Report and Recommendation of the President to the Board of Directors
Sri Lanka Project Number: 38628 December 2009
Proposed Asian Development Fund Grant Lao People's Democratic Republic: Greater Mekong Subregion Northern Power Transmission Project
CURRENCY EQUIVALENTS (as of 11 December 2009)
Currency Unit – kip (KN) KN1.00 = $0.00012 $1.00 = KN8,489
ABBREVIATIONS
ADB – Asian Development Bank CEMP – construction environmental management plan EDCF – Economic Development Cooperation Fund of Korea Eximbank EDL – Electricite du Laos EGAT – Electricity Generating Authority of Thailand EIRR – economic internal rate of return FIRR – financial internal rate of return GMS – Greater Mekong Subregion HPP – hydropower plant ICB – international competitive bidding IEE – initial environmental examination IPP – independent power producer JICA – Japan International Cooperation Agency Korea Eximbank – Export–Import Bank of Korea MEM – Ministry of Energy and Mines MOF – Ministry of Finance NCB – national competitive bidding PAF – project affected family PEMP – project environmental management plan PIC – project implementation consultant PMU – project management unit PPME – project performance monitoring and evaluation TA – technical assistance T&D – transmission and distribution WACC – weighted average cost of capital WEIGHTS AND MEASURES GWh – gigawatt-hour (1,000,000 kWh) km – kilometer kV – kilovolt (1,000 volts) kWh – kilowatt-hour (1,000 watt-hours) m2 – square meter MVA – megavolt-ampere MW – megawatt (1,000,000 watts)
NOTE
In this report, "$" refers to US dollars.
Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director A. Jude, Energy and Water Division, SERD
Team leader D. T. Bui, Energy Economist, SERD Team members E. Baardsen, Senior Infrastructure Specialist, SERD R. Butler, Social Development Specialist, SERD H. Chen, Counsel, Office of the General Counsel M. Paterno, Financial Analysis Specialist, SERD M. Sultana, Senior Social Development Specialist, SERD
In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
CONTENTS Page GRANT AND PROJECT SUMMARY i MAP I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 3 III. THE PROPOSED PROJECT 8 A. Impact and Outcome 8 B. Outputs 9 C. Special Features 10 D. Project Investment Plan 11 E. Financing Plan 12 F. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 16 A. Benefits 16 B. Impacts 18 C. Risks and Assumptions 20 V. ASSURANCES AND CONDITIONS 21 A. Specific Assurances 21 B. Grant Effectiveness Conditions 23 VI. RECOMMENDATION 23 APPENDIXES 1. Design and Monitoring Framework 24 2. Lao Energy Sector Strategy Assessment and Road Map 26 3. Development Partner Coordination 31 4. Cost Estimate and Financing Plan 34 5. Project Implementation Schedule 37 6. Procurement Plan 38 7. Credit to Poor Households—Funds Flow Chart 41 8. Economic Analysis of the Project 42 9. Financial Analysis of the Project 48 10. Resettlement Plan and Resettlement Framework 50 11. Summary Poverty Reduction and Social Strategy 55 SUPPLEMENTARY APPENDIXES (available on request) A. Terms of Reference for Consultancy Services for Project Implementation B. Terms of Reference for Senior Policy Advisor to Ministry of Energy and Mines C. Financial Analysis of Electricite du Laos D. Initial Environmental Examination E. Resettlement Plan F. Resettlement Framework
GRANT AND PROJECT SUMMARY
Recipient Lao People's Democratic Republic (Lao PDR)
Classification Targeting classification: Targeted intervention—Geographic Sector (subsector): Energy (electricity transmission and distribution) Theme (subtheme): Economic growth (widening access to markets and economic opportunities); regional cooperation and integration (cross- border infrastructure) Location impact: Rural (medium impact); regional (medium impact) Partnership: Export–Import Bank of Korea (Korea Eximbank)
Environment Category B. An initial environmental examination was prepared. Assessment
Project Description The project will (i) construct 398 kilometers (km) of 115-kilovolt (kV) transmission lines with associated 115/22 kV substations, and erect about 1,100 km of new 22 kV medium- and low-voltage distribution lines to expand access to grid electricity to consumers in western Vientiane, Xaignabouli, and Phongsali provinces of the Lao PDR; (ii) provide no- interest credit to poor households in the project areas to help them connect to the distribution grid; and (iii) provide consulting services, including a project implementation consultant to Electricite du Laos (EDL) and advisory services to the Ministry of Energy and Mines (MEM).
The construction of the transmission and distribution facilities comprises three modules. The Asian Development Bank (ADB) will finance module 1, and Korea Eximbank will finance modules 2 and 3. Module 1 consists of (i) a 98 km single-circuit 115 kV transmission line from Paklay to Nonhai, and (ii) a 74.6 km single-circuit 115 kV transmission line from Paklay to the Lao PDR–Thailand border near Kenthao for interconnection with the Electricity Generating Authority of Thailand (EGAT)–Provincial Electricity Authority via the Thali substation in Loei province in Thailand. Module 1 will also construct a new 115kV/22kV substation at Paklay and expand two existing 115kV/22kV substations at Nonhai and Xaignabouli. The cross-border interconnection between Paklay (Lao PDR) and Thali (Thailand) will facilitate power trading between the EDL and EGAT– Provincial Electricity Authority systems.
The project under module 2 will extend a new 115 kV transmission network from the proposed Paklay substation to be built under module 1 northward to the existing Xayabury substation, where it will connect with EDL's transmission network. Module 3 will consist of a 115 kV transmission line linking the existing Namo substation in Oudomxai province with a new substation at Boun Nua in Phongsali province. Under modules 2 and 3, the project will erect distribution lines emanating from Nonhai, Paklay, Xayabury, Namo, and Boun Nua substations. ii
Rationale For the Lao PDR, poverty reduction and improvement of living standards are important development goals that are not achievable without the provision of basic essential services such as access to education, health care, clean water, and electricity. Of the total 960,000 households in the country, about 560,000 (58%) have access to electricity. In Xaignabouli province, only 50% of households are electrified, which is lower than the national average. Phongsali province has the lowest percentage of electrified households in the country—only 13%. Poverty is widespread where electricity is not made available to households. For example, in Phongsali province, 60% of households are considered poor, while in some districts of Xaignabouli province, the percentage of poor households is as high as 50%. Recognizing the importance of provision of electricity for poverty reduction and for raising living conditions, the government has set a target of electrifying 70% of total households by 2010, 80% by 2015, and 90% by 2020.
A strong transmission and distribution (T&D) network nationwide is necessary to ensure reliable electrical supply to the population and to achieve the electrification targets. Presently, the T&D network of EDL does not cover the entire country. For example, Phongsali province and parts of Xaignabouli are not covered by EDL's T&D system.
The ADB-financed Northern Area Rural Power Distribution Project is currently building the T&D system covering the area from Louangphrabang Phrabang to Oudomxai and onward to Louang-Namtha. At Louangphrabang it interconnects with the existing Nam Ngum 1 transmission system that covers Vientiane capital and central region of the Lao PDR. This project will construct the much needed T&D system in Xaignabouli and Phongsali provinces and in western Vientiane province. Together with previous ADB-financed projects, it will help gradually build up a nationwide T&D system to allow the government reach the rural electrification and poverty reduction goal.
Consumers in Phongsali province currently rely on limited electricity imports from the People's Republic of China or from individual privately owned diesel generation sets. Similarly, consumers in Xaignabouli province rely on electricity imports from Thailand. Electricity imports in these two provinces are supplied at 22 kV and are more expensive ($0.08 per kilowatt-hour [kWh]) than EDL's supply (about $0.05 per kWh). But more importantly, many households still do not have access to electricity. Currently, a 22 kV transmission line provides imported electricity from Thailand to southern Xaignabouli province. Once the project's 115 kV cross-border interconnection line is built, it will replace the current 22 kV transmission line used for power import. This 115 kV cross-border interconnection will have a much higher load-carrying capacity and lower voltage drop; hence, it will deliver a higher quality electricity supply. The 115 kV interconnection can be utilized for both import and export of electricity. Such a two-way power trade will be possible and beneficial to the Lao PDR and Thailand by making use of the seasonal variations of hydro energy.
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During the wet season (August–October), hydropower is normally abundantly available in the Lao PDR, and EDL has excess capacity. With the project, excess power can be exported to Thailand, offsetting electricity generated from fossil fuel there. On the other hand, during the dry season (April–May) when EDL experiences power shortages, it can import electricity from Thailand through the 115 kV transmission line from the Thali substation to supply Xaignabouli province, thereby ensuring a reliable supply of electricity to consumers. In addition, the interconnection allows the two systems to back each other up during line maintenance and power outages.
The cross-border interconnection under the project has received strong support from both governments and from EDL and EGAT. On 13 May 2009, the governor of EGAT and the managing director general of EDL signed a memorandum of understanding in Bangkok officially announcing the agreement for the proposed interconnection. The interconnection line, to be built under the project and the ongoing Northern Greater Mekong Subregion (GMS) Transport Network Improvement Project to improve the roads from the Lao PDR–Thailand border along Xaignabouli province and northward to Louangphrabang, will accelerate economic cooperation activities and cross-border trade between northeast Thailand and Xaignabouli province. According to the National Economic Development Board of Thailand, this corridor is one of the priority areas for Thailand’s official development assistance to the Lao PDR because of the strong interest of Thailand’s private sector in commercial agriculture development. Availability of a reliable supply of electricity is essential for business in the project area. Thus, the project supports the government's rural electrification program by building a nationwide unified T&D system for EDL, particularly in Phongsali and Xaignabouli provinces, with cross-border interconnection between the EDL and EGAT systems. Of the 18,800 new households in the two provinces to be provided access to electricity, more than 6,000 are poor households and will receive financial support for connections to the grid. Reliable supply of electricity will not only improve living conditions of the population but also boost economic activities in the project area. In the long term, as more hydropower capacity is added to EDL's system, and power demands on both side of the border grow, this interconnection will bring further benefits to consumers in the Lao PDR and Thailand.
Impact and Outcome The impact will be the realization of the government's goal of electrifying 90% of the country’s households by 2020. The household electrification rate in the project area (Phongsali and Xaignabouli provinces combined) will increase from 39% in 2009 to 79% in 2020.
The outcome will be increased access to reliable electricity supply for households, villages, and towns within the project area. About 18,800 new households (among them about 6,000 poor households) in the project area will be supplied with reliable grid electricity.
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Project Investment The investment cost of the project is estimated at $65.32 million, Plan including taxes and duties of $3.18 million.
Financing Plan Amount Share of Source ($ million) total (%) Asian Development Bank 20.00 30.6 Government of the Republic of Koreaa 37.88 58.0 Electricite du Laos 7.44 11.4 Total 65.32 100.0 a Through Export–Import Bank of Korea. Source: Asian Development Bank.
Allocation and The government will make the proceeds of the ADB grant and the Korea Relending Terms Eximbank loan available to EDL subject to the subsidiary loan agreement and project agreement.
Period of Utilization The project will have a 4-year utilization period from the time of approval.
Estimated Project June 2013 Completion Date
Implementation EDL will implement the project. Arrangements
Executing Agency EDL
Procurement All procurement to be financed by ADB will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time) and the procurement plan prepared and agreed to by the government and ADB. The threshold limits to be followed under the procurement plan are (i) international competitive bidding for (a) supply contracts estimated to cost above $500,000, and (b) civil works contracts above $1 million; (ii) national competitive bidding for (a) works contracts between $100,000 and $1 million, and (b) supply of goods between $100,000 and $500,000; and (iii) shopping procedures for supply of goods contracts less than $100,000. All procurement contracts will contain anticorruption provisions as specified by ADB. Procurement for works and equipment and materials financed under the Korea Eximbank cofinancing will be carried out in accordance with the Korea Eximbank's procurement procedures. These procedures were discussed and agreed with the government and EDL. ADB shall be satisfied that the procedures used for the Korea Eximbank-financed procurement will be used to fulfill the borrower's obligations to cause the project to be carried out diligently and efficiently, and that the goods and works to be procured (i) are of satisfactory quality and compatible with the balance of the project; (ii) will be delivered or completed in a timely fashion; and (iii) are priced so as not to affect adversely the economical and financial viability of the project.
Consulting Services An international consulting firm will be engaged to assist EDL in implementing the project. The firm will be responsible for assisting the v
project management unit implement the whole project (both ADB and Korea Eximbank financing), particularly in (i) procuring goods and services for the ADB-financed component; (ii) supervising construction and installation; (iii) completing system final testing and commissioning; (iv) conducting social and environmental assessment, management, and monitoring; (v) strengthening EDL capacity in social and environmental assessment, management, and monitoring; (vi) undertaking project performance monitoring and evaluation; and (vii) reporting on the project. The firm will provide 175 person-months of consulting services (80 person-months by international and 95 person-months by national experts) following ADB’s quality- and cost-based selection (ratio 80:20) and using full technical proposal procedures. Advance recruitment will be used for the project implementation consultant. However, ADB support of advance recruitment of consultants does not commit ADB to approve the project nor to finance the recruitment costs. A procurement specialist will be recruited under Korea Eximbank financing to help EDL in the procurement process of Korea Eximbank-financed packages. In addition, a senior advisor will be recruited to provide EDL and MEM with strategic issues related to energy sector development. All consultants under ADB financing will be selected and engaged under the project in accordance with ADB’s Guidelines on the Use of Consultants (2007, as amended from time to time).
Project Benefits and The significant benefits of the project are expansion of EDL's T&D Beneficiaries network and increased access of grid electricity to rural poor households and new businesses in the remote provinces of the Lao PDR. About 18,800 new households, including more than 6,000 poor households in Phongsali and Xaignabouli provinces, will be connected to the grid. This is a very important condition for improving living standards for rural populations in these provinces. Availability of reliable electricity will increase income-earning opportunities for the poor and boost economic growth and social development in Xaignabouli and Phongsali provinces.
The economic internal rate of return is evaluated at 42%. The financial internal rate of return, estimated at 11.5% after tax, exceeds the weighted average cost of capital (2.7%). The project will also generate moderate employment during its implementation.
With the cross-border interconnection between the Paklay substation and the Thali substation, consumers in Xaignabouli province will be provided with a more reliable and better quality electricity supply, and at the same time, consumers in Loei Province in northern Thailand will benefit from hydroelectricity imported through the Thali substation. Reliability of both EDL and Provincial Electricity Authority systems will be improved.
MEM is another beneficiary of the project; it will be assisted by a resident advisor in making informed policy decisions on the development of the energy sector as a whole, including power system development, tendering of IPPs, negotiation of power purchase agreements, renewable energy strategy, and energy efficiency and conservation policy.
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Risks and The project is not expected to face any significant technical risks. State of Assumptions the art technology is widely available. EDL has good experience and has performed well in implementing similar T&D projects. In particular, EDL managerial skill and capacity for such projects have improved through implementation of the ongoing ADB-financed Northern Area Rural Power Distribution Project.
Smooth coordination between packages financed by the ADB grant and the Korea Eximbank loan is critical to the success of the project. To ensure coordinated implementation, the project design envisages engaging one project implementation consultant to help EDL take measures to ensure procurement is undertaken diligently and efficiently, and in overseeing implementation of all three project modules. 18 00'N 22 00'N THAILAND
MYANMAR o Chiang KongS/S o NORTHERN POWERTRANSMISSIONPROJECT
M EK (2) 123km
(1) 75km O 101 00'E 101 00'E
Houayxay S/S NG R LAO PEOPLE’SDEMOCRATICREPUBLIC
o o IV REPUBLIC OF
E GREATER MEKONGSUBREGION R
LOU PEOPLE’S NgeunS/S CHINA
BOK
ANG
EO Louang-Namtha Kenethao
-NAMTHA Paklay S/S 0 (1) 12km
XAIGNABOUL Hongsa S/S (3) 102km Xayabury Kilometers Thali S/S M OUDOMXAI E (1) 98km
KON N 50 Oudomxai 98 km. THAILAND Nonhai G RI
VER I Nam Dong (1 MW) Namo S/S
Ban Don VIEN Boun NuaS/S Phonhong
(1.5 MW) Nam Ko 102 km. Vang Vieng 100
PHONGSALI TIAN Naxaythong Thalat Phontong Xiang-Ngeun VIENTIANE
Louangphrabang E
LOU Pakmong Nam Ngum1 (155 MW) Nong Khai
ANG VIENTIAN
PHR Thangone Nam Mang3 Thanaleng Khoksa-at (80 MW)
ABA Nam Leuk
(60 MW) E MUNICIPAL
NG
22 00'N XIANGKHOUA o Phonsavan Boundaries arenotnecessarilyauthoritative. 20 00'N
16 00'N HOUAPHAN o o 104 00'E 104 00'E
Bung Kan NG BOKEO
o o 102 00'E 102 00'E XAIGNABOULI LOUANG- NAMTHA Pakxan o o International Boundary Provincial Boundary Substation (existing/ongoing/proposed) Hydropower National Capital Existing 115kVTransmissionLine Private SectorFunded Ongoing Project(115kV) Japan BankforInternationalCooperation Ongoing Project(115kV) Asian DevelopmentBank (1): Module1,(2):2,(3):3 Proposed 115kVTransmissionLine
OUDOMXAI LOUANGPHRABANG
M MUNICIPAL VIENTIANE PHONGSALI
E
K VIENTIANE
ON
G
R XIANGKHOUANG IVER VIENTIANE
BOL HOUAPHAN BOLIKHAMXAI
IKHAMXA VIET NAM LAO PEOPLE’S DEMOCRATIC
REPUBLIC KHA KHAMMOUAN 106 00'E SAVANNAKHET o Theun HinBoun
106 00'E MMOUAN CHAMPASAK
I SALAVAN (210 MW) o 09-2337 HR 18 00'N o 16 00'N 20 00'N ATTAPEU XEKONG o o
I. THE PROPOSAL
1. I submit for your approval the following report and recommendation on a proposed grant to the Lao People's Democratic Republic (Lao PDR) for the Greater Mekong Subregion (GMS) Northern Power Transmission Project. The design and monitoring framework is in Appendix 1.
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES
A. Performance Indicators and Analysis
1. Macroeconomic Performance
2. During 2001–2008, the Lao economy grew at an average 6.5% per annum, with highest growth of 7.9% in 2007.1 Agriculture is the largest contributor to the economy accounting for almost 45% of the gross domestic product followed by industry (30%) and services (25%). However, industry is the fastest growing sector with average annual growth of more than 12%, whereas services have been expanding at about 7.5% and agriculture at 3.5% per annum since 2004.
3. The country's 6th National Socio-Economic Development Plan, 2006–2010 emphasizes eradication of poverty and accelerating the pace of socioeconomic development as the nation’s most important long-term strategic goals.2 It mainstreams priority sectors, including agriculture, health, education, and infrastructure. Development of these sectors will directly contribute to realization of the agenda for poverty reduction: (i) expansion of economic opportunities, with an emphasis on commercial agriculture, rural development, infrastructure development, and support for small and medium-sized enterprises; (ii) improved provision of basic social services with a focus on health, education, and clean drinking water; (iii) stronger human security, including measures aimed at fostering food security, reducing threats from unexploded ordnance, and ensuring protection against natural disasters; (iv) enhanced participation by and empowerment of the poor; and (v) concentrated efforts to develop the poorest areas through a range of targeted interventions. The 6th plan envisages an acceleration of average annual real gross domestic product growth to 7.5%.
