effective aid coordination in lao pdr policy implication for power sector development

MINISTRY OF EDUCATION LAO NATIONALUNIVERSITY MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY Khammany INTHIRATH Khammany INTHIRATHKhammany INTHIRATH Khammany INTHIRATH EFFECTIVE AID COORDINATION IN LAO PDR: POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT Specialty : Investment Economics (Development Economics) Code : 62.31.05.01 Supervisor: Assoc.Prof.Dr. Nguyen Thanh Ha A dissertation submitted to the National Economics University in fulfillment of requirements for the Degree of Doctor of Philosophy in Economics Vientiane, 2013 ii DECLARATION I hereby declare that this dissertation is my own work and effort. The dissertation has not been submitted anywhere for any award. All the sources of information used have been well acknowledged. Date: Signature: Khammany INTHIRATH iii ACKNOWLEDGMENT I would like to sincerely thank many people whom provided much support into producing this thesis and paving the way for the research topic to be one of the significant findings. I wish to express my profound gratitude to my supervisor Associate Professor Dr. NGUYEN Thanh Ha, National Economics University (Vietnam), for his great support and guidance throughout my study. His encouragement and constant attention contributed significantly to the outcome of this research. I am grateful to my sponsors such as the Ministry of Energy and Mining and the National University of Laos in enabling me to achieve a higher education at National Economics University, Vietnam. Many thanks to all interviewees whom shared knowledge and ideas. My sincere thanks out to the Lao Government officers from the Government Office, Ministry of Energy and Mines, H.E Mr. Soulivong DARAVONG, Minister of Energy and Mines, etc and many other officers whom were involved in my research. The European Commission Lao PDR Office international staff, the World Bank residential office and United Nations Development Programme staff who are involved in the aid effectiveness agenda in Laos and friends from development communities were all of assistance in this reseach. Last but not least, many thanks are due to my wife and my family who provided me endless love with support and strength through out of my life. iv TABLE OF CONTENTS DECLARATION ii ACKNOWLEDGMENT iii TABLE OF CONTENTS iv ABBREVIATION vi ABSTRACT Error! Bookmark not defined. RATIONALE xi CHAPTER 1. LITERATURE REVIEW 1 CHAPTER 2. THEORETICAL FRAMEWORK ON ODA COORDINATION EFFECTIVENESS 6 2.1. Development Theory 6 2.2. Development Aid 7 2.2.1. Donor Motives 7 2.2.2. Defining Official Development Assistance (ODA) 9 2.3. Aid coordination and its effectiveness 10 2.4. Dimensions of Development Assistance Coordination 13 2.5. Sector Wide Approach and Programme Based Approach 14 2.6. Principles of Effective Aid Coordination 15 CHAPTER 3. KEY LESSONS LEARNT FOR LAO PDR 16 3.1. Lesson from Vietnam 16 3.2. Lesson from Timor L’Este 20 3.3. Comparative Lessons 23 CHAPTER 4. HOW ODA COORDINATION IMPLEMENTED IN LAO 26 4.1. Millennium Development Goals (MDGs) 26 4.2. Paris Declaration 28 4.3. Vientiane Declaration and Country Action Plan (CAP) 28 4.4. The Round Table Meeting/Process (RTM/RTP) 30 v 4.5. Sector Working Groups (SWGs) 31 4.6. Critiques 34 4.7. Current ODA in Lao P.D.R. 39 4.8. Effort of Government of Lao PDR 44 4.9. Coordination in Practice 45 4.10. Sectorial Working Groups (SWGs) 46 4.11. Evolution of Current Coordination System 47 4.12. OECD DAC Survey 49 4.13. International Development Agencies 51 CHAPTER 5. POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT 55 5.3. Power Sector Policy 74 5.4. Power Sector Strategy towards 2025 74 5.5. Recommendations 78 5.6. Regional Coordination Effort 80 CONCLUSION 82 REFERENCES 84 vi ABBREVIATION ADB Asian Development Bank AI Avian Influenza AIDS Acquired Immune Deficiency Syndrome AP Action Plan CAP Country Action Plan CAW Country Analytic Work CDF Capacity Development Framework CPI Committee for Planning and Investment DAC Development Assistance Committee DIC Department of International Cooperation (MoFA) DP Development Partner DSA Daily Subsistence Allowance EC European Commission FAO Food and Agriculture Organization FY Fiscal Year FW Framework GoL Government of Lao PDR HCS Hanoi Core Statement HIV Human Immunodeficiency Virus INTOSAI International Organization of Supreme Audit Institution Lao NCAW Lao National Commission for the Advancement ofWomen LWU Lao Women’s Union MAF Ministry of Agriculture and Forestry vii MCTPC Ministry of Construction, Transport, Post and Communications MDG Millennium Development Goals MoE Ministry of Education MoF Ministry of Finance MoFA Ministry of Foreign Affairs MoH Ministry of Health MoU Memorandum of Understanding MTEF Medium Term Expenditure Framework NGO Non-Government Organization NSEDP National Socio-Economic Development Plan ODA Official Development Assistance OECD Organization for Economic Cooperation and Development PACSA Public Administration and Civil Service Authority PBA Program Based Approach PEMSP Public Expenditure Management Strengthening Program PFM Public Financial Management PGAE