SINGAPORE (Dow Jones)--Laos aims to attract more foreign investors to the country's electricity export projects in a bid to power up its underdeveloped economy and infrastructure, but risks related to cross-border politics and marketing may limit its partners to groups formed around large utility companies in neighbouring countries.
The landlocked country has already signed memorandums of understanding with governments to sell more than 12,000 megawatts by 2020 to Thailand, Vietnam and Cambodia, but is currently installing only about 3,500 MW for this demand, leaving a large wish-list of mostly hydropower projects involving heavy financial, environmental and social costs.
"We generally prefer experienced utilities companies as lead developers, but also need all kinds of specialists in engineering, construction, and on financial and legal sides from everywhere," said Xaypaseuth Phomsoupha, Director General of Department of Energy Promotion and Development in the Ministry of Energy.
Laos has massive potential in hydropower, as the country takes in more than 35% of Mekong River basin inflows, and a 1,878-MW lignite-fired plant with a feeder mine is also under construction, Phomsoupha told Dow Jones Newswire in an interview.
Attracting new foreign investors may prove difficult, however, as companies without links to neighboring countries will face greater legal and political risks.
"The power generator is in one country, while the buyer is in another...that is a challenge for investors," Phomsoupha said.
So far, the main investors in the Laotian power sector include Thai listed power generators Ratchaburi Electricity Generating Holding PCL (RATCH.TH) and Electricity Generating PCL (EGCO.TH) and the Vietnamese government. Some Chinese and Japanese firms have shown interest, and the international arm of Electricite de France SA (EDF.FR) has hooked up with the Thai companies to ensure market access.
Developers also face challenges in mitigating the impact of these complex projects on the environment and society, as Laos strongly emphasizes sustainable development, Phomsoupha said.
Chinese government-backed firms are moving into hydropower projects in Myanmar, avoiding much scrutiny despite allegations of brutal battles to secure development areas by cleansing them of ethnic groups, as under its military government the country is even more closed and underdeveloped than communist Laos.
In Laos, however, development has largely been conducted with greater transparency, as listed companies require loan guarantees from bodies like the World Bank to assume the immense risks, and the World Bank has been under great pressure to set high environmental and social standards for mitigation and resettlement efforts.