3, 2.4, 5.34 and 5.35 relate to the Off-Grid Promotion Fund, and should be removed. 38 Aide Memoire, SPRE I, 27 May 2004.


Category

Comments

• The roles of the various OPS staff are described in some detail in Section 2.5 and on

Figure 1 (Organisation and Contracts). However, the staffing of the OPS program will

need to be expanded, and the Operation Manual should allow for this.

• Provision for monitoring and evaluation of the operational and repayment status of

systems installed under the OPS Program should be included in the Operations

Manual. The results of the monitoring / evaluation should be reported in the Quarterly

Reports to DOE. It is anticipated that the information necessary for the monitoring /

evaluation program will be able to be generated through the VEMs and the provincial

ESCOs.

• Future revision of the Operation Manual will be required at intervals, as the OPS

Program develops and expands, and operational experience accumulates. We would

suggest that the Manual be updated during the first half of 2005 (i.e. prior to the start of

the SPRE II – Phase 1) to accommodate the provisions of the Decree on the Off-Grid

Promotion Fund and experience gained in the intervening period, and annually

thereafter.

Hire-Purchase

Agreement

• Most of the off-grid systems are being sold to households under repayment terms of

up to 10 years. This is required to bring the repayment costs down to an affordable

level. However such a long repayment period is not commensurate with the life of the

systems supplied, and should be shortened. We suggest that repayment periods of 5 -

7 years would be a more appropriate. The reduction in total repayments made by

households could be compensated for by increasing the up-front deposit that

households are required to make (indications are the up-front deposits currently

charged are significantly below expressed willingness-to-pay, see below). A

• The hire-purchase agreement provides for recovery of off-grid systems from

households, without compensation, in circumstances where the households take a

supply from the Main Grid. Systems recovered can then be allocated to other off-grid

households. This approach should be continued.

Pricing and Subsidy

Issues

• Indications are that there may be a mis-match between current pricing and expressed

willingness-to-pay. The Report of the Socio-Economic Survey and Establishment of a

RE Database indicates that 70% of households (in currently un-electrified villages)

would be willing to pay up-front deposits for electrification systems of kip 1,000,000

(US$ 100), or more, with the remaining 30 % willing to pay around kip 500,000 -

700,000 (US$ 50 - 70). This is significantly higher than the up-front deposit (of US$ 16

– 25) currently being charged under the OPS Program. We suggest that up-front


Category

Comments

deposits should be more closely matched to willingness-to-pay.

• The expressed willingness-to-pay for monthly service / hire-purchase charges is within

the range kip 10,000 – kip 30,000 (US$ 1.00 – 3.00), as compared with the monthly

payments of around US$ 0.50 – 2.50 charged under the OPS Program. Our view is

that there is some propensity for increasing hire-purchase charges on the larger

systems (i.e. 40 Wp and 50 Wp systems), which are normally purchased by wealthier

households (for example, hire-purchase repayments for 50 Wp systems could

probably be increased from the current US$ 2.50 / month to (say) US$ 3.20 / month

without significantly affecting sales).

• A cost estimate and financing plan for SPRE II – Phase 1 (10,000 off-grid systems) is

shown in Section 6.8. Based on current pricing for systems supplied under the OPS

Program, a net under-recovery of costs for the program of around US$ 334,000 is

indicated. An alternative pricing arrangements, using higher up-front deposits (more

closely matched to expressed willingness-to-pay) and slightly higher hire-purchase

repayments on the larger systems, indicates a small over-recovery US$ 13,000, which

constitutes a significant improvement.

• The price of solar home systems (mainly the PV panels) is reducing and rural incomes

are gradually increasing, and in time subsidies may no longer be required to promote

sales. When this situation is reached, SHS technology will be distributed / sold on a

sustainable, commercial basis (in much the same way that automotive battery systems

and pico hydro units are now commercially sustainable). It is difficult to assess the

future pace of cost reductions and how long the subsidies will be required for, but our

view is that subsidies for the majority of SHS systems should be able to be reduced to

low levels within about 10 years. As the cost of SHS units reduces with time, it will be

possible to increasingly direct the subsidies towards poorer households.

• Increasing electrification of poorer rural households may require a re-evaluation of the

level of subsidy applied to various systems. For example, the subsidy on smaller SHS

systems (20 Wp) could be increased to improve the penetration of small SHS systems

into poorer households. The subsidy on larger systems (40 & 50 Wp), which generally

go into wealthier households, could be reduced (or removed). In doing this it needs to

be understood that subsidies can rarely be targeted precisely, and accordingly should

be reviewed periodically (based on feedback from the field and willingness-to-pay

surveys) to ensure that the objectives of the subsidies continue to be achieved.


Category

Comments

Risk Management • It seems apparent that rural villagers perceive that there are a number of advantages

of private ownership of household electrification systems, as compared to the risks

associated with the village hydro or village genset approaches. These include the

ability to control usage / payments on an individual basis, and the ability to on-sell the

system if required. Villagers perceive that solar home systems give them more

freedom of choice than the village hydro / genset approach.

• There are potential risks associated with removal or on-sale of solar home systems by

households while unde hire-purchase or rental. We understand that there have been

few difficulties with this, but there may be potential for such difficulties to increase in

the future. The Village Managers / provincial ESCOs need to be aware of this

possibility and take necessary recovery actions when required.

• Recovery of monthly payments by households has generally been satisfactory, but the

potential for larger payment defaults is always present. The Village Managers /

provincial ESCOs need to be aware of this possibility and take necessary recovery

actions when required. As well the OPS office needs to keep reviewing the re-payment

status at regular intervals, and take necessary recovery actions.

• While the intention should be to focus the program on rural areas that will not be

electrified by the main grid, solar PV systems displaced by grid extension will not likely to be lost, as they can be on-sold to other households further away from the grid39.

• Procurement and delivery of SHS systems to households has been slow (the time

currently taken from receipt of a deposit from a household to installation of the SHS

unit is several months), and will need to be improved if the rate of implementation is to

be scaled-up effectively. We understand that much of the procurement has been done

in small packages. With a larger program, procurement could be done in larger

packages, and a larger inventory of SHS units held, which should help to smooth the

supply of SHS units to rural households. We understand that some procedures within

the OPS (mainly relating to tendering / evaluation / award of supply contracts) have led

to procurement delays, and suggest that the cause of the delays needs to be resolved.

• While the initial scale-up of off-grid RE system delivery will be through the OPS

Program, we suggest that it could be unwise for DOE to commit the whole program to

one national ESCO. This is because of the risk of poor performance / implementation

39 About 334 panels were recovered from existing consumers in Vientiane province during first quarter 2004, due to grid electrification of villages by EdL. These panels, which were under hire-purchase agreements, were re-assigned to other un-electrified households in other un-electrified villages.


Category

Comments

difficulties, and consequent under-achievement of targets set. Accordingly we suggest

that provision be made in the current institutional arrangements for a second national

ESCO to be recruited at some stage in the future. This would allow an alternative

implementation organisation to be brought in, if the OPS Program could not achieve its

objectives, or if the requirement for off-grid electrification services increases (the

requirements for off-grid electrification will be reviewed as part of the RE Master Plan

preparation).

Marketing Strategy • The OPS Program (being a pilot project) has focussed somewhat more on

electrification of relatively wealthy households in less remote areas (some of which are

close to main grid systems). We understand that this was intentional during the pilot /

start-up phase. However, there is a need to target the program to more remote areas

(that will not be reached by the main grid) and less wealthy households, if the GoL’s

rural electrification objectives (and its poverty reduction objectives) are to be achieved.

• Anecdotal evidence is that the awareness and popularity of solar home systems is

growing in rural areas, and some Provincial DIH staff report continual enquiry

regarding solar PV systems from rural communities / rural people. This tends to

reinforce our view that SHS technology should have a major role to play in the GoL’s

off-grid electrification program.

• The OPS program currently only covers 5 provinces. It needs to be expanded to cover

all 17 provinces and the Xaisomboun special region (but with the possible exception of

Vientiane province) if the benefits of this program are to be made available to all rural

households.

• There is likely to be potential for a portable solar lantern product (about 10 Wp

capacity), aimed at poorer rural households and at farmers who spend evenings in

their fields. However we note that there are countering views that a 10 Wp system

could be produced at a similar price and that some of the solar lanterns (which can be

imported from India at competitive price) are not very robust. However, we would

suggest that some re-targeting of products offered to better meet the market should be

investigated.

• The uptake of village hydro and village diesel genset systems has been poor (only two

systems serving a total of 152 households have been completed (with one village

hydro scheme currently under development). The reasons for the low uptake of these

systems are varied, but both involve community buy-in, and is a factor in many cases.


Category

Comments

• The village hydro systems are complex to initiate and require a number of visits by

experienced engineers to assess the hydrological resource and available head. In

many cases, the resources near to villages are of insufficient capacity, and unable to

meet the demand. In some cases, as larger stream located further away from the

village may provide sufficient capacity, but the increased cost of the transmission inter-

connection reduces the viability of the scheme. Only a small number of people have

the skills required for successful village hydro development, and development of more

people skilled in the assessment of village hydro resources and system design would

assist in improving uptake. However, even with improvements to / increased support

for the village hydro approach, our view is that this component of the off-grid program

is likely to be relatively small (the majority of household electrification systems being

through solar home systems).

• There is a widespread perception among village people that diesel gensets are very

susceptible to diesel fuel price variations, and there are often practical difficulties

associated with maintaining regular fuel supplies to gensets in remote areas. In some

cases the perceptions held are not justified by reason. An initiative to develop crops

that could be grown at village level to provide bio-fuels to displace diesel has been

suggested, and may be worth investigating. However the impact of such an approach

is likely to be small, and the difficulties of promoting it should not be under-estimated.

Even with improvements to the village genset approaches, our view is that penetration

is likely to remain very low.

• Some adjustment of the incentives paid to ESCOs to promote the OPS products may

be necessary. For example an increase in the incentives paid relating to village hydro

and village gensets could result in a small increase in penetration of these systems.

Similarly an increase in the incentives paid for smaller systems and more remote areas

could improve electrification of poor, remote households.

Allocation of

Functional

Responsibilities

• As explained above, the skills and competencies required for operation of the OPS

Program (which generally involve project management / implementation) are not

similar to the skills / competencies required of an Off-Grid Promotion Fund (which

involve fund management, accounting, establishment of subsidy levels, etc). The OPS

Program should thus move to function as a national ESCO contracted to DOE and

reporting to / supervised by a Project Management Unit to be established within DOE.

This is explained further in Section 6.8.

• The Draft Ministerial Decree for establishment of the proposed Off-Grid Promotion

Fund provides for the Fund to be essentially incorporated within the existing OPS


Category

Comments

Program. However, in our view, it would be better for the Off-Grid Promotion Fund to

be a separate entity, charged with raising funds, establishing appropriate subsidies,

and disbursing subsidies to a number of approved rural electrification initiatives. The

current proposal is that the Fund will be under the direction of MIH, but with a

controlling Advisory Committee (comprised of a number of GoL and independent

appointees), Fund Manager and Secretariat. Day-to-day management of the Fund will

be the responsibility of the Secretariat, and could be contracted out to a suitably

experienced management organisation or consultancy, who would report to the Fund

Manager on a regular basis. The existing OPS Program would be an approved

implementing organisation under DOE, but other RE initiatives would also be able to

access subsidies from the RE Fund (refer to further comments given in Section 5.0

below).

Attractiveness to

Private Investors

(local, regional or

international).

• The OPS program has not been successful in attracting larger organisations to

participate as ESCOs under the program. As a result, the program has developed

entrepreneurs to assume this role (the Sunlabob program was also not successful in

attracting larger organisations and uses a provincial franchise model with individuals /

small businesses).

• The current approach of using small ESCOs seems quite successful, and should be

continued. However larger ESCOs covering several provinces could also be

considered in the future, if such interest emerges.

Other Aspects • There is some potential for cross-sectoral linkages with the National Poverty Reduction

Fund Project, providing SHS, micro hydro or micro genset systems in villages that

indicate rural electrification as being their highest priority.

• In comparison with some other international RE programs, the electrification

approaches used in Lao PDR do not yet incorporate strong income generation /

productive use promotion elements, or link strongly with programs in other sectors

(such as health, education, water supply, etc). We would suggest that better

promotion of productive uses / income generation, and better coordination with other

sector programs could result in improved development outcomes for rural people.

Recommendations for scaling-up of the OPS are further described in Section 6.8 below.


4.3 Private-Sector Renewable Energy Initiatives

We understand that four private sector companies have been active in Lao PDR in the solar PV / renewable energy areas, briefly as follows:

• Lao Solar, which has now stopped operating. • SVT, which was previously the local agent for BP Solar, but has now turned its attention to

electrical construction work. • A Thai company with small representative office in Vientiane. • Sunlabob, the only significant existing solar PV system provider in Lao PDR.

Sunlabob was legally established as a 100 % Lao-owned company at the end of 2000, and provides sales, hire (rental), installation and after-sales service, training and coaching and promotions / demonstrations in the renewable energy field (predominantly solar PV and solar heating systems). The company operates across most areas of Lao PDR, has 25 staff based in Vientiane and 23 provincial franchises (agencies), has sold some 300 kWp of solar PV units (3,500 units) since 2001(although a significant number of these units have been sold to the DOE OPS program), and has recently extended its services into neighbouring countries. Sunlabob has been active in developing solar PV markets in Lao through a number of private-public partnerships, as follows:

• PPP with GTZ of Germany (2002 – 2005, 30 months). The aim of this partnership was to develop a network of independent small-scale enterprises throughout Lao PDR that can propagate proven solar energy services and provide back-up services to dispersed clients in small towns. The program initially developed training materials, equipped 5 regional training centres and trained a small cadre of master trainers, who then trained some 70 local entrepreneurs. Of these, about 40 small-scale entrepreneurs have commenced business activities and 23 have signed franchise agreements with Sunlabob. GTZ provided funds for the development of the training modules and a cost-covering stipend for each trainee, while Sunlabob conducted the basic training and follow-up coaching (at its cost).

• PPP with InWent of Germany (2003, 14 weeks). The aim of this partnership was to develop and

introduce a solar PV rental service in rural areas. This involved the identification of four villages (two in Vientiane Province and two in Savannaket), the introduction of solar PV services to households on a rental basis, and the ongoing collection of rentals and monitoring / repair of the systems. A number of awareness creation activities were also completed, including video presentations, broadcasting and TV advertisement, trade fairs, promotion tours, etc, were completed

• Solar Development Group (2003 – 2004, 15 weeks). The aim of this technical assistance was to

prepare a business plan for establishing a solar PV rental service system. The model considers legal aspects, fee collection, management aspects, fee calculation, cash flow projection, IT


aspects and monitoring / evaluation. The business plan was trialed through the installation of 300 solar PV household units.

In the rental model promoted by Sunlabob, the household pays for the electricity on a regular (i.e. monthly) basis, while the installed equipment remains the property of the provider. The Village Committee collects the monthly rental from each household (in return for a small fee) and hands it on the local franchisee, which returns it to the company. A local villager is trained in and becomes responsible for basic system maintenance and repair. More substantial repairs, when they are required, are carried out by the franchisee. Rental is not charged when the system is not operational. We understand that Sunlabob have used good quality solar PV components in the systems installed to date, but the monthly rental cost of around US$ 5.00 / month for a 20 Wp system is higher than the willingness / ability to pay (typically around US$ 2.50 – 4.00 / month). Accordingly, uptake of systems on a rental basis is not likely to be substantial under current conditions unless some subsidy mechanism is applied to reduce the monthly rental cost, or unless less-costly system components are used. The key challenge will be to get the system rental cost low enough to allow participation by poor households. According to Sunlabob, in a typical rural village about 5% of households can afford to purchase SHS on a cash basis, around 40 % can afford to purchase if credit is provided, and the remaining 55 % cannot afford to purchase40. The rental approach really needs to be targeted at those who can only afford to pay with credit and those who cannot afford at all. A comparison to the cash sales, rental and hire-purchase models is as follows:

Solar PV Unit on a Cash-Sales Basis

Solar PV Unit on a Rental Basis Solar PV Unit on a Hire-Purchase Basis

Property of consumer. Property of provider. Property of provider, until paid for in full, when ownership transfers to

the consumer. Maintenance paid by consumer. Maintenance include in the

monthly fee. Maintenance paid by provider.

Spare parts paid by consumer. Spare parts (as required) included in the monthly fee.

Spare parts / repairs paid by provider.

Use only after complete payment. Use immediately after deposit and first hire-purchase payment is paid.

Use immediately after first rent is paid.

Size of solar unit fixed. Up / downgrading of size of rental unit is possible.

Up / downgrading of size of rental unit is possible.

The rental system developed by Sunlabob involves number of actors, including; (a) a rental company; (b) a hardware company; (c) a training company; (d) the Village Committee, and; (e) a village technician. Where a

40 This is consistent with the approx 50% of village households that take up solar PV systems under the OPS hire-purchase model.


subsidy mechanism is involved, the GoL and donors also become involved. A summary of the roles of the key entities (as suggested by Sunlabob) is as follows: Entity

Role

Rental Company

• An independent accounting company. • Manages the fund. • Operates the fund according to rules agreed with the village committee, the donor

and the district authorities. • Buys solar systems from hardware company, and rents them out to the village

committees. • Contracts a hardware company to do fast-reaction servicing. • Cooperates with training providers for training in financial management. • Collects rents from the end users. • Pays back the loan. • Involves district authorities in the whole process.

Hardware Company

• A commercial company that provides equipment according to required technical specifications.

• Operates through sales agents on district level. • Installs all equipment in the villages. • Provides fast and reliable technical maintenance through service contract with rental

company. • Cooperates with training provider and rental company.

Training Company

• Provides technical training to village technician. • Provides training in financial management to village committee. • Provides all necessary information about the rental system to the relevant

government authorities as well as the donors. • Cooperates continuously with the hardware and rental companies during all

activities.

Village Committee • Rents the systems and sub-rents single units to the individual households. • Facilitates installation and training. • Collects the rent from end-users and hands the agreed fee to the rental company. • Handles the village fund (surplus of rent collection). • Pays the village technician.

Village Technician

• Receives training from the training provider. • Responsible for first level maintenance in all households of the village. • Communicates with hardware company in case of failure.


Entity

Role

• Accountable to the village committee.

Government Authorities

• Political decision on running a public funded effort to provide solar units to villages on a rental basis.

• Appoint a board that govern the fund. • Supervise activities and monitor the development effect. • Cooperate with donors. • Negotiate in case of conflicts.

Donors

• Provide resources to the fund. • Provide support in training, coaching and monitoring until competence is achieved. • Provide support in quality control. • Support capacity building of the various stakeholders (but being careful not to put

the emergence of viable commercial mechanisms at risk - through unsustainable long-term transaction subsidies).

Procedure

• Village authorities approach the rental company for a program to launch a rental system in their village.

• The rental company dispatches a team of a fund manager and a person of the hardware company to assess the situation and reach an agreement with the village authorities.

• The hardware company plans and installs the systems. Simultaneously the training company trains the village committee in financial management and the village technician in use and first level maintenance.

• The rental company pays the hardware company for installing the equipment and the training company for the initial trainings.

• The rental company makes a service contract with the hardware company, and pays a fixed sum per year per system for maintenance.

• The village authorities collect rents from the various systems, and pay the collective rent to the rental company. The difference of the rents is for managing at the village level.

• The rental company reinvests the rents into new equipment, etc. The aim is to maximize the number of rents that are operating.

• The rental company pays interests on the investment to the fund. • The rental company also pays back the initial loan. The public investor can decide to

reinvest the interests / loan-money in the fund.


In our view this model has some merit and, with the provision of suitable subsidies, could be considered as a vehicle to assist in scaling-up the off-grid rural electrification effort in Lao PDR. This model would be particularly suitable for pre-grid electrification, as the systems can easily be removed on arrival of the grid and reassigned to other households. This option is further described in Section 6.8 below. 4.4 Existing Mini and Micro Hydro Projects

In 1999, the Hydro Power Office of MIH (using JICA financing) completed a study41 of existing micro hydro projects in Lao PDR, with the aim of assessing their current operational condition and need for rehabilitation. The study identified 3 mini hydro stations (capacities above 1.0 MW) plus 34 existing micro hydro stations (generally between 5 and 250 kW), and was able to physically inspect / report on 26 of the micro hydro stations. While two of the stations were constructed in 1910, the majority were developed between about 1970 and 2001 under funding provided by a variety of agencies, including GoL (MIH and Provincial Authorities), Peoples Republic of China, Government of Vietnam, USA Ministry of Agriculture and Forestry, Nghe Tinh Irrigated Company of Vietnam, and others. Since 1999, a number of other mini / micro hydro projects have been initiated or completed, giving a total of five existing mini hydros (one of which is currently under construction) and 39 existing micro hydros either existing or under construction. Total installed capacity amounts to some 7.55 MW of mini hydro (2.25 MW under construction) and 2,381 kW of micro hydro generation. The summary of the status of existing mini and micro hydro projects in Lao PDRis included in Attachment 5 – Existing Mini and Micro Hydro Stations. Of the five existing mini hydro and 39 existing micro hydro stations, about 18 stations, totalling about 560 kW of capacity and capable of serving about 2,500 households are currently damaged and not operational. As well, 11 of the operational stations, totalling about 765 kW of capacity and serving about 3,800 households, are in deteriorated condition and require repair to return them to a fully operational condition. The HPO / JICA report indicates a number of common reasons behind the breakdown of micro hydro / micro grid systems within the country, including:

• Lack of operator training and experience (this applied to virtually all of the systems). • Lack of spare parts for repair. • Insufficient revenue to cover the cost of operation and repairs. • Damage caused by flooding (i.e. under-estimation of flood flows / in-adequate engineering).

