Luận án Effective aid coordination in lao pdr: policy implications for power sector development

MINISTRY OF EDUCATION MINISTRY OF EDUCATION AND TRAINING LAO NATIONALUNIVERSITY NATIONAL ECONOMICS UNIVERSITY KhammanyKhammany INTHIRATHINTHIRATH EFFECTIVE AID COORDINATION IN LAO PDR: POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT Specialty : Investment Economics (Development Economics) Code : 62.31.05.01 Supervisor: Assoc.Prof.Dr. Nguyen Thanh Ha A dissertation submitted to the National Economics University in fulfillment of requirements for the Degree of Doctor of Philosophy in Economics Vientiane, 2013 ii DECLARATION I hereby declare that this dissertation is my own work and effort. The dissertation has not been submitted anywhere for any award. All the sources of information used have been well acknowledged. Date: Signature: Khammany INTHIRATH iii ACKNOWLEDGMENT I would like to sincerely thank many people whom provided much support into producing this thesis and paving the way for the research topic to be one of the significant findings. I wish to express my profound gratitude to my supervisor Associate Professor Dr. NGUYEN Thanh Ha, National Economics University (Vietnam), for his great support and guidance throughout my study. His encouragement and constant attention contributed significantly to the outcome of this research. I am grateful to my sponsors such as the Ministry of Energy and Mining and the National University of Laos in enabling me to achieve a higher education at National Economics University, Vietnam. Many thanks to all interviewees whom shared knowledge and ideas. My sincere thanks out to the Lao Government officers from the Government Office, Ministry of Energy and Mines, H.E Mr. Soulivong DARAVONG, Minister of Energy and Mines, etc and many other officers whom were involved in my research. The European Commission Lao PDR Office international staff, the World Bank residential office and United Nations Development Programme staff who are involved in the aid effectiveness agenda in Laos and friends from development communities were all of assistance in this reseach. Last but not least, many thanks are due to my wife and my family who provided me endless love with support and strength through out of my life. iv TABLE OF CONTENTS DECLARATION...................................................................................................... ii ACKNOWLEDGMENT......................................................................................... iii TABLE OF CONTENTS........................................................................................ iv ABBREVIATION ................................................................................................... vi ABSTRACT .................................................................Error! Bookmark not defined. RATIONALE........................................................................................................... xi CHAPTER 1. LITERATURE REVIEW ................................................................1 CHAPTER 2. THEORETICAL FRAMEWORK ON ODA COORDINATION EFFECTIVENESS....................................................................................................6 2.1. Development Theory..........................................................................................6 2.2. Development Aid ................................................................................................7 2.2.1. Donor Motives ..................................................................................................7 2.2.2. Defining Official Development Assistance (ODA)..........................................9 2.3. Aid coordination and its effectiveness............................................................10 2.4. Dimensions of Development Assistance Coordination .................................13 2.5. Sector Wide Approach and Programme Based Approach ..........................14 2.6. Principles of Effective Aid Coordination.......................................................15 CHAPTER 3. KEY LESSONS LEARNT FOR LAO PDR ................................16 3.1. Lesson from Vietnam ......................................................................................16 3.2. Lesson from Timor L’Este ..............................................................................20 3.3. Comparative Lessons .......................................................................................23 CHAPTER 4. HOW ODA COORDINATION IMPLEMENTED IN LAO......26 4.1. Millennium Development Goals (MDGs) ......................................................26 4.2. Paris Declaration ..............................................................................................28 4.3. Vientiane Declaration and Country Action Plan (CAP) .............................28 4.4. The Round Table Meeting/Process (RTM/RTP) ..........................................30 v 4.5. Sector Working Groups (SWGs) ...................................................................31 4.6. Critiques ............................................................................................................34 4.7. Current ODA in Lao P.D.R. ...........................................................................39 4.8. Effort of Government of Lao PDR .................................................................44 4.9. Coordination in Practice .................................................................................45 4.10. Sectorial Working Groups (SWGs) .............................................................46 4.11. Evolution of Current Coordination System ................................................47 4.12. OECD DAC Survey .......................................................................................49 4.13. International Development Agencies ...........................................................51 CHAPTER 5. POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT ...................................................................................................55 5.3. Power Sector Policy..........................................................................................74 5.4. Power Sector Strategy towards 2025..............................................................74 5.5. Recommendations ............................................................................................78 5.6. Regional Coordination Effort .........................................................................80 CONCLUSION........................................................................................................82 REFERENCES........................................................................................................84 vi ABBREVIATION ADB Asian Development Bank AI Avian Influenza AIDS Acquired Immune Deficiency Syndrome AP Action Plan CAP Country Action Plan CAW Country Analytic Work CDF Capacity Development Framework CPI Committee for Planning and Investment DAC Development Assistance Committee DIC Department of International Cooperation (MoFA) DP Development Partner DSA Daily Subsistence Allowance EC European Commission FAO Food and Agriculture Organization FY Fiscal Year FW Framework GoL Government of Lao PDR HCS Hanoi Core Statement HIV Human Immunodeficiency Virus INTOSAI International Organization of Supreme Audit Institution Lao NCAW Lao National Commission for the Advancement ofWomen LWU Lao Women’s Union MAF Ministry of Agriculture and Forestry vii MCTPC Ministry of Construction, Transport, Post and Communications MDG Millennium Development Goals MoE Ministry of Education MoF Ministry of Finance MoFA Ministry of Foreign Affairs MoH Ministry of Health MoU Memorandum of Understanding MTEF Medium Term Expenditure Framework NGO Non-Government Organization NSEDP National Socio-Economic Development Plan ODA Official Development Assistance OECD Organization for Economic Cooperation and Development PACSA Public Administration and Civil Service Authority PBA Program Based Approach PEMSP Public Expenditure Management Strengthening Program PFM Public Financial Management PGAE Partnership Group on Aid Effectiveness PIP Public Investment Program PIU Project Implementation Unit PMU Project Management Unit PrMO Procurement Monitoring Office RTIM Round Table Information/Implementation Meeting RTM Round Table Meeting SIDA Swedish International Development Agency viii STEA Science, Technology and Environment Association SWG Sector Working Group TC Technical Cooperation TSA Treasury Single Account UNCT United Nations Country Team UNDP United Nations Development Program UNFPA United National Population Fund UXO Unexploded Ordinance VD Vientiane Declaration (on Aid Effectiveness) WB World Bank WHO World Health Organization ix ABSTRACT Lao PDR has a lengthy history, abundant and natural-resource-rich country with plenty of minerals, rivers and creeks which are seen to be hidden strengths for the development of power, particularly hydropower, thermal, wind power, and solar energy. Total energy demand of the Lao People's Democratic Republic was 2.4 million tons of oil equivalent (Mtoe) in 2010, with an annual increment of 3 to 4% in parallel.with stable economic growth. Therefore, it is estimated that total energy demand in 2025 will be 6.4 million tons, approximately 2.6 times current demand. In terms of sector-wise demand, the industrial sector accounts for about 31%, the transportation sector for about 29%, the residential sector for about 29%, the commercial sector for about 10%, and the agricultural sector for about 1%. Among these, the industrial sector and the transportation sector, in particular, show higher annual increases of l5% and 8%, respectively. These are sectors where remarkable growth of demand is expected. Currently, the major energy supply sources are firewood/charcoal (about 47%), petroleum (about l9%), and hydropower (about 19%). However, in view of a sharp rise in energy consumption in the transportation and the industrial sectors, it is thought that the petroleum contribution of overall energy sources will be about 60% in 2025. In addition, the share of electricity is expected to grow substantially as the electrification rate increases from the current level of abofi 70% to 90% in 2020, and electricity consumption will increase sharply due to increasing use of home appliances. The Government of Lao PDR is expected to establish institutions to secure energy efficiently by making reliable energy demand forecasts and formulating an appropriate energy policy and supply pian. The purpose of this research is to find what is “effective aid coordination” particularly drawing from the case study of Lao PDR and lessons from successful cases x and what possible recommendations for power sector development are. The study explore extensive literature in aid effectiveness, with an in-depth interview with the managers, leaders, practitioners etc. Information synthesis is used in to analyze the data. It is proposed that a solution to the problem of poor delivery of ODA is that the Lao PDR governement, in general and power sector, in particular must improve its ODA spending systems and incorporate aid budgets into the national budget and development plans. It is vital to encourage the Government of Lao PDR to lead their own development agenda and support development according to local priorities. The results suggest that it is not just a matter of coordinating aid effectively, but the aid industry needs the right capacity and people to be involved. Capacity building is much needed within the recipient national offices as well as many of the international donor agencies. This would allow the local government to take the lead and prioritize the commitments signed in the Paris Declaration, the Vientiane Declaration and the Millennium Development Goals. It is recommended by many practitioners that the number of agencies working in decision making processes in the aid effectiveness agenda in Lao PDR should be limited to reduce transaction costs and promote clear communication within the development community. However different environments such as Timor L’Este, suggests that civil society should be involved more and that donor agencies should not take the lead in aid delivery. The key point to be learnt is that ODA needs to enhance its efficiency through the best use of limited resources, aligning with national planning, programming, monitoring and reporting processes, strategic documents, and priorities. There should be flexibility to establish and abolish donor coordination groups, avoiding administrative overburden of public administration staff, while attempting to comply with donor requirements, established systems and procedures for programming of donor’s funds. The effective use of existing national planning, monitoring structures, equipped with national leadership and ownership in aid coordination should be taken into