Effective and coordination in Lao PDR Policy Implications for power sector development.PDF

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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.
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 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.
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


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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.
Research Aims and Objectives
The aim of this dissertation is to investigate a working model of aid coordination
for Lao PDR with a focus of the country’s ODA status.

This will provide a better

understanding of how the aid environment system operates within the country. In addition
to Lao PDR, lessons from Timor L’Este and Vietnam will be discussed to briefly outline
what these countries are doing with regards to harmonizing ODA and what best practices
could be suggested for Lao PDR. It is assumed that coordination is the key approach for
aid effectiveness. The dissertation objectives are:
1. To evaluate the current working model for aid coordination efforts in Lao PDR.
With this model it can be analyzed whether the current existing approach is effective or
not.
2. To find alternatives for aid coordination for Lao PDR for improvement.
3.

To recommend possible policies and solutions to promote effective use of

external aid in the field of power sector development.
Research Questions
1. What is the aid effectiveness agenda in Lao PDR?

Which institutions are

involved?
2. What are the local efforts from international agencies and donor communities for
aid effectiveness efforts in Laos?
3. Does the local development community support the local government in aid
coordination?
4.

What lessons Lao PDR could learn from successful cases of ODA

harmonization and coordination?
5.

What are the alternatives for Laos to improve aid coordination and

harmonization in order to promote power sector development?


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Research Methodology
To achieve the above objectives this dissertation follows three steps of research:
Collecting data. (i) Primary data were collected from different aspects regarding
power sector. The samples from each view were taken from different sides of the sector.
The author had deep personal interviews with different managers, leaders, practitioners of

related institutions/ organizations within the Ministry of Energy and Mines, MPI,
international offices, etc.
(ii) Secondary data were obtained from different sources (Office of the government
of Lao PDR, international sources, etc) but mostly from research work done by
international offices from which I myself had been involved to some extent. Some relevant
literature were also reviewed.
Data and information analysis. Data and information obtained are used to analyze
current situation of ODA use in Lao PDR.
Recommendations. Possible policies and solutions regarding the development of
the power sector of Lao PDR in years to come will be outlined in the last chapter based on
previous analysis.


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CHAPTER 1. LITERATURE REVIEW

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 thesis draws attention the aid effectiveness agenda and the search for better
ways to work in the development field, including governments and development
professionals.
1.1.

According to A. McCarty and A.Julian [1], (Bilateral) ODA to Lao PDR

originated in the early 1960s, and multilateral ODA was first recorded in the late 1970s.
Since then, total ODA has shown a strong increasing trend up to the present, although there

has been some fluctuation year on year, with bilateral donors traditionally contributing the
larger proportion of ODA. Total ODA in 2007 stood at US$ 280 million, which is
approximately 7% of GDP - a large percentage relative to other aid recipients. Japan,
France, and Sweden are Lao PDR’s largest bilateral donors, contributing respectively
40.1%, 16.8% and 11.8% of total bilateral aid between 2005 and 2007.
Lao PDR is classified as an LDC and is, therefore, covered by the 2001 DAC
Recommendation to untie aid. Between 2005 and 2007 DAC donor countries formally
untied over 70% of their ODA commitments to Lao PDR (CRS). Meanwhile, for the same
period, 22% of bilateral ODA remained unreported with regard to tying status. The process
of untying aid has improved over the last decade, despite the hesitation of some donors to
move to non-project based aid modalities, such as budget support and pooled funding,
which are often associated with untying. Lao PDR receives largely grant aid as an
instrument (98% of DAC ODA in 2007) and project based aid modalities. Several donors
also provide project based or free-standing technical co-operation, in many cases alongside
grant funding for projects, which is often tied. For example, grants which involved no freestanding technical cooperation (FTC) reported a 96.8% untied share, whereas grants which
had a whole FTC component reported an untied share of just 27.8% (CRS, 2005-07). The
three largest DAC donors to Lao PDR; Japan, France and Sweden, all reported a high
proportion of their ODA as untied for 2007: 68.9%, 62.3% and 98.5% respectively. Lao