4. In the medium term, development of energy and power will be central to infrastructure development in the country. Power infrastructure development will (i) ensure the supply of affordable electricity—a basic need—for the entire population; and (ii) create an enabling environment for (a) significantly improving living conditions, (b) generating incomes, and (c) continuing economic growth.
2. Power System Performance
5. The power system serves two vital purposes: (i) providing electricity to meet increasing domestic demand; and (ii) earning hard currency revenues by exporting electricity to neighboring countries. Electricite du Laos (EDL)—a state-owned utility—is responsible for supplying electricity for consumers in the country. Currently, EDL-installed generating capacity totals 330 megawatts (MW) (98% hydro-based capacity and 2% small diesel-based capacity).
1 The government recognizes that gross domestic product this year will slow to 5% due to the global economic crisis. 2 Government of the Lao People’s Democratic Republic, Committee for Planning and Investment. 2006. National Socio-Economic Development Plan (2006–2010). Vientiane. 2
Several of EDL's large hydropower plants (HPPs) are Nam Ngum 1 HPP (150 MW), Nam Leuk HPP (60 MW), Xeset 1 HPP (45 MW), and Nam Mang 3 HPP (40 MW). Three HPPs are presently under construction for domestic supply: Nam Lik 1/2 HPP (120 MW), Nam Ngum 5 HPP (120 MW), and Xeset 2 HPP (76 MW).
6. In addition to facilities owned by EDL for domestic supply, several independent power producers (IPPs) export electricity to Thailand, such as Theun Hinboun (210 MW, EDL share 60%) commissioned in 1998 and Houay Ho (150 MW, EDL share 20%) commissioned in 1999. By the end of 2008, total IPP installed generating capacity was 360 MW. Thus, the whole country has a total of 690 MW.
7. The country's generating capacity is mostly hydro based. This is to make use of the huge hydropower potential, which is estimated at 18,000 MW. To date, only about 3.3% (690 MW) of this potential has been developed serving the Lao grid and for export to Thailand. A further 2,250 MW of capacity is in various stages of development. The Lao PDR has signed memorandums of understanding for exporting 3,000 MW of power to Viet Nam and 5,000 MW to Thailand.
8. EDL's transmission and distribution (T&D) system is fragmented; it has three separate 115 kilovolt (kV) transmission subsystems. The Nam Ngum 1–Nam Leuk–Nam Mang 3 115 kV system serves Vientiane capital, Louangphrabang, Xiangkhouang, Xaignabouli, and provinces in the central region. The Khammoune 115 kV system imports power from Nakhon Phanom in Thailand via Thakhek's 115/22 kV substation to supply Thakhek and its surrounding areas. Savannakhet's 115 kV system imports power from Thailand to supply Savannakhet province.
9. From 2000 to 2008, domestic demand for electricity increased at an average 14% per year with higher year-on-year growth at the end of the period. This demand increase is being met by a corresponding increase in electricity production (6%) and increase in electricity imports (11%). 3 The central region around Vientiane accounted for almost 90% of total electricity consumption. The southern and northern regions account for the remaining 10% as these regions are poor.
10. Because of EDL system expansion and increased capacity, household electrification served by the EDL grid has grown steadily from 19% in 1996 to 58% in 2008. Similar to consumption patterns, electrification is higher in the central region, whereas the northern region has the lowest rate (13% in Phongsali province compared with the 58% national average).
11. The Power Development Plan for 2007–2016 envisages a fourfold increase in electricity demand from 350 MW in 2006 to 1,216 MW in 2015. Correspondingly, annual electricity consumption will grow from 1,700 gigawatt-hours (GWh) to 7,000 GWh. To meet this demand, timely development of the Lao power system must be ensured, both in generation and the transmission and distribution (T&D) network.
12. In the past, EDL's retail tariff has been low and included cross-subsidies by nonresidential customers to residential customers and agriculture. Since 2005, the government and EDL have implemented a tariff adjustment program to remove these subsidies. This tariff adjustment program coupled with the program that settles government arrears resulted in an
3 In 2008, the Lao PDR imported a total of 510 GWh to supply 11 provinces. The largest import was from Thailand (470 GWh) to supply seven provinces including Xaignabouli, followed by imports from Viet Nam (22.6 GWh) for three provinces in northeast and 17.8 GWh from the People's Republic of China for Phongsali province. 3 improved financial situation for EDL in 2008. In 2008, the EDL average sale price (KN542 per kilowatt-hour [kWh]) covered its production cost (KN468/kWh).
B. Analysis of Key Problems and Opportunities
1. Key Problems and Constraints
13. The power system is at a nascent stage of development, characterized by small generating capacity and fragmented T&D systems. Presently, EDL's T&D systems do not cover the entire country. For example, Phongsali province and a large part of Xaignabouli province are not covered by EDL's T&D system. The absence of a strong and reliable T&D system in the country necessitates the import of expensive electricity at 22 kV. At this low voltage, imported electricity is more expensive ($0.08/kWh) than EDL's supply ($0.05/kWh–$0.06/kWh). To deal with this problem, the Lao government plans to phase out the import of medium voltage electricity by 2015 by building up its national high voltage grid system and exchanging high voltage power (e.g., 115 kV and above) with Thailand and Viet Nam. The 115 kV interconnection proposed in this project is to meet this government objective.
14. Because of the lack of a unified T&D network, electrification in the Lao PDR is among the lowest of the member countries of the Association of Southeast Asian Nations. In the project area, rural electrification is particularly low in Phongsali province (13%). Xaignabouli province, due to its relative vicinity to Vientiane and increasing trade with Thailand, has a higher electrification rate (50%) but it is still below the national average (58%). Poverty is widespread where electricity is not made available to households. For example, in Phongsali province, 60% of households are considered poor4 according to the government's statistics, while in some districts of Xaignabouli province, the percentage of poor households is as high as 50%.
15. Lack of institutional capacity represents a key constraint in managing sustainable development of the country's huge hydro resource for domestic and export use. The balancing of these two objectives requires proper long-term planning. In addition, potential negative impacts on the environment and communities living in the river basins require a systemic approach in planning and implementing mitigation measures, livelihood development, and environmental conservation programs for which the need for capacity building is urgent.
16. EDL's financial robustness depends on its ability to generate sufficient capital to cover operating expenses and future investment. EDL's investment requirement for 2007–2016 is estimated at $1.3 billion. This requires an electricity tariff that meets the system’s marginal production costs. In the future, to meet the estimated investment requirements and to maintain EDL's financial sustainability, the government and EDL will need to continue the tariff reform program that will apply time-of-use rates distinguished by voltage for customers. Such a tariff will align with the supply costs, and ensure financial and economic efficiencies. An independent regulatory agency is necessary to manage the tariff regulation. The absence of such an agency puts a burden on the government and makes the tariff adjustment time consuming. An authority to manage the tendering of hydro IPPs is also needed.
4 According to the government's definition, households considered poor are those with an income of less than KN85,000 equivalent in cash per person/month (based on 2001 prices). This sum allows purchasing 16 kilograms of milled rice per person/month, but the balance is insufficient to cover other necessary expenses, such as clothing, shelter, children’s schooling costs, and medical treatment. According to the latest survey carried out by the National Committee on Rural Development and Poverty Reduction, 1.5 million of the population are poor, representing 27% of the country’s population.
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2. Opportunities
17. Improving access to electricity and rural electrification targets. Recognizing the importance of the provision of electricity for reducing poverty and improving living conditions, the government has specific plans to provide electricity from the national grid to 70% of all households in the country by 2010, 80% by 2015, and 90% by 2020. For the provinces under the project, these national targets mean an increase of the household electrification rate from 13% to 28% in Phongsali province and from 50% to 98% in Xaignabouli province. The other northern provinces will also have to increase their electrification rates accordingly from 33% to 79% in Louang-Namtha province, and from 41% to 90% in Bokeo province.
18. Meeting increasing demand with grid extension. To achieve the ambitious rural electrification targets requires an expansion of EDL's T&D network.5 The government and EDL place great emphasis on building a unified national T&D grid with assistance from the Asian Development Bank (ADB), Japan, the World Bank, other development partners, and international private investors.
19. Sustainable hydropower development. Development of large hydropower projects will continue to play an important role in meeting domestic demand as well as for export. The revenues generated from increased export earnings will be vital to improving basic government services, including education, health, and infrastructure services in poor areas of the country. The government can obtain benefits from hydropower projects through concession fees, royalties, taxation, and returns on its equity stake in particular projects. The government’s Hydropower Sustainable Development Policy provides guidance for exploration of national resources in a sustainable manner. Currently, the Water Resource and Environment Administration is responsible for implementation of environmental protection policies and social resettlement policies. It has asked ADB to help build capacity to meet this challenge.
20. Private sector participation. Private sector participation in power development will be needed especially because the government expects half of the investment requirements to be secured from the private sector, particularly for power generation. The government is working to create a favorable investment environment for the private sector by defining appropriate roles for the public and private sectors, establishing institutions to facilitate IPP participation, introducing a transparent bidding mechanism, and adopting best practices for formulating power purchase agreements. The government is also taking steps to put in place an appropriate regulatory framework to encourage private sector participation. The Department of Energy Development and Promotion has requested ADB assistance to enhance its capacity for managing IPP projects.
21. Long tradition of power exchange with Thailand. The Lao PDR has a long tradition and good experience in exchanging power with Thailand. The Lao PDR exports to Thailand power generated from its large HPPs at 220 kV such as Theun Hinboun and Houay Ho, and from Nam Ngum 1 at 115 kV, and it imports power from Thailand at 115 kV and 22 kV. The countries have five operating interconnections at 115 kV and five at 22 kV.
22. Currently, a 22 kV transmission line connects the Thali substation (in Loei province of Thailand) with Paklay district in Xaignabouli province. This 22 kV transmission line now provides
5 The electrification of households in Vientiane which has a 115 kV network linking generation sources with demand center, was 96% (2007) compared to 13% in Phongsali province which does not have access to the transmission network. The project will construct almost 398 km of 115 kV line, this is a significant addition to the network given that the total length of the central backbone 115 kV system was 1,498 km in 2007. 5 imported electricity to Xaignabouli province. Once the project's 115 kV cross-border interconnection is built, it will replace the current 22 kV transmission line used for power import. The 115 kV cross-border interconnection will have a much higher load-carrying capacity and lower voltage drop; hence, it will deliver more reliable and improved quality of electricity supply. Unlike the existing 22 kV transmission line, which is used only for importing power, the 115 kV interconnection can be utilized for both import and export of electricity. Such two-way power trade will be possible and beneficial to the Lao PDR and Thailand by making use of the seasonal variation of hydro energy.6 In addition, the interconnection allows the two systems to back each other up during line maintenance and power outages.
23. Both governments, EDL, and Electricity Generating Authority of Thailand (EGAT) strongly support the cross-border connection under the project. On 13 May 2009, the EGAT governor and the EDL managing director general signed a memorandum of understanding in Bangkok officially announcing the agreement for the proposed interconnection. Two countries have joint operation committees supervising power exchange between EGAT and EDL. The committees meet regularly, involving technical and senior staff, to discuss cooperation. The interconnection under this project will be part of the current Nam Ngum 1 system. Thus, the arrangement for power buying and selling will be looked at by the joint committees as an integral part of the Nam Ngum 1 system interconnection with EGAT.
24. The interconnection line to be built under the project and the ongoing Northern GMS Transport Network Improvement Project to improve the roads from the Lao PDR–Thailand border along Xaignabouli province and northward to Louangphrabang will accelerate economic cooperation activities and cross-border trade between northeast Thailand and Xaignabouli province. According to the National Economic Development Board of Thailand, this corridor is a priority area for Thailand official development assistance to the Lao PDR because of the strong interest of Thailand’s private sector in commercial agriculture development. Availability of a reliable supply of electricity is essential for business in the project area.
25. The project area has large hydropower potential. Two HPPs totaling 240 MW mainly for domestic supply are under construction (Nam Lik1/2 and Nam Ngum 5 HPPs), and several other HPPs have been identified for development in the coming years to supply electricity directly into EDL's transmission network. The Nam Tha 1 HPP (168 MW) is to be built in Louang-Namtha province, and the electricity generated can be transmitted to the Louang- Namtha substation (built under an ADB loan).7 The Nam Ham HPP (5 MW) is near Paklay town and its power will be transmitted to the Paklay substation under this project. Similarly, the Nam Ou HPP (50 MW) in Phongsali province will be connected to the Namo substation. With the development of generation in synchronization with the T&D network expansion, EDL's system will be significantly strengthened and the Lao PDR will greatly benefit from using its own hydro resources for socioeconomic development and poverty reduction.
26. The Ministry of Energy and Mines (MEM) is mandated to provide the policy framework and strategic vision for long-term development of the energy sector in the Lao PDR. The sector is facing tremendous challenges, for example, optimal utilization of the country’s abundant hydro resources, and balancing between domestic use of electricity and demand for export. The project will provide a senior policy advisor to advise EDL and MEM on strategic policy issues
6 Similarly, with the interconnection between Huyaxay and Xiangkhouang to be constructed and with the transmission line between Namo and Boun Nua to be constructed under this project, two-way power trade at 115 kV will be possible. 7 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao People’s Democratic Republic for the Northern Area Rural Power Distribution Project. Manila (Loan 2005-LAO).
6 related to energy sector development. These include (i) power system development, (ii) development of large IPP HPPs, (iii) development of a transmission company in charge of the high voltage transmission system, (iv) tendering of IPPs, (v) negotiation of power purchase agreements, and (vi) synchronization between hydropower development and environmental protection.
3. Government Strategy
27. The Lao Power Sector Strategy (2002) identifies the main pillars for power system development, including (i) maintaining and expanding an affordable, reliable, and sustainable electricity supply in the Lao PDR to promote economic and social development; (ii) promoting power generation for export; (iii) developing and enhancing the legal and regulatory framework to effectively direct and facilitate power system development; and (iv) reforming institutions and institutional structures to clarify responsibilities, strengthen commercial functions, and streamline administration.
28. Between 1995 and 2008, the government increased household connections from 16% to 58%. The government's goal is to achieve supply of 90% of households with electricity by 2020 (70% of households by 2010, 80% by 2015). As this target is being achieved, electrification moves increasingly to remote areas and the remaining villages and households in rural areas. EDL's development plan calls for expansion and strengthening of the T&D system with emphasis on (i) increasing the length of new transmission systems, (ii) building new substations and expanding existing substations, (iii) developing high-voltage interconnections with neighboring countries, (iv) overhauling and reinforcing the distribution network, and (v) developing national and regional dispatch centers. According to the Power Development Plan (para. 11), the project components constitute a noticeable part of the planned T&D expansion during 2011–2016.8
4. ADB Sector Strategy
29. ADB’s country strategy and program for the Lao PDR aims to promote sustainable economic development through infrastructure investments. For power, the country strategy and program emphasizes the importance of helping the country build and expand its power infrastructure in a sustainable manner and build human resource capacity for efficient management of energy and power development.9
30. The Lao energy sector strategy study (Appendix 2) identifies several key areas that would benefit from ADB assistance: (i) improving access to electricity; (ii) strengthening T&D systems through network integration; (iii) maximizing the benefits of hydropower; (iv) promoting renewable energy, and energy efficiency and conservation; and (v) building capacity for energy policy planning and formulation including energy efficiency and renewable energy strategies.
31. Improving access to electricity. More rural electrification projects will need to be implemented to achieve the government’s rural electrification targets. ADB will continue to provide loan and grant assistance to future rural electrification projects, both on-grid and off- grid. ADB’s focus will continue to be on the northern region, because of its very low electrification rates. EDL estimates that about 46,000 new connections will be required during
8 All project components are included in the Power Development Plan 2007–2016, including the interconnection with Thailand at the border near Kenethao in Xaignabouli province. 9 ADB. 2009. Country Strategy and Program: Lao People’s Democratic Republic, 2007–2011. Manila. 7
2010–2013, and a further 41,000 during 2014–2016, to reach the national goals of electrification. No other development agencies are making major investments for rural electrification in the northern region.
32. Strengthening the T&D system. Intra- and interregional transmission development is key to meeting the country’s demand for hydropower resources. ADB will assist EDL in developing its network to (i) provide hydropower from EDL or domestic IPPs to the EDL grid, (ii) enable EDL to fully use its entitlement from export projects (existing and new), and (iii) serve customers in urban and remote areas.
33. Maximizing the benefits of hydropower exports. ADB support will focus on creating an enabling environment for investors to continue with the development of hydropower and other resources for exports, while ensuring that the benefits to the Lao PDR and its institutions are maximized. In this respect, ADB will support (i) developing transmission interconnections to serve the 10% entitlement of export projects to EDL customers, and (ii) enabling EDL customers and the network to be interlinked to the transmission line serving export customers to ensure maximum benefits of such infrastructure to the country.
34. Promoting investments in renewable energy and energy efficiency. ADB support will build MEM capacity to promote renewable energy development and implementation of energy efficiency. Specific areas of assistance to promote use of renewable energy are (i) development of a renewable energy strategy and action plan, and (ii) investment support for on- and off-grid small and mini-hydropower. Specific areas of support to promote energy efficiency and conservation are development of (i) an energy efficiency strategy and action plan, (ii) energy efficiency in government buildings (to complement World Bank capacity building work and sample audits), (iii) capacity to conduct energy audits and formulate projects for energy efficiency standards and labeling, and (iv) legislation to promote energy efficiency.
5. External Assistance
35. ADB, with its support for various transmission and hydropower projects, is the largest source of development assistance to the power system: about $323 million in loans and grants and $17 million in technical assistance (TA) since the early 1970s. TA projects focused on the development of HPPs, power system strategy, power planning, and rural electrification. Loans and grants were provided to develop hydropower and T&D systems. Given that hydropower is a vital resource that can serve domestic need as well as generate revenues of hard currency, ADB assistance has enabled the Lao PDR to harness this important renewable energy resource both for domestic use and for exports. ADB assistance also facilitated strengthening the T&D network and interconnection with neighboring countries.
36. The World Bank has also provided TA and loans and grants targeting the development of hydropower, rural electrification, and institution building. The two latest World Bank power projects (i) the Rural Electrification Project, phase 1, approved in March 2006 and (ii) the GMS Power Trade Project approved in May 2008. Apart from T&D system development, these World Bank projects help EDL build national dispatching center in Vientiane and regional dispatching centers in provinces. A tariff study will be implemented under the GMS Power Trade Project. Other multinational and bilateral agencies involved in the power system are Japan International Cooperation Agency, Nordic Development Fund, and Danish International Development Agency. Development partner coordination is described in Appendix 3.
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37. Donor coordination in the GMS power sector is enhanced through the Regional Power Trade Coordinating Committee that meets once a year and through the Planning Working Group that meets three to four times a year to discuss regional power master plans and to prioritize cross border power interconnections. The World Bank, Japan, Agence Francaise de Developpement (AFD), Swedish International Development Cooperation Agency (SIDA) and Mekong River Commission participate in these meetings that are coordinated by ADB.
