Mekong Utility Watch

Developers suspend major hydro investments in Lao PDR

Vientiane Times
December 17, 2008

Investors have decided to suspend major electricity power development projects in Laos as a result of the international financial crisis, according to a Ministry of Planning and Investment official. Investment Promotion Department Director General, Mr Houmpheng
Souralay, last week said the developers of the Hongsa Lignite power plant in Xayaboury province confirmed they would halt the project due to the global recession.

Developers of the Nam Ngum 3 project in Vientiane province, Nam Theun 1 project in Khammuan province, Nam Ngiep 1 in Vientiane province and Nam Ou in Luang Prabang province have also announced the suspension of their projects, which were scheduled to begin by the end of this year, he said.

Mr Houmpheng said the investors’ decision would make it difficult for the government to ensure a large flow of foreign funds into the country, one of the primary drivers of economic growth in Laos.

Almost US$1 billion of foreign funds were invested in Laos in 2008, well above the government’s target of US$600 million, he said. The Ministry of Energy and Mines’ Electricity Department Director General, Mr Viraphone Viravong, said the developers had postponed their investments partly due to a desire for the Lao government to revise its power purchase agreement with Thailand .

“Investors feel electricity purchase prices are too low, as construction costs have increased dramatically since the agreement was made earlier this year,” he said.

When it was pointed out the price of oil had dropped by more than half since the middle of this year, substantially reducing construction costs, Mr Viraphone said the investors were now facing difficulty in accessing bank loans due to the economic recession.

He said banks believed the demand for electricity in Thailand would fall over coming years due to declining investments and production in the country brought on by the recession, and thus did not want to offer loans to the hydropower developers.

The developers also believe declining electricity consumption could force them to sell power at low prices, and therefore have suspended their investments until the economic climate has returned to normal, he said.

Mr Viraphone said if they went ahead, the hydropower projects had the potential to inject about US$2 billion into the Lao economy in the coming years.

He said hydropower plants already under construction would not be impacted by the global recession.

Operators of the Phu Bia and Sepon mines have indicated they will not invest in expansions.

Economists believe the suspension of these major projects will negatively impact the Lao economy, with the government’s target of 8 percent growth for next year unlikely to be met. Many are also concerned suspension of the projects will cause a rise in unemployment.

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