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PDR also receives substantial aid from non-DAC donors that is considered to be largely tied
and not necessarily conforming to OECD definitions of ODA.
The aim of the econometric analysis is to determine whether ODA, the tying status
and the instruments by which aid is provided (loans and grants) have any significant impact
on aggregate donor export flows to the recipient, in this case to Lao PDR. Overall, the
results show that aggregate ODA, and grants in particular, have significant trade distorting
effects through the increase in donor-recipient exports. This empirical evidence suggests
that aid flows could be informally or de facto tied, when analysis of data from a cross
section of donors to Lao PDR is performed. However, as outlined in the econometrics

investigations this analysis has some caveats.
1.2. Soudalie Silaphet [84] conducted a study to find out solution to the problem of
poor delivery of ODA is that the development industry must improve its ODA spending
systems and incorporate aid budgets into the national budget and development plans. It is
vital to encourage national governments to lead their own development agenda and support
development according to local priorities. He found 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 prioritise the commitments signed in the Paris Declaration, the Vientiane
Declaration and the Millennium Development Goals.
He also recommended that the number of agencies It is recommended by many
practitioners that the number of agencies working in decision making processes in the aid
effectiveness agenda in Laos 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.
1.3. According to OECD [61], Lao PDR, in 2006, had a gross national income (GNI)
per capita of USD 2050 (in purchasing power parity terms). Lao PDR is a low-income
country with high poverty rates. The most recent poverty survey, conducted in 2002,
estimated that 27% of the population lived below the dollar-per-day international poverty
line, with 74% living below the two-dollars-per-day line. The country is on track to meet
three of the eight Millennium Development Goals (MDGs): MDG 2 on universal primary
education; MDG 4 on reducing child mortality; and MDG 5 on improving maternal health. In
2006, total net official development assistance (ODA) amounted to USD 364 million, with the
Asian Development Fund (ADF), Japan and the World Bank were the top three donors for


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2005-06. Lao PDR was not included in the 2006 Baseline Survey for the Paris Declaration.

Thus, the country’s 2010 targets will be based on the results of the 2008 Survey.
Sixteen donors responded to the 2008 Survey, with their aid constituting 75% of total
ODA provided by members of the OECD Development Assistance Committee (OECDDAC). Aid accounts for some 12% of GNI in Lao PDR; thus, it is vital that government and
donors work together to enhance aid effectiveness.
In order for aid to be effective, it must be aligned with national development
strategies, institutions and procedures. The Paris Declaration envisions donors basing their
support fully on country partner aims and objectives. Indicators will examine several
dimensions of aid to assess the degree to which partner countries and donors achieve
alignment. The data for Lao PDR suggest that there is substantial room for progress for
most indicators, especially with regards to improving the reliability and use of country
systems, for which the baseline is very low. Although reforms are being made, there is a
lack of financial and human capacity to implement and reinforce these reforms, which calls
for long-term commitment from donors. The limited use of these systems also contributes to
low levels of aid reliability which further lowers aid effectiveness.
Capacity constraints significantly undermine the ability of partner countries to
capture, co-ordinate and utilise aid flows more effectively. Under the Paris Declaration,
donors committed to providing technical co-operation in a manner that is co-ordinated with
partner country strategies and programmes. This approach aims to strengthen capacities
while also responding to the needs of partner countries. Likewise, there is greater
recognition that successful capacity building is endogenous – e.g. is led by the partner
country.
To this end, the partner country defines clear objectives to ensure that existing
capacities are used effectively and that external support is harmonised within this
framework. Some indicator focuses on the extent to which donor technical co-operation – an
important input into capacity development – is moving towards this country-led model. It
measures the degree of alignment between donor technical co-operation and the partner
country’s capacity development needs and strategies. The Paris Declaration 2010 target is
that 50% of technical co-operation flows are implemented through co-ordinated
programmes that are consistent with national development strategies. Data for 2007 shows
that 54% of technical co-operation to Lao PDR was co-ordinated with country programmes.

This is encouraging. The remaining gap may be the result of the NSEDP’s overall lack of an
articulated strategy for dealing with capacity bottlenecks. The Vientiane Declaration has
given attention to this issue and has formulated capacity development frameworks for the


