Systems for Promoting Private Capital Flows for Infrastructure Development in Lao PDR

Transcription

1 Systems for Promoting Private Capital Flows for Infrastructure Development in Lao PDR The National Economic Research Institute (NERI) Saykham VOLADET Mercure Hotel, Vientiane, Lao PDR th September 2014

2 Table of Contents I. Overview on socio-economic development and the need for infrastructure in Lao PDR II. Legal, institutional and financial frameworks facilitating private participation in infrastructure development III. Existing pattern of PPP in infrastructure in Lao PDR 2 IV. Discussing on possible areas for firming up a framework to promote private capital flow in infrastructure development

3 I. Overview on socio-economic status and the need for infrastructure development in Lao PDR - Location: in South-East Asian. -Bordering with China, Cambodia, Vietnam, Thailand and Myanmar. - Total land area: 236,800 qkm. - Number of population: 6 million. -Socio-economic development status: LDC with GDP per capita of USD 1,069 (2010). - Agriculture is an important economic sector contributing to around 30% of GDP (2009/10). -Poverty incident is estimated to be about 26 percent in The Lao PDR is one of infrastructure poorest country in Asian.

4 +Road density in Lao PDR and in some Asian country Countries Total length of road (km) Total land area (,000,km) Road density (km/,000, km) Per capita length of road (10,000 persons/ Km) Philippine 157, Thailand 199, Vietnam 105, Lao PDR 32,

5 +From relatively low socio-economic status, the Lao PDR want: - To eradicate poverty by To graduate from LDC status by 2020 (GDP per capita of over USD 1,800). -To archive an economic growth of at least 8 percent per annum. -Focusing on rural development. -Reducing gape between rural and urban areas. +Key economic sectors to stimulate economic growth and to fight poverty include: -Hydro power. -Mining. -Processing industry. -Tourism industry. 5 -Agriculture industry (modern agriculture production). -Logistics

6 +Key infrastructure projects in 7 th 5 Year socio-economic development plan include: -Construction of railway from VTE to Borten International Border Gate, 421 km length, construction is about USD 7 billion. -Road and airport development projects including upgrading the national road number 15B connecting Saravan province with Vietnam. -Construction of 35 hydro power projects including Xe Khamane 3, Nam Guam 5, Nam Guam 3, Theun Hine Bune phase II hydro power project. -Construction of the National Transmission line. -Xe Khamane Irrigation project, etc. 6

7 II. Legal, institutional and financial frameworks facilitating private participation in infrastructure development No specific legal, institutional and financial framework to facilitate private domestic and foreign direct investment in infrastructure development. General legal, institution and financial framework facilitating private domestic and foreign direct investment are: + Legal framer work: - NEM (1986): is the first legal document to shift Lao PDR from central planed to market oriented economic model making private domestic and FDI possible. - Business Law (1994 and final updated 2009): allows investors to establish business enterprises in all economic sectors and ensures right and benefit of investors. 7 -Investment Promotion Law ( 1990 and final updated in 2009): provides a lot of investment incentives including (1) profit tax exception in early state of investment, (2) reducing and excepting tax for import of machine, equipments, vehicles and raw materials which are necessary for project.

8 -Decree on special and specific economic zone (6 approved and 3 under consideration) Location of special and specific economic zones in Lao PDR 8 Investment incentives in Special Economic Zone SAVAN-SENO Investment sectors and condition Profit tax exception period (year) Rate of profit tax after exception period I. Industry sector -Export equal to or over 70% Using modern technology Export between 30 and 70% 7 8 -Export less than 30% 5 8 II. Service sector -Total investment cost of equal to or more than USD 2 m illion Total investment cost of between USD 500,000 and 1,9 99, Total investment cost of between USD 300,000 and 499, Total investment cost of between 150,000 and 299, Total investment cost of between 50, , II. Trade -Export Lao products or products produced in the SEZ Border trade General trade 2 10

9 -Public Investment Law: regulates public investment project planning, approving, implementing and managing in details..the publicity encourages private domestic and foreign direct investors to invest in public investment projects in accordance to regulations and laws; the publicity will consider appropriate benefits for doing that. (Paragraph 4) -Regulation on bidding -Decree on competition - Environmental Protection Law. (requiring ESIA for any investment project) -Environmental and social impacts assessment regulation. (regulating process of ESIA) - Anti-Corruption Law - Others 9

