Project Experience in the Lao PDR Electric Power Sector:
UN Workshop on Public-Private Partnerships (PPPs) for
Infrastructure Development in the Lao PDR
16 September 2014, Vientiane
presented by Walter Heiser, Senior Counsel
BANGLADESH | CAMBODIA | INDONESIA
| LAO PDR
| MYANMAR
| SINGAPORE
| THAILAND |
VIETNAM
Overview of Hydropower Sector
Overview of Hydropower Sector Comparison
Lao PDR
Current HPP Capacity
3000 MW
# of large-scale HPPs (over 5MW)
11 (6 JVA; 5 govt)
Identified Hydropower Potential
26,500MW
50 projects
2020 Planned Capacity
12,500MW
15 to 25% paid shares
1% Royalty?; tax exemptions
Approx 5% output sold domestically
26-30 year concession
SPV BOOT
Basic Structure
% of Total Capacity from HPP
2007
2030
97.3
100.0
Average Annual Growth of Hydro (%)
8.4
Source: 3rd ASEAN Energy Outlook, 2011
Lao PDR Advantages
Energy Project and Financing Advantages
1. Strong Hydro Potential: High growth planned = Opportunity
2. Export Opportunities: EGAT; EVN; [China?]
3. Additional mine-mouth lignite opportunities?
4. Possible wind-energy / solar possibilities?
5. Access to large sums of intl debt financing on reasonable terms;
6. Capacity to approve / negotiate multiple projects
7. Rapid development in 10 years (2005 to 2015) able to bring 10,00 MW
(20 projects) to FC
8. Solid legal system covering E&S; project approvals; security
9. Financeable project docs; risk allocation policy; acceptable finance
structures
10. EdL exports only? Advantage for EdL but will make financings more
difficult
Story of Lao PDR Electric Power Sector:
Details of Projects To Date (Over 5MW)
Name
MW
COD
Offtaker
Finance
Nam Ngum 5
120
2012
EdL
China Exim
EdL 15%; Sinohydro 85%
Nam Ngum 2
615
2010
95%+ EGAT
Thai Banks
EdL 25%; CH. Kanchang (Thailand)
28.5%; Ratchaburi 25%; Bangkok
Expressway PCL 12.5%; 9% Others
Nam Lik 1-2
100
2010
EdL
CDB
Nam Theun 2
1080
2009
95% EGAT
26 Banks & IFIs
Se Xet 2
76
2009
EdL
IFI / BFI
EdL 100%
Nam Mang 3
40
2004
EdL
IFI / BFI
EdL 100%
Nam Leuk
60
2000
EdL
IFI / BFI
EdL 100%
Houay Ho
152
1999
98% EGAT
Intl Banks
Suez Energy (Belgium) 60%; HHTC
(Thailand) 20%; EdL 20%.
210
(+70)
1998
(2012)
95%+ EGAT
Intl Banks
EdL 60%; Nordic 20%; GMS 20%
Se Xet 1
45
1990
EdL
IFI / BFI
EdL 100%
Nam Ngum 1
155
1971
EdL
IFI / BFI
EdL 100%
Theun-Hinboun
(Expansion)
Ownership (initial)
EdL 10%; CWE (China) 90%
LHSE 25%; EDF (France) 35%; EGCO
(TH) 25%; ITD 15%
Story of Lao PDR Electric Power Sector:
Details of Projects To Date (Over 5MW)
Name
MW
Offtaker
Finance
Ownership (initial)
Xayaburi
1285
EGAT/EdL
Thai Banks
Nam Ou Phase I
540
EdL
CDB
Hongsa (lignite)
1,878
EGAT/EdL
Thai Banks
Xe Kaman 1
468
EVN
VDB
Namphak
150
EdL
Negotiation
XPXN
400
EGAT/EdL
Thai & Intl Banks
Nam Ngiep 2
280
EdL
CDB
Nam Ngiep 1
262
EGAT/EdL
Thai & Intl banks
Xekaman 3
250
EVN
VDB
Nam Khan 2&3
173
EdL
China ExIm
Nam Tha 1
170
EdL
China BFI
CSGI 80%; EdL 20%
Nam Phay
140
EdL
China BFI
Norinco (China) 85%; EdL 15%.