6. Lessons
38. Project performance audit reports rate the Nam Leuk HPP project, Theun Hinboun HPP project, and Nam Ngum–Louangphrabang Prabang transmission project successful. The performance evaluation of past ADB transmission projects identifies several important lessons, such as (i) transmission projects that traverse populated rural areas should provide for the distribution of electricity to such areas and thereby minimize objections and enhance the socioeconomic impact; (ii) feasibility estimates that are dependent on detailed engineering after loan approval should include a wider contingency margin to avoid the possible need for supplementary financing and delays; (iii) nonuniform design considerations, including provision for variable tower heights, tower spans, and tower support structures, should be applied to transmission projects for provinces with mountainous topography; (iv) EDL staff and implementation consultants should become more familiar with ADB procurement procedures; (v) financial loan covenants for EDL should be set realistically; and (vi) the average cost of connection to the electric system for rural households should be kept at a reasonable amount.
39. These lessons were incorporated in the project design. In fact, this project builds not only transmission lines but more importantly substations and associated distribution networks that bring electricity to villages and households. To help poor households overcome connection fee barriers, the project includes a provision to provide no-interest credit for connections. Physical contingencies are at 11%, and topography of the project area is taken into account in the technical design. Regarding the financial covenant, the ADB mission reached an agreement with the World Bank that both institutions will apply similar financial covenant ratios for all projects to be approved by ADB and the World Bank starting in 2009. Other lessons identified through consultation with EDL and MEM were also incorporated in the project. For example, one lesson is that substations and transmission lines must be bundled into a single contract package to achieve synchronous completion for energizing. The approval process developed for the resettlement plan by the Department of Electricity and Water Resources and Environment Administration will reduce the time required for approvals.
III. THE PROPOSED PROJECT
A. Impact and Outcome
40. The project10 will extend EDL’s T&D system to Phongsali and Xaignabouli provinces, and the western part of Vientiane province. It will link with the EGAT system to provide electricity in an efficient and reliable manner to rural villages, towns, and industrial and commercial consumers that do not have access to electricity supply or rely on limited high-cost, off-grid power supplies. The project will directly contribute to achievement of the government's goal of electrifying 90% of the country’s households by 2020. The household electrification rate
10 The project preparatory TA was completed in December 2008. ADB. 2006. Technical Assistance to the Lao People’s Democratic Republic for Preparing the Greater Mekong Subregion Northern Power Transmission Project. Manila (TA 4816-LAO). 9 in the main project area (Phongsali and Xaignabouli provinces) will increase from 39% (2009) to 79% by 2020.
41. The project outcome will be increased access to electricity by households, small businesses, and commercial and industrial customers. Increased access is being enabled by (i) new 115 kV transmission lines with associated substations and interconnection with the EGAT–Provincial Electricity Authority system; and (ii) extended medium- and low-voltage distribution systems. About 18,800 new households (6,000 poor households) in the project area will be connected to the national grid. Given the current absence of a nationwide unified transmission system, this project, in addition to the ongoing ADB-supported project (footnote 7), helps to construct a national transmission network covering the whole country.
B. Outputs
42. The project will construct several 115 kV transmission lines, substations, and medium- and low-voltage distribution networks. The project will also increase the two-way transfer of power between EDL and EGAT's grids. Geographically, the project spans three provinces— Vientiane, Phongsali, and Xaignabouli (see map)—and is provide in three modules:
(i) Module 1 (to be financed by ADB) includes (a) 115 kV transmission lines (173 km) (1) 74.6 km single-circuit transmission line from Paklay to the Lao PDR–Thailand border near Kenethao for connection with EGAT via Thali substation (2) 98.0 km single-circuit transmission line from Paklay to Nonhai (b) 115/22 kV substations (1) Paklay: 20 megavolt-ampere (MVA) new substation (2) Nonhai: existing substation extension (3) Xayabury: existing substation extension
(ii) Module 2 (to be financed by Export–Import Bank of Korea [Korea Eximbank])11 includes (a) 115 kV transmission lines—122.74 km single-circuit transmission line from Paklay to Xayabury (b) associated medium-voltage (755 km) and low-voltage12 distribution (1) 263 km 22 kV feeders from Paklay substation (2) 156 km 22 kV feeders from Nonhai substation (3) 336 km 22 kV feeders from Xayabury substation (c) 7,020 households supplied from Xayabury substation (d) 7,553 households supplied from Paklay substation (e) 1,541 households supplied from Nonhai substation
(iii) Module 3 (to be financed by Korea Eximbank) includes (a) 115 kV transmission lines—102.4 km single-circuit transmission line from Namo to Boun Nua (b) 115/22 kV substation (1) Boun Nua 20 MVA new substation (transformer feeder)
11 Korea Eximbank financing does not cover the credit to poor households, which will be funded by the ADB grant. 12 Low-voltage line lengths and stepdown distribution transformers are estimated on a per-household basis, and included in the cost estimates. Exact lengths will be confirmed during project implementation.
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(2) Namo 115 kV switching station (c) Associated medium- and low-voltage distribution—361 km 22 kV feeders from Boun Nua substation (d) 2,645 households supplied from Boun Nua substation
43. The project's low-voltage distribution networks include low-voltage lines, step-down transformers, and connection to electric poles adjacent to households. For poor households, the project provides a free meter of 3/9 ampere. To help poor households finance the connection, the project design includes a credit scheme that will provide no-interest credit of KN700,000 to each eligible poor household so that they can pay for the wiring from the poles to their houses and wiring inside the houses. The credit to the poor scheme works as follows: the district authorities will be responsible for identifying households eligible for receiving no-interest credit of up to KN700,000. Once certified by the district authorities, the households will sign an agreement with EDL provincial offices for accepting the credit and committing to repay EDL KN20,000 together with the monthly electricity bill. Payment will continue for 35 months. Households will also sign an agreement with their chosen local contractors based on a predetermined form for wiring their houses. Upon certification of these contracts, EDL will use the credit fund to pay contractors. This credit scheme was successfully implemented by the World Bank's Rural Electrification Project, phase 1, power to the poor component implemented in seven southern provinces of the Lao PDR. To date, 3,500 households have received credit and have their houses connected. This credit scheme has been well received and appreciated by the population. Based on provincial statistics, more than 6,000 poor households in Phongsali and Xaignabouli provinces will benefit from this assistance under this project.
44. Based on the government’s request, the project will provide a senior policy advisor to advise on strategic policy issues related to long-term energy sector development, such as the power development plan, tendering of large hydro IPPs, and negotiation of power purchase agreements. The senior policy advisor will also assist in drafting of a strategy framework on energy efficiency and renewable energy.
C. Special Features
1. Link with Greater Mekong Subregion Power Trading
45. Currently under the coordination of the Regional Power Trade Coordination Committee, an institutional framework for power trade among the GMS countries is being developed. To develop the grid connection infrastructure, the GMS power master plan is being updated to identify the most viable cross-border interconnections. With significant hydro resources and situated in the center of GMS, the Lao PDR can play an important role in GMS power trade development. One of the project outputs is the 115 kV line connecting Paklay substation in the Lao PDR with Thali substation in Thailand. The project will promote power trade between EDL and EGAT, especially in the long term when more hydro capacity will be constructed in the Lao PDR and also as demand grows on both sides of the border. The project is part of a wider expansion of a Lao PDR–Thailand interconnection plan developed in EDL's Power Development Plan 2007–2016. By 2015, two 115 kV interconnections will be developed in the northern region: Paklay–Thali (proposed in this project) and Huyaxay–Xiangkhouang.
2. Partnership in Project Financing
46. ADB and the Economic Development Cooperation Fund (EDCF) of Korea Eximbank will finance the project. By mobilizing funds from Korea Eximbank, in addition to ADB's Asian 11
Development Fund, the construction of about 400 km of transmission lines and associated substations, and a vast medium- and low-voltage distribution system can be implemented in a short time frame.
3. Connections for Poor Households
47. To support the poor, the project design includes distribution equipment up to the poles and inclusive of the meter of 3/9 ampere for poor households. The project will also allocate $750,000 for the Credit to the Poor Fund, which was successfully implemented in the southern provinces. The project is replicating this scheme with more than 6,000 poor households.
D. Project Investment Plan
48. The project cost is estimated at $65.32 million, including physical and price contingencies, taxes and duties, and interest and other charges during implementation (Table 1). Table 1: Project Investment Plan ($ million) Item Amount A. Investment costsa 1 Land acquisition and resettlement 0.37 2 Civil works 15.46 3 Equipment and materials 28.50 4 Unexploded ordnance clearance and pathfinding 0.58 5 Consulting services 3.27 6 Poor households wiring credit 0.75 7 Senior advisory service 0.60 8 Taxes and duties 3.18 Subtotal (A) 52.71 B. Recurrent Costs Executing and implementing agency management and administration 0.93 Subtotal (B) 0.93 Subtotal base costs (A+B) 53.63 C. Contingencies 1 Physicalb 5.98 2 Pricec 3.82 Subtotal (C) 9.80 D. Financial Charges during Implementationd 1 Interest during construction 1.85 2 Commitment charges 0.00 3 Other charges 0.04 Subtotal (D) 1.89 Total (A+B+C+D) e 65.32 a October 2009 prices. b Computed at 11% of base costs. c International escalation computed at 0.7% for 2009, 1.4% for 2010, 0.4% for 2011, and 0.5% for 2012 and thereafter. Domestic escalation computed at 6.5% for 2010, 6.1% for 2011, and 6.0% for 2012 and thereafter. d Includes interest during construction computed at 4.5% with a grace period of 5 years. e Includes taxes and duties of $3.18 million. Sources: Electricite du Laos and Asian Development Bank estimates.
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E. Financing Plan
49. The government has requested a grant of $20 million from ADB’s Special Funds resources to help finance the project (module 1, credit for poor households, and advisory services). The government has also asked Korea Eximbank to provide $37,880,000 from the EDCF to help finance the project (modules 2 and 3). EDL will finance $7,440,000 to cover land acquisition and resettlement costs, taxes and duties, and interest during construction ($1,850,000). Table 2 shows the financing plan. Detailed cost estimates and financing plan are in Appendix 4. The government will relend the ADB grant and the Korea Eximbank loan to EDL through subsidiary loan agreements. The terms and conditions for subsidiary loans will be determined jointly by EDL, MEM, and the Ministry of Finance (MOF) subject to government approval. Based on past projects, the relending interest for a subsidiary loan is usually 4%–7%, and maturity is 10–20 years with a grace period of 3–5 years.
50. The Government of the Republic of Korea, through Korea Eximbank, will provide loan cofinancing equivalent to $37,880,000. Korea Eximbank cofinancing will be parallel and tied, and denominated in won. The loan has interest of 0.01% per annum, with 40-year maturity and a 15-year grace period. The Korea Eximbank loan will be effective upon ADB approval of the project.
Table 2: Financing Plan Amount Share of Source ($ million) Total (%) Asian Development Bank 20.00 30.6 Government of the Republic of Koreaa 37.88 58.0 Electricite du Laos 7.44 11.4 Total 65.32 100.0 a Through Export–Import Bank of Korea. Source: Asian Development Bank estimates.
F. Implementation Arrangements
1. Project Management
51. EDL will be the executing agency for all three modules of the project financed by ADB and Korea Eximbank. The project management unit (PMU) currently implementing the ADB loan (footnote 7) will serve as the implementing agency. The PMU will implement the project with assistance from EDL’s provincial branch offices in the project areas. An international consulting firm serving as the project implementation consultant (PIC) will be engaged to help the PMU with project implementation for all three modules. Figure 1 shows the organization structure.
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Figure 1: Project Management Organization
EDL District Compensation and Grievance Committees
PMU
EDL Branches PIC
Contractors
EDL = Electricite du Laos, PIC = project implementation consultant, PMU = project management unit. Sources: EDL and Asian Development Bank estimates.
52. The PMU will be responsible for (i) overall project implementation planning, budgeting, finance planning, and accounting; (ii) consultant recruitment; (iii) supervision and coordination of detailed project design; (iv) procurement of goods and services; (v) implementation, supervision, and commissioning of all project components including administration of the no-interest credit scheme to poor households; (vi) implementation of environmental impact mitigation measures and resettlement plans; (vii) organization of the project performance monitoring system; and (viii) preparation of periodic project progress reports and project completion report.
53. The EDL provincial branch in each province will appoint staff to assist the PMU in implementing the project. They will be responsible for local liaison and coordination with contractors, processing household connections, local site supervision, and supervision of project construction and commissioning. They will update all data relating to project progress monitoring, contractor performance, and financial reports.
54. District and provincial authorities will provide assistance to the project in various resettlement planning and implementation activities. This support will be utilized to form compensation and grievance committees, which will comprise representatives from EDL, provincial MEM departments, provincial cabinets, provincial water resources and environment administrations, and provincial land offices. The committees will be responsible for planning and implementing compensation and resettlement in accordance with the resettlement plan.
2. Implementation Period
55. The project will be implemented over 42 months13 from the effectiveness of the grant. Advance recruitment of the PIC was requested to ensure timely project implementation. However, ADB approval of the advance recruitment of consultants does not commit ADB to approve the project or to finance the recruitment costs. The detailed implementation schedule is in Appendix 5.
13 The 42-month implementation schedule was a result of concrete discussion with the PMU. In the past a major reason for longer implementation was approval of resettlement plans and particularly compensation rates. ADB and the PMU agreed that the PMU will prepare an updated resettlement plan to avoid delays. In addition, turnkey contracts will be used for the construction, which will save time.
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3. Procurement
56. All grant-financed procurement will be carried out in accordance with ADB’s Procurement Guidelines (2007, as amended from time to time) and the procurement plan prepared and agreed to by the government and ADB. The ADB-financed turnkey contract will follow international competitive bidding with prequalification and follow the one-stage two- envelope procurement method. All procurement contracts will contain anticorruption provisions as specified by ADB.
57. Procurement for modules 2 and 3 to be financed under the Korea Eximbank cofinancing will be carried out in accordance with the Guidelines for Procurement under the EDCF Loan. Supply of goods and services under the Korea Eximbank financing will be procured from among Republic of Korea firms using the one-stage two-envelope procedure. These procedures were discussed and agreed to by Korea Eximbank and the government. Packages under the Korea Eximbank financing include (i) a contract for a procurement specialist and (ii) a turnkey contract for modules 2 and 3. ADB shall be satisfied that the procedures used for the Korea Eximbank- financed procurement will fulfill the borrower's obligations to cause the project to be carried out diligently and efficiently, and that the goods and works to be procured (i) are of satisfactory quality and compatible with the balance of the project; (ii) will be delivered or completed in a timely fashion; and (iii) are priced so as not to affect adversely the economic and financial viability of the project. Appendix 6 shows the procurement plan for modules 1, 2, and 3.
4. Consulting Services
58. ADB's Guidelines on the Use of Consultants (2007, as amended from time to time) will be applicable throughout the consulting services. An international consulting firm to serve as the PIC will be engaged to help EDL implement the entire project, in particular in (i) procuring goods and services; (ii) supervising construction and installation; (iii) conducting system final testing and commissioning; (iv) conducting social and environmental assessment, management, and monitoring; (v) strengthening EDL capacity for social and environmental assessment, management, and monitoring; (vi) undertaking project performance monitoring and evaluation; and (vii) project reporting. The firm will be hired to deliver 175 person-months of consulting services (80 person-months by international and 95 person-months by national experts) following ADB’s quality- and cost-based selection (80:20) procedures using the full technical proposal. The outline terms of reference for the PIC are in Supplementary Appendix A. In addition to the PIC, the project will recruit a Republic of Korea procurement expert to assist EDL prepare part of the bidding documents, in particular the invitation for bids (as part of the ADB standard bidding document) and contract documents following Korea Eximbank procurement guidelines, evaluation of bidding proposals, and other technical supports related to the bidding process for procurement for modules 2 and 3. The cost of this consultant is included in Korea Eximbank financing.
59. A senior international energy policy advisor will be engaged using single-source selection to provide advice on strategic policy issues related to energy sector development in the Lao PDR, e.g., power system strategy, development of large IPP hydropower plants, tendering of IPPs, and negotiations of power purchase agreements. The indicative terms of reference for the senior advisor are in Supplementary Appendix B. All consultants under the ADB financing will be selected and engaged in accordance with ADB’s Guidelines on the Use of Consultants.
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5. Anticorruption Policy
60. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and EDL. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. To support these efforts, relevant provisions of ADB’s Anticorruption Policy are included in the grant regulations and bidding documents for the project. In particular, all contracts financed by ADB in connection with the project shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all contractors, suppliers, consultants, and other service providers as they relate to the project. EDL will publish on its website for each contract the following information: participating bidders, name of wining bidder. The EDL legal department will closely supervise the bidding and bid evaluation processes.
6. Disbursement Arrangements
61. Disbursement will be according to ADB’s Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed to by the government and ADB. Disbursement will be for consulting services (inclusive of the senior advisor), and for supply and installation of power transmission and distribution equipment and accessories (inclusive of wiring for poor households). Disbursement of the EDCF loan proceeds will be made in accordance with the disbursement procedures to be constituted as an integral part of the loan agreement between the government and Korea Eximbank.
62. Two imprest accounts will be established to provide credit to poor households for their connections. According to the government requirement, a first generation imprest account will be created at Bank of the Lao PDR owned by MOF, to receive the ADB funds. A second generation imprest account will be opened at Banque pour le Commerce Exterieur Laos owned by EDL for receiving funds from MOF. EDL, with MOF authorization, will request advance and replenishment of the imprest accounts. The advance and replenishment will be no more than a 6-month projected disbursement to be financed from the imprest account or $250,000, whichever is lower. EDL's provincial branches in Xaignabouli and Phongsali provinces have worked with the district authorities to identify eligible poor households to receive the credit. The poor households will enter into an agreement with EDL for the credit, and an agreement with a local contractor for wiring the houses. EDL will use the funds in the second generation imprest account to pay the contractors the expenditures incurred for wiring the poor households. ADB's statement-of-expenditure procedure will be followed when liquidating all individual payments not exceeding $25,000. MOF assures that it will facilitate fast-track channeling of the funds from the first to the second generation imprest accounts during project implementation. The fund flow is shown in Appendix 7.
7. Accounting, Auditing, and Reporting
63. EDL will maintain a separate account exclusively for project-related disbursements. The PMU will consolidate the account and have it audited annually in accordance with sound auditing practices by the government’s sovereign audit agency or other auditors acceptable to ADB. The audit report will include audited financial statements and detail fund sources and expenditures. Copies of the audited accounts and auditor’s report will be submitted to ADB and Korea Eximbank within 6 months after the end of each fiscal year. A separate audit opinion will be issued on the use of the imprest account and statement-of-expenditure procedures. The government will maintain separate records and account for each of the ADB grant fund imprest
16 accounts, have such records and accounts appropriately audited, and regularly submit the audits to ADB.
64. The PMU will prepare and submit quarterly project reports to ADB and Korea Eximbank. The reports will describe the physical progress for the reporting period, procurement and contractual status, highlights of implementation issues including changes to the implementation schedule, total number of consumers connected, and a summary of project components, with details of the latest project disbursements of incremental expenditures and contract amounts. The reports will also describe the works to be carried out in the next quarterly reporting period. EDL will submit to ADB and Korea Eximbank a project completion report within 6 months after project completion. Aside from assessing project execution and operation, the quarterly progress reports and the completion report will indicate compliance with the grant covenants.
