Doctor of Philosophy in Economics

MINISTRY OF EDUCATION

MINISTRY OF EDUCATION AND TRAINING

LAO NATIONALUNIVERSITY

NATIONAL ECONOMICS UNIVERSITY

Khammany INTHIRATH Khammany INTHIRATH Khammany 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

Vientiane, 2013

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

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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.

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

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

ABBREVIATION

Asian Development Bank

ADB

Avian Influenza

AI

Acquired Immune Deficiency Syndrome

AIDS

Action Plan

AP

Country Action Plan

CAP

Country Analytic Work

CAW

Capacity Development Framework

CDF

Committee for Planning and Investment

CPI

Development Assistance Committee

DAC

Department of International Cooperation (MoFA)

DIC

Development Partner

DP

Daily Subsistence Allowance

DSA

European Commission

EC

Food and Agriculture Organization

FAO

Fiscal Year

FY

Framework

FW

Government of Lao PDR

GoL

Hanoi Core Statement

HCS

Human Immunodeficiency Virus

HIV

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

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MCTPC

Ministry of Construction, Transport, Post and Communications

Millennium Development Goals

MDG

Ministry of Education

MoE

Ministry of Finance

MoF

MoFA

Ministry of Foreign Affairs

Ministry of Health

MoH

Memorandum of Understanding

MoU

Medium Term Expenditure Framework

MTEF

Non-Government Organization

NGO

NSEDP

National Socio-Economic Development Plan

Official Development Assistance

ODA

Organization for Economic Cooperation and Development

OECD

PACSA

Public Administration and Civil Service Authority

PBA

Program Based Approach

PEMSP

Public Expenditure Management Strengthening Program

Public Financial Management

PFM

Partnership Group on Aid Effectiveness

PGAE

Public Investment Program

PIP

Project Implementation Unit

PIU

Project Management Unit

PMU

Procurement Monitoring Office

PrMO

Round Table Information/Implementation Meeting

RTIM

Round Table Meeting

RTM

Swedish International Development Agency

SIDA

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Science, Technology and Environment Association

STEA

Sector Working Group

SWG

Technical Cooperation

TC

Treasury Single Account

TSA

United Nations Country Team

UNCT

United Nations Development Program

UNDP

UNFPA

United National Population Fund

Unexploded Ordinance

UXO

Vientiane Declaration (on Aid Effectiveness)

VD

World Bank

WB

WHO

World Health Organization

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

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.

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.

The country now has installed power generation capacity of over 3,000 MW,

of more than 13 hydro power projects or about 6,000 MW are under construction

and more than 6,000 MW are under various stages of development by 2025, it is

expected that export would be 80-85% of developed capacities. To transmit of those

power there are a strategy of domestic 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, 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

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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.

Currently in the world, there are many type of energy; for Law PDR, with

geographic condition, we are having of river which is potential of hydropower

development. According to survey, Lao PDR is potentially of 23,000 MW of energy

can be developed, in there; 13,000 MW could be generate from development of

potential from Mekong river tributary and another 8,000 MW are from Mekong river

tributary and 2,000 MW is from the other type of energy potential. At the moment,

Lao is having 14 officially hydropower plants with generating of 2,558 MW, in their

Electricite Du Laos (EDL) is direct managed of 9 hydropower plants with 385 MW

installed capacity and there could generate of 1,700-1,800 million KWh. Now; every

provincial city; district are already electrified and more than 72% of households are

also electrified. EDL is also supply power to irrigation project for more than 24,000

projects which is further supply of water to production area of 200,000 hector and

supply of power to heavy and light industries of more than 30,000 Unit. In the past

five years, revenue of EDL business operation could reached 1,600-1,800 Billion

Kip; where increased 20-36%. From 1988-2007 Foreign Investment is approved of

1,800 projects with total fund of 9.2 Billion US Dollars, particularly in year 2006 is

a year that development of hydropower is highest with 13 projects and 1.7 Billion

US Dollars fund. In the past 20 years from 1988 to present implementation of

foreign investment policy in Lao PDR were approved from more than 9.2 Billion US

Dollars and in there total investment of energy sector are 4 Billion US Dollars

covered very high proportion compare to the other investment sectors. From 2007-

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2010 EDL are working with other foreign business investment partners of 5 projects

with total capital investment cost of 1.8 Billion US Dollars.

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.

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 dissertation draws

attention on the aid effectiveness agenda and the search for better ways to use such

aid most effectively.

Effective Aid Coordination, as the topic suggests, is all about how to bring

development communities together as one and propose that poverty reduction work

should be incorporated into one master plan. When development institutions work

independently, projects are duplicated and already limited resources are wasted.

