1 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 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: 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 To find alternatives for aid coordination for Lao PDR for improvement To recommend possible policies and solutions to promote effective use of external aid in the field of power sector development Research Questions What is the aid effectiveness agenda in Lao PDR? Which institutions are involved? What are the local efforts from international agencies and donor communities for aid effectiveness efforts in Laos? Does the local development community support the local government in aid coordination? What lessons Lao PDR could learn from successful cases of ODA harmonization and coordination? What are the alternatives for Laos to improve aid coordination and harmonization in order to promote power sector development? 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 4 CHAPTER 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 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 on universal primary education; MDG on reducing child mortality; and MDG 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 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 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 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 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 10 CHAPTER 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 11 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 12 CHAPTER 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 13 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 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 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 14 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 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 15 CHAPTER 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 16 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 International Financial Institutes Multilateral 2.1 European Union (EU) 2.2 Mekong River Commission (MRC) Non Governmental Organizations (NGOs) 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 17 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 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): Avian Influenza Public Expenditure Management Strengthening Programme (PEMSP) Poverty Reduction Support Operation (PRSO) Three Sub Groups from the SWG of Agricultural, Rural Development & Natural Resources Management Mini – Dublin that stems from SWG’s Drug Prevention 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: Reinforcement of Ownership of SWGs Increase the ratio of technical to political level meetings Integrate other ad hoc groups (informal groups) and to strengthened SWGs Mechanism 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 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 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 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 for the coming years and what they want to 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 to 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 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 tiers at the working level after Vientiane Declaration The working level starts at: Secretariat – this group has the role in drafting official documents; composed by UNDP, 20 EC, DIC, CPI, and Ministry of Finance Task force – this group will technically discuss the draft and propose changes (amendments) which was the government side, DIC, CPI and ministries including all Donors in practice Japan, WB, Australia, EC, France 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 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 Maintain and expand affordable, reliable and sustainable electricity supply to promote economic and social development Electrification Ratio to exceed 90% by 2020; 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; Tap the country’s large hydropower potentials with the participation of private developers; 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): Mobilizing internal resources of each country and to attract investment into the development triangle Formulating special preferential policies for the development triangle 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 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