41 Existing Micro Hydro Project Portfolio – Final Report, July 1999, Hydro Power Office, MIH and Japan International Cooperation Agency.


However recent studies42 of the reasons behind the failure of micro hydro systems in Vietnam and elsewhere, suggest that a number of other factors are likely to have contributed to the failure of the stations, including:

• Lack of managerial awareness and ability. • No auditing of accounts. • Over-staffing and excessive salary payments. • Inadequate electricity tariff levels, often combined with poor recovery of electricity billings to

consumers. • Diversion of cash income from electricity sales to other uses. • No savings or budget allowance for major repairs / maintenance. • Spare parts for some equipment not available. • Lack of ownership of / support for the micro hydro systems among village residents. • Lack of central and provincial government support and oversight. • Arrival of the electricity grid has led to abandonment of the micro hydro stations. • In some cases power quality was so poor that villagers reverted back to their battery and pico

hydro systems. • Unavailability of the necessary engineering and management skills to implement major repairs

and maintenance. Given the investments previously sunk into these systems and the demand for rural electricity services, it is likely that a program of refurbishment / repair of the non-operational projects and the operational projects requiring repair would prove attractive. This option is further described in Section 6.4 below. 4.5 Potential Mini and Micro Hydro Resources

While considerable attention has been directed toward identification and development of medium and large hydropower resources within Lao PDR, no systematic, country-wide assessment of micro and mini hydro resources has been completed. Rather, data on micro / mini hydro resources is contained within a number of independent (and sometimes overlapping) studies / documents generally as follows:

• Report on Hydropower Potential Study in Lao PDR from April 1997 to March 2001, February 2001, Newjec / New Energy Foundation, including Summary Report, Part 1 – Site Selection for Potential Hydropower Development, Part 2 - Preliminary Estimates of Construction Quantities and Costs, Part 3 - Preliminary Site Reconnaissance, Part 4 - Screening Method of Potential Hydropower Projects, and a Small Hydropower Potential (Training) Manual. This study identified 27 sites in the Nam Suang basin (Luang Phrabang Province), 7 sites in the Nam Ou basin (Phonsali Province) and 7 sites in the Nam Khan basin (Luang Phrabang Province) from desk

42 REAP Package E: Feasibility Study of a Program to Develop (and/or Rehabilitate) Community-Scale Hydro-Based Mini Grids,

Vietnam, Final Feasibility Study Report, November 2000.


studies. Site capacities were generally within the range 0.4 – 3.8 MW. Preliminary site reconnaissance visits were made to 7 of the sites.

• Project Development and Resource Assessment for Small, Mini and Micro Hydro, January 2001,

(part of Power Sector Strategy Study – ADB TA No. 3374-Lao). This study identifies 12 potential mini hydro sites serving new isolated distribution grids, and 8 potential micro hydro installations to serve small clusters of villages. All sites are located in the northern area of the country.

• Final Report on the Study on Rural Electrification Project by Renewable Energy in the Lao PDR,

February 2001, PROACT International Inc / Shikoku Research Institute. This report focuses mainly on solar PV project implementation, but also identifies 11 potential micro hydro sites (from map studies only) in Vientiane and Borikhamxay Provinces with capacities of around 15 kW to serve isolated villages.

• Inception Report for the Masterplan Study on Small Hydropower in Northern Laos, February

2004, JICA / Nippon Koei / KRI International Corporation. This study focuses on the 8 northern provinces of Phongsaly, Luangnamtha, Oudomxay, Bokeo, Luangprabang, Huaphanh, Xayabury and Xiengkhouang. This study has selected 18 previously identified sites in un-electrified or poorly-electrified districts (i.e. 2 – 3 sites per province), and following initial site reconnaissance and socio-economic assessments (not yet commenced), 10 sites will be advanced through pre-feasibility studies. A detailed project implementation plan (‘masterplan’) will then be prepared. The study is due for completion in December 2005.

• Statistic of Electricity Consumption in the Year 2001, 30 December 2002, DOE / MIH. This

report contains outline lists of some 52 mini / micro hydro sites with capacities ranging from 70 kW up to about 3 MW that could be suitable for development.

• Statistic of Electricity Consumption in the Year 2002, 30 December 2003, DOE / MIH. This

report contains outline lists of some 52 mini / micro hydro sites with capacities ranging from 70 kW up to about 3 MW that could be suitable for development.

A demonstration project for a district-owned small hydropower system has also been piloted in Luang Prabang supported by Japan’s New Energy Foundation. This is a 70 kW system with a current maximum load of 40 kW. The service area supplied could soon be economically served from the EdL grid once the proposed ADB supported PTD 2 project is implemented. This situation provides the opportunity to pilot district-based supply of electricity with sale of surplus electricity to the grid (the hydropower project is capable of being expanded to 200 kW). A listing of 53 potentially viable mini hydro systems (up to 5 MW capacity) has been prepared from information provided by DOE, and is shown in Attachment 6 – Potential Mini / Micro Hydro Developments in Lao PDR. It is likely that that this is only a partial listing of all potential sites within the country, and significant numbers of


additional, possibly viable, sites will be able to be identified. The Small Hydropower Project in Northern Lao PDR Study (supported by JICA) will identify / investigate potential mini / micro hydro sites in the eight northern provinces (see Section 4.6 below). However consideration could be given to supporting an assignment to identify further micro / mini hydro sites that could serve district towns in the seven central and southern provinces. This option is further described in Section 6.5 below. 4.6 Small Hydropower Project in Northern Lao PDR (JICA)

In 2002, the GoL requested technical assistance for preparation of a master plan / study for a small (i.e. mini) hydropower development project targeting projects in the 8 northern provinces of Phongsali, Luang Namtha, Oudomxay, Bokeo, Luang Phrabang, Huaphanh, Xayabury and Xieng Khouang. A scope of work for the study was confirmed in 2003, and study implementation commenced in early February 2004. The study is due for completion in December 2005. The Small Hydropower Project in Northern Lao PDR is focussed on improving power supplies in the 61 district towns of the 8 northern provinces, but may also consider mini hydro schemes that provide additional generation (where existing generation is unable to meet demand) or provide voltage support to the transmission system. The study considers hydro projects in the range 100 kW up to 5 MW only, and does not consider micro / village hydro projects supplying individual villages or small clusters of villages. As of March 2004, the study team had selected 18 previously identified mini hydro sites (from a long-list of about 50 previously identified sites) in un-electrified or poorly-electrified districts (i.e. 2 – 3 sites per province), and following initial site reconnaissance and socio-economic assessments, 10 mini hydro sites will be advanced through pre-feasibility studies. A detailed project implementation plan (‘Master Plan’) aimed at improving power supplies in each of the 10 district towns will then be prepared, based on mini hydro, diesel gensets, cross-border supplies or transmission system extension. The purposes of the study include:

• Promotion of electrification in currently un-electrified provincial / district centres. • Reduction of electricity imports from other countries. • Displacement of existing diesel generation.

The outputs of the study will include:

• An implementation plan (‘Master Plan’) for off-grid small hydropower up to 2020. • Policy suggestions and recommendations regarding the promotion of off-grid small hydropower

projects. • Capacity building of counterparts in small hydropower planning.

Depending on the outcomes of the pre-feasibility studies of 10 sites, a number of these may be advanced through feasibility studies, design, implementation and commissioning. Financing for the downstream studies and implementation has not yet been arranged, although the Japanese funding agencies (JICA and JBIC) are


likely to be interested. The ADB may also be interested in financing implementation of some aspects of the project, given its ongoing program of transmission / distribution expansion in the north of the country. The capacity building component of the study is aimed at developing the skills of PDIH staff in small hydropower identification, investigation and design, so that they can later apply their skills in the identification of sites suitable for the electrification of individual villages or small clusters of villages. In this way, the study should further develop interest among the 8 PDIHs in micro hydro / micro distribution grid development for village electrification. The outcomes of the JICA-funded study will need to be considered as part of the formulation of any power system master plan covering the northern provinces of Lao PDR.


5.0 Review of Proposed Off-Grid Promotion Fund

5.1 Background

5.1.1 Establishment of a Fund

During late 2003, a decree (the Decree) establishing an Off-Grid Promotion Fund (the Fund) was drafted by a multi-ministry committee, approved by MIH and then submitted for signature to the Prime Minister. It was initially prepared only for off-grid electrification since this was felt to be a desirable initial step while the larger scope of a rural electrification fund covering both off-grid and on-grid initiatives was being considered. 43 All ministers were consulted on the draft, including the Prime Minister and Vice-Prime Ministers, and it was discussed at the January 2004 quarterly Ministers’ Counsel Meeting. Importantly, the question of whether the Decree should cover rural electrification in general or be confined to off-grid activities was discussed and we understand that the Decree, as finally presented for signature by the Prime Minister, is intended to cover both off-grid rural electrification as well as electricity systems supplied from the main grid (see Article 02, Definition 3).44 Following discussion at a workshop at DOE on 14 May, it was agreed that the World Bank would write to MIH requesting the signing of the Decree be delayed to give time for further review and refinement. 5.1.2 Scope of Our Review

Section 5.0 discusses and reviews the draft Decree and recommends modifications to it.45 In carrying out the review, we noted that the Terms of Reference required us to “bear in mind the eventual establishment of a general RE Fund that would receive contributions from multiple donors and deliver subsidies to … applicants … such as: [the] DOE SHS programme; EdL in carrying out un-economic grid extension; private concession-aires of rural distribution systems; NGOs [with a concession to operate] community based systems; etc.” Also, that we were to provide recommendations for the staged development of a Fund and advise what must take place before the fund could advance from one stage to the next. We noted that our review was to cover the legal and regulatory arrangements for the Fund, its organisational structure, governance and accountability, staffing arrangements and capacity building, operational management, including triggers for the disbursement of funds, financial projections (matching sources and applications of funds), financial management (billing and collections, accounting, reporting, auditing etc), and an implementation plan for the first phase of its operation. We also noted that a parallel tariff study is to consider setting up a subsidy account within EdL to receive and deliver subsidies from government.

43 The proposed Off-Grid Promotion Fund is referred to in this section of the report under its full name and also, where quotation or context requires, as ‘the RE Fund’ or ‘the Fund’. 44 The Decree mostly follows the format of the decree (No. 73/PM, 31 May 2002) on the establishment of the Poverty Reduction Fund. 45 The proposed off-grid promotion fund is referred to in this section of the report under its full name and also, where quotation

requires, as the ‘the RE Fund’ or ‘the Fund’.


The draft Decree was received and discussed and recommendations were made as set out in the following sections of this report. A draft operations manual dealing with operational matters relating to both the OPS program and the proposed Fund was also received and we made recommendations on its content, many of which were incorporated in a second draft presented to us. A third draft was then received and has been commented on separately (in Section 4.2.4 above). Because the Decree is not yet enacted, we concentrated in our review on matters of policy concerning, principally, the objectives and scope of the Fund, rather than its operational detail, preparing and presenting a discussion paper on the Fund for review at meetings held in Vientiane in May 2004.46 The key issues raised in the discussion paper are reproduced in Attachment 10. 5.2 Review of Draft Decree

5.2.1 Review of Concepts of the Fund

To re-state the principal concepts proposed for the Fund:

• The primary objective of the Fund should be to raise finance with the sole objective of helping achieve the Government’s RE target.

• It should be a separate entity – separate, that is, from the ESCOs that it funds – that focuses on

raising and disbursing finance for the purpose of off-grid rural electrification.47 • For reasons of efficiency, the structure and cost of the Fund’s operations should be

commensurate with its financial throughput and scale of activity. • The Fund should support all economic and reasonable proposals from ESCOs. • It should not be restrictive in the types of technology supported. • It should not undertake rural electrification planning itself but should be cognisant of the plans

and rural development strategies developed by EdL and DOE. • In our opinion the Fund should not be be involved in financing EdL’s activities.

46 “Discussion of proposals for establishment of a rural electrification fund (draft)”, May 2004, Maunsell. 47 The skills required for fund management differ from those required for ESCOs.


• Transparency and independence of operation will make the Fund more attractive to potential financiers. The Fund should be in existence only for an agreed, limited time, after which it should be dissolved.

• The Fund should exempt or minimise taxes and duties on projects funded by donors and

international lending agencies as permitted under the Electricity Act. 5.2.2 Suggested Structure for the Fund

The Fund should be structured, and have accountabilities, generally as described in this section. As far as possible we have retained the roles of the various bodies as described in the draft Decree to minimise alterations to the Decree. MIH, through its Department of Electricity, should continue its role of policy-maker for the energy sector. This would include ultimate responsibility for oversight of the Fund and its operations. DOE would also be responsible for the direction and coordination of RE planning, particularly off-grid planning, through its Electricity Management Division, including the coordination of EdL’s grid development program with DOE’s off-grid initiatives and coordination with other ministries involved in rural development. 48 The Fund, comprising an Advisory Committee and a Fund Manager, would have functions generally as follows:

• The Advisory Committee would be responsible for ensuring that the functions described in the Decree are undertaken in a satisfactory manner and would have authority and responsibility for hiring and if necessary replacing the Fund Manager. The Committee would report to MIH.

• The Fund Manager would be an experienced person or organisation and would have delegated

authority and responsibility for the day-to-day management of the Fund’s operations including but not limited to: − Preparing plans and budgets for approval by the Advisory Committee including detailed

goals. − Supervising and directing the day-to-day operations of the Fund and reporting on same to

the Advisory Committee. − Establishing and maintaining accounting and management information systems, preparing

monthly and annual accounts and reporting on same to the Advisory Committee. − Determining, within the policy constraints set by MIH, the areas of application of the Fund’s

financial support, geographically and in terms of technology. − Determining, within the policy constraints set by MIH, the method and extent to which the

Fund’s financial support will be made available.

48 Appropriate technical assistance will be required to further develop RE planning capabilities within the DOE.


− Reviewing, periodically, the method of application of subsidies to ensure allocative efficiency and making recommendations on same.

− Approving modifications to Fund regulations, tariffs, payments, procedures and activities within defined limits.

− Advising on, and organising, fund-raising to for the Fund to support the Government’s rural electrification objectives.

− Promoting the Fund. − Selecting and contracting ESCOs. − Monitoring and evaluating the activities supported by the Fund including such inspections

as are required to satisfy the fund Manager that the Fund’s support is being applied efficiently.

− Entering into contracts on behalf of the Fund up to approved levels. − Employing, supervising and directing staff to assist him or her in this work.

The Fund Manager would report to the Advisory Committee and attend all meetings of the Committee in an advisory capacity. Suggested Terms of Reference for the Fund Manager are given in Attachment 18e. Technical assistance is likely to be required to support the Fund Manager initially. Donor representatives might attend the Advisory Committee’s meetings as observers. The decree provides for annual audit of the RE Fund by the Government’s auditors and this should be acceptable to donors provided the audit is completed in a timely fashion and a translation of the audit report is made available. If significant donors wish to carry have independent audits undertaken, they should be permitted to do so. Other than in these respects we do not see a need for an external auditor. Any regulatory function, should one be established, should be separate from the Fund. 5.2.3 Review of Draft Decree

An overview of the content of the draft Decree, along with comments on its key provisions, is given in Attachment 10. Articles from the Poverty Reduction Fund decree have been adopted where appropriate. The English translation of the Decree, as submitted for signing, is provided in Attachment 9. Our suggested modifications to the Decree, for consideration by DOE / MIH, are provided in Attachment 10, along with a copy of the modified Decree as agreed with MIH for re-submission to the Prime Minister’s office. The English translation of the decree on the establishment of the Poverty Reduction Fund is provided in Attachment 11.


6.0 Rural Electrification Framework

6.1 Introduction

The Terms of Reference require consideration of experience with rural electrification models in other countries and a comparison of alternative models for both grid and off-grid electrification. Consideration of the roles played by institutions and the possible need for a specialised ‘anchor’ institution is also required. In Lao PDR, as in many other countries, rural electrification has been implemented mainly through EdL and financed by a combination of Government funds and loans from the International Financing Institutions (IFIs) and donor countries. The capacity of the Government, the IFIs and donors to provide the financing required for large-scale rural electrification programs is limited and other sources of financing will be needed if the Government’s rural electrification targets are to be met. Accordingly, alternative implementation models, aimed at bringing other sources of financing to the rural electrification effort, are expected to be required. It is important to consider, in this context, the full range of options for public-private partnerships when deciding on the best model for the sector to meet the overall objectives of: (a) changing the manner in which new investments are financed; (b) increasing the efficiency and development effectiveness of those instruments, and; (c) increasing operational efficiency while addressing equity concerns as the sector expands. 49 It is equally important to select a model or models that are in tune with the economic, political, social and geographical climate of the country concerned – Lao PDR in this case. Therefore, when deciding what weight to place on the experience reported from other countries, we took note of whether the model:

• Matched the economic, political and social climate in Lao PDR. • Matched the population density, average village size and geographic spread in the country. • Took account of available hydropower and other renewable energy resources. • Was in accordance with Government policy and current statutes. • Were combinations that have already proved successful and sustainable in Lao PDR. • Made best use of existing institutions and avoid creating new ones unnecessarily. • Had potential for scale-up to the required rate of implementation whilst avoiding the time and

cost of trials or pilot projects.

6.2 Policies, Institutions, Technologies and Models

Rural electrification can be promoted under a variety of policies, institutions, technologies, and implementation mechanisms (models). An effective program, or framework, of electrification combines all four to achieve the

49 Paraphrased from: Operational guidance for World Bank Group staff: public and private sector roles in the supply of electricity services, World Bank, February 2004. The source goes on to express the Bank’s current view that: “It is now broadly recognised that pure public financing and provision have failed to adequately support economic and social development under the poor governance standards found in most of the Bank’s clients …that the private sector has shown that it can deliver efficient investments and improved services to customers …provided that the right business incentives are in place –but that putting this framework in place can be challenging in many countries – [and that] consequently, practical solutions for these countries may be public-private partnerships that lie between these options”.


least-cost development plan, consistent with Government policy, and after taking into consideration relevant social and economic impacts. In Lao PDR: Policies: The following policy instruments govern rural electrification:

• The Electricity Law. • MIH’s draft Power Sector Policy Statement. • Other relevant laws, policies and regulations.

Institutions: 50 The institutions that have primary influence over rural electrification are: • The Ministry of Industry and Handicrafts and its provincial departments. • Electricité du Laos. • National planning committees including the Committee for Investment Management and

Foreign Economic Cooperation and the Lao National Committee for Energy. Other important participants include:

• ESCOs and other private solar home system wholesalers. • The IFIs and donor countries funding mini-hydropower and other systems.

Technologies: The following technologies have been applied to date: Main Grid:

• Conventional grid extension. • Shield wire.

Off-Grid: • Solar home systems. • Pico, village, micro and mini-hydro systems. • Diesel. 51

Models: Existing and potential mechanisms (models) for rural electrification are:

• Government-owned - Conventional utility model. - Isolated (mini) grid electrification systems. - Rural Electrification Boards to support rural cooperatives).

• Private sector - Individual household activity. - Rural Electricity Enterprises (REEs) (a BOO model). 52 - Electricity Supply Companies (ESCOs) (another form of REE). 53

• Public – private partnerships: - Management of Government-owned entities or parts of them by the private sector.

50 For the purpose of this section of the report, “institutions” include government institutions and agencies and all other entities associated with the sector, including corporate bodies, companies and businesses. 51 Section 2.4 describes the current RE systems, grid and off-grid, and Section 4 discussed the off-grid alternatives. 52 The term is used, mainly, to describe the Cambodian REEs. 53 The term is used to describe the Lao ESCOs.


- Leases to the private sector for the same purpose. - BOT concessions with ultimate vesting of ownership in the Government. - Sale of Government-owned entities to the private sector. 54

• Community-owned / cooperative models: - Community ownership. - Consumer ownership. - Rural Electrification Boards for support of these.

The following table, without pre-judging the applicability of particular models at this stage, presents an expanded summary of them with observations on their current use and applicability in Lao PDR.55

Alternative Models for Rural Electrification

Model

Observations

Conventional Government-Owned Models Conventional Utility Model Government-owned electricity utility extends its grid to rural areas and augments its generating capacity as required. May operate isolated grids as well, with own generation or cross-border supplies.

A well-proven model, internationally. Given good management, a cost-reflective tariff and other acceptable features, the utility can normally procure equipment at competitive rates and install and operate the network competently. RE is, however, normally financially burdensome and in addition requires cross-subsidy from other market sectors. To date, financial support has normally been available from the IFIs. Other than in respect of foreign exchange risk and tariff inadequacies that are being addressed to some extent, EdL matches this description.

Government-Owned Isolated Grids and Generating Plant Government agency – in Lao PDR, a provincial office of MIH or a district authority – owns and operates an isolated system and its generating plant.