With aid coordination, the local government can monitor and outline the priorities

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needed for Lao PDR and allow interested parties to contribute to the government

plan. However the aid coordination system in Laos is not working well at present.

Examples from case studies drawn from Vietnam and Timor L’Este may provide

some useful lessons.

The author has been working in the energy sector for a long time. Through

out the working live, from being a provincial staff on electricity supply

management, to being the Director of Electricity Du Laos State Enterprises, and

currently the Deputy Minister of the Ministry of Energy and Mines, I have seen

and dealt with several aid programs through out the country. The author also has

an extensive network in the ODA administrators and the receipient organizations.

Therefore, the inspiration for this topic was driven by personal experiences. During

my work life, I was overwhelm by the enormous amount of ODA in flows in to Laos.

Observing the aid industry I can see the benefits that aid does for the local people, at

both the central government and provincial government levels, as well as for

expatriates working in development agencies, donors, NGOs and particularly the poor

whom ideally are beneficiaries, which is the prettier side of aid.

The down side of aid is “the operation of aid.” Within the UN agencies

themselves, aid money is not entirely spent for its best use. There are duplications of

projects within the UN system, as well as the entire aid industry. Some projects

adversely affected the beneficiaries more than benefited them. The capacity of

development experts locally and internationally are not always competent to deliver.

The local government is often puzzled but takes aid with open arms.

Since the Millennium Development Goals (MDGs) were set for the year

2015, Laos has signed up to commit to meeting the deadline. There is however, very

little optimism regarding meeting the commitment to aid coordination in Laos. If

only aid could be coordinated and allocated correctly the output of aid could yield

favorable outcome.

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:

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 possible policies and solutions to promote 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 could learn from successful cases of ODA

harmonization and coordination?

5. 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

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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.

CHAPTER 1. 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 free-standing

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 [81] 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 2 on universal primary education; MDG 4 on reducing child mortality;

and MDG 5 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 (OECD-DAC). 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 [84], 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.

CHAPTER 2. THEORETICAL FRAMEWORK ON ODA COORDINATION EFFECTIVENESS

2.1. Development Theory

There are many arguments regarding development. Roger Riddell [68] notes

that foreign aid is often defined by its purpose; however, to understand the purpose,

of development aid, it is first necessary to understand what development is.

President Truman’s 1949 inauguration speech is often credited as the

commencement point of the modern-day development era [70]. President Truman

(1949) perceived development in economic terms but recognised that “their

[developing countries] poverty is a handicap and a threat both to them and to more

prosperous areas”; in essence, linking United States (US) development and stability

to the economic and democratic development of the wider world.

Development has a connection with poverty reduction. The early focus of

development concentrated on the reduction of poverty primarily through the

promotion of economic growth [21]. Development, in this sense, or otherwise

known as Modernisation Theory, was seen as developing countries following the

same growth path as pioneered by Western nations [41]. Proponents of this view,

for example Walt Rostow (1960) [98], understood development in a linear

economic fashion that was measured through such narrow indicators as Gross

Domestic Product (GDP). Des Gasper [26] notes that in its crudest form,

development equates to economic growth. However, this narrow understanding of

development raised criticisms from other academics. David Hulme and Andrew

Shepherd [96] noted that it understood “the poor as a single homogeneous group

whose primary problem is low monetary income and has led policymakers and their

advisors to search for ‘the policy’ that increases the income of ‘the poor’”. John

McKay [41] remarks that new theories on development emerged in the 1960s due to

the persistent failure of developing countries to actually develop. These theories

looked at wider development issues such as the structure of the international system

in dependency theory; or the expansion on this idea in World Systems theory; or

proponents of ‘wider development’ posit the expansion of liberty to the individual .

Nevertheless, new theories developed over time, with two of them being

prominent today; Neo-Liberalism and Human Development. The former emerged in

the 1980s and can be seen as a resurgence of modernization theory. It proposes the

liberalization of international trade and sees development in economic terms that

occurs through market and private investment. It requires developing nations to

undergo structural adjustment programmes to configure their economies to the

western formats [41] [21] [35]. Conversely, Human Development posits that

“development can be seen... as a process of expanding the real freedoms that people

enjoy...focusing on human freedom” [76]. This approach emphasizes the

improvement in individual capabilities [68]. It considers other factors beyond the

economic progress such as the ability to attain education, health and security.

Moreover, security, in this sense, is the concern of the individual; human security. It

is measured by the Human Development Index from the United Nations (UN), with

the 1994 report being a turning point in linking development and (human) security.

Human security came to prominence in the mid 1990s, owning to it being

seen as an alternative to the narrow economic growth models of the International

Monetary Fund (IMF). It was developed along with many other security theories as

academics began to analyse security beyond the traditional state centric military

approach that was dominant, and rarely challenged, during the Cold War [66] [96].