8. Project Performance Monitoring and Evaluation
65. EDL will ensure that a comprehensive program for project performance monitoring and evaluation (PPME) acceptable to ADB will be carried out during implementation and subsequent operation to assess the achievement of the project’s objectives. With help from the consultants and in consultation with local communities, the PMU will develop a set of PPME indicators at the start of the project. The PMU will be responsible for implementing the PPME. EDL will submit a detailed PPME implementation plan for ADB review and concurrence within 6 months of grant effectiveness, as well as annual PPME reports.
9. Project Review
66. The project performance will be reviewed twice a year jointly by ADB, Korea Eximbank, and the government. These reviews will assess implementation performance, review financial progress, identify issues and constraints affecting the project, work out a time-bound action plan for their resolution, and verify compliance with covenants. The government, ADB, and Korea Eximbank will jointly undertake a detailed midterm review of the project after 2 years of implementation, or earlier if major difficulties threaten the project objectives. The midterm review will appraise the project scope, cost estimates, implementation arrangements, number of connections, and compliance with covenants; and identify issues to be resolved to improve project impact and sustainability. The government, ADB, and Korea Eximbank will jointly decide on any changes needed in project design and implementation as appropriate, given implementation experience, to achieve the project objectives.
IV. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS
A. Benefits
67. The government has set a goal to electrify 80% of all villages and 90% of all households by 2020. The area targeted by the project, comprising the provinces of Phongsali, Xaignabouli, and the far west of Vientiane, is currently among the poorest and least electrified in the country. More than 30% of the poorest districts in the Lao PDR are in the target provinces. The project will provide grid connection for 195 villages and electrify about 18,800 households. Table 3 provides details on provinces, substations, and households to be electrified.
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Table 3: Households to be Electrified in the Project Area
Total Substation Province Households Boun Nua Phongsali 2,645 Nonhai Vientiane 1,541 Paklay Xaignabouli 7,553 Xayabury Xaignabouli 7,020 Total 18,759 Sources: Electricite du Laos and Asian Development Bank estimates.
68. The electricity provided by the project will benefit newly connected households and existing consumers, who can increase their consumption because of the more reliable and higher quality supply of electricity. For some, the project will replace electricity now imported from Thailand through long medium-voltage distribution system. Nonresidential consumers, such as small-scale enterprises, schools, clinics, public services entities, and commercial users, also have the opportunity to increase their electricity consumption. The Paklay and Boun Nua substations are designed with 20 MVA transforming capacity anticipating demand from future industrial mining projects registered in the area.
69. Interconnection makes use of the seasonal availability of hydropower, which is 98% of the EDL generating capacity. During the dry season (March–May), due to lower hydro energy, EDL can import power. During the wet season (August–October), EDL can export power. With the interconnection provided by the project, expected power flows between Paklay and Thali substations can reach 28 MW.
1. Economic Analysis
70. The economic analysis assesses the economic viability of the project from the societal resource utilization point of view. Such analysis compares the project’s social benefits with its social costs. Project benefits resulting from delivery of electricity to consumers are valued separately for nonincremental and incremental consumption. Electricity output of the project is defined as nonincremental if it replaces the existing supply of alternative sources of energy in the absence of the project. It is defined as incremental if it meets additional or induced demand. Costs include the project’s capital investment valued at economic prices; operation and maintenance costs equivalent to 1% of capital cost for the first 10 years, and 2% thereafter; and the economic costs associated with power generation and future distribution investment requirements.
71. At a 12% discount rate, the economic net present value of the project is $203.7 million. The project's economic internal rate of return is estimated to be 42.2% well above the real economic opportunity cost of 12%. Sensitivity and risk analyses carried out demonstrate that the economics of the project are robust with respect to possible variations of the key inputs, such as 20% increase of capital costs and 40% reduction of incremental benefits due to lower demand. The distribution analysis shows that electricity consumers (including nonresidential) benefit most from the project followed by local laborers. Details of the analysis are in Appendix 8.
2. Financial Analysis
72. The financial viability of the project is assessed by comparing the financial internal rate of return (FIRR) with the weighted average cost of capital (WACC). The FIRR is estimated at
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11.5% after tax, exceeding the WACC of 2.7%. Sensitivity tests show that the FIRR exceeds the WACC even under a range of adverse scenarios. Thus, the project is considered financially viable. Detailed calculations are in Appendix 9.
73. EDL’s financial viability was assessed using EDL's past financial statements. Historically, EDL’s retail tariffs have been low relative to its cost of supply due to a cross-subsidy from nonresidential customers to residential customers and agriculture customer groups. In 2005, the government approved an annual tariff adjustment program to be implemented each year for 2005–2011; it progressively removes existing subsidies. With implementation of the program, EDL's tariff reached cost recovery in 2008 (average tariff of KN542/kWh compared with the cost of supply of KN468/kWh).
74. In the past, government arrears impacted negatively on EDL's shorter-term liquidity position. To address this situation, MOF and EDL began implementing an arrears settlement program in 2005. MOF increased its annual fund allocation to settle arrears from KN52 billion in 2006 to KN118 billion in 2009. As a result, the KN140 billion accumulated arrears in 2006 were reduced to KN96 billion by 2009. Further, the government approved a new action plan in December 2008 to allocate adequate funding to each central, provincial, and municipal governmental institution based on agreed annual electricity budgets to allow these institutions to settle their electricity bills in a timely manner. MOF and EDL are working together to determine the precise amount of outstanding arrears to settle all the arrears in the near future.
75. To meet future investment requirements (estimated at $1.3 billion for 2007–2016) and to maintain EDL's financial sustainability, EDL is planning to implement a new tariff adjustment program to be designed based on the results of the tariff update study (completed in June 2009 under World Bank TA). The new tariff will be designed to incorporate a new tariff classification for high-voltage customers, capital requirements of the Power Development Plan, and an annual adjustment based on inflation and exchange rates. The new tariff is envisaged to be approved in the first quarter of 2010.
76. EDL's financial projections for 2009–2016 indicate overall financial performance to be within an acceptable range: profit margin of at least 15%, debt–equity ratio of 0.5–1.0 times, and debt service coverage ratio of more than 1.5 times. Detailed analysis of EDL's past financial performance and projections are in Supplementary Appendix C.
B. Impacts
1. Environmental Impacts
77. The initial environmental examination (IEE) (Supplementary Appendix D) concludes that the project will generate only minor environmental impacts for the following reasons: (i) The 115 kV transmission line routes and substation sites were selected to avoid environmentally sensitive areas; villages; settlements; and religious, cultural, and or heritage sites. The transmission line routes broadly follow existing road corridors to minimize the impacts. (ii) Natural habitats along selected transmission line alignments are generally degraded due to forest removal through logging, swidden agriculture, conversion to plantations, paddy farming, and human settlement. The zone of degradation generally extends for at least a few kilometers on either side of the road and 19
encompasses the location of the transmission line alignments. The transmission lines do not encroach upon any national protected area. (iii) The 22 kV distribution systems will mainly follow existing road rights-of-way, and will be constructed so that local residents in villages through which the lines will pass can connect for electricity. The installation of the system within existing road rights-of-way ensures that environmentally sensitive areas outside of the road rights-of-way will not be adversely affected.
78. Even though the environmental impacts will be minor, the IEE has an environmental mitigation and monitoring plan with specific mitigation measures to reduce the impacts. It includes institutional arrangements for implementing the plan to ensure its effectiveness. Based on the IEE, the PIC will prepare a project environmental management plan (PEMP) covering preconstruction, construction, and operation stages for modules 1, 2, and 3. The PIC will also prepare site or construction environmental management plans (CEMPs) for implementation by the contractors for modules 1, 2, and 3. Provisions of the CEMPs will be specific to the activities or work packages to be undertaken by the contractors. The PEMP and CEMPs will be consistent with the mitigation and monitoring measures, reporting, institutional arrangements, and training programs indicated in the IEE. The content of the PEMP and CEMPs will conform to the environmental management plan requirements specified in the ADB Environment Policy (2002).
2. Land Acquisition and Resettlement
79. The project does not involve any relocation, and has very limited land acquisition since the transmission line route is designed to minimize land acquisition and eliminate the need for physical resettlement and relocation of dwellings and other assets. This includes attention to the transmission route to avoid impacts, use of government land for the new substation and most of the towers, and support for structure designs with the least land acquisition requirement.
80. Based on the current transmission line route, physical construction will involve permanent acquisition of approximately 1,000 square meters (m2) for tower footprints from 28 households (36 m2 per tower). No affected households will lose more than 10% of their agricultural land. The project will also require temporary access roads to straining towers during line stringing. Such temporary land acquisition may affect crops; therefore, land rental and compensation will be provided and the land will be returned to its original condition.
81. A resettlement plan was prepared to establish the involuntary resettlement screening and planning procedures for the project. The resettlement plan and its policies and entitlements were discussed during a stakeholder workshop held in March 2007. The resettlement plan includes measures for stakeholder participation and full disclosure of all information relating to the project. In addition, a project information booklet prepared by EDL was distributed to affected people in July 2009 as part of the resettlement plan disclosure. A resettlement framework was prepared and provides policies and entitlements for the substations and medium- (22 kV) and low-voltage (400 V) power distribution facilities. The resettlement framework will be used as a basis for the preparation of detailed resettlement plans after detailed design and measurement surveys. The resettlement plan and resettlement framework were uploaded onto the ADB website on 22 September 2009. A summary of the resettlement plan and resettlement framework is in Appendix 10.
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82. Among the 28 families affected by permanent land acquisition for towers, 10 belong to ethnic minorities, including two Hmong families affected by module 1 and eight families (Phounoi and Yang) affected by module 3. To ensure that ethnic minority households and those headed by women are not marginalized during the process of compensation, ethnic minority and gender-specific actions are included in the resettlement plan.
3. Social and Poverty Impacts
83. In the Lao PDR, many rural poor households do not have access to electricity. The cost of connecting a house to the power pole in rural areas (including wires, fuses, nuts, and bolts), is approximately KN700,000. However, poor households may have difficulty paying for the connection. To specifically help the poor, each poor household, identified by the district authority, will be given a credit up to KN700,000 to cover the cost of wiring from the pole to the house and inside house wiring. The project will include community consultations for information dissemination to poor households about this credit scheme. About 80% of poor households in the project area are expected to benefit. The social analysis of the project shows that 47% of the respondents rank electricity as their first priority. Electricity is perceived as a contributing factor for improving living conditions and enhancing learning opportunities for children. The access to electricity will increase access to information technology, and utilization of electric equipment and computers in schools and health facilities. This would result in quality education and health services. Street lighting will contribute to safer environments at night in villages.
a. Gender
84. The increased access to electricity will reduce the drudgery of women’s domestic work through use of appliances, such as electric water pumps, rice cookers, grinders, and food processing equipment. Community meetings will be conducted in collaboration with the Lao Women’s Union to disseminate information on the credit scheme available to poor households from all ethnic groups and households headed by women; these will be given special attention to ensure their access to electricity. The safer environment at night will have a positive impact on women's mobility. A project-specific gender strategy is included in the summary of poverty reduction and social strategy (Appendix 11).
b. Risk
85. To ensure that rural communities who will get access to electricity under this project will have sufficient knowledge on the safe use of electricity and safety around the power line, EDL will provide an electricity safety booklet to the communities. During construction, the number of workers will increase considerably; this presents a potential risk of HIV and trafficking of women. To minimize this risk, an awareness campaign on HIV and human trafficking will be conducted under the project.
C. Risks and Assumptions
86. The project is not likely to face any significant technical difficulties as the technology is standard and widely available. EDL has good experience and performed well in similar projects; in particular, managerial skills of staff have improved through implementation of the Northern Area Rural Power Distribution Project (footnote 7). With the opportunity to apply their skills and lessons from the previous project, EDL staff are expected to have improved by the end of this project.
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87. The project may face a risk of cost overrun. To counter this risk, the cost estimate was updated and appropriate price and physical contingencies are allowed. International competitive bidding will be used for ADB-financed packages. The Korea Eximbank fund includes sufficient contingencies for packages to be financed by Korea Eximbank (14%). Another issue of possible concern is the coordination between packages and project components. Having a single PIC, that will be in charge of detailed design, preparation of bidding documents, and implementation of environmental management plan and resettlement plan, ensures that coordination will be satisfactory.
V. ASSURANCES AND CONDITIONS
A. Specific Assurances
88. In addition to the standard assurances, the government and EDL have given the following assurances, which will be incorporated into the legal documents:
1. Financial Matters
(i) The government shall ensure, through appropriate tariff adjustment and other means, that EDL maintains (a) a self-financing ratio of 30% or above, (b) a debt service coverage ratio of 1.5 or above, and (c) a debt–equity ratio of 1.5 or below. The government shall also ensure that adequate tariff adjustments are processed by the relevant authorities of the government in a timely and effective manner. (ii) EDL shall reduce its account receivables for domestic electricity sales equivalent to 3 months of average sales of the previous year and maintain that level thereafter.
2. Environmental Matters
(i) EDL shall ensure that the construction and operation of the project will be carried out in accordance with the IEE prepared under the project preparatory TA and shall comply with the government’s environmental laws and regulations and ADB’s Environment Policy (2002). If there is any discrepancy between the government’s laws and regulations and ADB’s Environment Policy, ADB’s policy will prevail. (ii) EDL shall secure the government's approval and Department of Forestry approval of the transmission line alignment as necessary before site implementation works start. (iii) EDL shall ensure implementation of environmental mitigation measures and shall undertake regular environmental monitoring and reporting as specified in the IEE. (iv) EDL shall ensure that the environmental mitigation, monitoring, and reporting requirements in the IEE are included in the bidding documents and that construction contracts shall specify that contractors shall implement the CEMPs. (v) Before commencement of physical works, EDL and ADB shall review and approve the PEMP and CEMPs to be prepared by the PIC for all project modules. EDL shall ensure proper implementation of the PEMP and CEMPs.
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(vi) EDL shall ensure that ADB’s environmental safeguards and the environmental mitigation and monitoring measures specified in the IEE, PEMP, and CEMPs are adopted for all project components regardless of financing source.
3. Social Matters
(i) The government shall ensure that EDL implements the ethnic minority specific actions as stipulated in the resettlement plan and resettlement framework in accordance with the applicable laws and regulations of the government and ADB’s Policy on Indigenous Peoples (1998). (ii) The government shall ensure that all works contracts under the project incorporate provisions and budgets to the effect that contractors (a) comply with the government’s applicable labor laws and related international treaty obligations and do not employ child labor; (b) provide safe working conditions and water and separate sanitation facilities for male and female workers in the construction camps and in the construction sites; (c) provide equal wages to male and female workers for work of equal value; (d) provide child day care services for female construction workers; (e) recruit local labor for construction work; and (f) undertake HIV and human trafficking education and awareness campaigns in the construction camps, with other risk groups and villages, and along the transmission alignment. (iii) The government shall ensure that EDL effectively implements the credit scheme to reach 80% of the poor households in the project area. EDL shall disseminate information about this scheme to all poor households. (iv) The government shall ensure that the gender strategy provided in the resettlement plan and summary poverty reduction and social strategy are undertaken to maximize project benefits to women including the following specific actions: (a) poor households headed by women and ethnic minority households will be the first priority to be provided with credit for connection, (b) registration of the replacement land in the names of both husband and wife in cases where land acquisition has taken place, and (c) compensation money to both husband and wife. (v) The government shall ensure that the awareness-raising activities concerning the safe use of electricity are carried out at the community level.
4. Resettlement Matters
(i) The government will ensure that all land and right-of-way required for the project are made available in a timely manner. The government through EDL will ensure that appropriate resettlement plans are prepared in accordance with the appropriate national laws and ADB’s Involuntary Resettlement Policy (1995), in consultation with the affected people. In case of discrepancy ADB’s Involuntary Resettlement Policy will apply. The resettlement activities will be carried out according to the resettlement plans agreed between the government and ADB. The executing agency will endorse and disclose all plans to the public and submit them to ADB for approval. The resettlement plans will be updated as soon as practicable after completion of detailed designs and detailed measurement survey. . 23
(ii) Any civil works will be commenced only after the resettlement plan has been approved by ADB and required land has been acquired and affected households have been compensated at full replacement cost. (iii) Adequate budgetary support will be committed by the government and made available to cover the costs of land acquisition and resettlement. (iv) Prior to the commencement of any civil works in a given construction site under the project, the government and EDL shall cause and ensure that a company, which is licensed under the government's law to undertake the clearance of unexploded ordnance in the Lao PDR, has been engaged under the project to clear all unexploded ordnance in such construction site and, after the relevant clearance work is completed, has issued a certificate to that effect.
B. Grant Effectiveness Conditions
89. The Government of the Lao PDR shall have duly signed a loan agreement with the Government of the Republic of Korea concerning the Korea Eximbank loan, and all conditions precedent to the effectiveness of such loan agreement (other than a condition requiring the effectiveness of the ADB grant) shall have been fulfilled.
90. The government and EDL shall have duly signed one (or, if necessary, two separate) subsidiary loan agreement(s), through which the government shall make available the proceeds of the ADB grant and the Korea Eximbank loan to EDL for the purposes of the project, and such subsidiary loan agreement(s) shall be in the form and substance satisfactory to ADB.
VI. RECOMMENDATION
91. I am satisfied that the proposed grant would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the grant not exceeding $20,000,000 to the Lao People's Democratic Republic from ADB’s Special Funds resources for the Greater Mekong Subregion Northern Power Transmission Project, on terms and conditions that are substantially in accordance with those set forth in the draft grant and project agreements presented to the Board.
Haruhiko Kuroda President 21 December 2009
24 Appendix 1
DESIGN AND MONITORING FRAMEWORK
Data Sources/ Design Reporting Assumptions Summary Performance Targets/Indicators Mechanisms and Risks Impact Assumptions Achieving the government By 2020, 80% of villages and 90% of Government and Lao’s Power Development goal of rural electrification households in the Lao PDR are EDL statistics Plan 2007–2016 is in 2020 electrified as compared with 43% of implemented successfully villages and 58% of households in 2007 according to the schedule.
By 2020, 28% of households in New tariff adjustment based Phongsali province and 98% households on the recently completed in Xaignabouli province will be electrified tariff study will be (project area combined: 79%) implemented starting in 2010 and government arrears completely settled by 2011 to ensure EDL's financial sustainability. Outcome Assumptions Increased access to 18,800 new households (among which EDL annual reports Project resources are electricity for households in 6,000 poor households) in Phongsali, efficiently and timely used to the northern provinces of Xaignabouli, and Vientiane provinces will Provincial statistics implement all project the Lao PDR be electrified by 2013: packages.