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NSEDP’s priority sectors. Co-ordination of technical co-operation is now taking place in the
education sector and is an important component of the PFMSP.
The Paris Declaration 2010 target is that 50% of technical co-operation be co-ordinated
with country programmes. The data suggest that Lao PDR has already exceeded this target
although further progress can be made. A government-commissioned report on the impact of
technical co-operation was recently conducted: the lessons learned from this report will provide
a platform for further improvement.
On aggregate, 38% of scheduled disbursements in 2007 were accurately recorded by
the government, although only 65% of scheduled aid was actually disbursed. For the
average donor, the ratio was an even less encouraging 24%. These gaps can result from
several factors: inconsistencies and gaps in the legal and institutional framework for
managing ODA; weak co-ordination between donors and the government in preparing
realistic disbursement plans; and donors and government using different PFM and
procurement systems. The government is taking steps to improve the predictability of aid by
establishing a comprehensive ODA database and by working with donors to develop ways
to improve overall project and financial management.
1.4. According to Travis Harvey [87], the government of Lao PDR and donor
counterparts have a good understanding of the steps required for success and ownership of
the process. DG’s experiences have taught us to adopt a collaborative approach in designing
and implementing processes for aid management, and to ensure they build on existing ones
rather than seeking to replace them. Regular introductory and refresher user training for key
staff has proven critical, as has the identification of advanced users who can play a role in
supporting others in the future. During this mission the team conducted group training for
desk officers and one-on-one training for senior government officers.

Connectivity between government offices and the AMP server has been an issue over
the past few months because the government data center was being moved into a new
building. During this time DG hosted the system off-site to maintain access for users. This
issue was resolved during the mission by re-establishing a stable hosting arrangement and
fiber-optic connection to the Ministry. Development partners will access the system via the
internet when they begin using it later this year.
Broad stakeholder buy-in is key to success in AMP country programs. During this
mission the team held a workshop to sensitize other government agencies and development
partners to the program and the workplan. This will be especially important in the lead up to the
national Round Table Meeting (RTM) to be held in October. The RTM will be a major


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opportunity to raise awareness of the program, and DG will be there to support MPI in
preparing and demonstrating the AMP system.
1.5. According to Australia Aid Development Agency [109], a key feature of
governance in Laos is the relationship between the national and provincial governments.
Policy is centrally determined but provincial governors have significant autonomy which at
times hampers national policy implementation. While Laos has made significant gains in
poverty reduction, progress with legislative and institutional reform in support of
comprehensive human rights has been slower.
Regarding the Aid effectiveness, Donors to Laos have performed poorly on aid
effectiveness. A large number are engaged in many sectors through many stand-alone
projects. Some donor programs are managed remotely, creating difficulties with
coordination and responsiveness. Excessive use of parallel aid-delivery systems; insufficient
joint analysis and programming; and inadequate performance assessment are some of the
issues needing attention. Despite this, progress is being made. The Vientiane Declaration on
Aid Effectiveness, a local version of the Paris Declaration on Aid Effectiveness, adopted by
the Government of Laos and donors in 2006; has a companion document setting out
implementation; and several joint government-donor working groups have been created to

support improved policy discussion and programming. Further improvements in aid
effectiveness needs to be a priority of all donors to Laos.
1.6. Also, UNDP in an assessment [110] remarked that Lao PDR also faces
challenges in improving governance to ensure effective service delivery to its population; to
develop sound fiscal/revenue collection systems; and to ensure a stable, transparent and
predictable environment for national and international investment. Good governance will
also help to maintain donor confidence, which is important given that aid accounts for 18
percent of GDP and more than 80 percent of public investment. Given the importance of aid
and the number and variety of donors, there is increasing recognition by both donors and the
government of the importance of coordination and harmonization. On the donor side, there
has been highly effective coordination through the RTM process led by the UNDP. As a
result, the government has increased interest in improving its mechanisms for streamlining
aid coordination. The government made institutional adjustments for aid coordination in
2004, transferring the function to the Ministry of Foreign Affairs. The Department of
International Cooperation will also be strengthened in its role of monitoring ODA. A
Country Action Plan on Harmonization and Alignment is under preparation and a first joint
review was conducted by the Government with the ADB, World Bank and SIDA. The
government recently established a parallel structure to the donor working groups in the form


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of sector working groups to facilitate better aid coordination at sector and thematic area
levels. The organization stressed that ODA efficiency in Lao PDR needs to be improved and
although efforts have been made to improve management and mainstreaming of ODA,
challenges that may hinder the effective use of ODAfor development still exist. These
include:
 Interconnections of ODA allocations and the national plans and contribution of ODA
to national priorities
 Donor driven versus nationally driven development agenda Implementation of ODA
projects and balance between recurrent and capital expenditures