One such theory, developed primarily by Barry Buzan and Ole Wæver at the

Copenhagen Peace Research Institute (COPRI), is securitization theory. This theory

has sought to ‘broaden’ and ‘deepen’ the security concept, however, the state

remaining as the primary object; a fundamental disparity from human security.

2.2. Development Aid

2.2.1. Donor Motives

Despite of aid had existed long ago, President Truman’s speech is considered

to be the commencement of the modern era in development and consequently,

development aid. Riddell [68] notes that the United Kingdom (UK) and France

both provided aid to their colonies in the 1920s and 1940s. Therefore, while

President Truman’s speech was not a revolution in designing a new concept, it did

shape the existing concept. It conveyed the idea more broadly to the developed

world and beyond aid solely to colonial territories. The principal that underpins

foreign aid, according to Riddell [68], is “[t]hose who can should help those who

are in extreme need”. The underlying assumption of this principal is that it is the

donor’s responsibility to selflessly help. Initially, US aid cannot be seen in this

light. President Truman (1949) stated that the motives for US assistance lay in

helping poor people “realize their aspirations for a better life”. Additionally,

President Truman [84] linked the success of these developing countries to the

success and security of the US. Consequently, any aid that was provided went to

nations supporting US views [82]. As aid is rarely given solely for altruistic reasons

[9], when examining aid, it is essential to understand the motives of the donor as

they can often conflict with the altruistic principal Riddell proposes. Riddell [68]

outlines eight motives in donor decisions to give aid; (1) to help address emergency

needs; (2) to assist recipients achieve their development goals; (3) to show

solidarity; (4) to further the donor national political and strategic interests; (5) to

help promote donor-country commercial interests; (6) historical/colonial ties; (7) to

strengthen global public goods; (8) aid based on human rights decisions. While

simultaneously appeasing to many motives, most donors have strong tenets to a

few. The UK and France have traditionally been large sponsors to their former

colonies; in 2006, eight of their top ten recipients of aid were former colonies [62].

Scandinavian aid is focused towards reaching the poverty goals of their target

countries [20]. In this regard, Scandinavian aid is often rated highly for its

effectiveness by the Commitment to Development Index [16] while other countries

receive an unfavourable review; US, Italy and Japan. Aid from these countries is

often criticised for being highly tied , with a principal focus on developing donor

commercial interests and/or dependent on national, political and strategic interests

[75] [68] [65]. Unsurprisingly, these motives can be recognized in the donor’s

public discourse and delivery of aid. Taro Aso [8], the then Japanese Minister of

Foreign Affairs, stated that aid was given to enhance the Japanese national interests and

that the first use of the Japanese people’s money was to benefit the Japanese later on.

US aid is also explicit in stating that its purpose is to “furthering America's foreign

policy interests” [95]. This discourse is reflected in the delivery of their respective aid.

Japanese aid is highly concentrated around East Asia and highly tied to Japanese

companies and interests [49]. During the 1980s and 1990s US aid was greatly linked to

the promotion of the Washington Consensus. With the exception of US special interest

in Egypt and Israel, Alberto Alesina and David Dollar [7] note that US aid in the 1990s

was focused on poverty, democracy promotion and 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, in such incidents, aid can be seen as a foreign policy

tool of donors. Jean-Claude Berthelemy [9] concurs and in his study notes that all

donors, with the possible exception of Switzerland, are egoistic in the delivery of

their aid to differing degrees. Riddell [68] remarks that definitions of aid are driven

and shaped by those (invariably donors) who have an interest in particular types and

forms of aid. Therefore, any definition of aid is dependent on the motives of donors

and will have a self-interested edge to it. Consequently, in defining development

aid, this dissertation seeks to utilise the Organisation for Economic Co-operation

and Development (OECD) definition. The definition is not absolute, as it is

formulated by the members of the 30 developed countries in the Development

Assistance Committee (DAC) of the OECD and, therefore, donor driven. However,

it is widely cited, reached by consensus by the major donors and utilised by the UN.

OECD defines Overseas Development Assistance (ODA) as: “Grants or Loans to

countries and territories on Part I of the DAC List of Aid Recipients (developing

countries) which are: (a) undertaken by the official sector; (b) with promotion of

economic development and welfare as the main objective; (c) at concessional

financial terms [if a loan, having a Grant Element (q.v.) of at least 25 per cent]. In

addition to financial flows, Technical Co-operation (q.v.) is included in aid. Grants,

Loans and credits for military purposes are excluded ... Transfer payments to private

individuals (e.g. pensions, reparations or insurance payouts) are in general not

counted.”(OECD, No Date)

