Public Sector Led Mini Grid Programs and Policies in Lao PDR

Kathmandu, NEPAL February 6th, 2013

Anousak PHONGSAVATH Deputy Director General Institute of Renewable Energy Promotion Ministry of Energy and Mines. Lao PDR E-mail: anousakp@laotel.com

Country overview: Lao PDR

Terrain

Land locked 70% mountainous

Population

6.3 million, 1.2 million HHs 73% in rural areas

Energy Resources

Hydropower (18,000 MW potential, excluding Mekong river) Solar and biomass

Country overview
Government has systematically advanced the process of industrialization and modernization of Lao PDR following the liberation in 1975

1986 - policy to steer from centrally planned system to market based economy. Subsequently Govt. introduced development programs anchored by ambitious targets

National Growth and Poverty Eradication Strategy (NGPES) Periodic National Socioeconomic Development Plans (2001-2005-2010)

Targeted poverty alleviation projects in 47 poorest districts

Graduate from the least-developed country grouping by 2020

Policies and Priorities for the Power Sector

Provide reliable, affordable and sustainable electricity to sustain economic growth and poverty alleviation

Hydropower development

Sustain economic growth export for revenue earning

Expand access to electricity services

to 70% of households by 2010 to 85% of households by 2015 to 90% of households by 2020

Utility-driven grid-based electrification, complemented by off-grid program

700,000 600,000
500,000 400,000

>83% in 2012

65%

70% 60%
Rate of Electrification

50% 40%

300,000 200,000
100,000 0

30%

15%

20%
10% 0%

1993

1995

1997
EdL Connections

1999

2001

2003

2005

2007

2009*

Non-EdL Connections

Rate of Electrification

Rural Electrification - key drivers of our success to date

- Sustained national commitment with substantial financial support by GoL - Utility-driven grid-based electrification, complemented by off-grid program - Substantial financing platform - Program planning and prioritization to maximize social impact - Targeting the poor and being gender sensitive - Reducing investment and operating costs

1.

Off-Grid Programme

Hire Purchase Model

PESCOs

Village Electricity Manager who manage SHS

Village Electricity Manager who manage Village Hydro

SHS Users pay for first installation and monthly

Users pay for monthly only

Implementation and Management system MEM

IREP/VOPS

PESCOs

PDEM

VEMs

VEAC

Users

Solar Home Systems

Solar Home System is very widely use in isolated villages of Lao PDR and today people are well acknowledge. Systems: 20, 30, 40 and 50 Wp

2.

Micro Hydro Public Private Partnership (PPP)

Objectives: Government has a target to electrify 90% of households by 2020

To meet this goal MEM is evaluating micro hydro options This technology is useful for villages where EdL grid will not reach

How can the private sector assist when the systems are not commercial?

MEM has been evaluating a range of structures One solution is a Public Private Partnership (PPP)

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Stakeholders and roles

Donors fund REF Advisors

Donors

REF
Investor-Operator deposits collected fees in REF

MEM
MEM selects an Investor-Operator to build/operate electric power system

International/ Local

REF funds the availability of electricity at the affordable tariff

InvestorOperator
The Investor-Operator builds the system, supplies electricity to users and collects fees from users

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Electricity users

How the PPP will work How a partner will be selected Building the systems Operating the systems

How roles are shared between partners

Investor-Operator responsibilities

Government responsibilities

Selecting a system design

- MEM can provide assistance (e.g. capacity building) to investors;

Assign exclusive legal rights

Agree to lease the systems from investors for the length of the project Assist in raising finance for a percentage of construction costs Pay a regular lease fee for a verified, working system E.g. in case of war, disaster, etc

Constructing a system
- Building a system that works on time;

Make funding available from REF

Operation and maintenance

- Ensuring that the terms agreed to with MEM on quality and availability are met; - Collect user fees on behalf of REF

Guarantee certain extreme risks

Assume responsibility at the end of the project (e.g. 10 years)

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Transfer the system to MEM at end of the project (e.g. 10 years)

How the PPP will work How a partner will be selected Building the systems Operating the systems

Project phases
Selection of a partner through a competitive tender

Phase 1: complete sites selection. Phase 2: commences once funding and decisions are finalized
Government decisions, funding mobilized

Phase 1: Preparation

Phase 2: Implementation

Assess PPP options

Structure a transaction

Short list investors

Negotiate contractual terms

Select winning investor

Construction and operation

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Phase 2 in detail
Shortlist investors
Investor-operators submit their qualifications covering financial and technical experience. Those that meet MEMs minimum criteria will qualify to proceed. Legal contracts will govern all aspects of the PPP: the phases (Building, Operating, Leasing and Transferring the infrastructure); the allocation of risks; the outputs (power spec); tariffs; subsidies; etc.

Negotiate contractual terms

Negotiations will be held in parallel among all bidders. A single agreed set of documents will be used for bidding, with no negotiations taking place after bid submission.

Select winning investor

Investor-operators submit binding bids, signaling acceptance of contractual terms, system design, and support from REF. A winner will be selected objectively: whichever compliant bid requires the least support from REF will win.

Construction and Operation

Winning bidder raises finance and constructs the system. REF pays the investor-operator a monthly lease payment as and when the service meets the terms specified in the agreements. Otherwise, 16 lease payments will not be made.

How the PPP will work How a partner will be selected Building the systems Operating the systems

Building the systems

Total construction cost

MEM anticipates three sources of funding for constructing the systems

Investor-operator equity (e.g. 25% plus) Local bank debt (e.g. 25% plus) REF quasi-equity or subsidy (e.g. 50% max) Comfortable with this financing structure? Able to raise the required equity and bank debt? What support will investor-operators need to access bank financing?

Are investors

Government is keen for banks to lend

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How the PPP will work How a partner will be selected Building the systems Operating the systems

Cashflow once operations begin

Investor-operators are primarily relying of MEM lease payments

User fees are not expected to impact the investor-operators bottom line

MEM understands this risk is too great for investors to bear Hence the partnership involves MEM leasing systems from investoroperators for the life of the project

An agreed lease fee will be paid to operators from REF for a working system

This forms the financial bid the investor-operators submits An affordable social tariff will be agreed with all stakeholders before systems are constructed E.g. US$0.1 per KWh A tariff covering all the full cost of the system would be too high Estimated by MEM at US$0.5 US$0.9 per KWh

User fees will be collected by investor-operators and flow to REF

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Operating the systems

Verification

Maintenance

Investors will be eligible for lease payments

As long as the agreed power service is being provided

The investor-operator will be responsible for maintenance and collections

The service will be independently verified to

Ensure minimum standards are met Determine the cause of any issues

Although expensive, this could be done from Vientiane A cost effective alternative would be to employ villagers in the district

This verification will need to be organized at the village level

How comfortable are investors recruiting locally?

MEM may be able to suggest potential partners

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A transparent dispute resolution mechanism will also be needed

Images of Off-Grid Electrification Lao PDR

22 of 8

THANK YOU

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