A well-trialled model in Lao PDR. Usually linked to mini-hydropower development, mostly built with the support of donor countries. Operations may be contracted out – see under public-private partnerships. There are about 39 systems in Lao PDR, the responsibility of provincial government if < 2 MW or district authorities if < 100 kW. Many of these systems are inoperative, requiring refurbishment or repair.

Private Sector Models

54 In Lao PDR, the Electricity Law foresees BOT concessions, not BOO or sale, with ownership vesting, ultimately, in the State. 55 The table deals with the mechanisms (models). For a summary of the legislative and policy framework in Lao PDR, and the Government’s RE targets, see Sections 2.2, 2.3 and 3.0 of this report.


Model

Observations

Commercial Sales Model Electricity generation / storage systems (mainly individual household systems) are sold to individual households by private vendors.

Conventional private sector, commercial activity. Market-driven and self-regulated. Purchase and operating costs all paid by consumer but vendor support sometimes available. May be supported and/or subsidised by a government-funded program. In Lao PDR, the purchase of low-cost individual household systems such as automotive battery systems or pico-hydro is common without Governmental support but less so with more expensive systems such as such as solar home systems village hydros or diesel gensets. Hence DOE’s support to encourage the uptake of solar home systems.

Rural Electricity Enterprises (REEs) Private companies or individuals construct small networks (mainly at low voltage), install generators (mostly diesel) and supply electricity. The term generally refers to the Cambodian model.

Diesel is the preferred type of generation because of its low installation cost. However, supply is often restricted to a few hours in the evening because of the high cost of fuel and consequential high tariff. The REE operates for profit and the tariff is usually high for this reason as well. Consumers may also pay a connection fee. Operations often cease if the main grid extends to the area. REEs are not known to be operating in Lao PDR although they are in Cambodia as noted in the following section of the report. Importantly, the Electricity Law in Lao PDR provides only for BOT models in which ownership ultimately vests in the Government. A change in the Law would be required to allow the REE model, in which ownership remains in private hands.

Electricity Supply Companies (ESCOs) 56 Another form of REE. In Lao PDR, the term refers to private companies or individuals who contract (in LaoPDR, with MIH) to sell solar home systems or other electricity generation or storage systems to consumers and manage the consumers’ repayments for a commission.

In Lao PDR, solar home systems, village hydro and village diesel genset installations are currently being supported by DOE’s OPS Program through registered ESCOs using a hire-purchase approach. The work is undertaken with financial support from the GEF.57 58 The ESCOs are generally individuals or small businesses operating at a provincial or district level. The pricing of the hire-purchase contracts includes a capital grant (subsidy).59 Service support is provided by the ESCO but the household normally pays for any operation and maintenance costs. 60

56 While ESCOs are correctly considered as being in the private sector, they require support in the Lao context if they are to be successful and might be better categorised as a public-private partnership model for the purpose of this table.


Model

Observations

Public- Private Partnerships Management Contracts The private sector is contracted to operate or manage a Government-owned entity or system or a part of its functions.

Transfers only limited risks and responsibilities to the private sector. Likely benefits include the addition of management expertise but little or no positive impact on tariff discipline or access to private capital. The contract could cover, for example: (a) designated tasks, e.g. billing and collection for defined areas; or (b) operation and/or maintenance of generating stations or defined parts of the distribution system. This model is normally chosen where the utility needs additional resources, either of a particular type or in a particular area. The contractor normally contributes only working capital. In Lao PDR, EdL routinely contracts out engineering and financial services of various types including billing and collections in remote areas.

Leases Some or all operational activities in the Government-owned entity or a part of it are leased to the private sector for an agreed period.

Transfers more risk. Likely benefits include management expertise, improved tariff discipline (but limited to operation and maintenance costs) and better access to private capital (but limited to working capital). Usually most relevant if the Government-owned utility lacks the capability to manage its operation or if the Government wishes to withdraw from its operation. The lessee normally contributes only working capital with agreed network extensions funded by the lessor. Not a common model and not currently used in Lao PDR.

Concessions The most common (but not the only) model is BOT – build, operate and transfer. Under this model, a concession is given to the private sector to build new

Much higher risk transfer to the private sector. Management, tariff discipline and access to capital are all benefits. All of the major power generation and export projects developed in Lao PDR recently have been carried out on this basis. Power projects developed recently for domestic supply have been on a build-and-transfer model but the expressed

57 One village hydro system and one diesel genset system have been completed through this system. 58 The GEF grant also covers the managerial and technical support costs incurred by the OPS programme. 59 Under a hire-purchase agreement, a householder pays for the cost of the system through its deposit and periodic repayments and becomes the owner of the system on completion of the payment programme. If the payment programme is not completed, ownership does not pass to the householder but remains with the ESCO. 60 In a variation of this model, another contractor (Sunlabob) leases solar home systems to households. The contractor is not a registered ESCO and is not a beneficiary of the OPS program but has received assistance from various donor countries.


Model

Observations

generation or distribution systems and operate them for an agreed period. Ownership reverts to the Government at the end of the period.

intention of the Government is that future domestic power generation projects will be BOT. 61

Sale (divestiture) Sale by the Government of Government-owned entities or parts of them to the private sector.

Generally only undertaken in developed countries and as part of a major program of economic reform often including the reduction of government debt. Not proposed in Lao PDR and no reflected in the Electricity Law.

Community Ownership and Cooperative Models Community Ownership Local communities, either separately or in combination with each other, undertake the construction and operation of electrical systems. In the RE context, this often includes local generation.

The communities may be villages or groups of villages. The entities that are established may or may not have a recognised legal form (in Lao PDR there is no legal vehicle for such operations: and they are thus more in the nature of informal associations). This model has the advantage of local interest and usually a matching level of commitment but a common disadvantage is a lack of managerial and technical capacity within the organisation. 62 Typically, communities raise 5-10% of the capital cost of establishing the system (through cash contributions, materials and/or labour), the remainder having to be funded by a capital grant from the Government. Donor agencies may contribute. 63 64 In Lao PDR, community-based approaches to development are becoming more common, mainly in the development of rural water supply and

61 Two studies are being undertaken on related matters of this: (a) the Power Sector Financing Strategy Study funded by the World Bank and being undertaken by Maunsell; and (b) the Study on Independent Power Producer Development and Institutional Re-structuring to be funded under ADB TA No 2005-LAO. 62 Local management of village-scale distribution systems may be possible – although evidence from Vietnamese communes suggests otherwise – but the management of generating plant, particularly hydro, is usually too complex. Experience in Lao PDR confirms the latter. 63 There are exceptions. In the Nepal mini-hydro project, for example, community contributions in cash and kind amounted to around 50% of the capital costs. Funding is usually arranged through local government agencies but technical direction from the Government’s ministry of energy – in Lao PDR, the MIH – is normally required. 64 With community ownership, representatives of the local village or community form a committee and organise predominantly off-grid RE supply for individual households, or using a small distribution network (mostly at the LV level). The committee manages the operation, collecting revenues from sales and organises ongoing maintenance of the system.


Model

Observations

sanitation and in other activities supported by the Poverty Reduction Fund. However the complexity of operation and maintenance of community electrification grids is usually beyond the capability of community-based organisations, and support mechanisms are required.

Consumer Co-Operatives A similar model to community ownership but the body concerned is comprised of the consumers, not the community.

The bodies are sometimes referred to as “co-operative societies” although, as in the preceding example, there may be no recognised legal form of association. The model has been applied successfully in Bangladesh. Based on the United States model, RE cooperative societies were established there under a statute that governs their operation. A similar approach in India is apparently not well-regarded, however, and the Philippine cooperatives, also established on American lines, have fallen into financial difficulty. Financing, usually from a central body, is required.65 As a generalisation, consumer cooperatives are more suitable for the purpose than community ownership as the size of the RE enterprise grows. The approach is more formalised than that of a community ownership structure. The co-operative structure is a well-established and long-standing vehicle suited to this purpose and used in many countries to achieve development objectives through consumer or supplier participation.66 To date, there has been little experience with consumer cooperatives in Lao PDR, although, as already mentioned, there is substantial international experience with these systems.

Note: Community ownership and cooperatives are often found in circumstances where the private sector is not willing

to participate and where there is support in the community or amongst households for this type of structure. After summarising relevant international experience and making appropriate comparisons with Lao PDR, the remainder of this section reviews each of these institutions, technologies and models in the context of the Government’s policies and recommends the most appropriate combination for Lao PDR. 67 65 The central funding body is usually also responsible for providing technical support and managerial guidance. 66 In a consumer cooperative, the beneficial owners of which are the consumers for the time being, are similar in intent to the community ownership structure. The concept is of ownership shared by the beneficiaries of the electricity supply as opposed to ownership by a company or other commercial vehicle, owned in turn by a third party. 67 A detailed assessment of applicability of these models to Lao PDR is given in Attachment 12 – Assessment of Potential Rural Electrification Models.


6.3 International Experience

6.3.1 Introduction

International experience in electricity sector restructuring and rural electrification development has already been reported extensively in World Bank, Asian Development Bank, African Development Bank and ESMAP funded studies. We researched a selection of these, including Bank policy papers, and present a summary of our findings by country68. As a cautionary note, the experience in each country reflects the circumstances in the country concerned and is not necessarily appropriate for application in Lao PDR. As well, it should be noted that population densities within counties, and hence settlement patterns, vary significantly, as shown in the following table:

Average Population Density (persons / sq km) a/

Vietnam 240 China 133 Thailand 124 Cambodia 74 Laos 21

a/ Data are country-wide averages: densities in rural areas will be lower.

Compared to its neighbours, villages in Lao PDR are much smaller and more dispersed. Excluding the City of Vientiane, the average village in Lao PDR has between 45 and 100 households with an average of 85 households, and between 300 and 665 people with an average of 496 people. There is, on average, one village per 23 sq. km of land area, implying an average distance between villages of around 5 km. These low densities, and the large number of villages in Lao PDR without road access, makes grid reticulation more costly and village operations very small, on top of which Lao PDR lacks the administrative and social structures of many of its neighbours. 6.3.2 Vietnam – District Level Local Distribution Utilities and RARE Fund

The Vietnamese RE approach involves principally grid expansion, with communes handling LV distribution. The communal operations reflect the country’s administrative structures of recent decades but are generally not financially self-sustaining or technically competent. This has been recognised and the consolidation of communes into Local Distribution Utilities (LDUs), operated on a commercial basis, has been proposed although it has not yet proceeded (as an observation, when it does, it will not in our opinion fully address the

68 The source documents are mostly identified and reference may be made to them for any further information required.


managerial and technical weaknesses that are apparent at present; nor will it address the lack of financial capacity at this level in the sector as the tariff is not cost-reflective).69 The Vietnam experience has relevance since there is a philosophical similarity of policy approach to that of the Lao government. In parallel with its grid extension program Vietnam’s Ministry of Industry is promoting renewable energy development for rural electrification and off-grid supply for the over some 1,100 remote or mountainous communes (representing 500,000 households and 3 million people) that will not be connected to the grid by 2010. The approach being investigated in Vietnam involves establishing community co-operatives to manage and operate micro hydro schemes and associated mini-grids in remote areas with funding provided through a Remote Area Renewable Electricity Fund (RARE). Historically the experience of off-grid community managed micro hydro schemes in Vietnam (and in Lao PDR) has not been satisfactory, with schemes frequently falling into disrepair due to the typically weak management and technical capabilities of remote communities, lack of training / capacity building and weak support from government agencies. The RARE approach is attempting to overcome the causes of the previous failures, using a community-based approach, but 6.3.3 Cambodia – Rural Electrification Enterprises

In rural areas of Cambodia, there were, even in the 1990s, few power distribution systems outside the towns. Private entrepreneurs bought small diesel generators, many second-hand, and organised limited local supplies through what became to be known as Rural Electrification Enterprises (REEs). Around 600 REEs are or were providing electricity services to commercial establishments and a proportion of neighbouring households. There is presently no regulation of supply standards or of tariffs / service charges. The private sector is making a significant contribution to RE in Cambodia through the REEs, even if their operations do not generally meet normally accepted technical, safety and service standards. The approach, however, is opportunisti; and the limited technical, financial and managerial know-how of the private sector operators limits the potential for expansion of this option without considerable technical support. EdC is also considered unlikely to have a wider involvement in RE because:

• It might not be able to mobilise the requisite funds or human resources to undertake a

widespread RE programme. • Should it do so, the programme would have an adverse impact on EdC’s financial position. • EdC does not have suitable standards at the present time for RE construction as its present

practices, to the extent that they are standardised, are for urban construction, mainly underground. However, it is likely that EdC, as the principal repository of electrical engineering

69 The latter is one of the principal impediments to financial sustainability of RE in many countries and thus a factor behind the failure of many RE efforts.


skills within the country, will have to take responsibility for formulating suitable standards to RE construction on behalf of MIME.

Of relevance, Cambodia has a lower population density than Vietnam, more closely matched to Laos. However, the undiluted private ownership model of Cambodia is not favoured in Lao PDR where the Electricity Law requires private participation to be on a BOT basis – in other words, ownership eventually vests in the Government. Off-grid development is being encouraged in Cambodia through the support provided by the World Bank in formulation of the country’s Renewable Electricity Action Plan (REAP). Whilst not yet an official policy document, “the REAP envisions active partnership between public and private sectors to create a favourable environment for investment opportunities in renewable electricity in particular hydro-electricity, and to a lesser extent in solar installations”.70 6.3.4 Sri Lanka – Private Sector and Community Managed Off-Grid Electrification

The Government of Sri Lanka’s rural electrification strategy is to expand access to electricity in the most economically efficient manner with grid extension where feasible, and if not, off-grid at village and household level. It is recognized that off-grid solar home systems and community level independent grids owned and operated by the private sector or community organisations are better suited to more remote communities. The strategy includes leveraging government resources by seeking private sector and community participation. Key principles of the strategy include:

• Establishing a level playing field in rural electrification with suppliers competing on equal terms, all cross subsidies eliminated and subsidies available to all parties on a competitive basis.

• Provision of an enabling regulatory framework including independence from policy and operation aspects and simplifying licensing arrangements for off-grid mini systems while retaining safety standards.

• Cost reflective tariff setting enabling a reasonable rate of return for mini grids and establishing a tariff regime where bulk supply tariffs from the main grid is cost reflective so that isolated mini grid systems can compete on an equal footing.

• Third party access such that small electricity produces can sell directly to consumers connected to the main grid, using the transmission and distribution network at a cost-reflective network service charge.

• Subsidy mechanism for rural electrification (rural electrification fund) based on principles of economic efficiency, transparency and social equity. The fund will be financed through Government contributions and donor assistance.

70 Quoted from Cambodia REAP website www.recambodia.org/reap


The strategy is underpinned by necessary legal and regulatory reforms aimed at restructuring the power sector along the lines of a modern commercial industry driven by competition and private investment in generation and distribution. An independent regulation authority is overseeing this. Sri Lanka has had long experience with private mini-hydro generation in the tea estates. This has led to the establishment and operation of community-based micro-hydro schemes with a well-established network of NGO support agencies. Sri Lanka has an active and well-established NGO network providing support for rural community development. Such support agencies are compatible with the social and administrative structures of the country. Two important lessons can be drawn from the Sri Lanka situation that is relevant to Laos. Firstly there is an emphasis on adopting a pragmatic approach whereby economic efficiency is seen as the main driver for rural electrification expansion and where the Government recognises that economic efficiency goes hand in hand with providing an enabling environment for private sector involvement. Secondly, the involvement of NGOs and other agencies in providing on-going technical and business capacity building support is critical to the success and sustainability of community based micro-hydro systems. Currently Laos lacks the kind of social and administrative fabric needed to support sustainable community based micro hydro systems. 6.3.5 Bangladesh – Consumer Co-Operatives

Bangladesh’s power sector is dominated by the state owned Bangladesh Power Development Board (BPDB) and Dhaka Electricity Supply Authority (DESA) who provide 75% of the electricity coverage primarily in the main urban centres. However, their financial and operational performance has been poor and institutional reform is underway through the unbundling and corporatisation of the BPDB. Since 1978 rural electrification in Bangladesh has been based on ownership and management of power distribution networks by independent, consumer owned co-operatives / Pally Bidyut Samiti (PBSs) set up and administered by a Rural Electrification Board (REB). Sixty-seven PBSs cover 80% of the country’s rural areas. In comparison with the BPDB, PBSs deliver higher service levels with cost reflective tariffs, lower system losses and better billing and collection results. Nevertheless, operation and financial sustainability of PBSs depends on obtaining economies of scale and higher revenues through continued growth of the rural system and areas covered, especially the transfer of rural and small town load centres from BPDB to PBS. Government also promotes off-grid renewable energy options for remote areas. These comprise mainly solar home systems although the Government is also offering mini hydros up to 10 MW to the private sector under concession arrangements with the BPDB or REB. The REB sets up and administers PBSs that own execute and manage area based rural distribution networks. Each PBS comprises a local board of up to 15 elected directors who meet minimum selection requirements related to education level, membership of local community and lack of political affiliation etc. Women advisors are also appointed. Funds are provided from the GOB and on-lent from international donors through GOB to


the REB for the construction of assets. Construction of assets is managed by REB using standardised materials. Following construction the REB assets are handed over to the PBS in exchange for loan in kind covered by a local mortgage. PBSs purchase electricity from the BPDB at 33kV level at a bulk rate. Each PBS sets its own tariff with approval of the REB. A differential tariff is used based on consumer type (residential, commercial, irrigation etc). Retail rates vary between PBSs. Some PBS work is contracted out such as meter reading and bill delivery. Monthly monitoring of PBSs by the REB is undertaken to ensure accountability of officers and employees. Whilst the PBS/consumer co-operative model is well established and proven, the Lao situation differs markedly from Bangladesh in terms of the political and social climate for rural electrification operations. Unlike Bangladesh, the relatively low rural population density in Laos would be a major barrier to financially sustainable consumer co-operative operations since rural household connection rates would be low relative to the length of distribution network required. Furthermore the Electricity Law of Lao PDR does not allow for private ownership of main grid assets, which is an integral feature of the Bangladesh PBS system. As with the community owned co-operatives, consumer co-operatives require substantial technical and managerial support by NGOs or other supporting agencies. Laos currently lacks such necessary supporting infrastructure. 6.3.6 India – Consumer Co-Operatives

The situation in India is similar to the Bangladesh PBS system and is considered not appropriate for Laos for similar reasons. In general, the performance of India rural electricity consumer co-operative operations has been less than satisfactory, although the State Electricity Boards who supply bulk electricity to the cooperatives have kept charges as high as possible, thus making it difficult for the cooperatives to be financially self-sustaining. 6.3.7 The Philippines - Consumer Co-Operatives

As with the Bangladesh PBS system, the rural electrification program adopted by the Philippines since the 1960’s is based on the National Rural Electric Co-operative Association (NRECA) model used in the United States. The National Electrification Administration (NEA) of the Government of Philippines was given the power to establish and oversee Rural Electric Co-operatives (RECs) to make loans, acquire property and franchise rights of existing suppliers and borrow funds to implement national electrification. About 118 RECs are currently operating in the country. Each REC covers a franchise of about 100,000 people. The RECs are self-governing distribution agencies that purchase bulk power from the National Power Company (NPC). NEA defined the franchise area for each REC, paid for the construction of the distribution network, and devolved ownership to the REC, which then assumed responsibility for paying construction costs. RECs are responsible for running, maintaining and expanding the local electricity system including collecting tariffs to cover all operation costs and loan repayments to the NEA.