 Implementation of mechanisms for aid coordination and institutional capacity
 Aid dependency and diversification sources of funding
 Existence of different modalities among donors and impacts on government
allocation of time and human resources.
Moreover, monitoring and reporting ODA figures is currently based on a database
system that has limitations in coverage, timeliness and accuracy. The data is used to
produce the Foreign Aid Reports. The government intends to develop an improved ODA
database system that will improve both the accuracy of data and the aid coordination
process and policy dialogue.
1.7. In Vientiane Declaration on Aid Effectiveness [111], the Government of the Lao
PDR also stressed that it seek to take appropriate monitorable actions to make aid more
effective and assist the country in achieving the Millennium Development Goals (MDGs)
by 2015 and the long-term development goal of exiting the status of least developed country
by 2020 (the 2020 goal). The Government recognise that while increased volumes of aid
and other development resources are devoted to achieving the MDGs, aid effectiveness also
needs to increase significantly to support the efforts to strengthen governance, improve
development performance, and enhance development outcomes. And the Declaration
represent a shared recognition between the Government and the Partners to enhance the
effectiveness of aid in the Lao PDR. They will be implemented to the extent possible.


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CHAPTER 2. THEORETICAL FRAMEWORK ON ODA COORDINATION
EFFECTIVENESS

2.1. Development Theory
2.2. Development Aid
2.2.1. Donor Motives
2.2.2. Defining Official Development Assistance (ODA)
2.3. Aid coordination and its effectiveness

Aid coordination comprises activities of two or more development partners that are intended
to mobilize aid resources or to harmonize their policies, programs, procedures and practices
so as to maximize the development effectiveness of aid resourcesi.
This definition focuses on the two long-standing goals of aid coordination: resource
mobilization and increased development effectiveness. The literature distinguishes several
levels of aid coordination:
-

Information sharing and consultation, to understand the activities, plans, and

perspectives of other actors
-

Strategic coordination, to reach a consensus on policies, strategic objectives, and

key procedures and practices
-

Operational coordination, to reach agreement on a common program or project to
ii

be carried out and financed jointly .
While level one can be viewed as the precursor to aid coordination, it lacks the active
harmonization element embodied in the definition adopted above. A key distinction between
the second and the third levels os aid is that under startegic coordination, projects continue
to be financed by separate donors (although in a manner better integrated with national
priorities), while under the latter, donors and the recipient country pool resources to carry
out a joint set of activities or programs. Not surprisingly, the literature indicates that aid
coordination becomes more difficult for participants as they try to move from one level to
the nextiii.

i

Stephen Lister, Mike Stevens, Aid Coordination and Management, World Bank, 1992

ii
iii

Wijkström, Filip (1998) “Different Faces of Civil Society,” Stockholm: EFI

Carlson, Somolekae, van de Walle, Foreign aid in africa, 2004


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2.4. Dimensions of Development Assistance Coordination
International community recognizes different dimensions of development assistance
coordination:
•

Donor coordination refers to the specific mechanisms and arrangements agreed

within the community of development partners to improve their effectiveness as partners in
the development process. It is a subset of aid coordination.
•

Aid coordination refers to the established mechanisms and arrangements that country

governments and their development partners have agreed on in order to maximize the
effectiveness of external aid for development at national or sector levels. It is a subset of
development coordination.

•

Development coordination (at national or sector levels) refers to the combination of

aid coordination and the national government systems (policy-making and implementation,
governance, accountability, etc.) that ultimately deliver development results.
2.5. Sector Wide Approach and Programme Based Approach
2.6. Principles of Effective Aid Coordination


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CHAPTER 3. KEY LESSONS LEARNED FOR LAO PDR

This chapter will detail lessons for the aid effectiveness agenda from two countries,
case studies of Vietnam and Timor Leste. Vietnam has been selected as a case simply
because it has been an important template for the improvement of aid effectiveness in other
nations in the region. Vietnam has a model for Laos to be learned since both of the countries
have political similarities and are neighboring countries with special relationship agreement.
3.1. Lesson from Vietnam
3.2. Lesson from Timor L’Este
3.3. Comparative Lessons
Vietnam has the advantage of having put its aid effectiveness portfolio together much
faster than Laos. Laos only started their agenda recently and finalized their work plans late
in 2007. Much of the Lao agenda still needs to be improved because of local conditions.
While Vietnam has a relatively good balance of competent people working on the agenda,
Laos needs to improve the local capacity. Funding for training such as English language
training, report writing and basic specialized trainings in order to support the coordination
effort from the central level are also needed. That involves not just the local government’s
ability to coordinate aid, but the development community’s willingness and commitment to
support the agenda with the right capacity.