This definition is still contested by certain members of the OECD. Non-

Governmental Organisations (NGO) are concerned as some OECD member states seek

to expand the definition to incorporate additional donor security spending [11]. Since

all OECD members are committed to meeting the UN Resolution 2626 in 1970 of

providing 0.7% of their Gross National Income (GNI), and currently, as many states

are failing, any expansion of ODA would facilitate donors in achieving this goal [92]

[68] [12]. By linking development aid to conflict, some donors want to include

spending on the removal of landmines, prevention of child soldiers and even

international peacekeeping. British Overseas NGOs for Development [11] is concerned

that the inclusion of military/security costs into ODA would permit a diversion of funds

away from non-strategic countries. Riddell [68] affirms that aid is a tool used by the

donor to promote development. During the Cold War the different sides of the

ideological divide used aid as a self-serving tool to promote their conception of

development, establish commercial interests and/or as a coercive instrument [69]. The

fall of the Berlin Wall did not change this [36]. Donors focused their aid toward either

the Washington Consensus (USA, IMF and World Bank), thereby instilling the neo-

liberal model upon developing states, or, to a lesser degree, Human

Development/Security strategy (Canada, Norway and United Nations).

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

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 a consensus on policies, strategic

objectives, and key procedures and practices

- Operational coordination, to reach agreement on a common program or

project to 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 of aid is that under strategic

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 next.

According to Arne Disch [8], the so-called “Pearson Commission” presented

its report entitled Partners in Development. Report of the Commission on

International Development 30 years ago. Key themes in that report remain valid

today: the recipient must be responsible for its own development policies but donors

have a right to be consulted; the interaction between the parties should be based on

a partnership where predictability and performance based resource flows are

integral parts. Aid coordination has subsequently become a key dimension in the

operation of the partnership concept. Donors and recipients alike are allocating

increasing resources for aid coordination activities, with the understanding that

efficient aid coordination generates efficiency gains. It is not clear, however, how to

measure these efficiency gains, nor is there a good understanding of what a “least

cost” strategy for aid coordination improvements should look like.

Two kinds of aid coordination take place at the international level. Focused

events such as the international conferences help generate consensus on overarching

policy issues, largely on specific issues like the environment (Rio), education

(Jomtien) etc. On the other hand, more permanent institutions like OECD/DAC or

process-oriented force like the SPA work with systemic and implementation

problems. Most of the latter institutions are donor-driven, however, with recipient

countries having limited influence. Coordination at the recipient country level

usually includes overarching development issues and financing of national priorities

through Roundtable or Consultative Group meetings, held abroad or in-country.

There are often a variety of inter-donor coordination mechanisms in place as well as

government-donor force, both at macroeconomic and sector levels. The number of

such coordination activities has grown rapidly over the last years without clarity as

to what the outcomes of them have been. There thus seems to be a lack of focus and

results-orientation regarding the aid coordination activities themselves, which

represents a major challenge both to donors and recipients.

Aid coordination can be de-composed along several dimensions: geographic

(international coordination on general issues versus recipient country-specific);

content (policies, principles and priorities versus procedures versus practices);

degrees of intensity/commitment (general consultation versus cooperation at the

strategic level versus collaboration at implementation level); national issues versus

sector and sub-sector issues; at geographic/regional level within a given country;

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 multi-

dimensional coordination matrix yield the higher pay-off to effort.

Regarding mechanisms for aid coordination, the most common one – infor-

mation meetings – may also be the least efficient and could be streamlined/

downsized. At the other extreme, formal contracts often represent cost-efficient

coordination because while they may be costly to establish – investment costs are

high – they generate lasting and potentially substantial reductions in recurrent

transaction cost, and these are the real problems for local administration.

Successful aid coordination implies structural changes to resource flows – in

particular that central agencies like ministries of finance take on a coordinating and

thus a stronger role. This may often generate resistance from those within the local

administration that feel they will lose out, such as aid-favored units in line

ministries – a problem that should not be underestimated. Understanding the politics

of aid coordination is therefore as important as understanding the economics of it.

If there is no coherent government development program and strategy in

place, donors cannot substitute for this by coordinating their own strategy processes,

but should rather support government’s efforts at developing a credible program.

This position arrived at for example in the context of a Mozambique survey, is not

accepted by all donors, who believe that many recipient governments are not serious

about addressing key structural issues and that donor conditionality is still required.

Recent studies note the failure of conditionality as a 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 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.

The integration between the receipient national plan and donor coordination is

necessary. Donor or aid coordination efforts alone will not achieve significant

development results unless they are effectively integrated within national

development planning and governance structures and systems. In other words, the

aim of coordination is not just “aid effectiveness” but “development effectiveness”.

