Country Report Laos June 2009

The domestic economy: Electricity generation falls temporarily

Electricity generation dropped by almost 9% year on year in the first six months of 2008/09, owing to a water shortage at hydropower plants. The shortage stems from low rainfall in the south of the country and the construction of the Nam Theun II project in central Laos, which has reduced flow to the Theun Hinboun dam further downstream. However, electricity exports should still reach above US$1bn for the year and the sector continues to grow steadily. Thailand is expected to resume construction work on two hydropower plants in Laos, the 525-mw Nam Theun I and the 1,300-mw Nam Ou, both of which were suspended earlier this year due to spiralling construction costs. Laos has agreed to provide Thailand with 7,000 mw of electricity by 2015.

An extension to the Theun Hinboun project, currently the largest hydropower plant in Laos, is under way at a cost of US$720m. The extension will dam a tributary of the Nam Theun River (known as the Hinboun further along its course) and increase generating capacity from 220 mw to 500 mw, of which 440 mw will be exported to Thailand. Over 700 households are being relocated by the Theun Hinboun Power Company, 60% of which is owned by the Lao government, with Norway's Statkraft and Thailand's GMS Lao each holding 20%. The extension scheme, formerly known as the Nam Theun 3 project, will compensate for the reduced water flows to the existing dam caused by Nam Theun 2. It should be ready for operation by July 2012.

South Korean investment in Laos continues to grow and is spreading across various sectors. A formal agreement to "strengthen co-operation" in mining, electricity and renewable energy was signed at ministerial level in May. South Korea is seeking access to mineral resources and has offered technical assistance in inspection and development of mining projects. Laos has requested South Korean financing for the construction of electricity transmission lines from southern Laos to the Thai border. The lack of connections between hydropower plants and the national grid and export markets is presently hindering Laos's attempts to extract full benefit from the proposed battery of hydropower facilities.

© 2009 The Economist lntelligence Unit Ltd. All rights reserved
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