account. xi RATIONALE As a country condition of mountainously and rich of water resources, Lao PDR is having 23,000 MW exploitable hydro power potential. With a quick development of economic and government policy on attraction of the foreign investment, those hydropower potential has been step to step developed for both domestic consumption and export for country income generation. Continue of economic growth is needed to alleviate poverty and achieve social development goals but the policy options for achieving this are constrained by the small domestic economy and limited trade opportunities. Therefore, hydropower projects are a development opportunity for both local and central of Lao PDR in overall development. The power policy of Lao government aim to establish a priority policy of developing the country’s potential energy resources to provide a low cost source of energy that can meet export and domestic policy objectives and promotion of sustainable development. The country now has installed power generation capacity of over 3,000 MW, of more than 13 hydro power projects or about 6,000 MW are under construction and more than 6,000 MW are under various stages of development by 2025, it is expected that export would be 80-85% of developed capacities. To transmit of those power there are a strategy of domestic and international grid development where it can be divided into domestic interconnection (connection of Northern to Southern part of Lao PDR) and regional interconnection (connection of Lao PDR to neighboring countries for power exporting). The Memorandum Of Understanding (MOU) was signed for supply of power between Lao and Thailand are 7,000 MW and 5,000 MW between Lao and Vietnam by 2020. For Lao PDR, Official Development Assistance (ODA) is very important mechanism to promote the potential of investment fund, technology, marketing, management experiences, take part of job creation, increase of income level, upgrade of country development level. Therefore, promotion and attraction of ODA xii and FDI is become one of priority policy of party and government of Lao PDR. Promotion of the ODA into Lao for development of important sectors; potential sectors are essential necessary for current situation, especially for development of energy sectors because this sector is an major part of country socio-economic development; it is a necessary of living condition of the people, generate income from export of surplus power from domestic use to neighboring country, creation for income from job opportunity for workers. Together with those, it is also a factor contribute to promote other sector development as well. Currently in the world, there are many type of energy; for Law PDR, with geographic condition, we are having of river which is potential of hydropower development. According to survey, Lao PDR is potentially of 23,000 MW of energy can be developed, in there; 13,000 MW could be generate from development of potential from Mekong river tributary and another 8,000 MW are from Mekong river tributary and 2,000 MW is from the other type of energy potential. At the moment, Lao is having 14 officially hydropower plants with generating of 2,558 MW, in their Electricite Du Laos (EDL) is direct managed of 9 hydropower plants with 385 MW installed capacity and there could generate of 1,700-1,800 million KWh. Now; every provincial city; district are already electrified and more than 72% of households are also electrified. EDL is also supply power to irrigation project for more than 24,000 projects which is further supply of water to production area of 200,000 hector and supply of power to heavy and light industries of more than 30,000 Unit. In the past five years, revenue of EDL business operation could reached 1,600-1,800 Billion Kip; where increased 20-36%. From 1988-2007 Foreign Investment is approved of 1,800 projects with total fund of 9.2 Billion US Dollars, particularly in year 2006 is a year that development of hydropower is highest with 13 projects and 1.7 Billion US Dollars fund. In the past 20 years from 1988 to present implementation of foreign investment policy in Lao PDR were approved from more than 9.2 Billion US Dollars and in there total investment of energy sector are 4 Billion US Dollars covered very high proportion compare to the other investment sectors. From 2007- xiii 2010 EDL are working with other foreign business investment partners of 5 projects with total capital investment cost of 1.8 Billion US Dollars. However, for promotion of the ODA are still having several limitation for example: understanding of the ODA is still different, recent year Lao PRD is announced for use of the Investment Promotion Law and many other legal documents concerning ODA and how to use such aid effectively. In the same time management, selection, approval and opening of the investment form, investment form of the government into different sectors in particular for the join investment of the government into energy sector is not yet having a proper package system, thus this make a difficult to prepare a policy, policy and detail implementation, this become a limitation of the research on ODA, therefore it make an investment environment is complicated, legal system, policy is not yet in a one full set system. There are many policies concern with ODA are regularly adjusted, not clear and thus this impact to business operation. Further to that policy system on the ODA, foreign direct investment, etc. between government, ministries and local authority is still not harmonized and break through, This make difficulty to donors and investors. Those limitations are making investment climate and environment are liquidity. Official Development Assistance (ODA) has a long history, yet its effectiveness and efficiency has always been a concern of both the donor and the recipients. In order to enhance the efficiency and effectiveness of ODA, the Paris Declaration has been identified as the key development frame work in leading the aid effectiveness agenda. It is a contract between members from various developed and developing countries in an effort to reduce poverty. This dissertation draws attention on the aid effectiveness agenda and the search for better ways to use such aid most effectively. Effective Aid Coordination, as the topic suggests, is all about how to bring development communities together as one and propose that poverty reduction work should be incorporated into one master p