The development community seems confused and rather weak in making good aid
practice work. The important aspect of Vietnam’s successful model is that the government
has taken strong leadership within the development community. The success factors also
involve pushing the development community to cooperate with the government’s agenda.
Vietnam even has provincial plans beside sectoral plans and consulting with donors to align.
This is one of the components of aid delivery that still needs improvement from the local
Lao government situation. Although two provinces have been identified to monitor the
projects, the capacity of provincial governments lags far behind and coordination is difficult
to implement. This is one of the reasons why aid coordination is still done entirely at the
central level. Thus, in Laos, capacity still needs to be significantly improved.
Vietnam is one of the first countries to get a head start with the localization of the
Paris Declaration. It became a model, particularly in South East Asia, for how development


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communities in the region could coordinate aid effectively. Accordingly, Laos has recently
attempted to localize their version of the Paris Declaration, and the development community
there has drawn on the Vietnamese aid effectiveness agenda as a leading model. Both countries
are similar in terms of their systems but Laos needs to catch up on more details, especially
decentralizing the coordination and monitoring down to provincial level.
Timor Leste has particular characteristics in its development efforts and draws much
attention to the role of development practitioners. The unique geographical location as well
as its history has led to a situation where government capacity in severely limited. Aid
inflows are much higher in comparison to Laos and coordination is essential. However,
Timor Leste has a weak state sector and, as a result, has to bring civil society much more
into its development agenda. At present, Laos to be in a rather similar situation but shows
few signs of involving civil society effectively.
The Lao UN agencies have struggled to put joint programs together because they have
their own mandates to operate aid. Although they have been trying to move from
independent programmes to working together amongst themselves, it has been really

difficult for them to do so. Within UN agencies, they find it much more difficult to
coordinate aid and organize joint programmes, in comparison to UN agencies in Timor
Leste. Timor Leste has not yet signed up for the Paris Declaration and therefore, the
government is little concerned with localizing aid effectiveness. However, the international
is and development communities have realized the importance of coordination and they
have taken the approach through the community themselves. With or without the
government, they have realized the instability of the political situation and the need to take
actions for the people of Timor Leste. They have moved into joint programmes although
their existence in Timor has only been recent, since independence in 1999.
UN agencies in Laos often do not operate successful joint projects and there are
concerns regarding power and the management system, because some UN agencies operate
their programmes from headquarters rather than in country, such as United Nations
Conference for Trade And Development (UNCTAD). They have their own mandates and
different funding systems that are different from resident agencies. Agencies like UNICEF
have their own appear to operation system as well, with independent funds disbursement
system and operate independently. Some smaller UN agencies that are resident and some
non resident agencies had to incorporate their funding mechanism into the UNDP system.


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This is one of the reasons why joint programmes are so difficult. The unusual side of UN
agencies is the question of why coordination works well in some countries and others don’t
when they are basically the same type of organization. Due to these problems, aid
coordination is difficult when even the UN can’t coordinate its own agencies properly to
work together.
The lessons from both countries yield significant differences, yet both types of
governments and development partners agreed that the declarations are good although the
declaration were taken at higher level and they are difficult to implement at ground level.
There are concerns amongst smaller agencies that they do not have a place in development
roles because they could lose recognition in flagging the name of their agency and its

contributions into the pool funding system.


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CHAPTER 4. HOW ODA COORDINATION IMPLEMENTED IN LAO
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 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.
4.1. Millennium Development Goals (MDGs)
4.2. Paris Declaration
4.3. Vientiane Declaration and Country Action Plan (CAP)
4.4. The Round Table Meeting/Process (RTM/RTP)
4.5. Sector Working Groups (SWGs)
4.6. Critiques
4.7. Current ODA in Lao P.D.R.
Foreign aid is extremely important to the Lao PDR, financing 87% of the capital
expenditure budget and 41% of the Government's total public expenditure in 2005/2006
(Committee for Planning & Investment, 2007). The Lao government issued a Decree for
ODA distributions (the Prime Minister's Decree on the Management and Use of ODA No.
1467/MOFA/ DIC, 22 March, 2006). ODA inflows have doubled since 2000. Table 4.7.1
illustrate show ODA is incorporated in to the national expenditure plan of the Lao
government. These gradual inflows of aid has signaled for aid coordination needs and

monitoring. The majority of ODA is grant aid from bilateral donors at 141.09 million US
dollars, while international financial institutions offer loans of 126.71 million US dollars, in
additions to other donors. ODA loans are short and long term which has obligations to be
paid back to loaned institutions. Multilateral donors offer only grant aid; totaled 42.86