The above definitions are useful because the three dimensions of coordination

can be seen as three “stages” with different characteristics. Stage one is donor

coordination. In this stage, the main drive usually comes from the development

partners, while government usually plays a passive role at this stage (lack of systems to

deal with aid or to engage with the donors in policy dialogue, etc.). Stage two is aid

coordination. This stage deals with more proactive engagement of government

counterparts and setting up of the foundations of improved aid forecasting, accounting

and aid management systems on the government side. Stage three is development

coordination. In this stage, the government increasingly takes the lead in policy design

and implementation, employing effective mechanisms for management of all

government resources. There are efficient mechanisms of cooperation between the

government and the community of development partners integrated with government

mechanisms and systems. All three types of coordination use different instruments and

at different level (national, cross-sector, sector, local, programme, etc.). Major

challenge lies in adequate definition of sectors and appropriate levels of coordination.

2.5. Sector Wide Approach and Programme Based Approach

Programme-based approaches (PBAs) and a sector-wide approach (SWAp)

differs in its forms and targets. PBAs have been defined as a way of engaging in

development co-operation based on the principle of coordinated support for a locally

owned programme of development. SWAp is a programme-based approach

operating at the level of an entire sector. It is a method of working that brings

together governments, donors and other stakeholders within any sector. It is

characterized by a set of operating principles rather than a specific package of

policies or activities. The approach involves:

• Government leadership • Developing a single sector policy (ideally a policy that addresses private

and public sector issues) and a common realistic expenditure program (budget

framework);

• Formalized process for donor co-ordination and harmonization of donor

procedures for reporting, budgeting, financial management and procurement

• Efforts to increase the use of local systems for programme design and

implementation, financial management, monitoring and evaluation .

A sector-wide approach (SWAp) is an increasingly widespread approach to

development assistance in low-income countries. The SWAp model is seen as an

important approach to enhancing aid effectiveness, mostly through improved

efficiency that would result from better aid coordination where the focus is put on

developing and strengthening sector policies and institutional arrangements.

However, it is important to keep in mind that a SWAp and programme-based

approach can be implemented without any external funding at all, with the purpose

of strengthening coordination, coherence and efficiency in relation to desired results

in a certain area.

2.6. Principles of Effective Aid Coordination

OECD monitoring survey 2006 [42] reported that for aid to be effective, each

country needs to determine its own priorities, pace and sequencing of reform. The

monitoring identified that transaction costs of managing foreign aid and the place of

change is slow in donor practices. There is a strong disconnect between headquarters

policies and in-country practices. It is recommended that demonstrating tangible

changes in practices is fundamental in sustaining momentum and achieving further

progress.

The main principles that serve as basis for defining improved aid coordination

mechanism are:

1. Efficiency which refers to the best use of limited resources, 2. Alignment with national planning, programming, monitoring and

reporting processes, strategic documents and priorities,

3. Flexibility to establish and abolish donor coordination groups per need

and avoiding administrative overburden of public administration staff,

4. Complying with donor requirements and established 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.

CHAPTER 3. KEY LESSONS LEARNT FOR LAO PDR

This chapter will detail lessons for the aid effectiveness agenda from two

neigbour countries, namely Vietnam and Timor L’Este. 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

learnt since both of the countries have political similarities and are neighboring

countries with special relationship agreement.

While Timor L’Este is different from Lao PDR, in terms of context, political

situation and it said coordination model, it offers some important lessons from a

different environment. The lessons to be learnt from international agencies based in

Timor L’Este are essential. It shows that it is not just a matter of government taking

ownership in the aid effectiveness agenda but also how the international

development community can work together for good aid delivery outcomes.

The chapter will illustrate how aid coordination is pursued in both ways. The

Vietnam section will examine how the Paris Declaration is localized at the country

level, and analyses how the overall aid effectiveness agenda is organized. It will be

shown why many international development agencies recommend that Vietnam is

an example for region to follow. Timor L’Este will be looked at in terms of

reviewing aid reports from the existing literature that is currently accessible through

the internet.

The case is drawn from multiple sources on aid effectiveness monitoring

reports and Soudalie Silaphet [81] .

3.1. Lesson from Vietnam

Before the Paris Declaration, UN agencies were fully involved with the

Vietnamese government in coordinating aid. A good partnership has been illustrated

since 1993 with improved aid management. Vietnam has under gone a remarkable

transition from a closed economy oriented toward the former Eastern Bloc countries

to a market oriented economy with rapidly growing trade and aid relationships with

its Asian neighbors and Western donors. The growing influx of foreign capital, both

private investment and Official Development Assistance (ODA), has helped fuel

high rates of economic growth but also created a series of challenges for the

government. In the past several years, the government has taken a series of steps to

strengthen its ability to define priorities for development assistance, coordinated on

or support, and manage aid more effectively.