As with Bangladesh, the socio-political climate of the Philippines differs significantly from Laos so that the consumer co-operative model, whilst a proven and effective, is not best suited for the Laos context. 6.3.8 Nepal – Community-Based Micro Hydro Program

In Nepal, following some early failures, there have been successful experiences with village-scale distribution grids based on micro hydro generation. The program was developed as the result of cooperation between a church-based development organization and a manufacturer. Early on, the main focus of the program was milling and a water turbine was adapted to local conditions in Nepal and sold primarily to substitute for diesel-powered grain mills. However, it became apparent that a dual purpose could be served by providing motive power during the day for milling and electricity for household use in the evening. The result would be a greater use of existing equipment, resulting in lower power costs. The development of these systems was often the result of extensive collaboration between local communities, non-governmental organizations, equipment manufacturers, and regulatory reforms instituted by the government. Many innovations have emerged during the course of the development of the systems, including low-cost system designs, development of new end uses, low-cost house wiring, and others. Today, the amount of electricity generated from micro hydro systems in Nepal is substantial. Nepal shares some similar characteristics to Laos in that there are abundant hydropower resources and rural population densities are relatively low. In contrast, the policy environment and institutional flexibility in Nepal along with a high level of NGO and district level government support by way of targeted community mobilisation activities has been a key factor in the success of this model. This combined with using simple technology, establishing uncomplicated funding mechanisms and providing community incentives through the promotion of electricity based income generating activities and associated market support has facilitated the success of community-based micro hydro development in Nepal. Currently such key success factors are not a feature of the Lao situation and therefore this model is not the most appropriate for Laos. Even so the lessons learned from Nepal should be considered carefully in any proposed RE model for Laos. 6.3.9 China – Government-Owned Isolated Grids

The largest micro / mini hydro program in the world is in China, where local grids still provide much of the electricity for rural areas and provincial towns. There are now over 48,000 small hydropower plants in China, with a combined power capacity of over 15,000 megawatts. The program is based on the principle of local responsibility for operations with strong technical support from the central government. Local electricity companies were formed to serve towns and rural areas during the period in which the government stressed local self-reliance. The source of electricity for these companies is based on both hydropower and small, coal-fired power plants. The Chinese government provides substantial support and financing for the development of small hydropower systems. An electricity company can apply to develop such systems to provide electricity to the local grid. The application is forwarded to the Ministry of Water Resources and Power Development, and if it appears


promising, a team of technical specialists is sent to the region to assess the project's potential. After working with the local company, a plan is developed and submitted for loan approval. Once the loan is approved, the project is constructed. China is now in the process of connecting many of these small generators into regional grids. This is raising other problems however, because of the many different system designs and standards. Unlike China where there appears to have been strong central Government technical and financial support to regional and district mini and micro hydro power schemes, Laos’ experience of provincial and district Government owned mini and micro hydro power stations has been less than satisfactory. Many such schemes in Laos have fallen into disrepair and have ceased to function. The overriding reason for failure has been lack of technical and financial capacity of the provincial and district governments exacerbated by lack of financial and technical support from the central Government. The reasons for failure are explained in more detail in Section 4.4. In view of past experience, the Government owned isolated grid model is not recommended for Laos. 6.3.10 Chile – Distribution Concessions

In 1992, 53% of the rural population (1,000,000) lacked access to electricity. Lack of access was concentrated in specific regions. Following introduction of the Rural Electrification Program in 1994 rural electricity coverage increased to 76% by the end of 1999. Key components of the model involve decentralisation of decisions on RE to the regional and community level, competition between technologies and suppliers, and financial participation of all partners (users, private enterprises and the Government). The central government set up a fund to competitively allocate subsidies to private distribution companies to cover part of the investment costs in RE projects. Operating costs are fully covered by tariffs set by the regulatory authority. Companies bid annually for a subsidy through presenting projects (requested by local organisations) to regional governments who score projects on criteria such as cost-benefit analysis, amount of investment covered by companies and social impact. Central government allocates subsidy funds to regions on the basis of progress made in RE in the previous year and how many households still lack electricity. Regional governments allocate their own resources to the program. The program has been very successful in increasing the coverage of electricity systems in rural areas. The key lesson learned from the Chile experience is that It is possible to create market incentives that lead to efficient private solutions to RE through:

• Power sector reforms involving decentralisation of decision making and privatizing Government owned electricity companies.

• Joint financing between the Government, electricity companies and users. Subsidies are aimed at making RE an attractive business opportunity to private utilities.


• Competitive approach. Competition is used as much as possible in the process – among projects proposed by different communities, among distribution companies and among regions. Rules for deciding among competing projects are transparent and established by central government.

• Appropriate technologies. The program considers off-grid alternatives alongside grid extension. Chile is often cited as providing a model example of a successful rural electrification programme. It has good institutional structures, very good incentives for efficient allocation of finance and efficient operations. However, these characteristics are matched to an environment in which commercial banking and public administration systems are well established reflecting its “middle income” wealth and stage of development. This is in contrast to the situation in Lao PDR where income levels are significantly lower, the policy environment does not allow for private ownership of grid assets and economic development is less advanced. Nevertheless, the Lao PDR policy climate would allow for distribution concessions under a BOT arrangement and as such the distribution concession model deserves further consideration. 6.3.11 Uganda – Private Sector as Primary Provider of RE Services

Uganda has abundant renewable resources including hydropower, solar, wind, geothermal and biomass. Its rural population (19 million) comprises 85% of its total population. Most of the rural population is without electricity. Uganda has one of lowest per capita electricity consumptions in world. Since the late 90s the overall rural electrification strategy adopted by the Government of Uganda has been for the private sector to become the primary provider of electricity services with the Government adopting an enabling role. The RE strategy was based on best practices developed in Africa and Latin America. An Electricity Regulatory Authority is responsible for licensing, tariff setting, creation and enforcement of performance standards. A Rural Electrification Fund (REF) provides a mechanism for providing investment subsidies for investments in off-grid rural electrification services. The REF is administered by a semi-autonomous Rural Electrification Board which is appointed by the Minister of Energy and Minerals Development and comprises members of various Government and non government agencies, private sector entities involved in rural electrification and members of the donor community. Light handed regulation procedures and processes ensure the cost of regulatory compliance is not too burdensome for stand-alone grid based systems. Laos has some characteristics that are similar to Uganda, including an abundance of renewable energy resources, low levels of rural electrification, and (to some extent) similar economic development indicators. Lao PDRs’ policy climate allows for private distribution concessions under a BOT basis. Whilst Uganda’s success with distribution concessions is yet to be determined, experience elsewhere (especially Chile) would suggest that the model deserves further consideration for Laos.


6.4 Recommended Models for Lao PDR

After considering the selection criteria and the international experience reported above, our assessment is that the appropriate models for Lao PDR are:

Model Application

Conventional Government-Owned Operations Conventional Utility Model Continuation / acceleration of main grid expansion by EdL.

Government-Owned Isolated Grids

and Generating Plant

This approach is not recommended, as previous experience with this model in

Lao PDR (with operation by provincial and district government agencies) has

been less than satisfactory.

Private Sector Operations Commercial Sales Model

Continuation of private household purchases of solar home systems and pico-

hydro systems (or other RE systems such as automotive batteries) with

increased support for solar home systems as indicated below under “ESCOs”.

Rural Electricity Enterprises

(REEs)

The entrepreneurial private sector ownership model is not considered

appropriate for Lao PDR, where the ultimate vesting of assets in the

Government is a feature of the Law.

Electricity Supply Companies

(ESCOs)

Continuation of present (Lao PDR) ESCO activities but with:

(a) Significant scale-up of DOE’s “Off-Grid Rural Electrification Promotion

and Support Program”.

(b) Eventual conversion of the OPS model into a national ESCO, operating

independently from DOE.

(c) Support for other approved ESCOs, if any – the “Sunlaobob” rental

model may be an example.

Public-Private Partnerships

Management Contracts Operation, for EdL, of selected small distribution systems in remote areas or

certain functions associated with them, such as billing and collection.

Leases Not envisaged in preference to management contracts.

Concessions Applicable to:

(a) The repair and refurbishment of existing unserviceable mini-hydro

stations by private enterprises under a “rehabilitate-own-transfer”

contract or an “operation and maintenance” contract – in the latter case,


Model Application

after repair by others.

(b) Development and operation of new mini- or micro-hydro installations

and their associated distribution systems by private enterprises under a

BOT contract.

(c) Development and operation of new distribution systems utilising a bulk

supply from the Main Grid by private enterprises under a BOT contract.

(d) Development and operation of new mini- or micro-hydro installations by

private enterprises under a BOT contract with supply to the Main Grid

under a small power purchase (SPP) agreement.

Sale The sale of Government-owned enterprises is not envisaged by the

Government at present and is not proposed by us.

Community Ownership and Co-Operatives

Community Ownership Not recommended in preference to the other models because of

unsatisfactory experiences in Lao PDR and a lack of a supportive social and

administrative fabric in the country.

Consumer Co-Operatives Not recommended for similar reasons and also because the villages are much

smaller and more sparsely spread than in other countries in the region where

this model has been used.

These models engage the private sector to supplement Government-owned operations in fulfilment of two of the principal objectives outlined at the commencement of this section – securing additional sources of capital and increasing efficiency of operation and development effectiveness (although they will not, by themselves, increase tariff discipline and will not all necessarily raise operational efficiency) – and they also satisfy the criteria outlined earlier. That is, they:

• Match the economic, political and social climate in Laos. • Match the population density, average village size and geographic spread in the country. • Take account of available hydropower and other natural resources. • Are in accordance with Government policy and current statutes. • Are combinations that have already proved successful and sustainable in Lao PDR. • Make best use of existing institutions and avoid creating new ones unnecessarily. • Have potential for scale-up to the required rate of implementation whilst avoiding the time and

cost of trials or pilot projects. More detailed discussions of each of the recommended models are given in Sections 6.6 – 6.9 below.


A small program involving a pico hydro safety and operational awareness program is suggested and discussed in Section 6.10 below. This program is not intended as a main RE implementation model, but is included herewith since a need for such a program was identified during the course of this Study. 6.5 Need for an ‘Anchor’ RE Institution

We considered the necessity for a new body to assist with the management of rural electrification and/ or to set technical standards – a so-called “anchor” institution. Policy development would not be part of its role, as this function is the responsibility of DOE / MIH. Our view is that establishment of an ‘anchor’ RE body (similar to the Rural Electricity Board in Bangladesh) is not necessary because existing organisations / institutions can carry out the majority of the work required, as follows:

• Electrification of some 745,000 households will be required to meet the Government’s rural electrification targets and, of this, about 645,000 households (i.e. 85%) will be electrified by EdL through its Main Grid expansion program. EdL is an existing institution that already has substantial capacity in rural grid electrification and can develop / is developing the capacity to scale-up the rate of rural grid electrification.

• The majority of the remaining 100,000 households will be electrified through solar home

systems and (to a much lesser extent) village hydro systems. This will be done mainly through the existing OPS Program, which will be scaled-up, and (perhaps) a second national ESCO operation. The institutional arrangements for the program have been piloted, and arrangements to scale-up the program are currently being developed (see Section 6.8 below).

• The remaining households will be electrified through a number of small projects, including

rehabilitation of existing micro / mini hydro isolated distribution systems (about 5,000 households), new micro / mini hydro / biomass isolated distribution systems (perhaps 5,000 - 10,000 households), and low-cost distribution systems supplied from the Main Grid (perhaps 20,000 households). These projects will be developed by private sector entities under a BOT approach. Implementation arrangements for these projects are currently lacking, but could easily be handled through establishment of a Project Management Unit within DOE (to handle the off-grid / isolated grid systems), probably assisted by external consultants. The existing Development Division in EdL could handle the low-cost distribution systems (or alternatively the DOE PMU could do this).

• Existing divisions within DOE are responsible for coordination of rural electrification activities. • DOE / EdL already have technical standards for Main Grid electrification. Some new technical

standards may be required (i.e. for SWER systems), but existing, adequate international standards could easily be adapted to the Lao context.


• The Off-Grid Promotion Fund, which is intended to become the Rural Electrification Fund within

two years after its enactment, is currently being established within MIH. It is anticipated that this body will be able to assist in raising additional financing for RE development.

• It is not desirable, anyway, that such bodies are proliferated in any country, especially in one

where trained professional resources are scarce, their efforts may be dissipated by taking such action, and the power sector is so small.

Accordingly we suggest that a Project Management Unit be established within DOE, and reporting to the Director of DOE. The PMU would be responsible for preparation of projects to be tendered out to private sector bidders, evaluation and award of bids for the BOT contracts, contract administration / supervision, etc, for:

• The OPS Program (solar home and village hydro systems, using an ESCO approach) • A second national ESCO (if required for solar home systems) • Rehabilitation of existing micro / mini hydro isolated distribution systems (using a BOT

concession approach). • New micro / mini hydro / biomass isolated distribution systems (using a BOT concession

approach). The organisational arrangements are shown in Sections 6.8 and 6.10 below. We noted when researching this matter that DOE / MIH has already been advised on it in the “Power Sector Strategy Study, Final Report, September 2002”. 71 That study, amongst other things, concluded that there is “considerable overlap of functional responsibilities among existing sector entities” and it proposed, amongst other things, that:

• EdL be established as a fully vested Government Corporation initially structured as a vertically integrated utility.

• The Department of Electricity of MIH be responsible for formulating national energy policy and

planning and would absorb the functions of the existing Electricity Department of the Hydropower Office.

• A Rural Electrification Board “equivalent to a Division” would be responsible for managing a

National Rural Electrification Plan, off-grid electrification projects, funds, and associated activities;

71 Prepared by Electrowatt-Ekono in association with the PA Consulting Group under ADB’s TA No 3374-LAO. See Sections 5.5 and 5.6 in particular. We have drawn part of the structure of our own work in this section from that report and thus acknowledge its contribution.


• A Regulatory Board, also “equivalent to a Division” would oversee the functioning of the electricity supply industry with respect to: tariffs, licenses, etc..

• That this structure, although “not ideal with so many functions being placed under one Ministry

(MIH) …should begin the process of unbundling … [the sector]. These recommendations take a much stronger private sector oriented approach than we would consider appropriate in Lao PDR, clearly envisaging the commercialisation of EdL and the establishment of separate agencies for the other functions mentioned. Given the very small size of the Lao power sector, we do not concur with the consultant’s findings. 6.6 Conventional Utility Model

6.6.1 Overview

Under this model, the Government-owned electricity utility extends its grid to rural areas and augments its generating capacity as required. The utility may also operate isolated grids, supplied from its own generation or cross-border supplies. EdL has connected the majority of electrified rural households in the country so far and has well-established facilities in the Central 1, Central 2 and Southern Provinces. It is also establishing itself in the northern provinces through the ADB assisted Northern Area Power Development Project, which is extending the transmission and distribution grid significantly in that area. In general, the electrification of provincial towns has now been substantially completed, and the grid expansion program is now focussing on the electrification of district towns, and villages within reach of the distribution lines that inter-connect provincial and district towns. 6.6.2 Organisation

The organisation of EdL is shown in Section 2.3.1 of this report. This organisation structure appears suitable for the ongoing planning and implementation of rural distribution grid expansion projects, although EdL may require additional resources to deal with the additional workload that will result as the pace of rural grid construction expands. We understand that there are no material institutional or regulatory issues relating specifically to the continuation / expansion of the EdL rural electrification program.


6.6.3 Continuation / Acceleration of EdL Main Grid Expansion

The continuation and acceleration of the Main Grid expansion program, mainly using the current approach, will be required if the Government’s RE targets are to be met. This will require scale-up from the current rate of grid connection of households of about 15,000 households / year to about 50,000 households / year. A number of significant issues constrain the expansion of the grid (and will need to be resolved) as follows:

• The ability and willingness of households to pay for connection fees and house wiring costs. EdL’s experience is that reducing the connection fee leads to a significant increase in the rate of uptake of connections but the matter is complicated by perceptions of present and prospective tariffs 72 (e.g. rural households currently seem prepared to pay higher connection charges in order to avail themselves of the current low monthly service charges, whilst ongoing / proposed tariff increases may mitigate against this). It is also possible that house wiring costs may be able to be reduced through design improvements. Our view is that connection charges should be set in consideration of actual costs, but also in consideration of expressed willingness-to-pay for house wiring and connection costs, as indicated by socio-economic surveys.

• The rate at which the present low tariff to rural households is increased. The 2004 RE Survey73

suggests a willingness-to-pay for lighting, radio and TV of US$ 1.30 – 1.80 / household / month compared with current, typical EdL monthly charges of US$ 0.80 – 1.70 / month. This suggests that there is some room for tariff increases, particularly when the vast improvement in lighting quality is factored in. 74 As well there may be propensity for other tariff structure alterations, such as reducing the quantities of electricity supplied under the lowest tariff category from 50 kWh / month to perhaps 10 kWh / month.

• The increased rate of distribution grid construction, and the strain this places on EdL’s

resources. This can be managed through the recruitment / development of additional project management staff and support staff within EdL and the increased use of consultants for design

72 We understand that EdL / DOE have commissioned a small survey of households electrified under SPRE to examine the reasons why some households choose to connect and others do not. The results / outcomes of this survey were not available in time to be incorporated into this Final Report, but should be considered when establishing connection charges. 73 Indications of WTP taken from Evaluation of Rural Electrification Socio-Economic Survey & Establishment of Database for Rural Electrification Planning in Lao PDR – draft Final Report, August 2004. Refer to Table 6.1-2 – Average Monthly Expenditure (kip) by Energy Type. The Group 1 data, (relating to un-electrified households in un-electrified villages) indicates total expenditure on energy varying from an average of US$ 3.00 / household / month (for low-income households) to US$ 5.79 / household / month (for high income households), and expenditure for lighting, radio and TV varying from an average of US$ 1.28 / household / month (for low-income households) to US$ 1.86 / household / month (for high income households). The Group 2 data (electrified households in electrified villages) indicates payments for EdL electricity services on average of US$ 0.82 / household / month (for low-income households) to US$ 1.67 / household / month (for high income households). 74 A program of gradual increase in electricity tariffs is currently being implemented. We understand that the ongoing Tariff Study (EdL / Electrowatt) will address issues associated with electricity tariffs and the effects of the grid electrification program on EdL’s financial viability.


and supervision work. As skills within local consultant companies develop, the proportion of local consultant inputs will be able to be increased at the expense of foreign consultant input.

• The strain that rural electrification puts on EdL’s finances and the absence of a transparent

mechanism for subsidising RE that is financially not viable. While there is currently an element of cross-subsidisation (mainly from commercial / industrial consumers to small households) in the current tariff structure, and the channelling of the Government’s dividends from IPP projects could be considered as a bulk subsidisation of EdL, there are currently no direct mechanisms for subsidisation of grid expansion. 75

• A shortfall in available funding for capital works if the Government’s electrification target were to

be achieved principally by grid connections. 76

• The significant cost of 22 kV distribution system construction will limit the number of rural villages that can be connected for a given expenditure. Experience in other countries with low population densities and small dispersed communities such as are found in the remote rural areas of Lao PDR indicates that electrification via 3-phase, MV / LV kV distribution systems will probably not be economic, unless significant levels of productive / commercial uses are available. The adoption of lower cost distribution systems (such as single phase and SWER systems) will allow the Main Grid to be extended beyond the economic limit of 3-phase, MV / LV kV systems. While EdL has previous experience with such systems, we recommend that increased consideration be given to the application of lower cost distribution systems. Appropriate international standards for single phase and SWER distribution systems are available, and could easily be adapted to the Lao context.

Details of the inter-action between the EdL grid expansion program and the off-grid program are described in Section 7 of this Report. 6.7 Commercial Sales Model

6.7.1 Overview

In this model, individual consumers purchase mainly individual household electricity generation / storage systems from commercial vendors who generally operate at the provincial or district level, and who would generally purchase their stock from a central wholesaler, manufacturer or traveller (agent). Purchase and

75 The issue of subsidisation of rural electricity grid extension is being considered as part of the Tariff Study, which will recommend a subsidy policy that will enable EdL to operate on a commercial basis while also delivering affordable electricity to as many consumers in Lao as possible. 76 The ongoing Financing Strategy Study will address the issue of funding for ongoing grid expansion after completion of the ADB assisted Northern Area Power Development project and the World Bank assisted SPRE II Project.


operating costs of systems are normally paid directly by the consumer on a cash basis, but limited vendor support (such as guarantees, installation advice, etc) is sometimes available. The commercial sales model is attractive, since rural electrification consumers themselves finance the systems and minimal Government support is required. In Lao PDR, the main individual household electrification systems include automotive battery systems, ‘pico’ hydro systems (mainly in the hilly areas) and solar PV systems. Of these, the automotive battery and ‘pico’ hydro systems are low-cost, while solar PV systems are higher cost and generally beyond the reach of most rural households. In addition to high costs, an absence of financing for solar PV systems within Lao PDR also impedes direct sales of these systems by retailers, due to a number of reasons:

• Local retailers are unable or unwilling to provide financing. • The high interest rates charged on commercial loans in Lao PDR and their short duration mean

that repayments are too high for most households. • ‘Competition’ from less-costly systems supplied under the ongoing OPS Program, along with the

low-interest, long-term financing (hire-purchase) that is available under this program. However the costs of solar home systems have been reducing steadily over recent years, and further cost reductions are expected in the future. This may help to stimulate commercial sales of individual household electrification systems to some extent. 6.7.2 Organisation and Regulation

The market model is self-driven and self-regulated, and there are no significant institutional or regulatory impediments to the consumer market model. However import duties charged by the GoL on commercially imported solar PV systems / components77 impede the uptake of such systems (see below). Distribution chain organisational structures are set up by private suppliers / retailers in response to actual and perceived demand from consumers. Such structures are generally satisfactory and can easily be expanded (or reduced) in response to changing market conditions. There is little need for Government regulation of the market, although the establishment / publication of quality standards for rural electrification equipment, and enforcement of such standards, is often required to prevent vendors from supplying poor quality equipment to consumers who may (at least initially) be unaware of quality / durability issues.

