Regional Technical Assistance Report Project Number: 41450 August 2008 Preparing the Ban Sok–Pleiku Power Transmission Project in the Greater Mekong Subregion (Financed by the Japan Special Fund) The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s members, Board of Directors, Management, or staff, and may be preliminary in nature. CURRENCY EQUIVALENTS (as of 31 July 2008) Lao PDR Currency Unit – kip (KN) KN1.00 = $0.00012 $1.00 = KN8,657 Viet Nam Currency Unit – dong (D) D1.00 = $0.00006 $1.00 = D16,613 ABBREVIATIONS ADB – Asian Development Bank EdL – Electricité du Laos EIA – Environmental Impact Assessment EVN – Vietnam Electricity GMS – Greater Mekong Subregion IEE – initial environmental examination kV – kilovolt Lao PDR – Lao People’s Democratic Republic MW – megawatt NTC – National Transmission Company O&M – operation and maintenance PPA – power purchase agreement TA – technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Targeting Classification – General intervention Sector – Energy Subsector – Transmission and distribution Themes – Sustainable economic growth, private sector development, regional cooperation Subthemes – Fostering physical infrastructure development, public– private partnership, crossborder infrastructure NOTE In this report, "$" refers to US dollars. Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director J. Cooney, Infrastructure Division, SERD Team leader X. Humbert, Senior Energy Specialist, SERD Team members E. Baardsen, Senior Infrastructure Specialist, SERD M. Huddleston, Senior Social Development Specialist, SERD P. Perera, Energy Specialist, SERD M. Sultana, Social Development Specialist, SERD 98 o 00'E o o 108 00'E 106 00'E 108 o 00’E BAN SOK--PLEIKU POWER TRANSMISSION PROJECT IN THE YUNNAN PROVINCE o o 24 00'N OF PRC 24 00'N GREATER MEKONG SUBREGION MYANMAR LAO PDR Gulf of Tonkin SAVANNAKHET DA NANG Da Nang o o 16 00’N LAO PEOPLE'S Xekong 5 16 00’N DEMOCRATIC REPUBLIC THAILAND Hoi An VIET NAM QUANG NAM Saravan Xekong 4 CAMBODIA Tam Ky SARAVAN XEKONG Gulf of PROJECT AREA THAILAND Laman o 10 00'N Thailand 10 o 00'N Pakxong QUANG Sanxai NGAI Andaman Pakxe Quang Ngai Sea Se Kaman 1 Champasak Ban Sok KON TUM o 98 o 00'E 108 00'E Pathoumphon Samakkhixai Xe Pian Kon Tum CHAMPASAK ATTAPU Bong Son GIA LAI BINH Khong DINH Pleiku N VIET NAM Quy Nhon 0 50 100 Kilometers Tuy Hoa PHU YEN National Capital CAMBODIA DAK LAK Provincial Capital City/Town Buon Ma Thuot Hydropower Plant Ninh Hoa 500kV Substation Dak Song 500kV Transmission Line Project DAK NONG Nha Trang KHANH HOA 500kV Transmission Line Gia Nghia Da Lat Cam Ranh 230kV Transmission Line 12 o 00’N BINH PHUOC 12 o 00’N NINH River An Loc Dongnai 1 LAM DONG THUAN Provincial Boundary Dong Xoai g m Di Linh s International Boundary TAY NINH 0 Phan Rang-Thap Cham 8 - Tay Ninh 0 Boundaries are not necessarily authoritative. DONG NAI 7 3 BINH DUONG 5 BINH THUAN Kien Huong H 106 o 00'E 108 o 00’E R Tan Dinh I. INTRODUCTION 1. The governments of the Lao People’s Democratic Republic (Lao PDR) and the Socialist Republic of Viet Nam requested the Asian Development Bank’s (ADB) assistance to prepare the proposed Ban Sok–Pleiku Power Transmission Project for possible ADB financing.1 Preliminary fact-finding was undertaken during 11–15 February 2008, and the project’s concept clearance was obtained on 17 March 2008. Subsequently the mission was upgraded to fact-finding mission as it reached an understanding with the governments on the objectives, scope, cost estimates, financing plan, and implementation arrangements for this project preparatory technical assistance (TA). The design and monitoring framework is in Appendix 1. II. ISSUES 2. The Lao PDR has significant hydropower potential, estimated at about 18,000 megawatts (MW), but only 663 MW has been harnessed so far. Thirty-three potential hydropower sites have been evaluated for development, and 11 projects with a total capacity of 4,000 MW are expected to be developed in the next 15 years. Realizing the country’s hydroelectric power potential is challenging due to domestic resource constraints on financing its development. Recognizing the need to attract financing, the Government is strongly promoting private sector involvement. Consequently, most of the future projects are being developed by independent power producers under concession agreements with the Government. Due to fairly low domestic power demand and rapidly growing power demand in other parts of Southeast Asia, most of the country’s hydropower is destined for export, which provides an opportunity to generate much-needed foreign currency revenue. This revenue will enable investments in rural electrification as well as in other social development and poverty reduction programs. The Lao PDR’s export of hydropower also benefits other Southeast Asian countries such as Thailand and Viet Nam by providing economically efficient and climate- friendly power sources. 