Since the Paris Declaration, the Vietnamese government has realized that localization of this agreement is essential. The Prime Minister’s Decree on the

issuance of the regulation on the management and utilization of aid from international non-governmental organizations has been effective since April 26,

2001. This resulted in the Ministry of Planning and Investment (MPI) and Ministry of Finance (MOF) becoming the sole aid coordinators [79]. MOF has the role of

organizing public expenditures and managing budgets while MPI has had the overall role in aid coordination and management.

The Ministry of Planning and Investment has a department which is

responsible for aid coordination. MPI helped to establish the Partnership Group on

Aid Effectiveness (PGAE) and is a core member of the ‘Friends of the Co-Chair’

group who produced the Hanoi Core Statement (HCS) which consists of

representative of government and donors. PGAE act as a forum for partnership

groups and donor groupings and provides frequent opportunities to discuss and

monitor implementation of the HCS.

Although the Task Force that is the PGAE for aid effectiveness working

group is organized, it has a weakness in practical use because the concept of it is

lost. The HCS spells out in the local context the implications of the Paris

Declaration. The success factors resulted from strong leadership of the Vietnamese

government, a continuous effort to ensure that the donor community commit on the

agenda with a balance of a competent group of visionaries and strategic thinkers.

This is important because, if these involving representatives do not have the right

capacity to be involved in the aid coordination agenda; it is unlikely that

coordination process will be successful. The PGAE continue dominating the

processes in aid effectiveness agenda in Vietnam and putting the Hanoi Core

Statements in to implementations.

The Hanoi Core Statement became effective on 28th September 2005.

Vietnam became the first partner country in the world to localize the Paris

Declaration on Aid Effectiveness in the Vietnamese Context.

The Hanoi Core Statement scents reason the following principles which

includes 14 indicators and targets that have been agreed by the Government and the

donors. These indicators are used to monitor the progress achieved in improving aid

effectiveness in summary [46].

1. Ownership: The government is the leader and owner of the development

agenda.

2. Alignment: Donors use government plans and government systems.

3. Harmonization: Donors and government harmonize ways to deliver aid.

4. Managing for Results: The government manages for results and donors use

the government’s results framework where possible to measure success.

5. Mutual Accountability: donors and government share accountability for

aid effectiveness.

In order to translate commitments in to concrete practices, the PGAE

continues being the focal point. The group meets on a monthly basis under the co-

chair of the Ministry of Planning and Investment with the European Commission. A

base line survey was conducted twice to measure progress towards meeting the

Hanoi Core Statement and to compare data for accuracy.

To make the HCS practical the Vietnam Harmonization Action Plan 2005-

2006 (V- HAP) was established to support the implementation. The V-HAP

contains a large number of activities to be implemented by arrangement of

government agencies and donor. Figure 3.1.1 below illustrates how ODA is

distributed once the process of Paris Declaration is localized and implementation is

outlined. The right-hand column shows how aid effectiveness agenda is localized.

Mean while the ODA resources (middle column) support Vietnam’s development

agenda, that is through a strategic framework administered by the PRGS/CPRGS

through a short term plan of 5 year Socio Economic Development Plan which

complements the 10 year Socio Economic Development Plan (SEDP), illustrated in

left hand column.

Figure 3.1: Relationships between Vietnam Development & Aid Effectiveness Agenda

(Ministry of Planning and Investment & UNDP, 2005)

Figure 3.2: Improving Aid Effectiveness to Support Vietnam’s Development

(Ministry of Planning and Investment & UNDP,2005)

The 10 highlights of the current status of Aid effectiveness in Vietnam

includes [47] from adopting the HCS which the government recognizes the Paris

High level forum as one of global leader. The SEDP detail sectorial and

provincial plans with consultation with donors. The development of the ODA

Strategic Framework has been done. An ongoing process to strengthening the

legal framework for public investment and ODA, including drafting the

Procurement and Public Investment Decree and revising the Environment Law.

The Joint Government and donor for the Public expenditure Review was

launched to create awareness, along with the launch of the Targeted budget

Support Programs for Education for all as well as continuous promotion for

increasing number of donors joining the poverty reduction support credit. This

common reporting system tool was successfully piloted. The problem-solving

efforts have been undertaken by the inter-Ministerial Taskforce which is handled by

the PGAE.

3.2. Lesson from Timor L’Este

Unlike Vietnam or Laos, Timor L’Este was not one of the original

signatories of the Paris Declarations. Therefore their agenda does not include any

commitment to localization of the Declaration. They also have a different

environment and vulnerable political situation in comparison with other countries.

A vulnerable country like Timor L’Este receives aid 3.6 billion US dollars of

international assistance between 1999-2006 (Norad, 2007) where a majority of

ODA are for emergency relief and long term state building efforts. Included in this,

half of the amount was made up from contributions from the UN missions and the

other half was from 28 bilateral donors as well as multilateral donors.