7,000 households connected from Xayabury substation 7,600 households connected from Paklay substation 1,500 households connected from Nonhai substation 2,700 households connected from Boun Nua substation Outputs Assumptions EDL annual report Coordination between the 1. New 115 kV A total of 398 km of 115 kV transmission PMU, PIC, and contractors transmission lines lines constructed according to technical Semiannual reports in project implementation is constructed and design by 2013 by executing effective. operating; new Substations at Paklay (20 MVA) and agency substations constructed The project receives full and existing substations Boun Nua (20 MVA) and extension of the existing Namo and Nonhai substations Project quarterly support of provincial and expanded and operating; monitoring reports district authorities. 22 kV feeder lines and completed according to technical design by 2013 low voltage distribution Provincial statistics Risks networks in Phongsali, Medium- and low-voltage distribution The risk of a cost overrun is Xaignabouli, and system constructed according to mitigated by incorporating Vientiane provinces built technical design by 2013, including sufficient price and physical and ready for use 361 km of 22 kV feeders from Boun contingencies in the Nua substation estimated costs.
263 km of 22 kV feeders from Paklay substation 156 km of 22 kV feeders from Nonhai substation 336 km of 22 kV feeders from Xayabury substation
2. Provision of connections Credit scheme established by December to poor households 2010 through no-interest 6,000 poor households provided with no- credit of KN700,000 per Appendix 1 25
Data Sources/ Design Reporting Assumptions Summary Performance Targets/Indicators Mechanisms and Risks household interest credit
6,000 poor households connected to the new T&D network by 2013 3. Draft strategy framework Draft strategy papers prepared by 2013 on energy efficiency and renewable energies and national strategy for hydropower utilization
4. Increased access to two- Power trade between Xaignabouli and way power trade Loei provinces increased by 28 MW in between EDL and EGAT 2014 Activities with Milestones Inputs 1.1 Appoint the PIC by February 2010. ADB: $20.0 million to 1.2 Implement resettlement plan and environmental monitoring plan starting in January 2010. finance: 1.3 Award turnkey contract for the package under ADB financing by April 2011. 1.4 Award turnkey contract for the packages under Korea Eximbank financing by September Consulting services 2010. ($3.27 million) Equipment for transmission 2.1 Establish credit scheme for poor households by September 2010. lines and substations under 2.2 Implement credit scheme for eligible poor households by 2013. module 1 ($13.8 million)
3.1 Engage international senior policy advisor by June 2010 with regular inputs to EDL and Credit to the poor MEM. ($0.75 million) 3.2 Complete draft of national energy efficiency and conservation strategy and action plan by Advisory service for MEM 2011. ($0.6 million)
4. Energize interconnection between Paklay and Thali in 2013. Korea Eximbank: $37.88 million to finance modules 2 and 3: Equipment for transmission lines Equipment for medium- and low-voltage connections Construction works EDL: $7.44 million Land acquisition and resettlement Administrative expenses Taxes and duties ADB = Asian Development Bank; EDL = Electricite du Laos; EGAT = Electricity Generating Authority of Thailand; km = kilometer; Korea Eximbank = Export–Import Bank of Korea, kV = kilovolt; MEM = Ministry of Energy and Mines; MVA = megavolt-ampere; MW = megawatt; PIC = project implementation consultant; PMU = project management unit; T&D = transmission and distribution.
26 Appendix 2
LAO ENERGY SECTOR STRATEGY ASSESSMENT AND ROAD MAP
1. The energy sector plays a pivotal role in economic growth and social development of the Lao People's Democratic Republic (Lao PDR). The country has significant energy resources especially hydropower—about 18,000 megawatts (MW) of hydropower can be developed. However, to date only 3.3% of the hydropower resources are being utilized. High-quality lignite (estimated at 220 million tons) was found in Hongsa district of Xaignabouli province near the border with Thailand. Private investors plan to develop the lignite mines for power generation at Hongsa (1,800 MW) and to export power to Thailand. Renewable energy sources in the Lao PDR are still in the development stages. Biomass resources essentially consist of wood fuels, used for cooking and heating, normally by the rural population. The potential for wind energy is limited. Small hydropower and photovoltaic modules are already used in remote areas. Small hydropower will play an increasing role as a means of rural electrification.
2. The power system serves two vital national priorities: (i) it provides a reliable and affordable supply of power to facilitate business and provide social benefits to urban and rural communities, and (ii) it earns foreign exchange revenues from electricity exports. The government’s power policy facilitates these objectives by encouraging optimal use of the country’s natural resources, and creating a conducive environment for responsible infrastructure investment, both public and private.
3. The power system currently has small generating capacity and a fragmented transmission and distribution (T&D) system. The total installed generating capacity is 692 MW, comprising 310 MW owned by Electricite du Laos (EDL), 362 MW owned by independent power producers (IPPs),1 and 20 MW belonging to provincial authorities. About 98% of this capacity is hydro based, the remaining 2% is diesel based. The existing power system covers four isolated T&D regions—northern, central 1, central 2, and southern—serving about 250,000 customers in total. The existing domestic power grids include 115 kilovolt (kV) and 22 kV transmission and distribution systems. Transmission lines interconnect between the Lao PDR, Thailand, and Viet Nam for power export and import. The largest EDL hydropower plants providing power mainly for domestic supply are Nam Ngum 1 (155 MW), followed by Nam Leuk (60 MW), Nam Mang 3 (45 MW), and Xeset (40 MW). Several new large IPP hydropower plants are under construction, mostly for export, including Nam Theun 2 hydropower project (1,070 MW, with 70 MW for domestic supply); Nam Ngum 2 (615 MW for export); Theun Hinboun extension (220 MW for export to Thailand plus 60 MW for domestic supply) to be commissioned in 2012; and Xe Kaman 3 (250 MW for export to Viet Nam).
4. EDL was incorporated as a public company under a charter approved by the Ministry of Industry and Handicrafts in 1997 (renamed the Ministry of Energy and Mines [MEM] in 2007). EDL is responsible for the design, construction, and operation and maintenance of its generating plants, T&D and substation facilities, and power exports.
A. Sector Issues and Development Challenges
5. Access to electricity and rural electrification target. Rural electrification is an important aspect of poverty reduction—a highest priority of the government’s 6th National Socio-Economic Development Plan, which aims to graduate the country from least developing country status by 2020. Currently, 58% of households in the country have access to grid
1 These are Theun Hinboun hydropower plant (210 MW) with 60% shareholding by EDL, and Houay Ho hydropower plant (150 MW) with 20% shareholding by EDL. Appendix 2 27 electricity. The government has set a plan to electrify the country by 2020, with specific targets—80% of the total number of villages and 90% of the total households will be supplied with electricity from the national grid.2 Northern provinces are currently the least electrified because the national grid does not reach many provinces. To achieve the national targets, an increase in the electrification rate for the northern and southern provinces should be accelerated. This would require an increase in the household electrification rate from 13% to 28% in Phongsali, and from 14% to 32% in Oudomxai by expanding the current EDL electricity T&D network.
6. Grid extension to meet increasing demand. A significant challenge is the integration of the four regional grids presently operating in isolation. EDL’s Power Development Plan has developed a demand forecast to include the electrification plan for each area, to be satisfied with a combination of additional generation, imports and/or exports from other areas, and cross- border imports and exports. The plan up to 2020 includes a general policy of building more hydropower plants in each region, striking a balance between the regions, and selling increasing surplus energy to neighboring countries. By 2020, the country is expected to have a fully integrated national grid, largely at 230 kV and 115 kV. The unified national grid will help to achieve rural electrification targets as well as boost the socioeconomic development of the country.
7. Sustainable hydropower development. Development of large hydropower projects will continue to be justified if social and environmental impacts, resettlement, and compensation matters are carefully assessed and mitigated, and if the net benefits are shared equitably between investors and the population, who are ultimately the owners of the natural resources. The revenues generated from increased export earnings will be vital to improving basic government services, including education, health, and infrastructure services in poor areas of the country. The government can obtain benefits from hydropower projects through concession fees, royalties, taxation, and returns on its equity stake in particular projects. While past hydropower projects have generated substantial revenues, these have primarily been used to finance the operations of EDL. Revenues from future hydropower projects will need to be managed to ensure they increase public spending for poverty reduction. The government’s Hydropower Sustainable Development Policy provides guidance for exploration of national resources in a sustainable manner. The challenge is developing the capacity to implement the policy while developing hydropower projects. Currently, the Water Resource and Environment Administration is responsible for implementing the environmental protection policies and social resettlement policies. The Water Resources and Environment Administration has asked the Asian Development Bank (ADB) to help build its capacity to meet this challenge.
8. Mobilization of financial resource for investment. The investment requirements in the power system to 2016 total $1,260 million (Table A2.1).
9. Private sector participation. Private sector participation in power system development will be needed to achieve the government’s power development targets. The government expects half of the investment requirements to be secured from the private sector, particularly for generation. Although many private investors are interested in participating in export-oriented IPP projects, greater efforts are required to create a favorable investment environment. The government needs to define appropriate roles for the public and private sectors, as the country is still in transition to a market-based economy. Sector restructuring will be required, including
2 In 2007, 5,289 villages (about 50% of the national total) with a population of about 2.6 million did not have access to electricity.
28 Appendix 2 establishing institutions to facilitate IPP participation, introducing a transparent bidding mechanism, and adopting best practices for formulating power purchase agreements. The government is also taking steps to put in place an appropriate regulatory framework to encourage private sector participation. The Department of Energy Development and Promotion has asked ADB to help enhance its capacity for managing IPP projects.
Table A2.1: Investment Requirements for System Development ($ million) Projects Foreign Cost Local Cost Total Cost Generating plantsa 484.3 121.1 605.4 Transmission lines 253.4 105.2 358.6 Substations 70.5 10.4 80.9 Dispatch control center 13.4 5.8 19.2 Rural electrification 131.3 32.8 164.1 Overhaul and distribution reinforcement 25.8 6.4 32.2 Total 978.7 281.7 1,260.4 a Excluding all investments on IPPs. Source: Power Development Plan, 2007–2016.
10. Maintenance of financial viability. EDL’s gross income in 2007 was KN678 billion ($71 million), and the net profit was KN104 billion ($11 million). This amount of internal cash generation is clearly inadequate to finance an investment requirement of about $1.3 billion over 2007–2016 to meet the fast-growing demand. To be able to raise funds for development, a plan to increase the average customer tariff from the present $0.06/kilowatt-hour (kWh) in 2007 to $0.10/kWh in 2016 was suggested. The tariff adjustments proposed are based on the following criteria: (i) self-financing ratio at least 30%, (ii) debt service coverage ratio to be more than 1.5, and (iii) the debt–equity ratio less than 1.5. A progressive tariff increase of an average 1% per year 3 has been implemented since 2006 and will continue until 2011. This tariff revision removes cross-subsidies that existed between low-income households and agriculture, and commerce and industry. In addition, the unsatisfactory settlement of electricity bills affects the financial viability of EDL. With continued assistance and support from ADB and other development partners, the government has taken concrete steps to introduce a more appropriate tariff adjustment mechanism, and to settle overdue payment arrears from government agencies. Adherence to progressive tariff adjustment and strict payment policies are critical to improve EDL’s financial performance, especially in view of the large investment requirement for the upcoming decade. Key financial ratios, such as debt service ratio, self- financing ratio, and debt–equity ratio are expected to be under pressure.
11. Institutional strengthening and capacity building. In parallel with infrastructure development, the power system needs institutional development to cope with the increasing requirement to manage the system rationally and sustainably. This institutional strengthening includes (i) reform of the electricity tariff to full cost recovery, (ii) setting up a legal framework for more efficient utilization of energy resources and energy products, (iii) capacity building for implementation of environmental protection and social and resettlement policies, and (iv) establishment of best practices. Institutional and national capacity becomes ever more important given integration of the Lao PDR with neighboring countries in the Greater Mekong Subregion (GMS).
3 Decision No. 845/PMO dated 6 June 2005. Appendix 2 29
B. Government’s Development Strategy
12. Although the Lao PDR has a vast quantity of economically viable hydropower resources and is developing a major regional export market for its hydropower resources, its per capita consumption rate (223 kWh) and electrification rate (54%) in 2007 are among the lowest in Asia. Recognizing both the economic and social advantages of electrification and the low rate of domestic consumption, the government’s power development strategy states that energy resources represent a major opportunity for economic development and assist in reducing poverty and increasing development of the country. It has four medium-term priorities: (i) maintain and expand affordable, reliable, and sustainable electricity supply to promote economic and social development; (ii) promote power generation for export to provide revenues to meet development objectives; (iii) develop and enhance the legal and regulatory framework to direct and facilitate power system development; and (iv) reform institutions and institutional structures to clarify responsibilities, strengthen commercial functions, and streamline administration. The government’s plan to 2020 for power involves rapid and simultaneous development on several fronts by (i) expanding generation, transmission, distribution, and off- grid development to increase the electrification rate for the country from about 58% in 2008 to 90% by 2020; (ii) increasing government revenues from IPP investments and honoring power export commitments with Thailand (7,000 MW) and Viet Nam (5,000 MW) by promoting IPP generation development; (iii) building a national unified T&D system to cover all regions of the country; and (iv) promoting the development of a 500 kV transmission grid with neighboring GMS countries to integrate the Lao PDR power system with their power systems.
C. Priority Areas for ADB Support
1. Improving Access to Electricity
13. Targets of electrification. The government's target of electrifying 90% of households in 2020 requires an average addition of 41,000 new electrified households every year from now until 2019. EDL estimates that six rural electrification projects would have to be initiated to implement the work during 2009–2020. 4 Owing to its clear benefits and alignment with government policy, ADB's continued assistance to future rural electrification projects is consistent with ADB’s country strategy. ADB’s focus will continue to be on the northern region, owing to its very low electrification rates seen in its provinces, some as low as 7%. Apart from rural electrification, which requires specific attention by way of concessionary loans, regular distribution upgrades and maintenance should be the responsibility of EDL, with investment coming from internal cash generation. No other development agencies have major investments in the northern region for rural electrification.
14. Transmission system to strengthen regional grid integration. Intra- and interregional transmission development is key to harnessing hydropower resources for the Lao PDR's own requirements. Good transmission connectivity would decrease the need for higher- priced imports, and enable exports through existing links. These are in addition to the export hydropower projects, which have their own dedicated transmission system. A further objective of developing the local transmission network would be to ensure that the entitlement of EDL from existing and new export IPPs can be fully utilized and distributed among customers. Accordingly, from EDL’s perspective, transmission investments can fulfill one of the three principal objectives: (i) to provide hydropower from EDL or domestic IPPs to the EDL grid, (ii) to
4 EDL. 2007. Power Development Plan. Vientiane (Appendix 3).
30 Appendix 2 enable EDL to fully use it entitlement from export projects (existing and new), and (iii) to serve customers in urban and remote areas. Transmission connections to provide hydropower to the grid are usually included in such power project development.
2. Maximizing Benefits of Hydropower Exports
15. ADB’s support will focus on creating an enabling environment for investors to continue with the development of hydropower and other resources for export, while ensuring that the benefits to the Lao PDR and its institutions are maximized. In this respect, ADB will support (i) developing transmission interconnections to serve the 10% entitlement of export projects to EDL customers, and (ii) enabling EDL customers and the network to be interlinked to the transmission line serving export customers to ensure maximum benefits of such infrastructure to the Lao PDR.
3. Promoting Renewable Energy and Energy Efficiency
16. A demand-side management (DSM) unit at EDL is presently functioning, conducting network loss improvement programs (in association with distribution areas), and implementing tasks under the World Bank-assisted DSM program focusing on capacity building and energy auditing. The DSM unit needs to developed, but more important is the development a national policy framework for energy efficiency and conservation. ADB has started assisting the Lao PDR on this front. Much of the support will be for capacity building for MEM to promote renewable energy development and implementation of energy efficiency. On-grid and off-grid development of nonconventional renewable energy is being promoted by various government and international agencies. Future ADB assistance will focus on developing two small hydropower projects.
4. Developing Energy Policy and Planning
17. The Lao PDR lacks a comprehensive energy sector database, a planning and policy analysis framework, and associated key human resources. Electricity statistics are available to a large extent, but a national energy balance including other sources (biomass, petroleum, coal and lignite) is not prepared regularly. ADB assistance will aim to assist MEM in developing an energy policy analysis and development framework, energy planning, and database development functions.
18. Together with other development partners, ADB, through grants, technical support, and policy dialogue, will continue to support the (i) commercialization of EDL; (ii) development of appropriate regulatory arrangements; (iii) expansion of an affordable, reliable, and sustainable electricity supply system; (iv) adoption of off-grid power generation and alternative technologies where grid-fed electrification is not feasible, especially small and mini hydro; and (v) private sector participation in developing and operating the power system. Given the export orientation, forging suitable public–private partnerships to develop the country’s tremendous hydropower resources in an environmentally, socially, and fiscally responsible manner is central to the long- term development of the Lao PDR. ADB support for public–private partnerships in the energy sector will be provided primarily through the GMS Program and the Private Sector Operations Department. Priority will be accorded to development of the transmission system in the northern region of the country, along the north–south economic corridor. With the development of high- voltage transmission and distribution facilities, the national electrification rate will steadily improve and regional power trade will be facilitated. Appendix 3 31
DEVELOPMENT PARTNER COORDINATION
1. Various development partners provide assistance and support to the energy sector, especially for power in the Lao People's Democratic Republic (Lao PDR). The key partners are the Asian Development Bank (ADB), the World Bank, Japan International Cooperation Agency (JICA), and recently the Government of Finland.
2. ADB. ADB’s cumulative lending to the country’s energy sector stood at $323 million by the end of 2008. ADB has focused on hydropower development, transmission and distribution development, and rural electrification. Technical assistance (TA) has largely served the various needs of the loans, but additional support was provided for (i) institutional development and capacity building, (ii) strategy and planning studies, and (iii) development of mini-hydro power plants. Through its significant lending to power generation projects, ADB has, in general, provided more assistance to the energy sector than other development agencies.
3. World Bank. The World Bank is engaged in TA and financing projects in the sector. Its focus areas for TA are tariff reforms and energy efficiency, and the areas of investment support are energy efficiency and loss reduction, and rural electrification. Currently, the following programs are active: (i) strengthening capacity building for hydropower and mining, (ii) electricity tariff study, (iii) rural electrification, and (iv) demand-side management.
4. JICA. The TA focus areas are planning and feasibility studies on hydropower plants; investment support focuses on power transmission, with limited support for distribution, and possible future assistance for capacity expansion of hydropower plants. JICA’s policy is that support will be provided only to improve services to customers in the Lao PDR. Its assistance is limited to projects and programs executed by Electricite du Laos (EDL), not those for export.
5. Government of Finland. The focus area for Finland’s support is renewable energy development. Currently, it is financing the Preparation of Renewable Energy Strategy and Capacity Building project. The work may include some capacity building on energy efficiency improvement.
6. In the past, assistance by ADB and other agencies has been in line with government policies and plans to increase electrification, improve transmission within the regional grids, interconnect the presently separated regional grids, increase hydropower generating capacity, and provide associated technical support and capacity building. Support to the following areas appears to be low: (i) small hydropower development and engagement of the private sector in such efforts; (ii) capacity building in national energy planning, policy analysis, and information; and (iii) energy efficiency including demand-side management. In the future, ADB will assist the government in energy planning, energy efficiency, renewable energy development, and associated capacity building. These will be coordinated with key development partners, such as the World Bank and JICA. The matrix of development assistance in coordination is in Table A3.