77 Solar PV equipment / components imported under the World Bank assisted OPS Program are exempt from import duties.


6.7.3 Import Duties and Subsidies

We understood that the Government charges an import duty of 20% on solar PV systems / components imported by private entities, which adds significantly to their cost. This impedes the sales of such systems, which would otherwise help to achieve the Government’s rural electrification targets, and impedes the mobilisation of consumer financing (savings) for the purchase of systems. The import duty does not contribute to the achievement of the Government’s electrification targets, and accordingly we suggest that the Government waive / abandon import duties on solar PV systems / components. The introduction of a capital subsidy on individual solar home systems sold through private retailers could be considered, to increase commercial sales of the systems. Under this approach, fixed amounts (subsidies) would be refunded to vendors or households on proof of purchase / installation of the system. However such subsidy systems are open to abuse, unless they are very carefully monitored, and we would not recommend this approach in the Lao context. Our view is that channelling subsidies into off-grid systems through an ESCO approach is preferable, as the ongoing collection of hire-purchase or rental payments by the provincial ESCOs provides opportunity for concurrent monitoring of the location and operational status of each system. 6.8 Electricity Supply Company Model

6.8.1 Overview

In Lao PDR, ESCOs refer to companies or individuals, generally operating at the provincial level, who contract to sell solar home systems or other electricity generation or storage systems to consumers and manage the consumers repayments, for a commission. The existing OPS Program Office (located in DOE) currently acts in the role of a national ESCO, procuring / assembling off-grid system components, warehousing / distributing assembled systems and managing / administering the OPS Program. Loan financing to support the hire-purchase of systems is also channelled through the Office. Sales, installation, service support and customer repayment services are provided by eight, small, provincial ESCOs (normally small businesses or entrepreneurs) covering seven provinces. The program is currently providing off-grid systems at the rate of about 2,200 systems / year to seven provinces. Delivery of systems will need to be scaled up to around 10,000 systems per year, and extended to cover all provinces, if the Government’s off-grid electrification targets are to be achieved. While the existing off-grid program in Lao PDR is still small, our view is that the Government may be unwise to concentrate its entire off-grid program through one implementing organisation. We would suggest the organisational arrangements allow for the out-sourcing of a second national ESCO in the future, if the performance of the OPS Program is not satisfactory, or if it is necessary to increase the off-grid targets78. This would allow some flexibility in the delivery of off-grid electrification services. 78 Our view is that the number of households to be electrified through off-grid systems is likely to increase once the RE Master Plan is completed and the RE targets reviewed.


6.8.2 Organisation, Contracting and Subsidies

Our view is that the current OPS program management unit should be out-sourced to a private sector organisation. As indicated in Section 6.5 above, a Project Management Unit should be established within DOE to contract private sector organisations as national ESCOs to provide off-grid program management services. In order to provide a progressive scale-up of off-grid rural electrification, it is suggested that the existing OPS organisation be developed in a series of steps, broadly as follows:

• Stage 1: Pre - SPRE II (July ‘04 – June ’05). During this interim stage, in which the program will continue to be funded by IDA / GEF under the SPRE I Project, the scope of the program will be expanded to cover all 17 provinces (and the Xaisomboun Special region) by identification, recruitment and training of additional provincial ESCOs as required to provide coverage of all provinces. This will be the responsibility of the current OPS Office. A Project Management Unit will be established within DOE (by DOE), and will (with the assistance of consultants) prepare a scope of work and tender documentation to allow the out-sourcing (on a competitive basis) of the operation of the existing OPS Program management to a private sector company or group of individuals. The current OPS Office will update and refine the OPS Operation Manual to reflect the activities required of the OPS Program management contractor, and to separate out activities that relate to the Off-Grid Promotion Fund. In particular the Operation Manual functions relating to monitoring / evaluation of off-grid systems status and hire-purchase repayment status should be strengthened. DOR should review the existing subsidy levels for off-grid systems, to more closely match up-front deposits and monthly hire-purchase repayments with willingness-to-pay, and to achieve full recovery of the costs of the off-grid program to the extent practical.

• Stage 2: SPRE II – Phase 1 (July ‘05 – Dec ’07). During this stage, the DOE Project

Management Unit will complete the out-sourcing of the management of the OPS Program during SPRE II – Phase 1, and mobilisation of the selected OPS Program management contractor. The contractor will be required to manage the program and achieve electrification of 10,000 households through off-grid systems during the period of SPRE II – Phase 1. The Off-Grid Promotion Fund will be established, and consultants recruited to provide the services required of the Fund Manager and Fund Secretariat. As the Fund becomes established, the current direct funding of the OPS (by IDA / GEF) will be channelled through


the Off-Grid Promotion Fund and the operation of the re-flow account will be transferred to the Fund. One of the prime objectives of the Off-Grid Promotion Fund will be to raise additional financing to support a much expanded off-grid program during SPRE II – Phase 2. Off-grid targets for SPRE II – Phase 2 will be established by DOE, based on the outputs of the RE Master Plan. Towards the end of this stage, the Project Management Unit will review the performance of the OPS Program management contractor, and the requirements for off-grid electrification (as indicated in the RE Master Plan), and decide the approach to be taken during SPRE II - Phase 2. If necessary, a second national ESCO could be engaged to improve implementation progress, perhaps using a rental approach or a combination of rental and hire-purchase approaches. The process of out-sourcing the OPS Program management contractor and a second national ESCO for SPRE II – Phase 2 should then be commenced.

• Stage 3: SPRE II – Phase 2 (Jan ‘08 – onwards). During this stage, the DOE Project

Management Unit will complete the out-sourcing of the management of the OPS Program and a second national ESCO (if required) during SPRE II – Phase 2, and mobilisation of the selected management contractors. The Off-Grid Promotion Fund will be converted (by issue of a follow-up Presidential Decree) into a Rural Electrification Fund, able to provide financing for off-grid, isolated grid and main grid electrification.

The progression of the organisation of delivery of off-grid rural electrification services through ESCOs is indicated on the following diagrams:



6.8.3 Off-Grid Promotion and Support Program

Scaling-Up the Program As discussed above, the Off-Grid Renewable Energy Promotion and Support Program (OPS) is now past the pilot stage and needs to be scaled up from the current rate of about 2,200 households / year to achieve a household system delivery rate of up to 10,000 households / year. It would be best if this scale-up could be accomplished over a period of about two years, but a lack of sufficient financing will preclude this. Current indications are that sufficient financing will not become available until after the commencement of SPRE II – Phase 2 in 2007 (i.e. after the Off-Grid Promotion Fund starts raising financing for off-grid electrification). Accordingly it is suggested that the program be scaled-up:

• To electrify about 10,000 off-grid households during the 2.5 year period of SPRE II – Phase 1 (achieving an annual rate of about 5,000 households in the last year of Phase 1).

• To electrify about 20,000 off-grid households during the 2.5 year period of SPRE II – Phase 2

(achieving an annual rate of about 10,000 households in the last year of Phase 2).


Based on data provided by the OPS Program, we suggest that the following expansion program be supported over the 2.5 year period of the SPRE II – Phase 1 Project: No. Province Villages Households ESCOs SHS VHS/ VGS (No.) (No.) (No.) (No.) (No.) 1 Vientiane 55 1,850 1 500 2 Oudamxai 65 3,250 1 500 50 3 Luang Namtha 101 5,120 1 600 50 4 Champasak 279 17,550 1 650 5 Luang Phrabang 19 901 1 500 50 6 Xaiyabuly 111 7,491 2 700 50 7 Xieng Khouang 40 2,644 1 800 250 8 Houaphanh 52 2,917 1 600 150 9 Bolikhamxai 44 2,158 1 500 10 Khamuane 54 3,224 1 500 11 Savannakhet 56 2,364 1 500 12 Saravan 42 2,794 1 500 13 Sekong 31 754 1 500 14 Attapeu 36 4,337 1 500 15 Phongsali 32 3,493 1 500 16 Bokeo 76 4,858 1 500 17 Xaisomboun SR 16 970 1 550 1109 66,675 1 9,400 600 Note: We have scaled down the number of households electrified through village hydro systems from the 1,000 households

originally suggested by OPS. The original target is considered too high. The division of households electrified by SHS and village

hydro is approximate, since the off-grid program is driven in response to consumer demand.

Current staffing is adequate for the current scale of operation, but will need to be increased to support a larger program. The current operation is run with one Program Manager, three professional staff, one international advisor (part time), plus support staff (secretary, janitor, driver, etc.). We suggest that two additional professional staff will be required to operate the expanded program under SPRE II – Phase 1. Until the RE Master Plan is completed, the program should focus on villages that will not be electrified from the grid in the medium- to long-term (i.e. excluding households that will be electrified as part of EdL’s Power Development Plan). Once prepared, the RE Master Plan will identify the rural villages that will be electrified through off-grid systems, and the OPS Program should direct its program at these villages. In conjunction with the scale-up, we suggest that the allocation of subsidies for solar home systems should be reviewed by OPS in conjunction with DOE, and be adjusted as appropriate so that they are in line with


expressed willingness-to-pay. The review should reduce the subsidies currently applying to the larger systems (which generally go to into wealthy households who can afford to pay the full cash price for the system), and increase the subsidies on smaller systems to encourage uptake by poorer households. Any adjustment of subsidies needs to be done slowly and in a planned manner to avoid sending incorrect signals to the market place, and will require the development of a subsidy policy based on sound development principles and the Government’s poverty reduction policy. We suggest that the subsidy policy be reviewed annually in consideration of implementation progress, uptake rates, etc. An indicative revision of off-grid system pricing and subsidies, assuming 7 years of hire-purchase repayments by households and increased up-front deposits, and aimed at shifting the focus of the subsidy away from the larger systems is given in the following section. Subsidy support for additional national ESCOs should come from the Rural Electrification Fund. Other aspects of the OPS that will require action were discussed in Section 4.2.4. Cost Estimate The total cost of a program to deliver solar home systems to 9,400 households and village hydro systems to 600 households through the OPS Program over the 2.5 year period of SPRE II – Phase 1 is estimated at US$ 2,937,000 (using current up-front deposits and hire-purchase repayments). Of this, households will contribute US$ 197,000 in up-front payments and about 1,881,000 in hire-purchase repayments (assuming 95 %recovery). US$ 515,000 will be funded by grants, and US$ 1,980,000 in soft loans will be required to finance the hire-purchase component of household contributions. A breakdown of the cost estimates for SPRE II – Phase 1, using current up-front deposits and hire-purchase repayments, is given below in the table ‘Costs and Financing for Off-Grid Electrification Program - SPRE II - Phase 1 (Current Pricing)’. An alternative breakdown of costs for SPRE II – Phase 1, using alternative up-front deposits and hire-purchase repayments, is given below in the table ‘Costs and Financing for Off-Grid Electrification Program - SPRE II - Phase 1 (Alternative Pricing)’. Note that the alternative pricing shows a net over-recovery of costs of about US$ 13,000 from the Program, whilst the current pricing shows a net under-recovery of US$ 344,000.




Technical Assistance The following technical assistance packages will be required to assist with scaling-up and improving the OPS program under SPRE II – Phase 1, which, we understand, will be implemented during the 30-month period July 2004 – December 2007:

• Consultants to Assist with Recruitment of OPS Program Management Contractor. Specialist

consultants with ICB procurement, financial management and community planning experience will be recruited to assist DOE to prepare terms of reference, scope of work and bidding documents, and conduct a competitive bid process to out-source a contractor to manage the OPS Program. The estimated total cost of this technical assistance is US$ 35,000 (excluding contingencies).

• OPS Program Management Contractor. A program management contractor will be out-sourced

to manage the OPS Program during the 2.5 year period of SPRE II – Phase 1. The program management contractor will be supervised by the PMU to be established in DOE. The estimated total cost of this technical assistance is US$ 490,000 (excluding contingencies). 79

• Village Hydro Planning Specialists. Training of local consultant staff in the specialist skills

required for village hydro site identification and system analysis / design. Once trained, the consultants will identify / develop village hydro system designs for up to 10 remote villages (about 600 households). The estimated total cost of this technical assistance, including the training and identification / analysis / design is US$ 25,000 (excluding contingencies). 80

• Independent QA Assessor. A consultant will be recruited to provide independent oversight of

the off-grid program, inspect and monitor the program and report to the Director of DOE. The estimated total cost of this technical assistance is US$ 200,000 (excluding contingencies).

• Off-Grid Promotion Fund Manager and Secretariat. Consultants will be recruited to assist DOE

to establish and operate the Off-Grid Promotion Fund, prepare systems and procedures, establish reporting formats, and assist the DOE PMU with administration / supervision of the OPS Program management contractor. The estimated total cost of this technical assistance is US$ 200,000 (excluding contingencies)

• Productive Uses Development. Consultants will be recruited to assist DOE in the identification

of productive uses and cross-sectoral linkages that can be incorporated with off-grid rural electrification initiatives to improve their development impact (such as weaving / handicrafts, health centre improvements, education improvements, water pumping, electrification of diesel rice mills, etc.). This will involve liaising with a wide range of stakeholders including Gov’t

79 OPS costs are equivalent to US$ 49 / for each of the 10,000 households to be electrified under the SPRE II OPS program. 80 Village hydro specialist costs are equivalent to US$ 50 for each of the 600 households to be electrified via village systems under

the SPRE II – Phase 1 OPS Program.


agencies, Lao Womens Union, Poverty Reduction Fund, NGOs, bilateral donors, etc. Potential applications for solar PV water pumping (for irrigation and/or water supply purposes) will be demonstrated in two locations. The estimated cost of this technical assistance is US$ 150,000 (excluding contingencies).

The total estimated cost of technical assistance associated with scaling-up of the OPS program is US$ 1,100,000 (excluding contingencies). 6.8.4 Off-Grid Electrification through a New National ESCO

Since neither grid extension nor the OPS’ activities may, by themselves, enable a sufficient rate of progress to be achieved to meet the Government’s targets, it is suggested that recruitment of a second national ESCO could be considered. This should be done once the RE Master Plan is complete and the extent of grid and off-grid electrification is better defined. Our view is that the off-grid program is likely to expand as a result of the master planning process, and this could require the introduction of additional implementation resources. As well, introduction of a second national ESCO would:

• Help to improve overall rates of off-grid system implementation, particularly if the OPS program does not achieve its targets.

• Allow a level of healthy competition to develop between programs, which may lead to implementation and administrative improvements.

• Allow introduction of a rental system model (in contrast to OPS’ hire-purchase model) that may be attractive to households as an interim electrification technology in areas that are earmarked for grid extension in the short- to medium-term and in any other areas where there is interest.

• Help to develop a wider range of private sector enterprise within the country. If thought appropriate, two additional national ESCOs could be established. This would probably best be done in a staged manner. Given that effort by donors has been put into developing the Sunlabob solar PV system rental model, it would be logical to consider it for the purpose. However all contracting of new national ESCOs should be on a competitive basis, with bidders that have the requisite skills and capability, in response to a detailed terms of reference / work specification. Subsidy support for additional national ESCOs should come from the Rural Electrification Fund.


6.9 Management Services Model

6.9.1 Overview

Under this model, private sector organisations are contracted to manage a part or all of a Government-owned entity or system, or a part of its functions. This approach transfers only limited risks and responsibilities to the private sector, but often brings improved management or additional resources (where this is required). In some cases, contracting out management services can help to lower operating costs. Normally, management services contractors would contribute only working capital. Management services contracts could cover, for example:

• Designated tasks such as billing and collection in defined areas. • Operation and maintenance of generating stations or defined sections of the distribution system. • Corporate functions, such as accounting services, project management services, etc. • Management, billing / collection, operation and maintenance of the existing, operational micro

hydro / distribution systems owned at the provincial / district government level. A number of these systems have operational difficulties, due to a lack of capacity and experience, and out-sourcing the management and O & M functions could address many of these difficulties.

In Lao PDR, EdL currently contracts out engineering and financial services, including billing and collections in remote areas. 6.9.2 Organisation and Contracting

A suggested organisational arrangement for contracting out management services such as billing and collection functions, operations and maintenance functions, etc, by EdL is as follows:


Management services can be provided under any one of a number of standard contractual arrangements, and bidding of significant packages of services should normally be on a competitive basis. Arrangements for small services packages such as billing and collection functions in limited areas can be negotiated directly with small local enterprises under standard terms and conditions. Management services contracts are generally let for defined time periods, sometimes with right of extension for a further defined period(s) subject to satisfactory performance. 6.10 Concessions Model

6.10.1 Overview

Under this model, a concession would be given to a developer to build new generation and/or distribution systems to supply consumers, usually in a defined area, and operate the systems for an agreed period. Ownership would revert to the Government at the end of the concession period. The developer would usually be contracted under a BOT form of contract (the Electricity Act allows for BOT models, but not for BOO models). The Government and EdL have significant experience of large-scale hydropower BOT contracts, much of which is applicable to BOT contracting of rural electrification projects (albeit on a much smaller scale). Concessions transfer much of the development and operating risks to the private sector, and all (or a majority) of the financing required for the development is provided from private sector sources. However, the returns on investment expected by the developer are likely to be significant, and the consumer tariff levels required to sustain such returns are likely to be much higher than those currently mandated by the Government. Such tariff levels will be beyond the willingness / ability-to-pay of most rural households, and subsidies will be required to reduce tariffs to affordable levels and to provide sufficient return on investment in most cases. Accordingly, appropriate mechanisms will be required to channel subsidies to developers in a transparent manner. In Lao PDR, four main concession approaches can be considered:

• Rehabilitation of existing micro hydro / distribution grid systems. In this case, existing non-operational or poorly-operating micro hydro generating stations and their associated distribution grids / consumer connections would be given to a private sector developer / operator, who would rehabilitate them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. After transfer back to the Government, the ongoing operation of the system (i.e. billing, operation and maintenance) could be contracted out under a management services contract.


• New micro / mini hydro / distribution grid systems. In this case, new micro / mini hydro generating sites and an associated distribution concession area would be given to a private sector developer / operator, who would construct them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. After transfer back to the Government, the ongoing operation of the system (i.e. billing, operation and maintenance) could be contracted out under a management services contract.

• New renewable energy generation plants supplying the Main Grid. In this case, new mini / small

hydro sites or mini biomass resources would be developed by private sector entities, who would construct them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. Electricity produced from the stations would be sold into the Main Grid system under a standard small power purchase agreement with EdL. After transfer back to the Government, the ongoing operation of the system (i.e. billing, operation and maintenance) could be contracted out under a management services contract.

• Private sector rural distribution systems. In this case, defined distribution concession areas

would be given to private sector developer / operator, who would construct distribution systems (probably utilising lower cost single phase or SWER distribution systems to supply consumers), operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. An agreement for EdL to sell electricity from the Main Grid to the concession at a ‘bulk’ rate would be required. After transfer back to the Government, the ongoing operation of the system (i.e. billing, operation and maintenance) could be contracted out under a management services contract.

The option of feeding generation output from new mini / small hydro and biomass generating stations into the EdL Main Grid under a standard small power purchase agreement was discussed as part of this Study, but indications are that EdL would only be interested in purchasing electricity from such stations if it was available at a cost that was less than, or competitive with, the other options (i.e. generation by large-scale hydro plants plus the cost of transmission, or displacement of cross-border supplies, etc.). Generally, small schemes are unable to produce electricity at costs that compete with the large-scale options, and this limits the applicability of this approach. However, a small number of potential mini / small hydropower sites, and some biomass resources, have been identified, which, if developed, could deliver useful generation into outlying corners of the grid. A full discussion of organisational, institutional and contractual aspects of this approach is given in the ‘Lao PDR Financing Strategy Study - Final Report’. 81 The other three approaches are discussed in more detail later in this section.

81 Lao PDR Financing Strategy Study - Final Report, Maunsell Limited, September 2004.


6.10.2 Organisation, Contracting and Subsidies

The scale of application of potential concession models in Lao PDR is limited by practical considerations, and a large-scale program of recruiting private companies to develop concessions under BOT contracts / is not envisaged. Accordingly, the establishment of substantial organisational structures to administer / control the contracting process should not be required. Our view is that a project management unit within DOE and the existing Development Division within EdL could handle the BOT contracting process, with the assistance of external consultants. A summary of the suggested implementation, contracting and subsidy arrangements is as follows: Technological Approach

Potential Applications

Implementing Agency

Contracting Approach Subsidy Approach

Rehabilitation of

existing micro

hydro / distribution

grid systems.

We anticipate that

less than 15

systems will be

technically and

financially viable for

rehabilitation.

DOE – Project

Management Unit, in

consultation with the

respective PDIHs,

and with technical

assistance from

international /

domestic consultants.

Rehabilitate-operate-

transfer contract, awarded

through a competitive

bidding process.

Contracts administered by

DOE Project

Management Unit, with

assistance from project

implementation

consultants.

Developers bid on the

capital subsidy

required to rehabilitate

and operate the

system for a defined

period at defined

consumer tariffs /

connection charges.

New micro / mini

hydro / distribution

grid systems.

We anticipate that

less than 15

systems will be

technically and

financially viable.

DOE – Project

Management Unit, in

consultation with the

respective PDIHs,

and with technical

assistance from

international /


Build-operate-transfer

contract, awarded through

a competitive bidding

process. Contracts

administered by DOE

Project Management Unit,

with assistance from

project implementation

consultants.


capital subsidy

required to develop

and operate the


period at defined

consumer tariffs /

connection charges.

New mini / small

hydro / biomass

systems supplying

the Main Grid.

Perhaps 5

prospective

systems.

EdL – Development

Division, with

technical assistance

from international /





process. Contracts

administered by DOE

Project Management Unit,

with assistance from

Not required.


Technological Approach

Potential Applications

Implementing Agency

Contracting Approach Subsidy Approach

project implementation

consultants.

New private

sector rural

distribution

systems.

Perhaps 30

systems will be

viable (suitable

concession areas

will be defined

during preparation

of the RE Master

Plan).

EdL – Development

Division, with

technical assistance

from international /





process. Contracts

administered by EdL, with

assistance from project

implementation

consultants.


capital subsidy

required to develop

and operate the


period at defined

consumer tariffs /

connection charges.