Partnership Group on Aid Effectiveness PIP Public Investment Program PIU Project Implementation Unit PMU Project Management Unit PrMO Procurement Monitoring Office RTIM Round Table Information/Implementation Meeting RTM Round Table Meeting SIDA Swedish International Development Agency viii STEA Science, Technology and Environment Association SWG Sector Working Group TC Technical Cooperation TSA Treasury Single Account UNCT United Nations Country Team UNDP United Nations Development Program UNFPA United National Population Fund UXO Unexploded Ordinance VD Vientiane Declaration (on Aid Effectiveness) WB World Bank WHO World Health Organization ix ABSTRACT Lao PDR has a lengthy history, abundant and natural-resource-rich country with plenty of minerals, rivers and creeks which are seen to be hidden strengths for the development of power, particularly hydropower, thermal, wind power, and solar energy. Total energy demand of the Lao People's Democratic Republic was 2.4 million tons of oil equivalent (Mtoe) in 2010, with an annual increment of 3 to 4% in parallel.with stable economic growth. Therefore, it is estimated that total energy demand in 2025 will be 6.4 million tons, approximately 2.6 times current demand. In terms of sector-wise demand, the industrial sector accounts for about 31%, the transportation sector for about 29%, the residential sector for about 29%, the commercial sector for about 10%, and the agricultural sector for about 1%. Among these, the industrial sector and the transportation sector, in particular, show higher annual increases of l5% and 8%, respectively. These are sectors where remarkable growth of demand is expected. Currently, the major energy supply sources are firewood/charcoal (about 47%), petroleum (about l9%), and hydropower (about 19%). However, in view of a sharp rise in energy consumption in the transportation and the industrial sectors, it is thought that the petroleum contribution of overall energy sources will be about 60% in 2025. In addition, the share of electricity is expected to grow substantially as the electrification rate increases from the current level of abofi 70% to 90% in 2020, and electricity consumption will increase sharply due to increasing use of home appliances. The Government of Lao PDR is expected to establish institutions to secure energy efficiently by making reliable energy demand forecasts and formulating an appropriate energy policy and supply pian. 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 x 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 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 learnt 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. [...]... 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... 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. .. 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. .. and international grid development where it can be divided into domestic interconnection (connection of Northern to Southern part of Lao PDR) and regional interconnection (connection of Lao PDR to neighboring countries for power exporting) The Memorandum Of Understanding (MOU) was signed for supply of power between Lao and Thailand are 7,000 MW and 5,000 MW between Lao and Vietnam by 2020 For Lao PDR, ... systems and procedures for programming of donor’s funds, 5 Using existing national planning, programming and monitoring structures and procedures, 6 National leadership and ownership in aid coordination, 7 Improved harmonization and coordination among donors activities and priorities in each sector 16 CHAPTER 3 KEY LESSONS LEARNT FOR LAO PDR This chapter will detail lessons for the aid effectiveness agenda... encouraging economic openness In addition, over 70% of US aid has been tied to promoting US commercial interests to the extent that this practice was formalised in US law in 2002 [68] 2.2.2 Defining Official Development Assistance (ODA) Craig Burnside and David Dollar [14] stated that when aid is given with a high regard for donor self-interest then it is often ineffective in achieving development Accordingly,... to maximize the development effectiveness of aid resources 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... and along functional lines (technical assistance versus general balance of payments support, for example) By de-composing aid coordination efforts along these various dimensions it may be possible to identify which cells in the multidimensional coordination matrix yield the higher pay-off to effort Regarding mechanisms for aid coordination, the most common one – information meetings – may also be the... means for attaining policy changes, however, and this points to the need for more imaginative and constructive support for recipient-managed strategies 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. .. 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 . INTHIRATH Khammany INTHIRATH EFFECTIVE AID COORDINATION IN LAO PDR: POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT Specialty : Investment Economics (Development Economics) Code :. 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. 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.