32
Table A3: Matrix of Future ADB Assistance to Energy Sector in Coordination with Development Partners Appendix 3
Institutional Ongoing Work by Sector/Theme Description of Need Outputs/Impacts Responsibility Development Partners Electricity: Improved access to electricity Improved access to Finance new transmission and A higher pace of grid-connected EDL Rural electrification (grid)
grid electricity distribution investments rural electrification project financed by the World Bank Off-grid and/or mini- Finance new development of A higher share of households Provincial departments Off-grid rural electrification grid services to renewable energy-based off-grid provided with electricity services of electricity project financed by the World remote communities facilities Bank Electricity: Meeting the rapidly increasing demand and grid integration Planning power Examine efficiency across the Recommendation for economically EDL or IPPs JICA has developed studies for generation operating regime of hydroelectric efficient repowering or upgrading of several capacity expansion investment and power plants hydropower plants initiatives operations Power generation Support development of new New power plants to meet the DEPD and EDL A number of hydropower investments hydropower generation growing demand for electricity from projects in various stages of − Feasibility studies and project existing customers and newly development preparation electrified areas − Investments in new projects − Support with equity Planning of power − Examine the optimal timing of − Regularly updated optimal EDL − Network master plan study transmission power transmission investments, transmission plan (ongoing), JICA especially for regional − Prioritization of investments − Studies conducted by EDL interconnections to establish the national grid − Conduct regular optimization studies, with updates from generation project progress Investments for − Finance new transmission projects − A stronger regional as well as EDL − Network master plan study power transmission prioritized and included in the interconnected transmission (ongoing), JICA power development plan network in the Lao PDR − Power development plan, − Specific transmission projects to − Increase the present use of 1% EDL absorb EDL share from export to the maximum allowed in each projects concession agreement Electricity: Maximizing the benefits of hydropower export projects Long-term export − Long-term investment planning of − A robust plan in which investment DEPD, LHSE Power System Development planning and export power plants and opportunities are prioritized Plan for the Lao PDR, implementation transmission lines − Development of a transmission Laymeyer International and − Strategy for LHSE network of up to 500 kV to serve Maunsell, 2004 export and Lao PDR requirements, and an institutional
Institutional Ongoing Work by Sector/Theme Description of Need Outputs/Impacts Responsibility Development Partners mechanism for commercial implementation of transmission projects − A strategic plan for LHSE, to achieve maximum benefits to Lao from the export industry Generation projects Invest in new power generation More export power plants built, and DEPD Several projects at an for export project and associated transmission incomes contribute to economic advanced stage of preparation lines growth Energy: Renewable energy and energy efficiency promotion Promotion and − Develop a new institution and − A new institution to promote and A new a unit or a The World Bank has financed implementation of strengthen capacity of existing manage energy efficiency department under MEM, a limited capacity building energy efficiency institution initiatives possibly with joint program, some training − Develop and implement an energy − Energy efficiency action plan responsibilities for opportunities, energy audits in efficiency action − Capacity to conduct energy renewable energy government buildings − Develop legislation and promote audits and formulate projects energy efficiency − Data and instrument services − Energy efficiency standards and labeling Renewable energy − Conduct resource assessment − A new institution to promote A new institution or a − Ongoing TA by ADB to development − Promote development renewable energy department under MEM, prepare a policy paper, rank − Facilitate investments − Renewable energy action plan possibly with joint small hydro projects and − Work on both grid and off-grid − Coordinate ongoing and future responsibilities for prepare feasibility for one facilities work on renewable energy energy efficiency model CDM-PDD − Include use of renewable energy for − Resource information services EDL for any agreements − World Bank’s project to electricity and thermal and motive − A mechanism to enable small, and pricing policy for serve 10,000 households power applications local investors to develop small small renewable power with off-grid technologies, − Develop a standardized agreement hydropower plants and supply plants − Finland’s assistance to and tariffs for private investments in the grid (or mini-grids), using a develop a renewable energy small power plants standardized agreement and strategy, possibly the pricing policy, yet to be institutional structure and developed capacity building Energy: Energy policy and planning
Policy, planning, and − Develop a national energy policy − National energy policy MEM DOE and MEM prepare an Appendix 3 Information − Develop an energy plan − 20-year energy plan electricity statistics yearbook − Develop an energy database − Energy database (ex-post) (most recent edition is 2006) − Update regularly − Future energy balance and
− Conduct policy analysis strategic assessments 33 DEPD = Department of Energy Promotion and Development; DOE = Department of Electricity; EDL = Electricite du Laos; IPP = Independent Power Producer; JICA = Japan International Cooperation Agency; LHSE = Lao Holding State Enterprise; MEM = Ministry of Energy and Mines. Source: Asian Development Bank staff.
34
Appendix 4 COST ESTIMATE AND FINANCING PLAN
Table A4.1: Detailed Cost Estimate by Expenditure Category ($'000) % Base Item Foreign Local Total Costs A. Investment Costs 1. Land acquisition and resettlement 0 365 365 0.7 2. Civil works 9,801 5,659 15,460 28.8 3. Equipment and materials 22,315 6,182 28,497 53.1 4. Unexploded ordnance clearance and pathfinding 111 472 583 1.1 5. Consulting services 2,619 655 3,274 6.1 6. Poor households wiring credita 750 0 750 1.4 7. Senior advisory service to EDL and MEM 600 0 600 1.1 8. Taxes and duties 2,237 939 3,176 5.9 Subtotal (A) 38,433 14,272 52,705 98.3 B. Recurrent Costs Executing and implementing agency management and administration 102 827 929 1.7 Subtotal (B) 102 827 929 1.7 Subtotal Base Costs (A+B) 38,535 15,100 53,634 100.0 C. Contingencies 1. Physical 3,997 1,982 5,979 11.1 2. Price 896 2,921 3,817 7.1 Subtotal (C) 4,893 4,903 9,796 18.3 D. Financial Charges during Implementation 1. Interest during construction 1,850 0 1,850 3.4 2. Commitment charges 0 0 0 0.0 3. Other charges 38 0 38 0.1 Subtotal (D) 1,888 0 1,888 3.5 Total (A+B+C+D) 45,316 20,002 65,318 121.8
EDL = Electricite du Laos; MEM = Ministry of Energy and Mines. a Bank charges incurred on the imprest fund account for supporting poor households will be financed from the loan resources. Sources: EDL and ADB estimates.
Table A4.2: Financing Plan ($'000) Government of the ADB Republic of Koreaa EDL Total Item Amount % Amount % Amount % Amount A. Investment Cost 1. Land acquisition and resettlement 0 0 0 0 458 100 458 2. Civil works 5,430 29 13,152 71 0 0 18582 3. Equipment and materials 9,725 29 24,011 71 0 0 33736 4. Unexploded ordnance clearance and pathfinding 50 7 683 93 0 0 733 5. Consulting services 3,445 100 0 0 0 0 3445 6. Poor households wiring 750 100 0 0 0 0 750 7. Senior advisory service to EDL and MEM 600 100 0 0 600 8. Taxes and duties 0 0 0 0 3,912 100 3912 Subtotal (A) 20,000 32 37,846 61 4,370 7 62,216
B. Recurrent Costs Executing and implementing agency management and administration 0 0 0 0 1,215 100 1,215 Subtotal (B) 0 0 0 0 1,215 100 1,215
C. Financial Charges during Implementation 1. Interest during construction 0 0 0 0 1,850 100 1,850 2. Commitment charges 0 0 0 0 0 0 0 3. Other charges 0 0 38 100 0 0 38 Subtotal (C) 0 0 38 2 1,850 98 1,888
Total Disbursement (A+B+C) 20,000 31 37,884 58 7,435 11 65,319 ADB = Asian Development Bank; EDL = Electricite du Laos; MEM = Ministry of Energy and Mines. a Through Export–Import Bank of Korea. Appendix 4 Sources: EDL and ADB estimates. 35
36
Appendix Appendix 4 Table A4.3: Financing Plan by Module ($'000)
Government of the ADB Grant Republic of Koreaa EDL Total
Item Amount % Amount % Amount % A. Investment Cost 1 Land acquisition and resettlement 0 0 0 0 365 100 365 2 Turnkey contract module 1 13,801 100 0 0 0 0 13,801 3 Turnkey contract modules 2 and 3 0 0 30,739 100 0 0 30,739 4 Consulting services 3,274 100 0 0 0 0 3,274 5 Poor household wiring 750 100 0 0 0 0 750 6 Senior advisory service 600 100 0 0 0 0 600 7 Taxes and duties 0 0 0 0 3,176 100 3,176 8 Contingencies 1,575 16 7,107 73 1,115 11 9,797 Subtotal (A) 20,000 32 37,846 61 4,656 7 62,502 B. Recurrent Costs Executing and implementing agency management and administration 0 0 0 0 929 100 929 Subtotal (B) 0 0 0 0 929 100 929 C. Financial Charges during Implementation 1 Interest during construction 0 0 0 0 1,850 100 1,850 2 Commitment charges 0 0 0 0 0 0 0 3 Other charges 0 0 38 100 0 0 38 Subtotal (C) 0 0 38 2 1850 98 1,888 Total Disbursement (A+B+C) 20,000 31 37,884 58 7,435 11 65,319 ADB = Asian Development Bank; EDL = Electricite du Laos. a Through Export–Import Bank of Korea. Sources: EDL and ADB estimates.
PROJECT IMPLEMENTATION SCHEDULE
2009 2010 2011 2012 2013 A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D Loan Approval * Loan Effectivity * Recruitment Consultants Consultants' Supervision Pre-construction Phase Bidding Phase Construction Phase Procurement ADB Korea Eximbank Construction Module 1 115 kV Transmission Lines - Paklay to Kenethao 115 kV Transmission Lines - Paklay to Nonhai Substations at Nonhai, Paklay and Xaignabouli Connection with Thailand * Construction Module 2 115 kV Transmission Lines - Paklay to Xaignabouli MV and LV Construction Module 3 115 kV Transmission Lines - Namo to Boun Nua Substations MV and LV Project Completion * 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 ADB = Asian Development Bank; LV = low voltage; MV = medium voltage. Source: EDL and ADB estimates. Appendix Appendix 5 37
38 Appendix 6
PROCUREMENT PLAN
Basic Data Project Name: Greater Mekong Subregion Northern Power Transmission Project Country: Lao PDR Executing Agency: Electricite du Laos Grant Amount: $20 million Date of First Procurement Plan: 24 June 2009 Date of this Procurement Plan: 24 June 2009
A. Process Thresholds, Review and 18-Month Procurement Plan
1. Project Procurement Thresholds
1. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works.
Procurement of Goods and Works Method Threshold
International competitive bidding (ICB) for works > $1,000,000 ICB for goods > $500,000 National competitive bidding (NCB) for works < $1,000,000 NCB for goods < $500,000 Shopping for works < $100,000 Shopping for goods < $100,000
2. ADB Prior or Post Review
2. Except as ADB may otherwise agree, the following prior or postreview requirements apply to the various procurement and consultant recruitment methods used for the project.
Procurement Method Prior or Post Comments Procurement of Goods and Works ICB works Prior ICB goods Prior NCB works Prior NCB goods Prior Shopping for works Post Shopping for goods Post
Recruitment of Consulting Firms Quality- and cost-based selection (QCBS) Prior
Recruitment of Individual Consultants Individual consultants Prior
Appendix 6 39
3. Goods and Works Contracts Estimated to Cost More Than $1 Million
3. The following table lists goods and works contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
Advertisement General Contract Procurement Prequalification Date Description Value Method of Bidders (y/n) (quarter/year) Comments Module 1: 13.80 ICB Y Q2 2010 Single-circuit double tower Turnkey million 115 kV transmission line contract for Nonhai–Paklay (98 km) engineering, procurement, Single-circuit single tower and 115 kV Paklay–Kenethao construction transmission line (75 km) of the 115 kV Extension to existing transmission Xayabury and Nonhai lines and 115/22 kV substations substation expansion New 115/22 kV substation and at Paklay construction
4. Consulting Services Contracts Estimated to Cost More Than $100,000
4. The following table lists consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
International General Contract Recruitment Advertisement or National Description Value Method Date (quarter/year) Assignment Comments Project $3.27 million QCBS Q2 2009 International Project engineering implementation FTP design, preconstruction consultant 80:20 activities, construction supervision, performance monitoring and evaluation for transmission, substations and distribution
5. Goods and Works Contracts Estimated to Cost Less than $1 Million and Consulting Services Contracts Less than $100,000
5. The following table groups smaller-value goods, works, and consulting services contracts for which procurement activity is either ongoing or expected to commence within the next 18 months.
Procurement / General Value of Contracts Recruitment Description (cumulative) Number of Contracts Method Comments Senior advisor to 600,000 1 Individual Advertise in Ministry of Energy consultant Q4 2009 and Mines
40 Appendix 6
B. Indicative List of Packages Required Under the Project
6. The following table provides an indicative list of all procurement (goods, works, and consulting services) over the life of the project. Contracts financed by the government and others should be indicated, with an appropriate notation in the comments section.
Estimated Estimated Domestic General Value Number of Procurement Preference Description (cumulative) Contracts Method Applicable Comments Module 1 $13.80 million 1 ICB Y Turnkey contract for transmission lines and substations
Modules 2 and $30.74 million 1 Export–Import Single-circuit double 3 of project Bank of Korea tower 115 kV (Korea transmission line Paklay Eximbank) Rules to Xayabury (123 km) Single-circuit double tower 115 kV Namo to Boun Nua transmission line (103 km); New switching station at Namo 115/22 kV; new 115/22 kV sub at Boun Nua Associated medium and low voltage distribution (1,116 km of 22 kV lines) and connections of 18,800 households
Estimated Estimated General Value Number of Recruitment Type of Description (cumulative) Contracts Method Proposal Comments Project $3.27 million 1 QCBS FTP implementation 80:20 consultant Procurement $507,000 1 Korea Eximbank advisor rules
Appendix 7 41
CREDIT TO POOR HOUSEHOLDS—FUNDS FLOW CHART
ADB
Government of Lao PDR (MOF)
FGIA
EDL
ESA SGIA
EDL Xaignabouli EDL Phongsali Province Province Branch Branch
Eligible Eligible Householdsa Householdsa
Contractors Contractors
= implementation arrangement; = fund flow. ADB = Asian Development Bank, EDL = Electricite du Laos, ESA = EDL's separate account for collecting credit from eligible households, FGIA = first generation imprest account, MOF = Ministry of Finance, SGIA = second generation imprest account. a Eligible households refer to poor households certified by the district authority to be eligible for the credit scheme. Source: Asian Development Bank estimates.
42 Appendix 8
ECONOMIC ANALYSIS OF THE PROJECT
1. The economic analysis assesses the economic viability of the project from the societal resource utilization perspective. Such analysis compares social benefits generated by the project with its economic costs for with- and without-project scenarios. The analysis begins with the demand analysis, followed by system least-cost planning, and identification of the project's benefits to consumers. The benefits are quantified and differentiated as incremental or nonincremental. The costs are adjusted using shadow conversion factors to reflect their true economic values.
A. Demand Projection
2. The demand forecast is based on the demand forecast made by Electricite du Lao (EDL) up to 2020 and extended to 2035 (Table A8.1). The forecast projects demand for residential and nonresidential consumers and committed mining loads for each module under the project. For the calculation in the analysis, the project demand is the difference between the with-project demand and without-project demand.
Table A8.1: Summary Demand Forecast by Module
Demand, GWh 2008 2012 2016 2020 2025 2030 2035 Module 1 13.98 269.63 279.53 292.30 308.53 330.35 359.71 Module 2 12.35 21.50 30.25 41.52 55.85 75.12 101.04 Module 3 2.11 3.85 251.72 254.68 258.41 263.63 270.92 Total 28.44 294.98 561.50 588.50 622.79 669.10 731.67
Source: Asian Development Bank estimates.
B. Least Cost Analysis
3. EDL has prepared several power system expansion plans in recent years, both independently and with the support of international consultants. The latest plan is the Power Development Plan 2007–2016 (PDP) signed into effect by EDL management in 2008. The PDP specifies the demand forecast up to 2020, which is used in the demand analysis; generation expansion plan; and transmission and distribution expansion plan.
4. Transmission planning for the project area aims to deliver power from the existing national grid and its least-cost generation expansion mix to the load centers in the area. This analysis was conducted with the powerful PSS/E (power systems simulator for engineering) software package. The PSS/E model designs the least-cost system, taking into account the demand, system losses, and capital costs, subject to power system security and stability constraints. The load-carrying requirements of the transmission lines and their operating voltage are selected using least-cost planning criteria, and the locations and capacity of substations are selected to deliver the power to load centers at least cost. The PSS/E analysis concludes that 115 kilovolt (kV) transmission lines can be expected to meet the long-term electricity requirements of the project provinces. Preliminary designs and costs were developed for single- tower single-circuit and double-tower single-circuit configurations. The latter option is recommended as the least cost means to meet the requirements of the forecast over the
Appendix 8 43 anticipated life of the transmission investments, and is adopted for purposes of this economic analysis. The PDP and the transmission planning establish that the project is part of the least- cost plan.
C. Project Costs
5. The costs of the project include (i) cost of supply, construction, installation, and commissioning of the 115 kV transmission lines, 115/22 kV substations, and medium- and low- voltage distribution network (including connections to poor households), and (ii) consulting services. The project's costs are estimated based on the detailed breakdown of components, equipment, and works associated with them. For economic analysis, the project's cost includes physical contingencies but excludes taxes and duties. Total project cost amounts to $56.44 million.
Table A8.2: Estimated Project Costs
Conversion Factors Item Foreign Local Total Foreign Local Total Land acquisition and resettlement 0 365 365 0 1.00 365 Civil works 9,801 5,659 15,460 1.08 0.92 15,791 Equipment and materials 22,315 6,182 28,497 1.08 1.00 30,282 Unexploded ordnance clearance 111 472 583 1.08 0.92 554 Consulting services 2,619 655 3,274 1.08 0.92 3,431 Poor households wiring credit 0 750 750 1.08 1.00 750 Senior advisory service 600 0 600 1.08 0.00 648 Executing and implementing agency management and administration 102 827 929 1.08 1.00 937 Physical contingencies 4,597 1,382 5,979 1.08 1.00 6,347 Total 40,145 16,292 56,437 59,106 Source: Asian Development Bank estimates.
6. To reflect true economic values of costs, shadow price conversion factors are used. The project preparatory technical assistance study carefully examined the shadow prices for the Lao PDR and suggests the following conversion factors: (i) 1.08 for tradable goods of foreign origin, (ii) 1.00 for nontradable, (iii) 1.08 for foreign labor, and (iv) 0.90 for local unskilled labor. Applying these conversion factors to the cost components, the economic cost of the project amounts to $59.11 million. In addition to this investment cost, the economic evaluation takes into account the operation and maintenance cost, which is estimated at 1% of the investment cost for the first 10 years, and 2% thereafter. Since benefits are estimated at end use, the generation cost must be subtracted. This is to avoid double counting even though the generation cost is not part of the project costs. Generation cost is estimated to be 53% of EDL's long-run marginal cost of supply according to the latest tariff study.