Nam Kong 2
66
EdL
BIDV
Hoang Anh Gia Lai Group (Vietnam) 100%
Nam Lik 1
65
EdL
Thai Banks
HEC 40%; PTTi 40%; POSCO 10%; EdL 10%
EdL 20%; PT Construction 5%; PTT 25%; CK
30%; EGCO 12.5%; BKK Expressway 7.5%
Sinohydro 85%; EdL 15%
Banpu 40%; Ratch 40%; LHSE 20%
EdL 30%; VLP (Vietnam) 70%
Nava Bharat 70%; KGP 15%; EdL 15%
SK 26%; Kowepo; 25% Ratch 25%; LHSE 24%
CWE 90%; EdL 10%
Kansai 45%; EGATi 30%; LHSE 25%
EdL 15%; VLP (Vietnam) 85%
Sinohydro 85%; EdL 15%
Story of Lao PDR Electric Sector (1)
1. Socialist System: Assets and Resources State owned
2. First HPP 1971 (Nam Ngum 1).
1. EdL owned projects for EdL supply,
2. Financed by Aid grants and loans
3. HPPs from 1970 to 1995 (6) all Government owned and developed. IFI or
BFI financed.
4. 1988 opened sector to foreign investment.
5. Over 100 HPP MOUs signed to date. No Public (or Private) tender. Private
negotiations. BIG INTEREST
6. Bilateral MOUs signed with Thailand and VN.
7. THPC (98) / Houay Ho (99): First IHPPs, Intl Finance.
8. NN2: First Thai financed; Nam Lik 2 (EdL Off-taker).
7
Story of Lao PDR Hydro (2)
6. 1st Project Finance (non recourse) PPP: THPC (COD 1998 (FC 1995?);
210MW
1. Elevated head, Run of River
2. 60% EdL / 40% private shareholders (Thailand and Norway)
3. Project Finance Basis: International Banks (Nordic); IFIs (ADB); Thai Baht
consortium (50/50)
4. EGAT supply, 25 year take or pay based on availability; 50/50 THB/USD tariff
(fixed exchange rate); tariff rate increase 1% only, renegotiate after 10 years.
5. EdL Equity funding 60% equity from ADB and BFIs (on lent to EdL to
contribute to Project Company).
6. Offshore accounts and ADB negative pledge in favor of commercial lenders.
7. 30 year BOT Concession Agreement, global exemption from conflicting laws.
8. ADB sponsor govt adviser and other TA for govt.
9. Diversion through tunnel from one stream (Nam Theun) to another (Nam
Hai): fishery, environmental and social issues. ADB TA work.
10. Resettlement 3,000 pax.
8
Structure of Theun Hinboun HPP
Story of Lao PDR Hydro (3)
7. 2nd Project, PPP: Houay Ho; COD 1999 (FC 1995); 150MW
1. 20% EdL / 80% Private shareholders (Daewoo and Loxely)
2. Daewoo financed, including equity loan to EdL (10M USD)
3. Export Credit
4. EGAT supply; 25 year take or pay.
5. Resettlement 3,000 pax.
8. Financial Crisis: Late 1990s New Lao PDR Power Projects on hold
10
Story of Lao PDR Hydro (3)
9. Nam Theun 2: Game Changer? Or Evolutionary progress
1. 26 Banks and IFIs (1.15B debt)
2. 70/30 debt to equity
3. PRG from IDA, MIGA and ADB
4. First WB finance project for decades
5. Intl Standard E&S (Equator, etc)
6. Modified legal system and approvals
7. Set NA Itemized Exemptions from and Approvals under Law Method as
precedent (v. CA above the law method)
8. EGAT supply, 25 year
9. LHSE (GOL Holding Co) rather than EdL (Offtaker)
10. 30 Year CA, itemized exemption from specific laws.