10 + Institutional framework -The Ministry of Planning and Investment (MPI): is key actor in facilitating, considering, approving and managing investment projects related to concession. -The Ministry of Industry and Commerce: is key actor in facilitating, considering, approving and managing general investment projects, i.e. investment projects which is not related to concession and not located in a special and specific economic zone. - MONRE(Former WREA): is responsible for social and environmental impact management and obligated to consider and issue ESIA. -Other concerning ministries (the Ministry of Public Work and Transportation, the Ministry of Agriculture and Forestry, MOH, etc.). - Administration of special and specific economic zone. 10

11 + The Investment project planning, approving and implementing mechanism Public investment project planning, approving and implementing mechanism - The project proposal and budget come from the concerning ministry (For example, the road infrastructure project comes from the Ministry of Public Work and Transportation, the irrigation system comes from MAF, etc.) -The concerning ministry submit the project proposal and budget requirement to MPI. -The MPI considers and put the public investment proposal in socio-economic development plan (5 year or yearly) in case of approval; -The MPI pass the socio-economic development plan to the National Assembly for considering and approving; 11

12 -After the National Assembly approved, the implementation phase starts. -For large scale public investment project, the project management committee/team, composing of all concerning agencies, will set up -Implementing large scale public investment projects goes through many phases (feasibility study, investigating and project cosigning, construction, etc.) and takes frequently more than one year. -The MPI allocates budget for implementation of public investment project on year basic based on expected budget availability and priority of the project. -The management committee/team is normally responsible for management of the project. -Practical work is normally concussed to domestic or foreign companies in accordance to existing regulation and laws. 12

13 Private domestic and foreign investment project planning, approving and implementing mechanism IC is allowed to start its business activities Investment contract with IC Agree Government meeting Do not agree! Do not agree! Agree CPMI meeting discuses about FIP MAF studies FIP Other concerning GAs Investigating contract with the IC Agree MPI multiplies and disseminates FIP IC investigates investment area and finalizes its investment proposal (FIP) with environmental certificate given by WREA and land use certificate given by MAF Government meeting Do not agree WREA studies FIP Other concerning GAs Agree Do not agree! CPMI meeting discuses about DIP MAF studies the DIP MPI multiplies and disseminates the DIP WREA studies DIP Land management office Other concerning GAs Investment Company (IC) drafts and submit investment proposal (DIP) 13 Source: MPI

14 Brief remarks -There are legal and institutional framework supporting public and private domestic and foreign investment in Lao PDR -Lack of legal and institutional framework supporting PPP in Lao PDR -Lack of specific legal and institutional framework supporting investment in infrastructure. 14

15 + Financial framework Banking system - About 15 commercial banks. - The most of the banks are SOE. -Small-scale and operating domestically. Stock market -Conditions for joining stock market includes registration capital of at least USD 250,000, total revenue of at least USD 125,000 per year and no investment loss in last year. -Two companies (BCEL and Lao Electricity Company) joined the stock market -Other two companies (ETL and Indochina Group) is still in the consideration process. 15

16 -Domestic financial sources supporting large scale infrastructure projects seems to be limited currently. -However, the situation could be change quietly (increasing number of bank institutions and foreign banks start to expand their business activity into Lao PDR. - The Lao PDR implements market oriented economic system and open for foreign investment. So, the foreign financial institutes can support infrastructure project in Lao PDR. -Joining AEC by

17 III. Existing PPP in infrastructure development sector in Lao PDR Build-Operate-Transfer (BOT) Num Theun 2 Hydro Power Project - Located in central part of Lao PDR, about 250 km south-easterly from Vientiane Capital. - The biggest hydro power project in Laos with installed capacity of 1,070 MGW. -Total investment value of USD 1,450 million. -Share holder: EDF= 35% LHSE=25% EGPCO (Thailand)=25% ITD=15% international banks and financial institutes support the project -Concession period of 25 years.

18 Build-Transfer-Operate (BTO) -The most of care and motorcycle paring station in VTE are operated by BTO. Government revenue and credit guarantee -No clear statistical data how many projects are operated by this system; -One of these project is road connecting Mekong Bridge in Palse to Vang Tao International Border Gate (30 km length); -Quite similar with minimum revenue guarantee system I Korea; -However, there is no project operation in case; the government pays whole guaranteed revenue by its yearly budget. 18

19 IV. Discussing on possible areas for firming up a framework to promote private capital flow in infrastructure development Proposed legal, institutional and financial framework -Establishment of PPP Center for infrastructure development -Enacting PPP Act for infrastructure development - Establishment of infrastructure development fund Proposed idea for pilot project -Still looking for suitable project and location; -Prefer to do pilot project in water supply system; -It should be small-scale project needing investment capital of less USD 1 million. -The test should be finished within three years. 19

20 Thanks for your attention 20