News 2011

GEF and World Bank approve grant to provide electricity to rural villagers in Lao PDR

Washington, DC, March 4, 2011 - The Global Environment Facility (GEF) and the World Bank last week approved a $1.8 million grant and $36.6 million in cofinancing to fund the second phase of the Rural Electrification Program in Lao PDR.

World Bank's rural electrification programs have provided power to about 150,000 households since 1987, equivalent to 20 percent of all households electrified. The overall goal of the program is to assist the Government of Lao PDR to reach its target of providing electricity to 90% of the population by 2020.

Monique Barbut, CEO and Chairperson of the Global Environment Facility said: Rural electrification benefits both environment and people - particularly off-grid electrification methods such as remote home solar systems, biomass energy and small scale hydropower reduce health risks associated with polluting fuels and help those who rely on the land to live not to simply survive but thrive".

The $1.8 million grant approved this week builds on Bank financing of five rural electrification projects for a total of US$127 million in the past two and a half decades.

"Over the last 15 years, rural electrification access in Lao PDR has steadily increased from 16 percent in 1995 to about 70 percent, today. Since the early 2000s, Lao PDR has also made significant progress in strengthening institutions, improving efficiency and financial sustainability of the power sector, and expanding electricity generation and the transmission grid to meet increasing demand" -says Keiko Miwa, World Bank Country Manager in Lao PDR.

Importantly, poor and vulnerable households now have a better chance at accessing energy because the rural electrification project comes with social and economic development components. One of these is Power to the Poor, a program which provides interest-free credit for electricity connection charges. This is especially valuable to families who live in villages already in the power grid but who cannot afford connection costs.

The government realizes that the most effective way of helping people in rural area is to bring them electricity. Thats why we started to invest in it, said Director General Viraphone Virawong of the Ministry of Energy and Mines of Lao PDR.

The rural electrification program combines grid and off-grid access, supported by tariff reforms and subsidies to ensure affordability for consumers and financial viability for the utility. While about 96 percent of new connections are through access to the power grid, alternative energy off-grid sources are also being provided. Off-grid electrification is generated through solar, micro hydropower, and biomass in remote rural areas where grid expansion would not be viable due to low population densities.

The grid extension program is driven by the state-owned power utility EdL (Electricite du Laos), which has been steadily increasing its institutional capacity for planning, design, implementation and operation of rural electrification projects. Rural electrification has also been one of the government's priorities and an integral part of its social and economic development programs.

Experts say that Lao PDR's success is largely due to its institutional model with grid-extension spearheaded by EdL and strongly supported by the government through the tariff system, incentive mechanisms, and social programs for inclusion of vulnerable and disadvantaged households.

Details of the GEF contribution:
GEF will support implementation of EdLs loss reduction program by co-financing with NORAD the critical technical assistance and capacity building on technical loss reduction which will guide EdLs investments in technical loss reduction as well as leverage additional funding from IDA, NORAD and EdL to achieve incremental reduction of distribution system loss by about 2% to 3%. The GEF grant will contribute to technical assistance in distribution system analysis and preparation of investment projects for technical loss reduction while IDA and EdL counterpart funding will finance implementation of the investment projects following the recommendations of the technical assistance. It will also support capacity building at EdL, especially it branch offices in the 17 provinces for preparation and implementation of loss reduction activities.

The GEF funding to REP II will contribute to the implementation of pilot projects identified for energy saving at central government agencies, with co-financing from IDA. In addition, the GEF will be used to continue hiring 10 local energy coordinators to prepare and review energy saving potentials at both the central and provincial government buildings. In addition, GEF will also fund public awareness campaigns to increase awareness of EE and adoption of energy efficiency technologies and practices among targeted consumers.

For renewable energy development, GEFs support to REP II is modest but provides seed money for pilot projects demonstrating viable business models for investments in grid or mini grid-connected renewable energy projects. Consistent with the GEF-4 policy, GEF will provide support to renewable energy generation in rural areas, especially small hydro installations, biogas, and biomass. The GEF grant will leverage funding from IDA, NORAD, ESMAP and AusAID for piloting biogas and biomass projects ( of a total capacity of 300kW) and knowledge dissemination to scale up investment in viable small scale renewable generation capacity.

GEF support will also be used to support EdL and MEM in project management to ensure smooth implementation of above activities.