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million US dollars. In 2011, the grant aids reached 464 million US Dollars and loan
financing was US$177 millions.
There are criticisms of bilateral aid being the most non-transparent form of foreign aid,
let alone tied. The Paris Declaration is the alternative solution to tied aid. Table 4.2.1 shows
commitment for ODA to Laos, the figures are gradually adjusted according to real disbursed
amounts. There are concerns over the promised amount to be delivered to Laos and the
actual dispersed amount, see Table 4.2.2. Many loan agencies still use conditionality in the
amount of aid to be promised. However, there are certain development agencies that are
complying with the national plans.
Table 4.7.2. ODA Agreements Signed During Financial Year 2010/2011
US$ Million
Institutions
1. International Financial Institutes
2. Multilateral
2.1. European Union (EU)
2.2. Mekong River Commission
(MRC)
3. Non Governmental Organizations
(NGOs)
4. Bilateral
Total

Government

Contribution
Fund
1.732
0.04
0.09

Grants

Loans

Total

83.6
63.32
15.77

58.04
0.00
0.00

143.37
63.36
15.86

0.39

6.55

0.00

6.94

0.00

36.51

0.00

36.51

0.42

267.89

95.82

364.13

2.68

473.64

153.86

630.18

75.16%

24.42%

100%

0.47%
%
Source: (Committee for Planning and Investment, 2012)

%
22.75%
10.05%
2.52%
1.10%
5.79%
57.78%
100%

The highly concentrated sector is the transport sector (111.5 million US$), followed
by agriculture and forestry (81.2 million US$), and education and human resource
development at about $US 72.9 million, because of poor road condition and infrastructure
building is essential for potential markets and investments. Meanwhile the least concentrated
sectors are Sports, and post-telecommunication.
Japan has always been Lao’s largest bilateral donor previously, offering aid at $US 130.68
million in 2011. Vietnam and China have been actively supporting the Lao government on aid.
Vietnam was noted as a recipient; however it is the fourth largest bilateral donor for Laos
assisting at $17.10 million in 2011 and China grants was 7.61 million US$ in 2011. Laos has been
Vietnam’s market for their goods with competitive prices on commodities in comparison to
Thailand and China.


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Table 4.7.3. Total ODA Disbursement by Sector, 2010-2011

2010-2011
Poverty Eradication
37.72
Agriculture and Forestry
81.22
Industry and Commerce
45.10
Energy and Mines
54.53
Land Development
1.67
Public works and Transportation
111.48
Post--Telecommunication
0.06
Tourism
4.13
Education and Human Resource
72.92
Development
Health
68.31
Labor and Social Welfare
25.51
Media and Culture
5.28
Gender Equality
2.42
Sports

0.07
Science and Technology
1.98
Unexploded Ordinance Clearance
2.05
Natural Resources and Environment
32.23
Protection
Enterprise Development
2.12
Local and regional development
3.23
Governance
47.43
International and Regional Cooperation
4.37
Note: Data for some selected programs only (not all sectors)
Source: (Committee for Planning and Investment, 2012)

%

Unit: Million US$
2011-2012
%
(Planned)

6.01%
12.94%
7.19%
8.69%

0.27%
17.77%
0.01%
0.66%

35.37
64.65
33.39
33.09
2.87
156.27
0.02
2.56

5.75%
10.51%
5.43%
5.38%
0.47%
25.39%
0.00%
0.42%

11.62%

65.70

10.68%

10.89%

4.07%
0.84%
0.39%
0.01%
0.31%
0.33%

45.92
33.50
2.74
2.77
0.07
1.74
2.68

7.46%
5.44%
0.45%
0.45%
0.01%
0.28%
0.44%

5.14%

16.02

2.60%

0.34%

0.51%
7.56%
0.70%

0.89
2.27
42.58
8.14

0.14%
0.37%
6.92%
1.32%

4.8. Effort of Government of Lao PDR
The government of Laos has given the role for aid coordination to the Department of
International Cooperation placed in the Committee of Investment of Planning which is
equivalent to the Ministry level of delegations. This department has divided into five
different Divisions: UN agencies, Asia and Pacific, Europe and America, International
Financial Institutions and Monitoring Division. Each division manages aid in accordance to
the donor’s geographical locations. The monitoring section has the overall role in keeping
track of all ODA inflows into Laos as well as monitoring the operations and implementations
of aid within Lao PDR.