In all cases, the competitive bidding process would require the completion of initial data acquisition and feasibility / environmental / social work to establish the likely technical and financial viability of the concessions that are to be put out to bid, and following that, the preparation of appropriate ROT / BOT bidding documents. There are a number of standard bidding documents for ROT/BOT contracts that could be used, although specific, detailed technical specifications and supporting documentation would need to be prepared for each contract. The concessions will eventually be taken over by the Government, so design and construction of assets provided by developers under the concessions will need to be to appropriate standards and specifications. If the projects are to be subsidised using financing from World Bank or ADB, then it is likely that appropriate environmental and social impact studies, and preparation of environmental / social management plans, will be required. As well, preparation of land acquisition and re-settlement plans will be required as a precursor to the purchase of land for the projects (in general the projects should be small enough to avoid the need for significant re-settlement of local people). Developers will be required, as a condition of their BOT contract, to comply with the provisions of the environmental / social impact assessments and management plans. We would suggest that the early BOT contracts be open to bids from international bidders as well as domestic bidders, as current indications are that only a small number of Lao companies might have the capability and access to finance required to competing for these contracts. However, there are a number of Thai, Chinese, Vietnamese and Malaysian companies with suitable experience / resources who would be interested in bidding. Where BOT contracts are small, we would suggest that a number of projects be aggregated. For example, a 3 – 5 existing micro hydro / distribution systems located in a province, or a small number of adjoining provinces, could be aggregated into a single ROT contract. This might encourage participation by larger, more experienced developers.


Subsidies will need to be channelled from the Rural Electrification Fund to support the development of the concessions. In general, subsidies should be limited to capital subsidies (to ‘buy down’ the development cost) and ongoing subsidies for operation and maintenance should not be provided.

• In the case of the rehabilitation projects, the value of the existing civil works can be mobilised as subsidy and in many cases this will be sufficient incentive. Where the rehabilitation works are not costly, and the value of the concession is significant, it may be appropriate that the developer makes a payment to the Government for the rights to rehabilitate / operate the system for a defined period. Such payments could then be used to subsidise other rural electrification initiatives.

• In general, concessions for new renewable energy generation / distribution systems and for new

and rural distribution systems will require subsidisation, as the willingness-to-pay will generally be less than is required for recovery of capital invested and operation / maintenance costs over the concession period.

A suggested organisational arrangement for contracting out concessions for: (a) rehabilitation of existing micro hydro / distribution grid systems, and; (b) new micro / mini hydro / distribution grid systems by the DOE Project Management Unit is as follows:

A suggested organisational arrangement for contracting out rural distribution system concessions to private sector developers by EdL is as follows:


Recruitment of project implementation consultants will be required to provide additional resources to the DOE Project Management Unit and to EdL with the competitive bidding of concessions for: (a) rehabilitation of existing micro hydro / distribution grid systems; (b) new micro / mini hydro / distribution grid systems; (c) new mini / small hydro / biomass systems supplying the Main Grid, and (d) new private sector rural distribution systems. Potential renewable resource concessions and rural distribution concessions will be identified in the RE Master Plan. The project implementation consultants will initially evaluate the technical, economic, environmental and social viability of prospective concessions, and estimate the likely tariffs and subsides that will be necessary to provide attractive returns on investment. Appropriate technical specifications, and tender documents using a BOT approach, will then be prepared so that viable concessions can be tendered to private sector developers on a competitive basis. The project implementation consultants would then assist with tendering, tender evaluation, construction supervision / administration and commissioning as required. 6.10.3 Rehabilitation of Existing Micro Hydro / Distribution Systems

Scope Some 39 existing micro hydro systems (with individual capacities in the range of 5 – 250 kW and an aggregate capacity of 2,381 kW) capable of serving more than 12,000 rural households via simple, isolated distribution systems have been developed within the country. The majority of the systems are located in the northern provinces of Phongsali, Luang Namtha, Luang Prabang, Houaphanh, Xieng Khouang, Xayabuli and Attapeu. Of these, 18 micro hydro systems (with an aggregate installed capacity of 565 kW and capable of serving about 4,100 households) are currently not operational, and about 11 of these are considered suitable for rehabilitation. As well, about 11 of the operational systems (with an aggregate installed capacity of 765 kW and capable of serving about 3,800 households) are in need of repair / refurbishment to restore their


operational ability and efficiency. Details of the existing micro hydro schemes are limited, but currently available data is listed in Attachment 5 – Existing Mini / Micro Hydro Systems, and references to pre-feasibility study work relating to a number of the systems are given in Attachment 2 – References. A summary of non-operational projects that could be suitable for refurbishment, and the operational projects requiring repair, is as follows: No. Project Installed

Capacity (kW)

Province Households that could be Served

(Approx. No.)

Non-Operational Projects Requiring Refurbishment

1 Hua Khiboun (Xiengkok) 55 Luang Namtha 105

2 Nam Poun 1 36 Huaphan 180

3 Nam Poun 2 60 Huaphan 300

4 Nam Tan 2 8 Xieng Khouang 50

5 Ban Nong 40 Xieng Khouang 200

6 Nam Kho 12 Xieng Khouang 58

7 Hokang Nam Poui 24 Xieng Khouang 150

8 Nam Chat 100 Xieng Khouang 500

9 Hua Saloi 75 Savannakhet 276

10 Hua Champi 40 Champasakk 200

11 Houay Samong 19 Attapu 226

Total (kW) 560 Total Households (approx. no.) 2,245

Operational Projects Requiring Repair

1 Nam Boun 110 Phongsali 357

2 Nam Leu 46 Luang Namtha 627

3 Nam Soy 12 Huaphan 91

4 Nam San 110 Huaphan 640

5 Nam Pern 40 Huaphan 270

6 Nam At 80 Huaphan 400

7 Nam Long 20 Huaphan 142

8 Nam Ham 180 Xayabury 728

9 Nam Tian 75 Xieng Khouang 273

10 Nam Ka 1 12 Xieng Khouang 86

11 Nam Ka 2 81 Xieng Khouang 206

Total (kW) 766 Total Households (approx. no.) 3,820

There is potential for expansion of the number of households connected to the systems. Assuming an average (diversified) peak demand of 200 Watts / household, than a total of some 6,500 households could be supplied


from the 1,326 kW of system capacity (non-operational systems plus operational systems requiring repair) listed above. Resource Assessment Study The sunk costs of the non-operational projects and the operational projects requiring repair is significant and it is suggested that an assessment be carried out to investigate the potential for repair and refurbishment of these systems. The pre-investment study would support technical, economic, environmental and social assessments aimed at identifying a program of rehabilitation and repair, and establishing the viability, of the program. Order-of-Cost Assuming an average cost of US$ 800 / kW for micro hydro station rehabilitation, US$ 400 / kW for micro hydro system repair and US$ 100 / household for distribution system rehabilitation would give an indicative cost for a rehabilitation program (including pre-investment study, program preparation, program management / administration, contingencies, etc, of the order of US$ 2.0 million (i.e. around US$ 300 / household on average). This is less than the cost of Main Grid electrification, when the cost of the necessary transmission interconnections is taken into account, for a similar service level. For comparison, the new development costs of these systems would be of-the-order-of US$ 4,500 / kW, giving a total development cost of the order of US$ 5 million. 6.10.4 New Mini / Micro Hydropower / Distribution Systems

Scope A listing of potential mini hydro systems (up to 5 MW capacity) has been prepared from information provided by DOE, and is shown in Attachment 6 – Potential Mini / Micro Hydro Developments in Lao PDR. The list contains 53 potential sites totalling about 60 MW of capacity, the majority of which are located in the northern provinces of Phongsali, Luang Namtha, Oudomxay, Bokeo, Luang Phrabang, Huaphanh, Xayabury and Xieng Khouang and which will be investigated under the JICA Small Hydro Project in Northern Lao PDR Study. In general, only limited investigations of the 53 potential sites have been undertaken, with 6 sites having feasibility studies completed and 12 sites having site identification field work / reconnaissance surveys completed. The remaining 35 potential sites have not had investigations or reconnaissance work carried out, and the potential viability of these sites has not been ascertained. Some 15 sites in the southern and central provinces (mainly Bokeo, Savannakhet, Khammouane and Xaisomboun) have been identified, and consideration could be given to: (a) carrying out map studies / reconnaissance surveys that would seek to identify further resources capable of feeding loads (probably district towns) in more remote, hilly areas that will not be electrified through the main distribution system within the current planning period, and; (b) examining some of these potential resources in more detail (through pre-feasibility studies) to establish their likely viability.


While there are likely to be a significant number of other suitable mini / micro hydro sites within the country, we would not suggest that a mini / micro hydro program that feeds power into the main EdL grid be supported, except (possibly) in very specific situations, such as; (a) at the end of a long transmission line or feeder to improve system stability; (b) to replace a diesel generator that provides voltage support; (c) to improve system stability; (d) to reduce line losses, or; (e) where the mini / micro hydro is economically viable and strongly supported by EdL. This is because the large-scale hydro plants being developed by EdL will generally be more cost effective than mini hydro generation. In general, mini hydro schemes will only be cost effective where they are able to displace existing diesel generation or expensive cross-border supplies. The mini hydro project currently being prepared for the eight northern provinces under the JICA Small Hydro Project in Northern Lao PDR Study is expected to identify a number of (up to 10) viable mini / micro hydro projects that could be developed to supply isolated grid systems mainly based on district towns. This would seem to us to provide a good opportunity for mini hydro development within the country, as the northern provinces have better hydrological resources than the southern provinces, which are prone to a longer dry season. We understand that the Japanese Government may be interested in financing the construction of the mini hydro projects prepared under the JICA study, possibly through JBIC, but this is not confirmed. Resource Assessment Study We suggest that a resource identification / pre-feasibility assessment be implemented to identify additional mini / micro hydro sites in the 7 southern and central provinces, and complete pre-feasibility studies of a number of them. The assessment will interact with (but not overlap with) the ongoing JICA small hydro project (which covers 8 northern provinces). The resource assessment study should be focussed on identifying resources that can supply electricity to currently un-electrified demand centres (mainly district towns or larger groupings of villages) at lower cost than alternative grid supply options and that will not be inter-connected to the main grid within the current grid expansion planning period (10 years). Mini / micro hydro schemes will involve small intake weirs that are less than 15 m high, with total water storage of less than 3 million m3 and will generally avoid re-settlement of local people. Schemes that feed into the main grid will not generally be considered, except where there are benefits in terms of system operation / stability and they are supported strongly by EdL. The assessment will also exclude resources that could be rendered redundant by planned medium or large-scale hydropower developments (and the local distribution systems that feed off these developments). Existing resource studies, mapping, etc, will be used to identify new resources. Site visits will be made to prospective sites / resources to assess the physical, environmental and social feasibility of potential micro / mini hydro schemes, and to allow preparation of preliminary cost estimates and economic appraisals. Following prioritisation of the schemes identified, pre-feasibility studies will be carried out for up to 5 potential mini / micro projects that could be supported under the SPRE II – Phase 2 Loan. Appropriate arrangements for implementation of the micro / mini hydro resource projects identified will be suggested, based on the implementation / contracting models described above (in this Section). The TA will


include collation and presentation of data on micro / mini hydro resources that can be entered (by others) into the national rural electrification database. Order-of-Cost The new development costs of these systems would typically be the range of US$ 3,500 / kW – US$ 5,500 / kW. While these costs appear high, they have potential to translate into costs / household in the range of US$ 450 / household – US$ 600 / household, which will be competitive with Main Grid electrification costs when the cost of the necessary transmission inter-connections is taken into account, for a similar service level. 6.10.5 New Renewable Energy Generation Plants Supplying the Main Grid

In this case, new mini / small hydro sites or mini biomass resources would be developed by private sector entities, who would construct them, operate them for a specified period (typically 15 – 25 years) and transfer them back to the Government. Electricity produced from the stations would be sold into the Main Grid system under a standard small power purchase agreement with EdL. After transfer back to the Government, the ongoing operation of the system (i.e. billing, operation and maintenance) could be contracted out under a management services contract. A full discussion of technical, organisational, institutional and contractual aspects of this approach is given in the ‘Lao PDR Financing Strategy Study - Final Report’. 82 6.10.6 New Private-Sector Rural Distribution Systems

Scope In order to improve the rate of rural electrification, we recommend that private sector involvement should be sought for establishing and running electricity supply systems, taking their electrical supply from the Main Grid. The licensee would construct small, low-cost distribution systems serving rural villages or households, and would operate and maintain the system. The licensee would also charge for electricity delivered for the period of the licence. A suitable rate would need to be agreed for bulk electricity supply from the grid, reflecting the cost of generation and delivery but taking into account EdL’s savings in not handling the final stage of distribution and collection. The licensee could be an entrepreneur, a local business, a business from outside Lao PDR, a society of consumers, or any other suitable vehicle. A construction subsidy may need to be offered to licensees to reduce their investment costs and tariffs may need to be higher than EdL’s to provide an adequate return on investment. Subsidies should not, however, be provided for operation and maintenance costs.

82 Lao PDR Financing Strategy Study - Final Report, Maunsell Limited, September 2004. The TOR for this Study requires preparation of arrangements for a ‘small power purchase agreement’ and associated institutional arrangements that will provide for purchase of generation form small (mainly renewable) generation plants by EdL under standard terms and conditions.


The licensee could be an entrepreneur, a local business, a business from outside Lao PDR, a society of consumers, or any other suitable vehicle. The standards of workmanship and operation would need to be monitored to ensure compatibility with the grid as a whole and to ensure the safety of workers, consumers and the public. The low-cost systems envisaged might involve the use of single-phase or single-wire-earth-return (SWER) systems where high voltage (22 kV) extensions are required since their use would minimize the cost of construction. Standards could be adopted from other countries experienced in the use of these systems and adapted to conditions in Lao PDR. Either system can be designed to allow for modification, over time, as load grows. A construction subsidy may need to be offered to licensees to reduce their investment costs and tariffs may need to be higher than EdL’s to provide an adequate return on investment. Subsidies should not, however, be provided for operation and maintenance costs. Any required subsidies could be provided through the Fund. Since this model is not established in Lao PDR, it would need to be trialled. If successful it will have the advantage of bringing further resources to the sector and of extending skills in electricity distribution. Preparation of Trial Program Preparation for this trial program should: (a) identify suitable areas for a licence; (b) prepare preliminary designs for the system, suitable for implementation by the licensee; (c) assess the financial viability of the operation and estimate the tariff and subsidy required for its success; (d) promulgate licensing arrangements; and (e) prepare tender documents for the recruitment of a private sector licensee to undertake the operation. Recruitment of consultants to provide technical assistance for the preparation work will be required. The estimated cost of this technical assistance is US$ 120,000 (excluding contingencies). The ‘order-of-cost’ estimate cost for pilot projects of varying sizes is as follows: Villages in

License Area

Households / Village

Total Households

Household Connection

Rate

Households Connected to

System

Unit Cost / Household

System Development

Cost (No.) (No. / village) (No.) (%) (No.) (US$ / HH) (US$)

10 70 700 70 490 275 135,000 15 70 1,150 70 805 250 200,000 20 70 1,400 70 980 225 220,000

Note: The unit cost / household assumes some economy of scale as system size increases.

In order to keep costs within acceptable levels, it is suggested that the trial project be for an area containing around 10 to 15 villages connecting say 500 to 800 households with a capital cost in the range of US$ 150,000


- 250,000 and that it be located in the central or southern provinces serving villages in hilly country towards the eastern border of the country. 6.11 Pico Hydro Safety and Operational Awareness Development

6.11.1 Scope

As in the hilly areas of North Vietnam, significant numbers of Chinese-manufactured personal hydro generators (‘pico’ hydro units, typically of 100 - 300 watts output) are in use in Lao PDR, more particularly in the remote north-eastern provinces, where rainfall is higher and better seasonally distributed. We understand that there may also potential for increased pico hydro use in some rice growing areas, utilising drops in tertiary irrigation channels. The 1999 ESMAP socio-economic survey indicated some pico hydro use in the north-eastern provinces of Phongsali and Xieng Khoung, but pico hydro usage there has expanded significantly since then, and into Luang Phrabang, Louang Namtha and Houaphanh provinces as well. Anecdotal indications are that pico hydro usage rates of over 50 % of households are common in many villages in the north-eastern provinces, thus bringing basic lighting to significant numbers of people, and (presumably) also to the ethnic minority populations that form a significant proportion of the total populations of these provinces. Pico hydro units are generally purchased by individual households for their own use, are low-cost, provide a relatively unsafe supply (un-insulated wires are often used and electrocution of users is fairly common), are unreliable (require fairly frequent repair) and have a relatively short lifespan (typically about 3 years). They are usually used for lighting only, since the incorrect and varying voltages produced from these units makes use of other small appliances difficult. Often they are incorrectly installed, leading to poor performance and lowered output. Pico hydro units installed on rivers need to be removed during flooding (to avoid inundation), and often there is too little water to generate during the dry season. Those that are installed in tertiary irrigation channels may only function during the irrigation season. However despite these drawbacks, their low cost (less than US$ 30 / unit) means that they are affordable to, and purchased by, significant numbers of local people in some of the poorest provinces in Lao PDR. Pico hydro units are imported by local businesses from China and Vietnam, and sold by retailers in small rural towns. Skills to repair units are generally available where pico hydro use is reasonably common. It is understood that no import duties are charged on these units (compared with +/- 20% duty on SHS units), and this may contribute towards keeping the unit cost low. Individual pico hydro usage is not promoted or supported by any GoL agencies or programs, and pico hydro usage has therefore developed on a purely commercial basis. Our view is that pico hydro usage is likely to be sustainable in the medium-term, at least until incomes rise and consumers demand better quality electrification systems.


One of the main difficulties with pico hydro systems is the lack of voltage regulation. A number of efforts have been made to develop voltage regulators suitable for pico hydro generators. However voltage regulators (that are effective) currently cost of-the-order-of US$ 100 each, and would therefore be beyond the financial capacity of many rural households. 6.11.2 Awareness Development Program

Provincial DIH authorities in Huaphanh (where pico hydro usage is relatively common) indicated83 that an awareness building program would be useful to build awareness of electrical safety, and disseminate information on the correct installation of pico hydro units and correct / safe wiring of houses. Given that it will take some years for better electrification systems to become widely available within these provinces, that pico hydro use is clearly fulfilling an immediate need, and is commercially driven, we would suggest that consideration be given to supporting a pico hydro safety and operational awareness development program. The program would need to focus on safety and installation issues and perhaps not overtly promote pico hydro usage (since pico hydro usage is being promoted by the unit suppliers / retailers). The objectives of the Pico Hydro Safety and Operational Awareness Development Program Pre-Investment Study would be to; (a) reduce injuries and improve the safety of pico hydro systems currently in use in 5 northern provinces (i.e. Phongsali, Xieng Khoung, Luang Phrabang, Louang Namtha and Houaphanh); (b) improve the operational awareness of pico hydro systems amongst rural people in 5 northern provinces, and; (c) monitor and evaluate the program for a period of 1 year following its completion. Preferably, the pico hydro safety awareness program would be financed with grant funding, or low-interest loan. If World Bank could not provide / arrange such funding, then a NGO or bilateral donor may be interested in assisting. The estimated total cost of this technical assistance is US$ 85,000 (excluding contingencies).

83 During the JICA Inception Workshop for Study of Small Hydropower in Northern Laos, 05 March 2004.


7.0 Rural Electrification Master Plan

7.1 Introduction

Having assessed the background, targets and actions taken to date in rural electrification in Lao PDR in Sections 2, 3 and 4 of this report; and then considered the implementation models that could extend the coverage of electrification to meet the Government’s targets in Sections 5 and 6; we describe, in this section, the institutional framework and planning processes that will enable the preparation and subsequent updating of a rural electrification master plan covering the whole country. We do this under the following sub-sections:

• Approach to RE Master Plan preparation. • Institutional framework. • The RE planning process, including:

− Information and database. − Grid and off-grid planning. − Preparation of the RE Master Plan. − Capacity-building and knowledge dissemination. − Support requirements.

• Pilot village electrification plans. The Rural Electrification Master Plan will consist of two main elements:

• A RE Database and GIS that will contain the basic data required, down to the village level, for effective rural electrification planning. The RE Database / GIS was partly set-up previously 84, but needs to be developed further and ‘populated’ with data relating to all rural villages in the country, renewable energy resources, etc.

• A RE Master Plan that describes the most economical method of providing electricity to each

village in the country, along with the priority (time-line) for electrification. Both the RE Database / GIS and the RE Master Plan will need to be updated periodically (preferably annually) as the electrification of the country progresses and as the socio-economic situation and demand for electrification in rural areas of Lao PDR develops. 7.2 Approach to RE Master Plan Preparation

EdL is currently managing the planning and expansion of the Main Grid, and has the necessary data, computer programs and skilled personnel to carry out this task. In consultation with DOE, EdL identifies areas that will

84 A socio-economic survey was implemented in some areas of seven southern / central provinces (i.e. the areas planned for electrification under SPRE II) and a rural electrification database was developed under the Technical Assistance assignment: ‘Establishment of Database for Rural Electrification Planning in Lao PDR – Socio-Economic Survey’ by Decon / Systems-Europe - 2004. The RE database developed was intended as a template, with limited data input, and further data collection / entry will be required to ‘populate’ the database.


be electrified from the Main Grid, and this subsequently allows identification of those areas that will need to be electrified through isolated grids of off-grid approaches. As DOE assumes the role of preparing the RE Master Plan, EdL will loose some of its current planning independence and will need to direct its RE activities in accordance with the RE Master Plan. The following broad approach to rural electrification planning is recommended:

• DOE will be responsible for preparing the RE Master Plan in consultation with EdL, the PDIHs and other stakeholders. This will be a feasibility-level plan that will consider the various implementation models, technologies and costs and identify / recommend (on an economic basis) a cost-effective rural electrification plan involving both grid and off-grid approaches. The Plan will identify electrification implementation priorities for all villages, provide an indicative implementation timeline based on the electrification priorities covering a 15 year period and will identify suitable implementation approaches for various areas (such as EdL grid extension 85, concession, ESCO, etc.).