The major challenge in working in Timor L’Este is the availability of

statistics. Many development practitioners struggle to find indicators because of

limited existence of important documentations. Giving the circumstances of being a

young an unstable political situation, it is difficult for Timor to get into coordination

effort to make their abundance of aid received effective.

The local aid environment is entirely dominated by development agencies

particularly the massive UN mission based in Dili, the capital city. There is limited

economic activity within the country and aid dominates the economic growth.

Timor is chosen as a lesson to be learnt for aid coordination because it has

demonstrated good joint aid delivery within the development community.

Financial assistance is not the only aspect of the ODA portfolio. The

international community has provided more than the real value. These are combined

packages of military and police force support, UN missions from transition mission

to current state building mission, and humanitarian technical assistance [68].

COMPACT was the only mechanism to coordinate how a development community

comes together and talk about the needs for the country and what donors can do to

meet such requests. The challenge was working with a transition government that

could mean any decisions made in that day would later not have future values. The

COMPACT meeting consists of officers from government and development

agencies and representative of civil society and head of local communities.

Although the outcomes of the meeting held were not effective, given that was the

first coordination initiative.

The unique development practices from Timor L’Este were the development

community coordinates aid within themselves. Because of the transition situation

and that the country is still in a weak position to lead development agenda. The

donor community has approached aid coordination amongst themselves. Within the

UN missions and UN agencies there are coordination within themselves, while

other donors and the rest of the community try to come together and work on joint

programs in order to share the limited available resources that the country has.

Following the post conflict reconstruction, many external partners particularly

bilateral donors such as Japan, Norway, US, Australia and international banks

(World Bank, ADB) have moved toward establishing a presence in the country and

have geared toward long term day-to-day engagement. Under the previous

government leadership, external partners have supported the development in

National Development Plan (NDP). Most of the development agencies are aligning

their assistance with the NDP. The World Bank’s Country Assistance Strategy

(CAS) for FY06-FY08 includes a result framework to support NDP implementation

and supports all development partners (Development Gateway, 2006). This became

an agreement obtained by both development partners and the Government of Timor

L’Este. A join trust fund was created (Trust Fund for East Timor) in 1999 to support

the reconstruction and development activities. The World Bank has been playing the

central role in supporting the government in capacity development, coordinating all

partnerships within the country. For Analytic and Sector Work in reconstructing

Timor L’Este several major donors created Joint Assessment Mission (JAM) to

identify the priorities for Macroeconomic development. This is a great example of

effective aid practice, namely having agencies join together with one objective and

contribute each specialized resources into one program or project.

Many development agencies understand that in order to achieve the

Millennium Development Goals (MDGs), their development practices need change

to improve development practices and expedite the effort of MDGs. UN agencies

‘programs have been jointly organized through channels of funding, with one

objective. Many of their specialized agencies do not have independent projects and

have moved to new programs with join initiatives. Even fund raising efforts have

been jointly organized which is much different from UN agencies in Laos. The UN

Trust Fund for Human Security (UNTFHS) was a great example of joint effort in

Timor, where UN agencies got together and have designed program and propose a

one of financial support to the Japanese donor. This task is managed and led by a

unit called Poverty Reductions Unit, within UNDP. This new proposed project also

involves many agencies through combined resources to explore how human security

could be addressed in Timor L’Este. That includes senior management team

representatives from: UNICEF, World Food Program, UNDP and UN Habitat. The

project will be involving several activities ranging from, micro-finance support by

UNDP, WFP will support children and family for food security, while UNICEF

overlooks at child health care and UN Habitat overlooks are providing homes for

families who were internally displaced during the internal crises.

Although Timor L’Este is a young country, many challenges lie ahead for its

people. The development community has set a great example in working together in

one common agenda. It realized that the local government needed to improve local

capacity to manage aid. Nonetheless, development agencies have been working

together in joint programs and projects to ensure efficient output. By doing so it

allows for development agencies to realize the current activities within the country

and avoid project duplications. They rely on working together in order to come up

with non-existing recorded statistics. This is the best development partnership

displayed in which other countries could learn from. From personal work

experience in Laos, much of the development community duplicates one another’s

projects simply because of poor communication and lack of awareness. With

lessons learnt from both countries Vietnam and Timor L’Este, Laos could look at

their model or practices for better aid delivery. This is relevant for both developing

country governments and applies well to development agencies.

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 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 L’Este 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 L’Este 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 do so. Within UN agencies, they find it much

more difficult to coordinate aid and organize joint programmes, in comparison to

UN agencies in Timor L’Este. Timor L’Este 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 L’Este. They have moved into joint programmes although their existence in

Timor has only been recent, since independence in 1999.

UN agencies in Laos often do 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. 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

do 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.