18
4.9. Coordination in Practice
The Round Table Meeting has mandate to support the Vientiane Declaration which is
a step up towards aid effectiveness effort. Later a Country Action Plan (CAP) was published
for implementation purpose in more practical detail based upon the Vientiane Declaration.

RTM in practice is rather more scattered and unorganized. The official structure of the RTM
does not contain other groups that coordinates amongst themselves. They are informal
groups displayed in Figure 4.2. These groups were formed previously to the structure and do
not require to be abolished. It illustrates an informal structure of the Round Table Meeting
that includes SWG and other coordination. The informal groups consist of (SWGs, 2007):
1. Avian Influenza
2. Public Expenditure Management Strengthening Programme (PEMSP)
3. Poverty Reduction Support Operation (PRSO)
4.

Three Sub Groups from the SWG of Agricultural, Rural Development & Natural

Resources Management
5. Mini – Dublin that stems from SWG’s Drug Prevention
6. Others, MDTF (forthcoming)
4.10. Sectorial Working Groups (SWGs)
The SWGs structure was very formal and left out informal groups as mentioned
above. There are still concerns over the SWGs on how well is it working and how can it be
strengthened. The findings and recommendations for the current system are not meeting the
needs of either government or partners. It reflected in very small numbers of SWGs meetings
that have actually taken place over the past 12 months. The line ministries were dissatisfied
with a “blue print” approached, due to the lack of understanding of the potential benefits of
the vigorous SWGs. In addition, to the lack of ad hoc technical support makes it difficult for
Chair Ministries to organize SWGs work.
The recommendations from the Review of the SWGs Mechanism have proposed the
followings:
1. Reinforcement of Ownership of SWGs.
2. Increase the ratio of technical to political level meetings.
3. Integrate other ad hoc groups (informal groups) and to strengthened SWGs Mechanism.
4. Rights to the eight groups that is the necessity of the SWGs for energy and mining. The

review of continuous effort to improve SWGs, it continues to recommends.


19
5. To clarify roles and responsibilities of SWGs. That includes the linkages in the NGPES
and the subgroups that stems from the SWGs. While most sectors still needs improvement in
medium term strategy and its policy. The CAP and ODA tracking still lack standard reliable
data and development of a capacity development framework.
6. The commitment to capacity development is critical to effective SWGs; there are still
evidence of donor driven approach in the development community. Agendas are still not
very well shared and require much secretarial support.
7. Reinforcing linkages between SWGs and the RTP.
The current status of implementation for sector groups are; The Ministry of Education
and Ministry of Transport. They have already planned what they want to do for the coming
years and what they want to do now. The Ministries are leading the implementation however
the problem now is that the donors are not giving up their agenda and the issues of ownership
are yet to be resolved. The donors are still using their usual ways of aid delivery, which are
in line with their own mandates and their own foreign aid policies. The usual way of aid
delivery would be that the donor would approach government and advise a given period of 4
to 5 years plan and implementation would be set up and lead the plan. Donors would have
full control of the financial role, administration and offer technical expertise. They would
deliver these programs and then leave these projects behind.
4.11. Evolution of Current Coordination System
The overall structure in Figure 4.6.1, illustrates the overall system of how aid is being
coordinated in Laos from the government side and from the donor’s initialization. The left
hand side of the figure illustrates at the international level what the donors are doing and
their initiative for countries to be involved. From the high level forum in Rome in 2003 at a
global level and followed by the Luangprabang meeting in February 2005 from the
government effort to coordinate aid. That was left behind by the time the Paris Declaration
was announced in March 2 nd, 2005. Notice there are no direct linkages to the government

that is displayed on the right hand side of Figure 4.6.1.
The right hand side of this figure however displays the role of the Lao government
and the involving entities. As mentioned, the DIC uses three different instruments to monitor
progress and NGPES for guidance to manage aid. The RTM November 2006 works in 3 tiers
at the working level after Vientiane Declaration. The working level starts at:
1. Secretariat – this group has the role in drafting official documents; composed by UNDP,


