The Lao PDR Rural Electrification APL Phase I project (REP I) was approved on 27 April 2006. The principal objective of REP I is to expand rural electricity service in the central and southern provinces of Lao PDR, by extending the grid to some 52,000 households and providing off-grid electrification (via solar, hydro, and small engine-generators) to another 10,000 remote households. REP I will also advance the Lao power sector reform agenda by completing Electricité du Laos (EdL) commercialization, continuing the tariff reform process, reducing network losses, creating a Rural Electrification Fund, and establishing a national Demand-Side Management/Energy Efficiency (DSM/EE) program. These latter activities are mostly financed by a grant from the Global Environmental Facility (GEF).

There is good reason to expect that DSM programs developed in response to the long-term needs of the Lao power sector could play a key role in effective sector management. This expectation is bolstered by successful DSM program experience in Thailand and Vietnam, which provide a basis for considering what program designs and institutional approaches might work in Laos and what benefits can be expected. However, there are several issues particular to Lao electricity use that must be addressed before a suitable DSM/EE program design can be developed. One issue requiring urgent attention is inefficient and sometimes un-metered public sector energy consumption, especially on the part of Government of Lao PDR (GOL) departments throughout the country. These inefficiencies in public sector electricity consumption have direct fiscal and financial impacts because of the poor payment record of GOL departments, impeding both EdL's commercialization and its ability to service debt obligations.

The purpose of this project is to provide for early mobilization of the REP I project's DSM/EE component to ascertain the magnitude of excess and inefficient electricity consumption and urgently implement early solutions. This effort is in line with financial covenants contained in the REP I Project Agreement and the Action Plan for Financial Sustainability of the Power Sector (Financial Sustainability Action Plan) developed in cooperation with EdL and Ministry of Finance (MOF).

A DSM/EE Action Plan financed by the World Bank?s Asia Alternative Energy (ASTAE) Trust Fund considered alternative institutional arrangements and recommended establishing the DSM Cell within EdL, consistent with the practices under previous GEF-financed DSM operations in Thailand and Vietnam. The Action Plan also specified a program of technical assistance to EdL and Ministry of Energy and Mining (MEM) in developing DSM and energy efficiency consciousness and practices, in line with the outcome objectives of the REP 1. It would cover early exploration of the potential and opportunities, and possible synergies between proposed DSM program options and planned activities of EdL's Distribution Division, e.g., a nationwide consumer awareness campaign on non-technical loss reduction.