|Project Rationale and Linkage to Country/Regional Strategy
Lao PDR is among the poorest countries in Asia with a gross domestic product per capita of $490 in 2005. The country has significant hydropower potential, estimated at about 18,000 megawatts (MW), but only 663 MW has been harnessed so far. Thirty-three potential hydropower sites have been evaluated for development, and 11 projects with a total capacity of 4,000 MW are expected to be developed in the next 15 years. Realizing the country?s hydroelectric power potential is challenging due to domestic resource constraints on financing its development. Recognizing the need to attract financing, the Government is strongly promoting private sector involvement; as such, most of the future projects were developed by independent power producers under concession agreements with the Government. Due to a fairly low domestic power demand and a rapidly growing power demand in other parts of Southeast Asia, most of the country?s hydropower is destined for export, which provides an opportunity to generate much-needed foreign currency revenues to the Government. These revenues will enable investments in rural electrification as well as in other social development and poverty reduction programs. Lao PDR?s export of hydropower also benefits other Southeast Asian countries like Thailand and Viet Nam by providing economically efficient and
climate-friendly power sources as compared to more expensive thermal power generation.
1. Viet Nam's economic growth over the past decade was in average about 7.5% per annum. This growth was achieved through sustained business-led growth in economic output and employment. Viet Nam faces a growing electricity supply deficit as a result of strong economic growth. The Sixth power development plan (2006?2020) projects electricity demand to grow at 16% per annum (base-case scenario) during 2006?2010, slow to 11% per annum during 2011?2015, and be at 9% per annum for the remainder of the period. Such high growth rates reflect the country?s high level of economic activity. In order to meet its demand Viet Nam is exploring possibility to import electricity from its neighboring country, especially Cambodia, Lao PDR, and People Republic of China (PRC) where investments in hydropower projects make import competitive compare to local coal and gas fired power generation. The governments of Lao PDR and Viet Nam signed a framework agreement to trade power that provides power sale arrangements of up to 7,000 MW by 2020.
2. Regional electricity trade through interconnectivity of electric power grids will provide significant economic benefits for individual countries. Such trade will enable Viet Nam to (i) reduce national investments in the power reserves maintained to meet peak demand; (ii) provide a more reliable supply of electricity, including power supply from an interconnected network in case of power failure; (iii) reduce operational costs; (iv) reduce greenhouse gas emissions and other pollutants; and (v) increase consumers? access to the cheapest and most environment-friendly sustainable source of electricity. In Lao PDR, it will provide foreign revenues from taxes on sale of electricity and from wheeling charges that will help the country to implement among others its rural electrification program.
The Country Strategy and Program for Lao PDR has recognized the importance of developing its hydropower for export to generate foreign currency income through royalties, taxes, and dividends to the Government, which will in turn contribute to the country?s broader social and economic development. In addition, the Regional Country Strategy Program
(2007?2009) for the Greater Mekong Subregion (GMS) focuses on (i) strengthening physical infrastructure for cross-border connectivity, and (ii) integrating national markets for promoting economic efficiency and private sector development. The GMS?s power market is moving toward effective regional cooperation, and Lao PDR is one of the pioneering countries in bilateral