The history of the power sector in Lao PDR is relatively new. 15 years ago, Laos counted with just a couple of large hydropower plants, and a meager 16% of the households throughout the country counted with electricity access, mostly concentrated in Vientiane, the capital city, and few provincial towns such as Luang Prabang and Savannakett.
Infrastructures needed an urgent push to help the economy start up and reduce the extreme poverty rates of the population. During the beginning of the 90’s, several donors including the World Bank and the Asian Development Bank (ADB) began different infrastructure development programs, including roads, water supply and electrification.
Rural Electrification programs contributed to a huge increase in the welfare of the rural population in Laos as well as a large reduction in poverty rates. But this success of the program was not based just in building poles and stringing lines; it was based on the reform of the whole power sector. The support of the Bank targeted internal structural reforms and sector sustainability. And because you cannot start building a house from the roof, the Bank in coordination with other donors such as the Global Environment Fund (GEF), the Norwegian Agency for Development Cooperation (Norad), and the Australian Agency for International Development (AusAID), analyzed and designed a complete aid program to address all the weaknesses, and set up the foundations of a sustainable power sector.
First, the Bank provided large infrastructure investment funds to help build grid-based distribution networks in the Southern provinces, while ADB focused in the Northern ones. The Bank also funded off-grid solutions with solar photovoltaic panels and micro hydro generators in remote areas of the entire country that were not likely to be connected to the grid in the short term. Impressive figures have been achieved and to date, a 71% of the Laotian households count with electricity supply, with 69% grid based, plus a 2% from solar home systems.
Second, through Technical Assistance activities, it was supported a Rural Electrification Master Plan and an Action Plan for Financial Sustainability of the Power Sector that drafted the roadmap for the sector sustainable development in the future, including several critical activities: a tariff reform that balanced affordability to all consumers and at the same time made the utility commercially viable; loss reduction and energy efficiency activities, to reduce energy waste from both Demand and Supply Side; a mechanism for billing and addressing account receivables that would significantly improve the financial performance of the national utility; and organizational strengthening of the government agencies and the national utility to upgrade staff capabilities and develop new areas of expertise in planning, design and implementation of rural electrification projects.
Finally, last but not least, after identifying that once the grid arrived to the villages, about 25% of the households could not afford the upfront connection costs – around US$ 100 – the Bank designed and funded a micro-financing interest-free concept implemented by the power utility, that addressed those poorest household needs: the so-called ‘Power to the Poor’ scheme. This simple but effective scheme finances up to 3 years with no interest the connection and house wiring costs for those very poor households, mostly female-headed or with disabled family members, that could not afford it.
The results of the program stand out. Electricity access has grown four-fold in the last 15 years, focusing both on the disadvantaged part of the rural society and on the sustainability of the power utility which became financially profitable - since 2007 - allowing further infrastructure expansion. Laos is one of the developing countries in the world with fastest increase in electricity access rates.
And of course there is a human side of this story, but I will let the direct lead actors to tell it in a 6 minute film below. You will hear first hand from the involved stakeholders, through their views and experiences, how the Rural Electrification expanded at such a fast pace, benefited the people, increased their welfare and actually, made a difference in Laos.
In following entries, I will go more in detail with the innovative Power to the Poor Program. Stay tuned!