11
Case Study: The NT2 contractual matrix
12
Case Study: Xe-Pian Xe-Namnoy Project Financing
Financing Type: Thai banks
Size: USD 1.02 billion
EPC
Contractor
(SK)
Financing Documents
EPC
Contract
PNPC
GoL
100%
EdL
Domestic PPA (10%)
USD 306M
Concession Agreement/Lease Agreement
THB
Tranche eq
USD 357M
SHA
USD
Tranche
USD 357M
Original
Lenders
100%
Lao Holding State Enterprise
Thai Banks
Consortium
Ratch
Future
Accession
SK Engineering Const
Take out
ADB
K-Exim
Kowepo
Equity
Debt
EGAT
Crossborder
PPA (90%)
Challenges
First Thai financing to non-Thai exclusive
investment
FOREX risk as Thai Banks finance in USD
Flexibility: Structure permitting postclosing accession by multilateral lenders
Account structure - change of central
bank policy on requirement for equity
subscription on domestic bank account
Security structure
Stand-alone Lao Law security interests
over distinct categories of Project Assets
situated in Lao PDR
Thai Law assignment of EGAT PPA, Thai
Pledge of Collateral Accounts, etc.
English Law assignments of each English
Law Project Document and Backstop
English Law debenture, etc.
13
Story of Lao PDR Electric Power Sector (3)
10. Nam Ngum 2: First wholly Thai financed and developed IPP (EGAT)
11. First Project Financed, Domestic Supply: Nam Lik 1-2
50MW supplied to EdL
CWE with China Exim financing
PRG (Sinosure, etc?)
MOF Guarantee
12. Institutional Reform
MEM (take from MIH)
MONRE (take from WREA, from STEA)
NLMA
DEB as One Stop; Legal Team
13. IPO of EdL HPP assets creating EdL-Gen
14. Thai Financed Mega Projects
15. Reduced Role if IFIs for Debt; Continue role for PRG, ECA, EdL and LHSE equity
financing
16. 10+ Projects under negotiation
17. Tightening of Govt concessions on Royalty, Tax, exemptions, MOJ LO, DAs, etc.
14
Ownership of Lao PDR HPP by Country (weighted)
Malaysia Japan
3%
2%
France
3%
Lao PDR HPP Ownership
Others
2%
Russia
5%
Vientam
6%
Thailand
37%
China
21%
Laos
21%
Chapter (8) in Hezri, A., Hofmeister, W. (Eds.), 2012, Towards a Green Economy: In Search of
Sustainable Energy Policies for the Future. Singapore: Konrad Adenauer Stiftung.
15
Lessons Learned
1. Key role of Offtaker to raise financing; EGAT paved way for domestic supply projects
To date, Nam Lik 1 is only EdL-only off-taker project with true limited recourse financing
All EGAT PPA projects are pure PF basis with commercial lenders
Chinese-financed project are a hybrid of limited recourse + parent company guarantee
2. Key role of IFIs
Provide comfort to commercial lenders (THPC and NT2)
Improve legal system standards, etc E&S through TAs
Paved way for Thai bank financed projects
Provide PRG
Finance govt equity
3. GOL equity financing issues key
Options: MOF to EdL to LHSE to EdL Gen IPO
IFI debt financing (and BFI)
Dividend Financed Shares
Tax and royalty financed shares (requires NA/NASC approval)
Buy in rights not common. Negative for financing due to uncertainty.
Divestment if no investment: GOL position is no dilution.
16
Electricity supply MOUs
Cross-Border Memorandums of Understanding
Lao PDR
Year Signed
Initial Capacity to be Sold
Latest Update
New Capacity to be Sold
Thailand
Vietnam
Cambodia
1993
1998
1999
1,500MW
2,000MW
1,500MW
2007
2008
--
7,000MW by 2020
5,000MW by 2020
1,500MW by
2020
17
Partial Privatization:
EdL and EdL-Gen
2010 - EdL-Generation Co. Ltd (EdL-Gen) was incorporated as a subsidiary of
Electricit du Laos (EdL).
25% floated on Lao Securities Exchange; up to 49% float
75% owned by EdL
EdL 100% owned by GOL
2011 - EdL-Gen participated in an IPO on the Lao Securities
Exchange becoming the first company to list
Operates 7 HPPs totaling 387MW
Nam Ngum 1
Nam Song
Nam Leuk
Xeset 1 & 2
Nan Mang 3
Selabam
18
Partial Privatization:
EdL and EdL-Gen
2012 - EdL-Gen approved the transfer of shares in four IPPs owned by
Electricit du Laos
60% of shares in Theun-Hinbeun (300MW)
10% of shares in Nam Lik 1-2 (100MW)
25% of shares in Nam Ngum 2 (153.75MW)
20% of shares in Houay Ho (30MW).