• The current rural electrification planning approach will be adjusted to include consideration of

demand for electricity for household and productive / commercial uses (as expressed through village surveys), and consideration of the relative economic benefits of the various RE models / technologies.

• EdL will continue to manage the detailed planning / expansion of the Main Grid in accordance

with the requirements of the RE Master Plan, and will publish its detailed rural distribution grid expansion plans in the Power Development Plan on an annual basis, as it does at present. The PDP should be expanded to contain a list of villages that will be electrified from the main grid within the next year, next 2 years, next 5 years, next 10 years, etc. While this list of villages will be tentative, and may vary over time, it should generally define the priority and timing of village electrification from the Main Grid.

• Provincial, district and village authorities have responsibility under the Electricity Act for planning

of smaller, off-grid systems. 86 Planning for these systems, and coordination with other systems, will be included as part of the RE master planning process, but in consultation with provincial and district authorities and the Rural Electrification Division of DOE.

• All villages that will not be electrified under either the EdL main grid expansion, or under

provincial / district distribution systems, will then become the domain of off-grid electrification

85 Planning for the Main Grid expansion program will need to be directed at villages that have higher willingness / ability to pay, have a substantial proportion of households willing to connect to the system, and have significant commercial / productive demand, to minimise the implications on EdL’s financial viability. This assumes that the ongoing adjustment of electricity tariffs will continue until they reach a financially sustainable level. 86 Systems with capacities between 2 MW and 100 kW come under the provincial (PDIH) authorities, systems with capacities less than 100 kW come under district authorities and systems with capacities less than 10 kW come under the village head.


systems (i.e. individual household systems and village systems), and the programs for off-grid electrification will be directed towards these areas.

• The various electrification approaches (main grid, provincial / district grid and off-grid) will need

to be coordinated to prevent overlap and duplication of electricity services, as far as is practical. The various approaches will initially be coordinated as part of the RE master planning process, but ongoing coordination will be required as the Master Plan develops in the future. Future coordination would best be performed by the Power System Planning Division, in conjunction with the Rural Electrification Division, of DOE.

• Where extension of the main electricity grids over-runs existing isolated provincial / district

schemes in the future, means of incorporating these systems into the main grid will be required. In one approach EdL could take-over such provincial / district systems, and incorporate them into the Main Grid (this would often require upgrading of the existing distribution grid to Main Grid standards). Alternatively ownership, operation and maintenance of the provincial / district grid could be retained by the province / district, to supply electricity into the Main Grid under a small power purchase agreement.

The division of planning responsibilities between DOE and EdL is indicated in the following diagram:

DOE and EdL Planning Responsibilities

7.3 Institutional Arrangements

The EdL organisation chart is given in Section 2.3. The Development Division, which is responsible for the planning and development of EdL’s power system, includes:

• A Planning Group, headed by a Planning Manager. The group includes three staff responsible for maintaining the database and GIS, and two staff responsible for undertaking power system analysis work and for preparing the PDP.


• A number of Project Teams, headed by Project Managers. Each team is responsible for an

individual project, such as PTD2, SPRE II, Nam Mang III, the Attapue transmission line, Xeset II, etc. A Project Management Unit (PMU) headed by the PTD2 Project Manager has also been established to undertake socio-economic surveys and to analyse the results for input into the designs of both the PTD2 and SPRE II projects.

The DOE Electricity Management Division currently consists of a Deputy Director and two personnel that are responsible for obtaining data from the EdL provincial offices and the PDIH offices on customers connected, power consumption, etc, for input to the MIH Year Book. The EdL planning organisation appears to be adequate for it’s current needs, but the DOE organisation will need to be expanded so that it can take on the added responsibilities of Master Plan preparation, off-grid planning and data collection / database entry. We therefore recommend the following structure for a planning organisation to be established in DOE:

• A Planning Manager, responsible for overall management of the RE master planning process, and for coordination with the EdL planning group.

• Three Technical Assistants, responsible for maintaining and updating the RE database and GIS.

They will be responsible for organising the collection of data through the provincial offices and then the receipt, evaluation and entry of data into the RE Database.

• Two RE Planning Engineers, responsible for using the RE database / GIS to prepare and

update the RE Master Plan and to assist with the detailed planning required for RE not covered by the EdL grid connections.

• A RE Planning Consultant, responsible for assisting DOE in the development / updating of the

RE Database and the establishment / development of the RE Master Plan, and for associated capacity building and knowledge dissemination. The consultant’s planning work will be carried out over a period of about two years, during SPRE II – Phase 1, and DOE staff will assume responsibility for maintenance / updating of the RE Database and RE Master Plan there-after.

The Planning Manager, Technical Assistants and RE Planning Engineers will need to be recruited and employed by DOE, who will also need to recruit the RE Planning Consultant (i.e. an association of an international and a domestic consultant) through an international competitive bidding approach. One person will need to be appointed in each of the 18 PDIH offices to oversee the collection of the rural electrification data required to ‘populate’ the RE database / GIS. These persons will be current employees from each PDIH. The organisational arrangement proposed is indicated in the following diagram:


Master Plan Organisation

Since both EdL and DOE will be modifying the RE Database / GIS, rules will need to be agreed so that DOE and EdL have clearly defined scopes with respect to database management and that they regularly share database updates. We recommend that EdL be responsible for collecting data / updating the database with respect to all villages selected for Main Grid electrification within the PDP planning period (currently 10 years) and that DOE be responsible for collecting data / updating the database with respect to all other un-electrified villages. The RE Planning Consultant should review the existing institutional arrangements and those proposed above and develop and report on improvements / adjustments as appropriate.

7.4 The RE Planning Process

The following figure summarises the framework for the RE Master Plan preparation, highlighting the components that need to be prepared and brought together to produce the Master Plan. As the figure shows, an important initial step in the process will be the further development of the RE database / GIS, through the completion of supplementary RE surveys and resource inventory studies. In parallel with this, there is a need to coordinate Main Grid planning with isolated grid planning, off-grid planning and renewable resource development to ensure efficient resource allocation. The combination of the RE data inputs and renewable resource studies, and the development of a GIS database, will lead directly into the RE Master Plan and, through it, to the coordinated development outcomes shown in the figure.


RE Master Planning Framework

7.5 Information and Database

7.5.1 Review of 2004 RE Survey / Database / GIS

The ToR for the 2004 RE Survey / Database / GIS consultant, required the preparation of a RE Database / GIS at the village level, including all the villages in the country. It was to be an extension of the GIS database that was provided by EdL, though the DOE, in the early stages of the project and was to include (for each village), the population and the number of households in the village, roads, existing electrical grids, etc, extended by attributes resulting from the survey as well as by other attributes (e.g. potential renewable energy sources) according to a scheme that was requested by Maunsell as a part of this Study. 87 However, when we reviewed the final draft 2004 Database / GIS we found that the only "pure" GIS data was contained in the folder SPRE2 SE\Data Base\RE Database, an ESRI ArcGIS project file (Laos_7_South_Provinces.mxd). This file only held layout and symbolization information. The raw GIS data is

87 Maunsell made recommendations to Decon on the content of its proposed RE database: see Attachments 13b.


held in a ESRI personal geodatabase (Laos_Seven_Provinces.mdb) in the same folder. When opened with ESRI's ArcGIS software, we found that it included the following three sets of data for only the seven southern / central provinces:

• Seven_South_Provinces_Districts - Polygons listing district and provincial names in English but with no provincial or district codes.

• Seven_South_Provinces_Roads - Lines showing road position but with no useful attribute data

for classifying roads into major / minor / track / sealed / unsealed, etc.

• Seven_South_Provinces_Villages - Points showing the locations of 5,219 villages located in the seven southern /central provinces, plus survey data for only those 300 villages included in the RE Survey.

The database currently contains no information on the existing Main Grid system, or existing electrified villages, or existing un-electrified villages. RE data relating to the Northern Area Rural Power Distribution Project that was provided by EdL and passed on to the RE Survey / Database / GIS consultant needs to be included. A number of apparent errors were observed in the data relating to the 300 towns (in the southern / central provinces) surveyed as part of the 2004 RE Survey, and some of the data contained in the database will need up-dating by the time the RE master planning process commences. The RE Database / GIS, in its current form, does not provide sufficient detail for the purposes of RE Master Plan preparation (except in the parts of the seven southern / central provinces proposed for Main Grid electrification under SPRE II) and will need to be extended to provide information on all villages within the country. The 2004 RE Survey does not include details of the spatial layout of rural villages being considered for grid electrification, and this will be required for master planning of Main Grid, isolated grid and village distribution grid systems. As many rural villages in Lao PDR are of similar layout and density, it will be necessary to measure the spatial layouts of a representative sample of villages only. 7.5.2 Additional Data and Surveys to Expand the RE Database

Review of the 2004 RE Database / GIS will be required as a first step towards RE Master Plan preparation. This will include any refinement of the database attributes and content required to facilitate preparation of the RE Master Plan, and verification of the accuracy of and correction of data contained within the database, as far as is practical. Following on from this, relevant RE data will be acquired to expand and ‘populate’ the database. The following data processing / acquisition activities will be required:


• Identification of rural villages. There are a number of conflicts between the names / locations of villages in the current RE Database and the names / locations of villages in the 2004 RE Survey that will need to be resolved. As well, there are conflicts between the names / locations of villages in the current RE database and the names of villages in the 2003 Population Count / 2005 Census. We would suggest that village names / identification be based on the village listing developed by the National Statistical Centre for the purposes of conducting the 2005 Census, and that the unique village identifiers used by the National Statistical Centre be adopted. This will provide a common thread of village identifiers that can be used to update the village lists when the results of future population counts / census become available. The uncertainty in the total number of villages in Lao PDR (i.e. 11,168 villages in EdL’s database and 10,752 listed by the National Statistical Centre) will need to be resolved also (we understand that consolidation / amalgamation of some villages has been occurring). The locations (longitude & latitude) of all villages will also be required, to allow their positioning in the GIS and to provide a further unique village identifier.

• Basic data survey of all rural villages. A simple survey of all rural, un-electrified villages in the country,

will be carried out using a simple survey form that can be used to collect basic physical, socio-economic and RE information on villages for inclusion in the RE database. A recommended format titled “Basic Data Survey” is included in Attachment 13a. The survey form will need to be trialled and adjusted as necessary, before training DIH provincial staff who will in turn train district staff to undertake the surveys. The district staff will return the completed survey forms to the DIH provincial staff who will enter the data into computers to be provided under the RE Master Plan consulting contract (one for each province). Data will then be e-mailed to DOE staff in Vientiane for inclusion in the RE database. The basic data collection process will need to be repeated on an annual basis by DOE, DIH and district staff to allow periodic updating of the RE Database.

• Comprehensive survey of representative rural villages. A comprehensive (detailed) socio-economic /

RE survey of a sample of rural, un-electrified villages will be carried out in representative areas of the country, to obtain more detailed socio-economic data (i.e. household income, willingness-to-pay, current energy usage, potential for productive uses, etc.) and spatial layouts of the villages in a consistent format. The survey form should be based on the household / village survey formats prepared for the 2004 RE Survey and for the Energy Sector Management Assistance Programme (ESMAP) 1999. Spatial data should be obtained in the format indicated in Attachment 14 (i.e. indicating the layout of village roads / tracks, location of houses, temples, schools, commercial enterprises, rice mills, etc.). The spatial data will facilitate preliminary design and costing of distribution systems for the representative villages.

There are about 11,000 villages in Lao PDR of which about 7,700 are currently not electrified. While some of these villages will have been surveyed under the SPRE II Project, it would be impractical (and un-necessary) to attempt to survey in detail all the remaining un-electrified villages. It is therefore proposed that the comprehensive survey be undertaken in 300 representative, un-electrified villages and 3,000 un-electrified households in areas of the country that have not yet been surveyed. Focus


group discussions should be held in 30 of the representative villages to obtain qualitative information on attitudes to rural electrification, and the various technologies that can be applied. A village sampling plan will need to be devised along with a survey delivery plan / mechanism, probably involving the training of teams of experienced enumerators to apply the survey and collect the spatial data required. Statistical sampling methodologies, such as stratifying the population, should be used to improve the sampling variance (e.g. stratify the country into 3 groups of 1,000 households each consisting of (i) households and villages that may be electrified by the grid within the next 5 years, (ii) households and villages that may be grid electrified between 6 and 10 years out, and (iii) households and villages that may be grid electrified 11 or more years out). The application of the survey and data processing will be time-consuming, as a significant number of villages will only be accessible by walking. Some villages will will need to be omitted from the survey for security reasons or UXO concerns. The survey data should be reviewed / ‘cleaned’, analysed and evaluated using standard statistical analysis software. A report presenting the key socio-economic and RE parameters relating to each representative village surveyed, and relating these parameters to census / poverty data that is available for all villages, should be prepared. The report will group villages with natural similarities that can be used as ‘model’ villages, such that the key parameters derived for the ‘model’ villages can be applied to other (unsurveyed) villages. The report will also provide a narrative text detailing qualitative aspects of rural villages, particularly related to the willingness-to-pay for electricity services and potential productive / commercial uses, obtained from the village focus group discussions. All output data should be entered into the RE database.

• Existing main grid and isolated grid systems. Details of the existing EdL transmission / distribution

system are not currently included in the RE database / GIS and will need to be entered. This will include routes / locations of all transmission lines, distribution lines, substations, generation plants, cross border supplies, current major loads, etc. The RE Database / GIS will also need to be updated regularly to reflect the implementation progress of the EdL distribution grid extension program.

• Major rural loads. The location and anticipated demand of significant, potential, electrical loads in rural

areas should be obtained and entered into the database, as such loads have potential to influence the viability of Main Grid expansions. This should include captive generating plant serving rural facilities / loads that could be persuaded to connect to the Main Grid. We understand that EdL currently have a listing of all significant electrical loads, but this will need to be checked.

• Export IPP projects. Electrification of rural areas within the vicinities of the proposed major export

projects (mainly hydro) will be required as a condition of development in many instances. 88 The locations of the proposed major IPP hydro projects, the quantity of generation that will be made

88 Details of major export projects are given in the Power System Development Plan for Lao PDR, Final Report, August 2004, by Maunsell Ltd and Lahmeyer International.


available to the local network and the proposed extent of any local distribution systems to be constructed under the project will need to be obtained and entered into the database.

• Poverty Data. An assessment of poverty in Lao PDR is provided by the Lao Expenditure and

Consumption Surveys (LECS) organised every 5 years by the National Statistical Centre. Relevant data from the latest survey, LECS III (2002/03), will be helpful in building a picture of rural economic conditions and should be included in the database.

• Inclusion of GIS databases from other sources. The latest updates of GIS data available from the

various government organizations in Lao PDR that operate GIS systems, such as the National Geographical Department and MCTPC concerning roads, rivers, administrative boundaries, built-up areas, land use, villages, topographical data, elevation points, etc, should be obtained and included in the GIS. We understand that MCTPC updated its GIS database with respect to roads in early 2004. We further understand that GIS databases in use in Lao PDR only include national and provincial roads but not district roads. If at any stage district roads are entered in the database by MCTPC, these also should be included in the rural electrification database as they are important for determining transmission and distribution routes.

• Inclusion of renewable resource assessments. Updating of the RE Database to include new renewable

resource assessments completed since the completion of the 2004 RE Database. Details of renewable resource studies that will need to be included are given in Section 7.5.3 below.

• Other relevant data. Updating of the RE database and GIS with the latest relevant planning information issued by other Ministries, etc. This could include details of proposed school construction / rehabilitation, health centre construction, market development, etc.

The outputs of the 2005 Census will provide a check on some aspects of the village survey (population, number of households, numbers of community facilities, current electrification situation, etc), and allow validation of some of the key village data contained in the RE Database. Some data from the Census may also be useful (e.g. numbers of households connected / electrification rates in villages) and should be included in the RE Database as appropriate. The RE Database / GIS will need to be fully populated with accurate basic data on all villages, the comprehensive data on the survey of 300 representative villages, and the other data listed above before the RE Master Plan can be completed. 7.5.3 Resource Inventory Studies

The key outputs of a number of renewable resource inventory studies, which will be carried out under a number of technical assistance assignments, will need to be incorporated in the RE Database / GIS as the information


becomes available. The resource studies will assess the feasibility (or otherwise) of a number of renewable energy resources, and will include:

• Assessment of the Rehabilitation / Repair of Existing Micro Hydro / Distribution Systems. • Master Plan Study on Small Hydropower in Northern Laos (currently being undertaken by Nippon Koei

under JICA assistance). • Mini / Micro Hydro Resource Assessment in Seven Southern and Central Provinces. • Biomass Resource Assessment.

The renewable resource assessments will be necessary for preparation of the RE Master Plan since the majority of the existing data on renewable resources has not been assessed, and accordingly the viability of the resources has not been assessed. Without knowing the likely viability of renewable resources it will not be possible to incorporate viable projects in the RE Master Plan, except perhaps in a very superficial way. Currently available data on existing micro hydro / distribution systems and potential micro / mini hydro systems is shown in Attachment 5 and Attachment 6, and has been entered into the 2004 RE Database as part of this Study. This data provides information only on the location and key parameters of prospective projects; - the feasibility (or otherwise) of most of these projects has not yet been determined. 7.6 Grid and Off-Grid Planning

7.6.1 Grid Planning

EdL’s System Planning Office prepares electricity demand forecasts in each of the 16 provinces (plus the Xayabuly Special Zone and Vientiane municipality) annually. The forecasts are based on past energy consumption records, forecast load growth of existing users and the Government’s electrification targets. Plans are then drawn up by EdL to extend the Main Grid in accordance with the targets set. The current EdL approach focuses on the extension of the main transmission system to inter-connect provincial centres (now nearly completed) and district towns (ongoing). The 22 kV distribution network is then extended along existing roads (and new roads in the future) within the limits of acceptable voltage drop. The application of ‘shield wire’ technology to provide low-cost single-phase or SWER electricity services to villages located along / near transmission lines has been successfully trialled under the Northern Area Power Distribution Project and its application should be extended in the future. The planning process involves the identification, design, costing and testing (against criteria) of options for discrete, rural distribution system expansions until a discrete expansion is found that meets the planning criteria. Spreadsheets are prepared, showing the average cost per household for each village in the proposed expansion, and this analysis is used to prioritise the work. An example of plans that have been developed for


the preparation of the SPRE II project is shown in Attachment 13c – Rural Electrification Planning and Attachment 14 – Trial Village Electrification Plans. Once the plans for expanding the network are drawn up by the EdL provincial branch offices they are submitted to the appropriate provincial authorities for review and sign off. The plans are then sent from the provinces to Vientiane so that the overall programme can be reviewed on a nationwide basis and adjustments can be made if there is insufficient budget available for the plan proposed by the province. In practice this process is iterative with the plans going backward and forward between the provincial EdL depots and the EdL Development Office in Vientiane until consensus is reached. On one hand the process is extremely consultative, so the majority of stakeholders are included in the process. On the other hand, the iterative nature of the consultation process can lead to delays. The process is supply (or target) driven. The inclusion of the results of the 2004 RE Survey data in the RE database will enable EdL and DOE to include the demand side data in the planning process (at least in respect of SPRE II). Once DOE assumes responsibility for preparing the RE Master Plan, EdL will need to work together with the DOE planning team and provide their inputs to the planning process. EdL will then undertake the detailed planning work required for extension of their rural distribution networks within the Master Plan guidelines. As part of preparation for RE Master Plan preparation, EdL’s planning approach should be reviewed and any necessary adjustments made from the viewpoint of efficient overall rural electrification planning and resource allocation, taking into account the findings of this Study. In particular, the Main Grid planning processes being used by EdL, which are based mainly on the grid development cost / weighted connection, will need to be reviewed to ensure that Main Grid expansion is directed to villages where the household demand for electrification and demand for productive uses of electricity us high. The following figure indicates the current coverage of the Main Grid and the areas considered likely for its extension up to the year 2013 (according to EdL planning).