3. Viet Nam's economic growth over the past decade was on average about 7.5% per annum. This growth was achieved through sustained business-led growth in economic output and employment. Viet Nam faces a growing electricity supply deficit as a result of strong economic growth. The Sixth Power Development Plan (2006–2020) projects electricity demand to grow at 16% per annum (base-case scenario) during 2006–2010, slowing to 11% per annum during 2011–2015, and remaining at 9% per annum for the remainder of the period. Such high growth rates reflect the country’s high level of economic activity. To meet its demand, Viet Nam is exploring the possibility of importing electricity from its neighboring countries, especially Cambodia, the Lao PDR, and the People’s Republic of China, where investments in hydropower projects make importation competitive compared to local coal- and gas-fired power generation. The governments of the Lao PDR and Viet Nam signed a framework agreement in March 2008 to trade power. It provides power sale arrangements of up to 5,000 MW by 2020. 4. Regional electricity trade through interconnectivity of electric power grids will provide significant economic benefits for individual countries. Such trade will enable Viet Nam to (i) reduce national investments in the power reserves maintained to meet peak demand; (ii) provide a more reliable supply of electricity, including power supply from an interconnected network in case of power failure; (iii) reduce operational costs; (iv) reduce greenhouse gas emissions and other pollutants; and (v) increase consumers’ access to the cheaper and most environment-friendly sustainable source of electricity. In the Lao PDR, it will provide foreign revenues from taxes on the sale of electricity and from wheeling charges (i.e., use of 1 The technical assistance (TA) first appeared in the business opportunities section of ADB’s website on 25 March 2008. 2 transmission charges) that will help the country to implement, among other things, its rural electrification program. 5. The country strategy and program for the Lao PDR has recognized the importance of developing hydropower for export in order to generate foreign currency income through royalties, taxes, and dividends to the Government, which will in turn contribute to the country’s broader social and economic development.2 In addition, the regional cooperation strategy and program update for the Greater Mekong Subregion (GMS) focuses on (i) strengthening physical infrastructure for cross-border connectivity, and (ii) integrating national markets for promoting economic efficiency and private sector development. 3 The GMS’s power market is moving toward effective regional cooperation, and the Lao PDR is one of the pioneering countries in bilateral power trade in accordance with the GMS’s Inter-Governmental Agreement on Regional Power Trade and the memorandum of understanding that was signed in Vientiane at the Third GMS Summit on 31 March 2008. 6. The proposed project will consist of four components: (i) construction of a 65 kilometer (km), 500 kilovolt (kV), double-circuit transmission line from the Ban Sok substation in the Lao PDR to the Viet Nam border, (ii) construction of a 100 km, 500 kV, double-circuit transmission line from the Lao PDR border to the Pleiku substation in Viet Nam, (iii) construction of a 500/230 kV Ban Sok substation, and (iv) extension of the existing Pleiku 500/230kV substation. The 500 kV transmission line and the Ban Sok substation will be used as a common transmission facility to initially evacuate power from the Xe Kaman 1 (488 MW), Upper Se Kong 3 (152 MW), Lower Se Kong 3 (96 MW), and Dak Emeule (138 MW) hydropower projects. A total of 11 hydropower projects have been identified in southern Lao PDR with a total installed capacity of 1,300 MW, out of which about 1,000 MW will be exported through the Ban Sok–Pleiku power transmission line. The facilities in the Lao PDR will be owned by Electricité du Laos (EdL) and will be operated and maintained by a joint venture between EdL and the National Transmission Company (NTC)4 or any other form of association that will ensure reliability of the transmission facilities and at the same time provide necessary capacity building to EdL. Each hydropower project will construct a dedicated power transmission line to the Ban Sok substation. 7. By mid-2013, the Xe Kaman 1 hydropower project will be commissioned, followed by the Upper Se Kong 3, and the Lower Se Kong 3 in 2014. By the end of 2012, the Ban Sok–Pleiku 500 kV power transmission line and the associated substation should be complete and operating. 8. The proposed project is expected to be financed using ADB’s ordinary capital resources both in the Lao PDR and in Viet Nam. The corresponding loan’s debt service in the Lao PDR must be fully covered by the additional foreign currency revenue to be earned through wheeling charges.