44 Appendix 8
D. Project Benefits
7. The benefits of the project manifest in the increase of electricity sales to consumers in the with-project scenario. By projecting demand forecasts and comparing the demand without the project with the demand forecast with the project, the increase in electricity consumption was established.
1. Project Benefits from Domestic Power Sales
8. The benefits are classified as incremental and nonincremental, and are additive to the total benefits. They are quantified based on the gross benefits model (Figure A8). Electricity output of the project is defined as nonincremental if it replaces the existing supply of energy— the without-project source, and it is defined as incremental if it meets additional or induced demand.
Figure A8: The Gross Benefits Model Supply Curve Without Project
Demand Curve (D)
Pwo
Supply Curve With Project
a b
Pw
c d
Qwo Qw Non-Incremental Incremental Notes: 1. D is a straight-line demand curve for electricity defined by two points, (Pwo, Qwo) and (Pw, Qw); 2. Pwo and Pw are prices, of electricity equivalents without the project, and of electricity with the project 3. Qwo and Qw are estimates of the quantity consumed without and with the project 4. Area (a + c) = nonincremental project benefits 5. Area (b + d) = incremental project benefits. Source: Asian Development Bank.
9. Nonincremental benefits of electricity are valued based on the cost of supply without the project (appropriately converted to economic costs with shadow conversion factors)—Pwo in
Appendix 8 45
Figure A8.1, whereas incremental benefits are valued at an average of the cost of electricity without and with the project—average of Pwo and Pw. The cost of electricity substitutes are estimated for residential and nonresidential consumers (including industry, commercial, and agricultural users): (i) Based on data from the socioeconomic survey, in the absence of electricity, households usually have to rely on diesel or kerosene and batteries (e.g., dry cell batteries for radios and cassette players and 12-volt batteries for televisions). (ii) Nonresidential consumers are all assumed to derive energy from small diesel generation sets.
10. Incremental consumption is valued as the weighted average of the cost of the alternative energy source and the anticipated electricity tariff. For currently importing consumers, the value of electricity is the weighted average of the postproject tariff and the cost of supply in the absence of the project (i.e., the import tariff). Similarly, in the case of other induced demand of residential and nonresidential consumers, it is valued at the weighted average of the postproject tariff and the cost of substitutes in the absence of electricity. The project preparatory technical assistance study has developed detailed estimates of economic benefits of project electricity by consumer category, and incremental and nonincremental consumption (Table A8.3). The values are applied for economic evaluation.
Table A8.3: Estimates of Economic Values of Kilowatt-Hours of Electricity by Category
Item KN/kWh Nonincremental Benefits Residential 3,128 Nonresidential 2,756 Incremental Benefits Residential 1,742 Nonresidential 1,806 Nonresidential (major loads) 1,317 kWh = kilowatt-hour. Source: Asian Development Bank estimates.
2. Project Benefits from Exports to Thailand 11. In addition to the benefits associated with domestic power sales, the project will make possible incremental power exchange with Thailand on an as-available basis. The load flow studies indicate that the Paklay–Thali border crossing will support the export maximum of 28 megawatts (MW) in 2014. In the dry season, imports reach 17 MW in 2014. The net export is considered variable and nonfirm. The net export is estimated to be 32.4 gigawatt-hours (GWh)/year, equivalent to $275,000 in net economic benefit. This resulting net benefit is added to project domestic sales revenues to estimate project economic benefits.
E. Results of the Analysis
12. The evaluation of project costs and benefits are summarized in Table A8.4, which is an economic resource statement for the life of the project. The economic net present value of the project is $203.7 million. The project economic internal rate of return (EIRR) is estimated to be 42.2%, well above the real economic opportunity cost of 12%.
46 Appendix 8
F. Sensitivity Analysis
13. A sensitivity analysis was undertaken with respect to key risk factors and assumptions expected to influence the viability of the investment. The most important factor is the impact of industrial loads on the benefits. To test this influence, the mining load is reduced to 40% below the base case. The second factor is the project cost. The analysis allows for cost overruns up to a 20% increase (very high according to EDL). The impact of net export is also analyzed by looking at the case that excludes the revenue from exports. The sensitivity analysis shows that the project's economics are robust (Table A8.5). Even in the extreme case when the negative events are considered in combination, the project is still viable with net present value of $23.7 million and EIRR of 16%.
Table A8.4: Project Economic Resource Statement ($'000)
Year Benefits Costs Net benefit Non-Incremental Incremental Total benefits Capital Generation Distribution O&M Total costs 2009 0 0 0 18029 0 0 0 18029.1 -18029.1 2010 0 0 0 23405 0 0 0 23405.1 -23405.1 2011 0 0 0 17672 0 0 0 17672.2 -17672.2 2012 2721.2 35493.1 38214.2 0 14899.4 1258.6 578.6 16736.6 21477.6 2013 2939.8 68681.1 71620.9 0 28055.5 1258.6 591.2 29905.3 41715.6 2014 3175.3 69001.0 72176.3 0 28272.7 1258.6 603.8 30135.1 42041.2 2015 3429.2 70073.2 73502.4 0 28501.1 1258.6 616.4 30376.0 43126.4 2016 3698.4 71365.0 75063.4 0 28735.4 1258.6 629.0 30622.9 44440.5 2017 3989.0 71855.7 75844.6 0 28984.7 1258.6 641.5 30884.9 44959.7 2018 4302.7 72357.5 76660.2 0 29246.7 1258.6 654.1 31159.4 45500.8 2019 4641.8 72908.9 77550.7 0 29533.1 1258.6 666.7 31458.5 46092.3 2020 5008.6 73472.0 78480.6 0 29834.2 1258.6 679.3 31772.1 46708.5 2021 5311.0 73926.3 79237.2 0 30079.3 1258.6 691.9 32029.8 47207.5 2022 5647.5 74400.2 80047.7 0 30339.5 1258.6 1409.0 33007.1 47040.6 2023 5997.0 74908.1 80905.1 0 30616.0 1258.6 1434.1 33308.7 47596.4 2024 6368.1 75447.7 81815.9 0 30909.7 1258.6 1459.3 33627.6 48188.3 2025 6762.3 76021.0 82783.3 0 31221.7 1258.6 1484.5 33964.7 48818.5 2026 7180.8 76630.0 83810.8 0 31553.0 1258.6 1509.6 34321.3 49489.5 2027 7625.3 77277.0 84902.3 0 31905.1 1258.6 1534.8 34698.5 50203.9 2028 8097.4 77964.4 86061.8 0 32279.0 1258.6 1560.0 35097.6 50964.2 2029 8598.7 78694.6 87293.4 0 32676.2 1258.6 1585.2 35520.0 51773.4 2030 9131.2 79470.5 88601.6 0 33098.2 1258.6 1610.3 35967.1 52634.5 2031 9696.6 80294.7 89991.3 0 33546.4 1258.6 1635.5 36440.5 53550.8 2032 10297.1 81170.4 91467.5 0 34022.6 1258.6 1660.7 36941.9 54525.7 2033 10934.9 82100.8 93035.7 0 34528.4 1258.6 1685.8 37472.9 55562.8 2034 11612.2 83089.3 94701.4 0 35065.8 1258.6 1711.0 38035.4 56666.0 2035 12331.5 84139.4 96471.0 0 35636.6 1258.6 1736.2 38631.4 57839.6 2036 12701.5 84676.5 97378.0 0 35929.1 1258.6 1736.2 38923.9 58454.1 2037 13082.5 85229.7 98312.2 0 36230.3 1258.6 1736.2 39225.1 59087.1 2038 13475.0 85799.4 99274.4 0 36540.5 1258.6 1736.2 39535.3 59739.1 2039 13879.3 86386.3 100265.5 0 36860.1 1258.6 1736.2 39854.9 60410.7 2040 14295.6 86990.7 101286.4 0 37189.2 1258.6 1736.2 40184.0 61102.4 2041 14724.5 87613.3 102337.8 0 37528.2 1258.6 1736.2 40523.0 61814.8 EIRR = 42.2% EIRR = economic internal rate of return; O&M= operation and maintenance. Source: Asian Development Bank estimates.
Appendix 8 47
Table A8.5: Project Sensitivity Analysis Item NPV ($ million) EIRR (%) Base 203.7 42.2 Excluding export 202.0 42.0 +20% cost 194.2 37.3 –40% benefits 33.2 18.6 Combined 23.7 16.1 NPV = net present value; EIRR = economic internal rate of return. Source: Asian Development Bank calculation.
G. Risk Analysis
14. The risk analysis examines the range of project outcomes by allowing multiple risk factors to vary randomly (within a defined range). Three key risk factors identified include (i) capital and operating costs, (ii) sales ratio (i.e., the ratio of actual to planned GWh sales), and (iii) the value of nonincremental benefits. Probability distributions were assigned to each variable as follows:
(i) Capital costs during construction and operating costs over the project life were allowed to vary randomly from 85% (low) to 115% (high), with a most likely value (mode) of 100% (i.e., their point-value in the model). (ii) Project GWh sales were allowed to vary randomly within a specified range to reflect uncertainty regarding achievement of new household connection targets necessary to realize project benefits. The assumed range was 25% (low), 100% (mode), and 110% (high). (iii) The value of nonincremental benefits were allowed to vary from 85% to 115% (around an average of 100%), reflecting uncertainty surrounding the point values assigned in estimating these benefits.
15. The risk analysis was conducted based on 10,000 Monte-Carlo iterations, with the output variable being the expected EIRR (Table A8.6).
Table A8.6: Risk Analysis—Distribution of EIRR
Item Value Expected EIRR (mean), % 42.2 Standard deviation 2.35 Standard error 0.00024 Maximum EIRR, % 48.5 Minimum EIRR, % 37.1 EIRR = economic internal rate of return. Source: Asian Development Bank estimates.
48 Appendix 9
FINANCIAL ANALYSIS OF THE PROJECT
1. The project's financial analysis was undertaken in accordance with the Financial Management and Analysis of Projects1 of the Asian Development Bank (ADB). The analysis assesses the financial viability of the project from the perspective of Electricite du Laos (EDL), the project operating entity. The financial costs and benefits employed in the analysis are expressed in 2009 prices on an after-tax basis. Costs include only capital costs and operating and maintenance costs directly associated with the project. Likewise, benefits are restricted to anticipated end-user sales from the project based on the average retail tariff yield. Financial viability is assessed on the basis of the financial internal rate of return (FIRR) over the project’s economic useful life (2009–2041) relative to the cost of capital used to fund the project, which is measured by the weighted average cost of capital (WACC). The net present value is calculated as the net financial benefit of the project discounted at the WACC over its economic useful life.
A. Capital Costs
2. Capital costs include a 115 kilovolt (kV) transmission line (398 kilometers [km]) and associated substations, as well as a 22 kV distribution line (1,116 km) and medium- and low- voltage substations. Capital costs include the base project costs plus physical contingencies but exclude price contingencies and interest during construction. Costs for unexploded ordnance clearance are included in the capital costs. Annual operating and maintenance costs are estimated at 1% of capital investment costs for the first 10 years, and 2% thereafter. All the works are assumed to be completed over 3 years, commencing in 2010.
B. Tariff
3. The weighted average residential tariff for the project areas will be KN502/kilowatt-hour (kWh) ($0.0588/kWh) in 2009, and will be increased as in Table A9.1. The project area tariff yield for the base case is assumed to be set at 85% of the national revenue requirement for residential consumption. Nonresidential customers are assumed to receive electricity at medium voltage at a tariff that is 76% of the national retail tariff as recommended in EDL’s tariff study. Sales revenue is based on demand forecast per customer category and reflects a planned increase in retail tariffs from 2009 to 2016.
Table A9.1: Tariff Table (Project Area) (constant prices) Item Unit 2009 2010 2011 2012 2013 2014 2015 2016 Residential tariff (KN/kWh) 502 555 597 628 647 641 667 700 (US cents/kWh) 5.88 6.50 6.99 7.35 7.58 7.51 7.81 8.20 Non-residential (KN/kWh) 452 499 538 565 582 577 600 631 (US cents/kWh) 5.29 5.84 6.30 6.62 6.81 6.76 7.03 7.39 KN = Lao kip; kWh = kilowatt-hour. Source: Asian Development Bank estimates.
C. Weighted Average Cost of Capital
4. The project’s WACC is estimated to be 2.7% expressed on an after-tax basis (Table A9.2). The FIRR for the project is compared to the after-tax WACC to assess financial viability.
1 ADB. 2005. Financial Management and Analysis of Projects. Manila.
Appendix 9 49
The project is considered to be financially viable if the FIRR is equal to or greater than the WACC.
Table A9.2: Calculation of Weighted Average Cost of Capital (%) % of Cost of Funds Project Current Tax After Constant Inflation Source of Funds Cost Prices Rate Tax Prices Rate WACC Government/EDL Contributions 11.4 17.9 0.0 17.9 10.7 6.5 1.2 ADB and the Republic of Korea 88.6 4.5 35.0 2.9 1.7 1.2 1.5 Total 100.0 2.7
EDL = Electricite du Laos, WACC = weighted average cost of capital. Source: Asian Development Bank estimates.
5. The WACC is calculated as the weighted average of the estimated cost of equity and debt used to finance the project. The cost of equity incorporated into the WACC is estimated on the basis of the capital asset pricing model, which provides a methodology for estimating the required equity return as a function of the relative risk of the investment. The cost of equity is the rate of return on a risk-free investment, such as government bonds, plus a risk premium appropriate for the project.2 The cost of debt is estimated on the basis of the assumption that the proceeds of the ADB grant and the Export and Import Bank of Korea (Korea Eximbank) loan are relent by the government to EDL at the 4.5% annual fixed rate. EDL is assumed to bear the foreign exchange risk on this loan. The WACC is then calculated on the basis of the costs of equity and debt weighted by the inputs of each. Based on the current financing plan, the total ADB and Korea Eximbank financing represents 88.6% of the total project cost. This includes the relent proceeds of the ADB grant, presently proposed to be $20 million, and a loan from Korea Eximbank, presently proposed to be $37.8 million equivalent. Based on this weighting of debt and equity, the WACC is calculated at 2.7%.
D. Results
6. The FIRR is estimated at 11.5%, which exceeds the WACC of 2.7%. Financial net present value of the project is positive ($108.2 million). Therefore, the project is considered to be financially viable. Overall, these results are encouraging given the high proportion of relatively low-consumption household consumers and the relatively high cost of providing services to these consumers. This is supported by substantial load growth forecast from new mining and industrial projects.
2 Estimating the risk-free rate and risk premium for the project is complicated by the lack of functioning debt and equity markets in the Lao PDR. An estimate of the risk-free rate was calculated on the basis of US dollar denominated bonds issued by the Government of Viet Nam and then adjusted for the Lao PDR. Based on this methodology, the risk-free rate is estimated at 11.5%. The risk premium is estimated on the basis of an analysis of standard risk indicators for 81 power utilities; 64 in the United States, three publicly listed independent power producers in Thailand, and 11 power utilities in other countries. Adjustments were then made to reflect the additional market, tax, and country risks of the Lao PDR. Based on this methodology, the estimated cost of equity is 17.9% in nominal terms, which after adjusting for inflation is equivalent to a real cost of equity of 12.3%.
50 Appendix 10
RESETTLEMENT PLAN AND RESETTLEMENT FRAMEWORK
A. Project Area
1. The project will construct three 115-kilovolt (kV) transmission lines and two new substations; upgrade other substations; and develop medium- and low-voltage distribution networks in Vientiane, Phongsali, and Xaignabouli provinces. The project will also install a medium-voltage distribution network for approximately 18,800 new households. This entails small conductors (wires) from the nearest substation or transformer, supported by wooden or concrete poles of small (about 30 centimeters) diameter, along roads and to houses requiring electrification.
2. Based on the current transmission line route, physical construction will involve permanent acquisition of a total of approximately 1,000 square meters (m2) for tower footprints from 28 households based on tower footprints of 36 m2 per tower. The project will require temporary access roads to straining towers during line stringing.
B. Resettlement Plan and Resettlement Framework
3. A resettlement plan was prepared for the 115 kV transmission lines and new substations, and a resettlement framework for the distribution network. The resettlement plan will need to be updated after detailed design to ensure impacts are properly addressed and that compensation methods and rates are appropriate at that time. Resettlement plans will need to be prepared for the medium-voltage distribution facilities in accordance with the approved resettlement framework.
4. The overriding principle of the resettlement plan and resettlement framework is that where a person or group is affected by land acquisition, damage to income-generating assets and activities or resettlement as a result of the project, compensation will be allocated so that livelihoods are the same or better than before the project. The entitlement matrix, and resettlement policies and procedures set out in this resettlement plan reflect this principle.
C. Legal Framework
5. The resettlement plan was prepared for the project in accordance with the requirements of the Asian Development Bank (ADB) Involuntary Resettlement Policy (1995) and Operations Manual section on involuntary resettlement. 1 The plan also complies with the laws of the Government of the Lao PDR comprising (i) Constitution of the Lao PDR, 1991; (ii) Decree 192/PM on Compensation and Resettlement of People Affected by Development Projects, 2005; and (iii) associated government policies, practices, and technical guidelines in the Regulation on Resettlement and Compensation, 2005. Also relevant are the Lao PDR Land Law, 1997; the Forestry Law, 1996; the Electricity Act 2049, 1992; and the Electricity Law, 1997. ADB policy provisions apply wherever gaps exist.
D. Entitlements
6. Project entitlements are designed to provide for compensation and rehabilitation for lost land, assets, infrastructure, resources, income sources, and services, using the principle of replacement cost so that affected people will be at least as well-off after the project. No
1 ADB. 2006. Involuntary Resettlement. Operations Manual. OM F2. Manila.
Appendix 10 51 differentiation will be made between people with and without legal title to land. All affected people who are identified in the project-impacted areas on the cut-off date will be entitled to compensation for their affected assets. The detailed entitlement matrix illustrates the type of losses, entitled persons, entitlements, and possible implementation issues (Table A10.1).
E. Incorporation of Women, Ethnic Minorities, and Other Vulnerable Groups
7. In updating the resettlement plan, women from affected households, including ethnic minority women and households headed by women, will be consulted during socioeconomic surveying and the detailed measurement survey. The socioeconomic profile of the affected people and detailed measurement survey will be disaggregated by gender and ethnicity. Women's participation, especially ethnic minorities, poor women, and households headed by women will be ensured during participation and disclosure activities. Information will be provided in the local language and in information booklets. Where the project involves granting new land or replacement land for acquired land, the title of land will be in the name of both spouses.
F. Consultation, Participation, and Disclosure
8. The resettlement plan includes measures for stakeholder participation and full disclosure of all information relating to the project. In addition a project information booklet prepared by Electricite du Laos (EDL) was distributed to affected people as part of the resettlement plan disclosure. All resettlement plan updates will be fully disclosed in accordance with ADB policy. Such disclosure will be undertaken orally at village meetings in each project area and project affected families will be provided with an information booklet outlining the methods for measurement of losses, detailed asset valuations, entitlements and special provisions, grievance procedures, timing of payments, and displacement.
G. Grievance Redress Mechanism
9. The project implementation unit and EDL field offices will establish and maintain ongoing interaction with the affected people and communities to identify problems and undertake timely remedial actions. Formal district and provincial grievance redress committees will be created and include representatives of local institutions, organizations, nongovernment organizations, women’s unions, and community-based organizations.