7.6.2 Off-Grid Planning

Off-grid electrification systems are currently being promoted / installed in rural households in a sometimes uncoordinated manner. This has resulted in a small number of instances where solar home systems were installed in villages that were provided with a Main Grid supply shortly afterwards. While the solar home systems supplied were recovered and moved to other un-electrified households, better planning of off-grid implementation initiatives, and coordination with Main Grid and isolated grid planning is required. 7.6.3 Coordination of Grid and Off-Grid Planning

EdL will continue to be responsible for the detailed planning and implementation of the expansion of the Main Grid within the rural areas outlined in the RE Master Plan and should continue to present its detailed plans annually in its Power Development Plan and to include a list of villages that it expects to electrify from the Main Grid within the next year, next two years, next five years, next ten years, etc. 89. These plans will be important for the coordination of grid and off-grid development to meet with the Government’s targets, as they will allow DOE to plan grid and off-grid activities in a complementary way. In general the economic planning criteria adopted should direct EdL’s Main Grid expansion plans towards the electrification of villages that have higher willingness / ability to pay, and where a substantial proportion of households will connect to the system, if the implications of the distribution system expansion on EdL finances are to be minimised.90 Accordingly EdL surveys in villages that come within the reach of the distribution system will need to assess willingness / ability of households to connect to the distribution system (recognising that EdL will, over time, need to achieve household connection rates averaging 80 % if the GoL’s grid electrification targets are to be achieved). Where willingness-to-connect / willingness-to-pay is low, then the distribution system expansion would not be implemented. Provincial, district and village authorities have responsibility under the Electricity Act for planning small off-grid systems.91 The review and coordination of planning for these systems should continue to be provided by the Rural Electrification Division of DOE, as it is at present. RED will need to maintain a summary of provincial / district power development plans that provide details of both existing and planned systems (we understand that this information is not yet available in a coordinated format).

89 EdL’s system implementation planning will be more detailed than that of the RE Master Plan, and will be based on better technical analyses and better assessments of willingness-to-pay, willingness-to-connect to the system, etc. Accordingly EdL’s detailed village electrification planning may differ somewhat for the Master Plan. Periodic adjustment of the RE Master Plan, based on actual grid expansion progress and short – medium-term implementation plans will therefore be required to enable MIH to maintain coordination between Main Grid expansion and future RE planning. 90 This assumes that the ongoing EdL electricity tariff adjustments will continue until they reach a financially sustainable level. 91 Systems with capacities between 2 MW and 100 kW come under the provincial (PDIH) authorities: systems with capacities less than 100 kW come under district authorities; and systems with capacities less than 10 kW come under village heads.


Villages that will not be electrified in the short-term by EdL’s grid expansion or by provincial / district distribution systems should be considered eligible for off-grid electrification systems and the programs for off-grid electrification should be focused on them. The various electrification approaches (main grid, provincial / district grid and off-grid) need to be coordinated as far as practical to avoid overlap of electricity services. This role falls within the responsibilities of DOE and should be performed by the Power System Planning Division in cooperation with the Rural Electrification Division. Where extension of the Main Grid over-runs existing isolated provincial / district schemes, means of incorporating these systems into the Main Grid will be required. In one approach EdL could take over the provincial / district systems (this may require upgrading to grid standards): alternatively, the province / district could retain ownership, operation and maintenance, but with a bulk supply being taken from the Main Grid92. 7.7 Preparation of RE Master Plan

7.7.1 Process

In accordance with the framework outlined in Section 7.3, the RE planning process will extend and combine the database, resource inventory studies, grid- and off-grid planning criteria, etc, to develop a detailed RE Master Plan up to the year 2020, the year of the Government’s final target. The main objectives of the RE Master Plan will be to set criteria for, and identify within defined time frames, those villages that will be electrified from the Main Grid and those that will be electrified by isolated grid systems or off-grid systems, indicating the method of electrification in each case. In order to achieve the maximum economic benefit to the country from rural electrification expansion, and to minimise the effect of RE on EdL’s financial position from financially un-remunerative RE, the following approaches are recommended:

• The economic extent of Main Grid and isolated grid electrification should be determined in consideration of the relative economic benefits of other rural electrification models.

• The economic least-cost rural electrification approach should be selected. • Main Grid and isolated grid electrification should be directed to villages where the demand

(willingness-to-pay / willingness-to-connect) for household electrification and productive uses of electricity is high.

While EdL currently use these principles to some extent in their grid expansion planning, we would suggest that the current approach should be improved and strengthened for the purposes of master planning.

92 Or as indicated in Section 6 above, the rehabilitation, operation and transfer of provincial / district systems could be contracted out to a private sector investor.


The planning process will broadly involve:

• Collation / review / updating of cost data relating to the development, operation and maintenance costs of the various rural electrification approaches, and estimates of likely future variation in costs (e.g. manufacturing economies and competitive pressures are likely to produce further reductions in the cost of solar PV panels, making solar home systems more competitive in comparison with other systems in the future). This will include assessment of the operational life spans of the various RE approaches / technologies and residual values (if any).

• Review of EdL’s demand projections for rural areas to be electrified from the main grid, and

updating as necessary. Preparation of estimates of the likely electrical demand of households connected to isolated grid and village systems. Data to support the demand estimates will be obtained from analysis of EdL’s billing records (for Main Grid systems) and provincial billing records (for small isolated systems at the provincial / district level). Some data-logging activities in rural households may be required to build confidence in the likely demand parameters.

• Preparation of estimates of the electricity supply cost at the 115 / 22 kV substation level (i.e.

generation cost plus the cost of transmission), and of technical / non-technical losses in 22 kV / LV systems. This information is available from a number of existing reports, but will need to be reviewed and updated as appropriate.

• Establishment of an appropriate methodology (based on international ‘best practice’) for

evaluation of the various RE approaches on an economic basis, and including recommendation of appropriate economic ‘hurdle’ rates of return on investment for rural electrification. The evaluation methodology will incorporate (to the extent currently practical) the economic benefits accruing from the electrification of: (a) rural households; (b) community facilities (temples, schools, health facilities, etc), and; (c) commercial enterprises. In general, economic benefits should be assessed on the basis of the willingness-to-pay (i.e. both initial connection / house wiring charges and ongoing service charges), as expressed in the comprehensive RE / socio-economic survey (and other similar surveys).

• Preparation (using the above information and evaluation methodology) of economic analyses of

the various rural electrification technologies / approaches, on various bases such as cost / kWh and cost / household basis, etc. These analyses will be used to derive criteria (such as development cost / household, economic benefit / unit of investment, etc.) that can be used to define the limit of applicability of the various Main Grid and isolated grid alternatives, and where the net benefits of off-grid systems exceed those of the grid alternatives.

• Review of EdL’s current rural distribution grid planning (as given in the PDP, 2004 – 2013) using

the economic criteria established above. The review will cover proposed extensions of the 22 kV network along existing and planned road networks and associated LV systems. Where


necessary, the current EdL planning should be adjusted. The distribution system planning will then be extended further (i.e. beyond 2013) to establish the likely economic extent of Main Grid and isolated grid expansion within the country. This process will essentially be a manual process, and will require spreadsheet analyses that can be used to quickly cost and evaluate a variety of grid extension scenarios, to assess the best options.

• Once the economic extent of the Main Grid system has been established, the economic extents

of isolated grid systems, and low-cost distribution systems (single-phase or SWER) can be established, and discrete areas where they can be applied on a concession basis identified.

• Villages remaining outside the economic extent of Main Grid, isolated grid and low-cost grid

systems will then become the domain of off-grid systems For off-grid villages, the most likely electrification technology (or range of technologies) will be determined as part of the master planning process. This will be done in consideration of factors such as the physical location of the village, topographical conditions, access conditions, rainfall, proximity of a stream / river, availability of a biomass or wind power resource, etc. For example:

• A remote village located two days walk from the nearest road, with good solar insolation levels,

no village / micro hydro resource, no biomass resource and beyond the economic extent of grid extensions, would probably best be electrified through the provision of solar home systems provided through an ESCO.

• A remote village located two days walk from the nearest road, with high rainfall (with consequent

lower solar insolation, requiring larger / more costly solar home systems) and village hydro potential in a nearby stream, would have the option of either solar home systems or a village hydro system. In this case, village people would participate in the technology selection process. Implementation would be through an ESCO. In some villages wind power or biomass resources may also be available.

• A number of remote villages located within a defined area (such as a valley), and beyond the

economic reach of the Main Grid, may be able to be electrified economically through a low-cost SWER or single-phase system fed off the Main Grid. Implementation of the system would be contracted out to a private sector developer as a BOT concession.

Commercially available renewable energy project analysis software (such as HOMER or RETSCREEN) could be used to facilitate the evaluation of isolated grid systems supplied by renewable generation resources. The proposed approach to the preparation of the RE Master Plan is illustrated in the flow chart below.


RE Master Plan Flow Chart


A typical output from the RE Master Plan could be a follows:

Other outputs of the Master Plan will include:

• A list of all rural villages in the country, along with their name, a unique identifier (number) and location coordinates (as longitude / latitude).

• Maps showing main topographical features, roads, village locations, etc, the planned

electrification technology / implementation model to be applied, and planned rural distribution grid expansion.

• Summaries (lists) of main details of the villages to be electrified, their current electrification

status, the planned electrification technology to be applied (along with alternative technologies where they exist), the planned implementation priority and the estimated year of electrification (to meet the Government’s targets).

• Summaries of the electrification models / institutional approach proposed for villages, and details

of all concession areas that will need to be contracted out to private sector entities. A priority for the tendering / letting of these BOT concession contracts will also be provided.

• Broad estimates of the total cost of the rural electrification program, and the implementation

cash flow (on an annual basis) broken down by the anticipated type of financing required (i.e. grants, soft loans, user pre-payments and re-payments, equity contributions, etc.).

7.7.2 Planning Manual

A Planning Manual will be prepared, outlining the principles and methodology to be used for updating and maintaining the RE Database and updating the RE Master Plan periodically. The Planning Manual should include details of the criteria for selecting villages for electrification, the master planning methodology, as well as data collection forms, survey forms and the like. In particular the Manual will detail the planning process, assumptions, criteria, etc.

Province District TownSolar Village Wind / Village

22kV Shield 22kV SWER Single PV Hydro Biomass GensetWire Phase

Phongsali Nhotou Town No.1 2005Town No.2 2010 2005Town No.3 2015 2008Town No.4 2005 2008 *Town No.5 2007 * 2007 *Town No.6 2015 2006

* Either technology will be appropriate

ConcessionOff-Grid

Planned Electrification Approach and Approximate Timing Grid

EdL


The draft Manual should be approved by DOE during the first phase of the RE Master Plan’s preparation and reviewed again during its final stages. The object of the Manual will be to provide details of the planning process in sufficient detail to enable DOE to update the RE Master Plan periodically using its own resources. 7.7.3 Review of Government’s Rural Electrification Targets

The GoL has set electrification targets as outlined in Section 3. These targets were established on the following basis:

• The target of electrification of 90 % of households by 2020 was set by the GOL. • The interim targets of 2005, 2010 and 2015 were set to achieve a smooth growth curve and to

avoid rapid changes between subsequent 5-year targets.

• The Government’s original targets did not nominate the technologies that would be used. The 90 % electrification target was therefore adjusted to include an off-grid component of about 10 % and a grid connected component of 80 %.

Our current view is that, in comparison to the Government’s targets, the number of households likely to be electrified though Main Grid and isolated grid systems will decrease, and the numbers of off-grid systems required will increase when economic criteria are introduced. However, the quantum of the variation from the current targets remains to be seen. Completion of the RE Master Plan will enable a better assessment to be made of the numbers of rural households to be electrified through Main Grid systems, isolated grid systems and off-grid systems, and will allow the Government’s RE targets to be confirmed or adjusted as appropriate. 7.8 Capacity Building and Knowledge Dissemination

7.8.1 Capacity Building

Training programmes will need to be prepared and delivered at three levels:

• DOE and EdL - DOE will be charged with RE off-grid planning and the ongoing maintenance and upgrading of the RE Database / GIS and RE Master Plan. EdL will be charged with grid expansion planning and the ongoing maintenance / upgrading of the RE Database / GIS.

The RE Master Plan consultant should provide training to DOE and EdL in each of the relevant areas. It is proposed that the RE Planning Manual serve as the main source of training material.


• PDIH - PDIH offices will be responsible for organising the basic data surveys of the rural villages

(refer section 7.5.2), entry of the data received into computers provided for the purpose (refer section 7.9.1) and emailing the data to DOE. The RE Planning consultant should therefore provide training to the PDIH staff on survey process and implementation, the use of the survey forms, computer basics, data entry, quality control and email.

• District and Provincial Authorities - These authorities will be responsible for undertaking the

basic data surveys at village level. The PDIH staff should provide training to the district and provincial authority staff on communications procedures, the survey process and implementation and the use of the survey forms.

7.8.2 Review Workshops

Following approval of the RE Master Plan by DOE, the information contained within the Plan should be disseminated to national / provincial / district organizations and the public through a series of workshops (“road show”) in both central and provincial areas of the country. 7.9 Support Requirements

7.9.1 Provision of Computers, Software and Furniture

While the template for the RE Database / GIS will be provided under the 2004 RE Survey / Database / GIS assignment, the computer hardware and additional software required to allow the ongoing development of the RE Database / GIS will need to be purchased as part of the RE Master Plan consulting services. The RE Master Plan process will involve both DOE and EDL, each concerned with different aspects of rural electrification. While EdL will be focused on aspects of the rural distribution network, DOE will be more concerned with off-grid systems, village-hydro and other alternative energy sources. Based on this, computer hardware and software will be required as follows:

• Two separate GIS systems will have to be set up - one each in EdL and DOE. • Within each organisation, a local area network will be required to allow sharing of data between

users of the system. • Information will be held in a central repository [server]. • Data will be shared / transferred between DOE, EdL and other organisations by DVD / CD-

ROM discs. The following equipment will need to be purchased and installed under the RE Master Plan consultancy in both the DOE and EdL offices:


• 1 server. • 1 hub. • 2 GIS workstations. • 1 notebook computer. • 1 A3 colour laser printer with network card. • A UPS unit for each workstation and server. • 6 colour laser cartridges for use by the client after completion of the services.

We propose that ArcView software (each licence costing approximately US$ 2,300) be installed on each workstation. ArcView is far less expensive than ArcInfo, which would require separate licences (approximate US$ 30,000 each) for each workstation. We also propose that Spatial Analysis and 3D Analysis software be installed on one workstation in each system. The Spatial Analysis and 3D Analysis software are important tools for use in transmission and distribution line design work. Brochures for the software are given in Attachment 13e - ArcView. The purchase / installation of 18 desk top computers fitted with modems and associated operating system, word processing and spreadsheet software, and 18 black and white laserjet printers; one computer and one printer for each provincial office of MIH, will be required to enable the PDIH staff to enter the basic village survey data and email it to DOE in Vientiane. Furniture will also be required for the computer equipment and for the master planning consultant’s staff during the course of the project and for DOE and EdL’s RE database, GIS and RE Master Plan maintenance staff. The minimum technical specification for the computer equipment is included in Attachment 13d. 7.9.2 Terms of Reference for Future Updating of RE Master Plan

DOE and EdL will be responsible for the updating of the rural electrification database and the RE Master Plan from the completion of the services. If required a consultant could be engaged, perhaps 1 - 2 years after completion of these services, to review the activities of the DOE and EdL rural electrification planning staff, the RE Database and GIS, the RE Master Plan, the hardware and software and to make recommendations on improvements in procedures, provide additional training if required, and to make recommendations / assist with the upgrading of the database, software and hardware as required. It is therefore suggested that a TOR for these activities (if they are required) be prepared. 7.10 Technical Assistance

A number of technical assistance packages will be required to develop / expand the RE Database, evaluate information on prospective renewable resources to establish their likely viability (or otherwise), and facilitate preparation of the RE Master Plan. The renewable resource assessments will be necessary for preparation of the RE Master Plan since the majority of the existing data on renewable resources has not been assessed, and


accordingly the viability of the resources has not been assessed. Without knowing the likely viability of renewable resources it will not be possible to incorporate viable projects in the RE Master Plan, except perhaps in a very superficial way. A summary of the technical assistance packages recommended are as follows:

• Rural Electrification Master Plan Study. Consultants will be recruited to assist DOE to develop / expand the existing RE Database so that it can be used for effective RE planning, and to prepare a RE Master Plan covering all villages in the country. The extent of the work required is described above. The estimated total cost of this technical assistance is US$ 650,000 (excluding contingencies).

• Assessment of the Rehabilitation of Existing Micro Hydro Electrification Systems. Consultants

will be recruited to assist DOE to carry out assessments of the technical, economic, environmental and social viability of refurbishment of existing micro hydro / distribution systems that are not operational or which require repair to restore their operational efficiency. The estimated total cost of this technical assistance is US$ 120,000 (excluding contingencies).

• Mini / Micro Hydro Resource Assessment in Seven Southern and Central Provinces93.

Consultants will be recruited to assist DOE to carry out assessments of the technical, economic, environmental and social viability of potential mini / micro hydro resources in the seven southern provinces. The estimated total cost of this technical assistance is US$ 120,000 (excluding contingencies).

• Biomass Resource Assessments. Consultants will be recruited to assist DOE to carry out

assessments of the technical, economic, environmental and social viability of potential biomass resources in Lao PDR. A significant list of potential biomass resources associated with pig farming and timber processing (mainly saw mills) has been developed, but the viability of these resources needs to be established before they can be incorporated in any RE master planning process. The estimated total cost of this technical assistance is US$ 60,000 (excluding contingencies).

The total estimated cost of technical assistance associated with the RE Master Plan preparation is US$ 950,000 (excluding contingencies). 7.11 Pilot Village Electrification Plans

The TOR for the RE Frameworks Study requires the preparation of 10 – 20 village electrification plans as an exercise to better assess whether the information currently held by DOE / EdL, and the information provided by

93 Mini / micro hydro assessments in the northern provinces are currently being carried under a JICA technical assistance.


the 2004 RE Survey94, is sufficient for effective RE planning, and to test how the various aspects of RE planning can fit together. The piloting was to be a planning exercise only, and it was not intended that a series of RE pilot projects be developed for subsequent implementation under SPRE II or elsewhere. The piloting of the planning exercise was intended to draw all the available data together and to identify relevant aspects that might affect the development of the RE Masterplan. At the commencement of this activity, Maunsell understood that DOE and EdL held significant information on rural villages that could be used for rural village electrification planning and that this would be supplemented by the RE Survey of households / villages currently being carried out. However on closer examination, we found that while significant information was held as a result of the SPE, PGI, SPRE I and SPRE II projects, and areas already electrified, data on villages outside these project areas was generally limited to 1995 census data which does not include socio-economic data, household incomes, existing electrification, priority for electrification, willingness-to-pay for electricity services, willingness to meet connection charges, numbers of households wanting to connect, etc, that are necessary for effective RE planning. Furthermore, information on the surveyed villages lacked details of spatial arrangements of households within villages / clusters that are required for the planning of distribution systems. Maunsell therefore prepared a village screening process to apply to Group 1 villages (non-electrified villages) and Group 4 villages (villages to be electrified under SPRE II) as contained in the 2004 RE Database to check the suitability of the data for preparing the RE Master Plan. Maunsell then engaged local staff to visit the six Group 4 villages and prepare distribution system designs identifying loads, line routes and equipment requirements. Details of the process and the results are given in Attachment 14. As a result of this planning exercise, we concluded that:

• DOE and EDL has adequate data on areas already electrified or about to be electrified under SPRE II but minimal data on villages outside these areas.

• The RE Master Plan consultant will need to thoroughly check the RE Database with respect to

village names and locations against those resulting from the 2005 Census. • Some data in the RE Database relating to facilities and loads does not agree with that collected

during the village survey undertaken by the local staff engaged by Maunsell. • The RE database contains only data relating to the villages surveyed in the seven southern

provinces. Considerable effort will be required by the RE Master Plan Consultant to bring the database to a standard whereby it can be used for RE planning purposes throughout the country.

94 A rural electrification survey was carried out under the technical assistance: ‘Establishment of Database for Rural Electrification Planning in Lao PDR – Socio-Economic Survey’ by Decon / Systems-Europe.


• The course planning process applied to the pilot villages is a suitable method of evaluating

villages. • Local staff are well capable of undertaking village surveys and preparing village electrification

plans.


8.0 Implementation Timetable

8.1 Introduction

An implementation timetable for the Rural Electrification Master Plan Study and associated Resource Assessments is presented below. The timetable also shows indicative timelines for studies / consultancies associated with the Off-Grid Rural Electrification Program and other technical assistance required. The implementation timetable is based on the currently proposed time frame for SPRE II – Phase 1 of 01 July 2005 - 31 December 2007 (i.e. 2.5 years). 8.2 Timetable

The implementation timetable shows a total of 14 main studies / consultancies, as follows:

• Rural Electrification Master Plan and Resource Assessments, involving the award of four consultancy contracts.

• Off-Grid Rural Electrification Program, involving the award of six consultancy contracts.

• Other Technical Assistance, involving the award of two consultancy contracts.

If the benefits of the studies / consultancies is to be maximised, then we recommend that consultant recruitment activities should start as soon as possible. Accordingly, DOE should consider issuing the necessary notices of consultant procurement as soon as possible, in order to avoid a potential, early delay in the consultant recruitment process. The initial activities should be directed at the recruitment of consultants for the Rural Electrification Master Plan Study, and the Off-Grid Promotion Fund Management Contractor, since these are the main critical activities. We understand that recruitment of consultants for all of the studies / consultancies will be carried out by DOE. The workload involved in the recruitment process is significant, and we would suggest that DOE may require some additional external or internal support to complete the recruitment process within the time frame indicated.


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