20
EC, DIC, CPI, and Ministry of Finance.
2. Task force – this group will technically discuss the draft and propose changes
(amendments) which was the government side, DIC, CPI and 4 ministries including all
Donors in practice Japan, WB, Australia, EC, France.
3. High level forum – meeting at ambassador level, a group started process endorsing
process, and endorse the action plan when it was finalized.
The coordination structure has left out several important issues on the aid effectiveness
agenda. The coordination mechanism has left out the provincial aspect, because the structure is
too centralized. Since most development projects are done in the provinces, the government
does not have a clear plan on how to coordinate aid at provincial level. This is also for the
reason that localization is still new and the system is not yet entirely in place. There is limited
capacity at the provincial level with the local government officers, funding for training to
monitor projects or even managing development projects is still some distance away.
4.12. OECD DAC Survey
4.13. International Development Agencies


21
CHAPTER 5. POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT
5.1. Projection of Energy Demand in Lao PDR
5.1.1. Northern Region

5.1.2. Central Region
5.1.3. Southern Region
5.1.4. Total Demand for the whole country
5.2. Broad Policy Objectives
5.3.

Power Sector Policy

1.
Maintain and expand affordable, reliable and sustainable electricity supply to
promote economic and social development. Electrification Ratio to exceed 90% by 2020;
2.
Improve and expand transmission networks to support the industrialization and
modernization policy, and to integrate the power sector in the ASEAN community through
its power exchange programs;
3.
Tap the country’s large hydropower potentials with the participation of private
developers;
4.
Promotion of Renewable Energy to reach 30% by 2025 with reasonable feed-in
tariff.
5.4. Power Sector Strategy towards 2025
•
Access to reliable modern power services: expand supply capacity, enhance
reliability and increase access;
•

Explore all options: off-grid, cooperatives, pro-poor financing methods, affordable

life-line rates, sharply targeted subsidies;

•
Sustainable Hydropower Development with focus on integrated water resources
management;
•
Cross-border trade;
•
Focus on areas with low access;
•
Improve affordability by improving supply efficiency & passing efficiency gains to
consumers;
•

Access financing to make low-carbon alternatives affordable.

5.5. Recommendations
5.5.1. Strengthened Aid Coordination Structures
5.5.2. Strengthened links between different levels and structures within mechanism


22
5.5.3. Alignment of donor- driven consultation initiatives with the existing Aid
Coordination Mechanism
5.5.4. Last but not least the Government of Lao PDR should continue to improve and
secure of the stability politic climate, social security because this is a very important to
attract of the foreign direct investment.
Second, improve and maintain the activities that can support of the investment
because development of the socio-economic there is a more need of open investment into all
sectors in higher.
Third, improve management effectiveness to ODA and foreign direct investment,
make sure all instruction of the government are harmonized and fully cooperation between

central to local government, between ministries and sector concerns with foreign direct
investment, define clearly right, roles and responsibility of all agencies, sector in resolve all
issues that receive government instruction, discussion and consultation between concerned
ministry, sector from central to local authority where the foreign direct investment projects
are located especially a mega projects.
Fourth, improve aid delivery and coordination in Laos. (i) a stronger program based
approach is necessary. (ii) a sector-wide-approach, should be implemented similar to the
program based approach but applied to a concrete sector. (iii) a direct budget support system
is required. (iv) reduce the numbers of agencies working in one sector to improve
coordination of aid in Laos.
5.6. Regional Coordination Effort
Apart from individual efforts by countries for aid effectiveness, the three Mekong countries
of Cambodia, Laos and Vietnam also coordinate amongst themselves and give the priority
to (OECD/DAC, 2008):
1. Mobilizing internal resources of each country and to attract investment into the
development triangle.
2. Formulating special preferential policies for the development triangle.
3. Simplifying procedures to facilitate the flows of goods and people in the triangle.


23
CONCLUSION

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 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.
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 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


24
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 learned 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.
For furthering the power sector, this dissertation suggests 4 solutions for the
Government of Lao PDR including (i) improve and secure of the stability politic climate,
social security; (ii) improve and maintain the activities that can support of the investment;
(iii) improve management effectiveness to ODA and foreign direct investment; and (iv)
improve aid delivery and coordination in Laos. Also, the dissertation proposes some direct
actions toward the neighbours in order to improve potentials uses.

i