10. If a complainant is not satisfied with a grievance redress committee's determination, they may take the matter to EDL and Water Resources and Environment Administration head offices and, if necessary, to court to resolve the matter. A detailed grievance procedure is in place and the project will cover all administrative and legal costs incurred relating to the grievance redress procedures.
H. Implementation Arrangements
1. Executing Agency
11. EDL has an environmental office in its technical department. This department has two sections covering environment and social, and a total of 11 staff, one of whom is primarily responsible for resettlement planning. This office is responsible for overall coordination of organizations involved in resettlement including the preparation of resettlement plans, and supervision and management of resettlement plan implementation. The environmental office will work in close conjunction with the project implementation unit.
52 Appendix 10
2. Local and Provincial Authorities
12. Resettlement committees will be established in provinces and districts. District committees assume the key role in assisting the project in various resettlement planning and implementation activities, while provincial committees focus on ensuring consistent application of the approved resettlement plan in the province. This is the same process being used for the ADB-funded Northern Area Rural Power Distribution Project2 and other projects in the Lao PDR.
3. Implementation Schedule
13. EDL proposes to use a turnkey contract to deliver the project. All resettlement activities will be coordinated with the civil works schedule, so that adequate time will be planned for resettlement activities to be satisfactorily implemented before the commencement of construction. ADB will not approve physical works affecting affected peoples until resettlement activities are satisfactorily completed and agreed rehabilitation assistance is in place. Resettlement implementation will not commence until ADB has reviewed and approved the resettlement plan. A detailed schedule is included in the full resettlement plan included as a supplementary appendix to this report.
4. Monitoring and Evaluation
14. The resettlement plan will be monitored by the Vientiane-based and district-based EDL project teams and the project implementation consultant, who will be required to have extensive socioeconomic monitoring experience. Monitoring and evaluation will be undertaken using disaggregated indicators so that impacts on women, and ethnic minorities, can be clearly understood and acted upon. The Vientiane-based EDL project team will be responsible for determining if any follow-up actions are necessary and ensuring these actions are undertaken. The Water Resources and Environment Administration will conduct its own monitoring of the project’s social and environmental impact, as required under Lao legislation. Monitoring will be carried out for the duration of resettlement plan implementation and for an appropriate period after commissioning of the project until the objectives of the resettlement plan are achieved. ADB will receive quarterly monitoring reports and key aspects will be followed up during review missions.
5. Budget Estimates
15. The current budget estimate to cover the resettlement plan implementation costs is $363,720, comprising permanent acquisition ($3,849), easement fee ($220,866), temporary use of land ($4,645), consultation and dissemination ($29,160), monitoring ($14,500), HIV and human trafficking mitigation ($30,000), contingency ($60,620).
16. EDL will finance the costs for land acquisition and resettlement. EDL is committed to providing funds for necessary updates to the resettlement plan and the preparation of resettlement plans as required, and to implement the resettlement plan(s) in an efficient and timely manner during the course of the project.
2 ADB. 2003. Report and Recommendation of the President to the Board of Directors: Proposed Loan to the Lao People’s Democratic Republic for the Northern Area Rural Power Distribution Project. Manila (Loan 2005-LAO).
Appendix 10 53
Table A10: Entitlement Matrix
Type of Loss Entitled Person Entitlement Implementation Issue I. Permanent Acquisition for the Tower Foundations A. Agricultural Legal owner or For marginal loss of land, cash No affected people are losing more than land occupant identified compensation at replacement cost 10%. However, if found during detailed during DMS calculated as follows: design, entitlements will be a priority, replacement land of similar type, (Mod 1: 11 PAFs; Paddy field compensation cost (CC) category, and productive capacity within Mod 2: 3 PAFs; Mod = average annual yield (AAY) x 1 kg the village, with land title if land titling 3: 5 PAFs) husked rice price at current market project is ongoing in the area, if not, land value (HRP) x tower footprint area survey certificate, or at the request of (TFA) x 10 years : affected people, cash compensation at replacement cost plus assistance to CC=AAYxHRPxTFAx10 purchase and register land B. Permanent Legal owner or Marginal loss of land with remaining No PAFs are losing significant amounts acquisition of occupant identified land sufficient to rebuild houses of land. However, if found during detailed residential land during DMS. and/or structures: (i) cash design that affected people will be left for the towers compensation at replacement cost without land sufficient to rebuild houses (Mod 1: 5 PAFs; equivalent to the current market and/or structures: (i) replacement land Mod 2: 0 PAFs; Mod value of land of similar type and equal in area, same type and category, 3: 3 PAFs) category, and free from transaction without charge for taxes, registration, costs (taxes, administration fees) and land transfer, with land title if land titling project is ongoing in the area; if not, land survey certificate, or (ii) cash compensation at replacement cost II. Restricted Use on Land Traversed by Transmission Lines A. Household- Legal owner or This measure is specifically designed to Land-for-land with similar type and owned occupant identified prevent the kinds of disagreements EDL category, and free from transaction plantation during DMS. contractors have had with plantation costs, or land owners in the past over tree trimming. (Mod 1: 1 PAFs; easement fee in cash equivalent to This entitlement does not apply to Mod 2: 0 PAFs; Mod 100% of total current market value of government forestry concessions to log 3: 0 PAFs) plantation land. natural forests Land title and/or land survey certificate will remain with the title and/or registered owner Affected trees will be paid at replacement cost B. Community- Affected villages Indicative costs from the World Bank Land-for-land or easement fee will be utilized forest funded Xeset 1 to Saravan 115 kV paid on a kilometer basis to each land Number of affected transmission line project (October 2006) village the transmission line passes (or utilization villages to be equates to KN576,923 per linear meter; through nearby forest. forest) determined during this will be verified and updated during detailed design Community forests are usually zoned project implementation to ensure that by the village into four types: payment will be at replacement cost. conservation forest, protection forest, rehabilitation forest, and utilization Government forest close to villages is forest. included in village land use plans and termed community forest
C. Residential Legal owner or Land-for-land with similar type and Easement fee equivalent to 100%
54 Appendix 10
Type of Loss Entitled Person Entitlement Implementation Issue land with or occupant identified category, and free from transaction current market value of residential land is without houses during DMS. costs; or applied because households need to buy and/or structures replacement residential land due to the PAFs to be easement fee in cash equivalent to restrictions imposed on land determined during 100% current market value of land of detailed design similar type and category, and free from transaction costs (taxes, administration fees). Land title and/or land survey certificate will remain with the title and/or registered owner. III. Crops and Trees Annual crops, Owner of crops and If standing annual crops are ripening PAFs will retain possession of fruit and nut trees, regardless of and cannot be harvested, cash salvageable crops and trees trees, timber tenure status compensation will be at replacement trees (Mod 1: 5 PAFs; Mod cost equivalent to current market Compensation for loss of economic 2: 2 PAFs; Mod 3: 5 value of crops in the area. opportunity or income will be based on PAFs) due to For fruit and nut trees, payment will past average income and paid for a permanent be based on the average annual period determined by the local acquisition of land for value of the produce multiplied by the government being the time frame the towers number of remaining productive deemed appropriate to achieve an years of the tree. alternative livelihood or restitution of PAFs traversed by For timber trees, cash compensation preproject state. the T/L to be at replacement cost equivalent to determined current market value based on type, age, and diameter at breast height (DBH) of trees IV. Houses, Structures, Fixed Assets, Facilities, Houses and Owner identified Current market value of materials and structures during DMS, cost of labor at the time of regardless of tenure compensation status Community Community, Replaced by the project in a Examples: irrigation water supplies, facilities, public agencies, condition better than preproject drainage networks, village or farm infrastructure organizations condition. The full cost of access, spiritual or religious land or construction, transportation, and structures, schools, markets culturally compatible ceremonies required will be borne by the project. V. Temporary Loss of Land and Impacts on Non-Land Assets during Construction Temporary loss Legal owner or Affected peoples whose land is taken PAFs will sign a temporary occupation of land occupant identified temporarily due to civil works under contract specifying (i) period of during DMS the project will be compensated at occupancy, (ii) formula for calculation of replacement cost for net loss of production losses, (iii) frequency of PAFs and affected income and damaged assets, crops, compensation payment, and (iv) land people - TBD or trees. protection and rehabilitation measures. Impacts on Owner identified Compensation at replacement cost. nonland assets during DMS, (items III and IV) (crops, trees, regardless of tenure houses, status structures) None DMS = detailed measurement survey, PAF = project affected family, T/L = transmission line. Source: Asian Development Bank staff.
Appendix 11 55
SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
Country and Project Title: Lao PDR: Greater Mekong Subregion Northern Power Transmission Project
Lending/Financing Project grant (Asian Development Fund) and Department/ Southeast Asia Department Modality: cofinancing by Export–Import Bank of Korea Division: Energy and Water Division
I. POVERTY ANALYSIS AND STRATEGY A. Link to the National Poverty Reduction Strategy and Country Partnership Strategy
The government’s poverty reduction strategy under its 6th National Socio-Economic Development Plan reaffirms that reducing poverty and accelerating the pace of social development are the most important long-term strategic goals. Its 5-year plan agenda for poverty reduction includes a concentrated effort to develop the poorest areas through a range of targeted interventions. The project is located in the poor northern region, which is a focus of poverty reduction efforts under the 6th plan. The main pillars of the Lao national strategy for power development include (i) maintaining and expanding an affordable, reliable, and sustainable electricity supply to promote economic and social development; and (ii) promoting power generation for export to provide revenues to meet the government’s development objectives.
Access to electricity is vital for poverty reduction, improvement of human life, and socioeconomic development. The government emphasizes development of infrastructure enabling business opportunities and pro-poor development as a key pillar of the strategy. Accordingly, the government has set the target of achieving 90% electrification of all households by 2020 mainly through grid extension. About 50% of households are electrified in Xaignabouli province, one of the project areas, still lower than the national average (58%). The northern provinces are among the poorest in the Lao PDR, as over 58% of households are poor, compared with 4.4% in Vientiane municipality. To eradicate poverty and promote sustainable economic growth, one priority measure is to increase electrification by extending transmission lines in the north. The Asian Development Bank (ADB) country strategy and program for the Lao PDR promotes sustainable economic development through infrastructure investments and gives assistance to the power system with emphasis on rural electrification. Under the project, grid expansion and distribution lines provide opportunities for rural electrification, and employment generation in the project areas.
B. Poverty Analysis Targeting Classification: TI - Geographic 1. Key Issues Expansion of the power transmission grid and rural electrification are crucial for development in the Lao PDR. Presently only 58% of households have access to electricity, which is one of the lowest electrification rates in Southeast Asia. The 115 kilovolt (kV) system of Electricite du Lao (EDL) is fragmented and does not cover the whole country. Outside the grid, rural households must rely on expensive import, off-grid power supply, or do without. Expensive energy hinders rural development and exacerbates the rural–urban income gap. Poverty is high with 29% living below the national line of $1.50 a day and nearly 77% on less than $2 a day. The Poverty Reduction Fund (January 2007) defines households as being poor if they have an income of less than KN85,000 per person per month. The project is designed with special focus to geographically target the northern provinces with high incidence of poverty. The project will include remote communities of these provinces for grid connection. Twenty-nine percent of all households in project areas are poor.
The northern provinces have experienced an annual rate of poverty reduction of 2.1%, compared to Vientiane municipality at 13.9%. In addition to isolation, lack of education is a contributing factor to poverty. Under the project, 18,800 households (among them 6,000 poor households) will be supplied with grid electricity. The project will support the government’s effort to provide all households in the country with electricity by 2020 as part of rural infrastructure provision in the government’s 6th National Socio-Economic Development Plan. The household electrification rate in the main project area (Phongsali and Xaignabouli provinces) will increase from 39% today to 79% by 2020. New small businesses, district commerce, and industries in Phongsali and Xaignabouli provinces will also be provided with reliable electricity supply. The project outcome will be increased access to electricity not only by households but also by small commercial, district, and industrial customers. The project is expected to contribute to poverty reduction in the northern provinces through investment in economic development, industrialization, and employment generation. The provision of electricity to households would improve socioeconomic and living standards in high-poverty geographic areas. Electricity distribution will benefit all ethnic groups equally in terms of access.
2. Design Features The cost of connecting the distribution drop-down to a house is approximately KN700,000. Most poor households in rural areas have difficulty meeting this cost. The project will provide poor households with a free meter (3/9 A) and a credit of KN700,000 to connect their houses. The project is expected to reach 80% of poor households in the project area. It will
56 Appendix 11
include community information dissemination consultations to provide households with information on the project’s pro-poor activity.
II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis
The project area is divided into three modules. Module 1 is the Nohai–Paklay–Kentho component located in eastern Vientiane and Xaignabouli provinces. Module 2 is the Paklay–Xayabury component located in Xaignabouli province. Module 3 is the Namo–Boun Nua component situated in Oudomxai and Phongsali provinces. The project area includes 27 ethnic groups and subgroups. The social analysis indicates that for a majority of the households in the project area farming and livestock are important sources of livelihood.
The module 1 project area has a population of 23,317 and is notable for a large percentage (41%) of ethnic minority Hmong (Hmong-Mien) and Khmou (Austro-Asiatic). The average percentage of household expenditure on energy for those with access to grid electricity was 5%; nonconnected households with lower mean incomes spend 12%. The nonconnected households use batteries and generators to meet household energy needs, which is costly. Similarly the socioeconomic data demonstrates that the project would provide considerable potential to benefit households whose total energy expenditure could easily be replaced in terms of affordability by grid electricity, which in real terms would result in more energy for the same expenditure. Social and poverty assessment of households in the project area indicates that households without grid connection use electricity (using rechargeable battery and generator) for household purposes such as lighting, television, and water pump.
The project’s social analysis shows that 47% of respondents rank electricity as their first priority. Electricity is perceived as a contributing factor for improving living conditions and enhancing learning opportunities for children. At present kerosene provides a significant source of lighting; health problems related to its use are a concern. Access to electricity will increase access to information technology, and utilization of electric equipment and computers in schools and health facilities. This would result in improved education and health services. Street lighting will contribute to a safer night environment in villages. The construction of a substation for a transmission line will engage workers; this can pose potential risk of HIV and human trafficking in the campsites and surrounding villages. The construction contractors will undertake an awareness-raising campaign to minimize risk of HIV and human trafficking in and around campsites.
B. Consultation and Participation 1. Participants at a workshop conducted in March 2007 discussed the social and environmental impacts of the project, and the resettlement plan. They included representatives of the Lao National Commission for Advancement of Women, the Lao Women’s Union, the Centre for HIV/AIDS and STDs (Ministry of Health), the Ministry of Energy and Mines, Department of Electricity, Environment Department, the EDL Environment and Resettlement Department, the Ethnic Minorities Department, Lao National Front for Construction, the Water Resource of Environmental Agency, and the Project and Cooperation Division of the Department of Forestry.
The project resettlement plan includes a gender strategy and ethnic minority specific actions, which will facilitate participation of the affected households in a detailed measurement survey, and discussion on land acquisition and compensation. The project will disseminate information about provision of free electricity meters to poor households during the consultation with poor households.
2. What level of consultation and participation (C&P) is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment
3. Was a C&P plan prepared? Yes No No C&P plan was prepared. However consultation will be carried out by the resettlement committee during project implementation. Expenses are already included in the resettlement plan.
C. Gender and Development 1. Key Issues. Gender analysis of the project shows that most of women in the project area are engaged in farming, and 20% are operating small businesses from home. Eight percent of households are headed by women. Social assessment indicates that lack of electricity in the project area is a constraint for women's household work, improved living conditions, and children's education. The increase in access to electricity will reduce domestic drudgery of women through use of appliances such as electric water pumps, rice cookers, grinders, and food processing equipment, and would have a positive impact on poor women's daily
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household work. The safer environment at night will have a positive impact on women's mobility. The negative impact of the project relates to land acquisition and potential risk of HIV and human trafficking. The number of workers during construction can pose potential risk of HIV and trafficking of women. Land acquisition for the project may have some minor impacts on women's work that contributes to family subsistence.
2. Key Actions. Measures included in the design to promote gender equality and women’s empowerment—access to and use of relevant services, resources, assets, or opportunities and participation in decision-making process: Gender plan Other actions/measures No action/measure
The following specific measures are incorporated in the project to maximize benefit of the project to women:
- consult women from affected households, including ethnic minority households and households headed by women during the detailed measurement survey to update the resettlement plan; - disaggregate the socioeconomic profile of the affected people and detailed measurement survey by gender and ethnicity; - ensure women's participation, especially ethnic minority, poor women, and households headed by women in disclosure meetings; - provide information in local language as well as with information booklets; - ensure participation of Lao village women's union representatives in the disclosure meeting and planning of resettlement activities; - where the project involves granting new land or replacement land for acquired land, provide the land title in the name of both spouses; - provide EDL staff with an orientation for a gender and resettlement checklist of ADB to ensure that gender strategy is implemented in resettlement activities; - under the project activity on free electricity connection to poor households, provide village consultations to ensure that all poor women, ethnic minority women, and the Lao Women's Union participate in the consultation; - ensure that households headed by women and ethnic minority households and poor households receive free electricity connection to their houses; - ensure that an adequate number of women are employed in the new project implementation unit; - ensure that the HIV and human trafficking program is targeted to women from villages surrounding the construction camps and women sex workers; - develop gender-disaggregated monitoring indicators to monitor resettlement activities in terms of women's participation in the consultation for the detailed management survey, disclosure meeting, land titling, and compensation, and to measure the impact of resettlement on poor women, and ethnic minority women; and - develop disaggregated monitoring indicators by gender, income, and ethnicity to monitor free grid connection to households headed by women, poor households, and ethnic minority households.
III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS
Issue Significant/Limited/ Strategy to Address Issue Plan or Other Measures No Impact Included in Design
Involuntary Limited Twenty-eight households will be Full Plan Resettlement affected by land acquisition. Short Plan Resettlement Framework No Action
Indigenous Peoples Limited Of the 28 households affected Plan by land acquisition, 10 Other Action. Ethnic minority households are ethnic minority specific action is included in the households. There is no resettlement plan. differential impact on land Indigenous Peoples acquisition between ethnic Framework minority and the mainstream No Action population.
Labor Not significant The construction contracts will Plan Employment include provision of fair wages, Other Action opportunities equal wages for men and No Action. No separate Labor retrenchment women for equal work, and action is included in the project Core labor standards basic services such as water except provision of core labor and sanitation facilities in the standards in the contract of
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construction camp. construction contractors Each poor household will Affordability Poor households will be receive a credit of KN700,000 Action provided interest-free without interest . No Action credit for connection. Other Risks and/or The separate plan is prepared Vulnerabilities except provision of HIV and Plan HIV/AIDS human trafficking awareness Other Action Human trafficking campaign is included in the No Action. Provision of Others(conflict, political construction contractor's HIVand human trafficking instability, etc), please contract. awareness campaign is specify included in the construction contractor's contract. IV. MONITORING AND EVALUATION
Are social indicators included in the design and monitoring framework to facilitate monitoring of social development activities and/or social impacts during project implementation? Yes