Post-2012:
15% of shares in Nam Ngum 5 (120MW)
EdL-Gen also plans to purchase 2 HPPs from Electricit du Laos that are
currently under construction:
Nam Khan 2 (126MW)
Huaylamphan Nhai (88MW)
19
Lessons Learned:
Flexibility through Exemptions and Approvals
5. Exemptions from Law key to resolve lender issues: Blanket or itemized?
a. Required Approvals
NA/NASC Approval required for most power projects
b. Exemptions from Law and Regulations: Lao PDR Approach
Require NA or NASC Resolution
Narrow detailed list v. broad approach
Govt reducing available exemptions
CA: list of exemptions and approvals
c. Royalties in Lao HPPs
Rate not set by lawnegotiable but 1% of gross revenues is generally the
minimum.
d. Tax Exemptions
Former broad tax free regime is no more. In particular, VAT must be paid.
Tax incentives are granted on a discretionary basis and cannot be said to be
granted routinely.
20
Lessons Learned
6. Standardization of Contracts and Policies
Developing standardised approach
International standard docs and structure (Direct agreements, Guarantees,
legal opinions). DEB plays a key role.
7. Facilitate the Agreement Process
Once Stop Agency (DEB) for negotiation
Consistency in staff
Govt Legal and Technical Advisers to move process forward and communicate
with Legal and Tech advisers from Lenders and developers. Who pays?
8. Legal Framework supportive of financing (flexibility to change laws
quickly to address project issues).
21
Lessons Learned: Institutional and Legal
Legal Framework
Investment
Investment Promotion Law 2009
Companies
Enterprise Law 2013
Forestry
Forestry Law 2007
Water
Water and Water Resources Law 1996; Fisheries Law 2009
Environment
Environmental Protection Law 2012; EIA Decree 2010
Resettlement
Decree on Compensation and Resettlement 2006, Regulation 2006
Electricity
The Electricity Law 2011
Land
Land Law 2003; Decree on State Land Concession 2009
SOEs
Enterprise Law 2013; Decree on Management of State Invested
Enterprises 2002
Security
Secured Transactions Law 2005;
Secured Transactions Decree 2011
Lessons Learned: Debt Financing
9. Debt Financing Issues
a. Political Risk Insurance required?
b. EdL financial capability? Possible earmarking of EGAT export
revenues?
c. Necessity of GOL Guarantee for EdL-only off-take?
Project shareholder guarantee?
d. Parent company guarantees? Required by Chinese lenders
e. Necessity of Pledge of GOL Shares (EdL, LHSE)
f. Necessity of pledge of offshore bank accounts
Problem for EdL offtaker structure
Equity contributions: held onshore or offshore?
23
Lessons Learned: Institutional
10. Positive Evolution of Institutions and Procedures
a. Lao PDR succeeded without solid institutional framework initially, but
moved quickly to One Stop Negotiations Authority and clearer
regulatory spheres
b. Lao PDR succeeded without Complete Legal Framework. Why?
Flexibility and Adaptability
Accept changes to legal framework required by lenders and developers
Granted Exemption to Laws
24
Lessons Learned: Institutional and Legal
HPP Institutional Structure
Lao PDR
Regulator
None
Transmission
EdL; Private or PPP
Generator
EdL; PPP Joint Ventures
Distributor
EdL; EdL-Gen
Policy-maker
Ministry of Planning and Investment, MEM;
MONRE
O&M
EdL
Equity Investment
EdL; EdL-Gen; LHSE
25
Revised Lao PDR Energy Institutional Sector Structure
GOVERNMENT OFFICE (Prime Minister)
Ministry of
Planning and
Investment (MPI)
Ministry of
Energy and
Mines (MEM)
Ministry of
Finance (MOF)
- Dept of Electricity (DOE)
- Dept of Energy Business (DEB)
Electricit du
Laos (EdL)
EdL
Generation
(Public)
IPP company
for export
IPP company
for national
supply
- Transmission
- Distribution
Power grid
construction
company
Lao Holding
State
Enterprise
(LHSE)
Ministry of Natural
Resources and
Environment
(MNRE)
Electrical
Construction &
Installation Co.
(ECI)
Design &
Engineering
company
26
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BANGLADESH | CAMBODIA | INDONESIA
| LAO PDR | MYANMAR
| SINGAPORE
| THAILAND |
VIETNAM
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