CHAPTER 4. HOW ODA COORDINATION IMPLEMENTED IN LAO

Lao PDR is a landlocked country categorized as a Least Developed Country

(LCD) located in the heart of South East Asia, bordered by Cambodia, China,

Myanmar, Thailand and Vietnam (see Figure 5.8). It has a population of 6.1 million

(UNDP, 2011) most of whom live in rural areas. The official language is Lao,

though there are 49 officially recognised ethnic minorities divided into three major

groups: Lao Lum (low landers), Lao Theung (high landers) and Lao Soung

(Hmongs). The growth rate of Growth Domestic Product (GDP) is one of the

highest in the region at 6% but there is approximately 32% of the population living

under the poverty line of the $US 1.50 per day in 2002 (UNDP, 2011). Some 73%

live under $2 per day, and 25% less than $1 per day.

4.1. Millennium Development Goals (MDGs)

The Millennium Development Goals are a global commitment set by many

countries, both developed and developing. Faced with rising world poverty levels,

many donors and recipient countries gathered to set eight goals for the year 2015.

These eight goals break down in to 18 quantifiable targets that are measured by 48

indicators. The MDGs therefore represent broad agreement on the goal of poverty

reduction. Setting key objectives for aid, they help focus aid delivery. The overall

MDGs include the following:

Goal 1 is to eradicate extreme poverty and hunger by setting a target in

halving proportion of people living on less than a dollar a day and those who suffer

from hunger. Goal 2 is to achieve universal primary education by setting high target

to ensure that all boys and girls complete primary schools. Goal 3 is to promote

gender equality and empower women. The target set is to eliminate gender

disparities in primary and secondary education preferably by 2005, and at all levels

by 2015. Goal 4 is to reduce child mortality by setting a target to reduce by two

thirds the mortality rate among child under five. Goal 5 is to improve maternal

health targeting to reduce by three quarters the maternal mortality ratio. Goal 6 is to

combat HIV/AIDS, malaria and other diseases, the target halt and begin to reverse

the spread of HIV/AIDS by halting and beginning to reverse the incidence of

malaria and other major diseases. Goal 7 is to ensure environmental sustainability

with very intense targets. This target aims is to integrate the principles of

sustainable development into country policies and programs and reverse loss of

environmental resources. In addition, the target is to reduce by half the proportion

of people without sustainable access to safe drinking water, as well as achieve

significant improvement in lives of at least 100 million slum dwellers, by 2020. The

last, Goal 8, is to develop a Global Partnership for Development.

This is a donor driven approach set by many developed countries. The idea is

ambitious to reduce world poverty significantly. Accordingly, with targets set for

the year 2015, the MDGs have been set a apriority for many countries. The

importance of these goals requires an abundance of financial support and many

developed country’s donors have pooled their aid in the hope that poverty will be

alleviated. Since the year 2000 it has been noted that there has been an enormous

increase in the amount of ODA in order to meet the coming dead line. For many

countries, 2015 seem a distant future that is difficult to reach. Many reasons came

to be involved in the lack of government capacity in developing countries, lacking

the natural resources, limited financial supports, war, natural disaster, etc. Aid

effectiveness is essential for the development of poor countries. Since the MDGs

have been signed by many countries, more effort needs to be made so that the

deadline of 2015 is to be met. The MDGs reflects how aid effectiveness is

important so that the distribution of funds can be achieved those Millennium Goals.

However, since the adoption of the MDGs many development in situations and

donors still operate their aid programs in their original forms inhibiting the

coordination effort of the local government.

The MDGs have been adopted in Lao PDR. The United Nations

Development Program (UNDP) resident office in Vientiane has been the leading

agency for Lao PDR and support the localization of the global contract set by world

leaders in 2000. The UNDP has been supporting the Lao Government on the

localization and has promoted a number of tools to measure whether Laos has been

making progress on the MDGs. The tools used for supporting the work on MDG

commitments includes the Common Country Assessment (CCA) which details the

overall development environment of Laos before drafting the practical plans to

achieve localized MDGs goals (Government of Lao PDR & UN Country Team,

2006). The United Nations Development Framework (UNDAF) is another tool that

outlines how the MDGs could be met with coordinated contributions from the

entire development community. This as well is drawn from the local development

effort, the National Growth and Poverty Eradication Strategy (NGPES) has been

produced by the Lao Government to set out the coming period of the country’s

poverty alleviation strategies.

4.2. Paris Declaration

The Paris Declaration was endorsed on March 2, 2005 by many countries,

including hundreds of Ministers, Heads of Agencies, Senior Officers, to commit to

aid delivery efforts through harmonization, alignment, and management of aid for

better results with a set of monitorable actions and indicators (World Bank, 2006).

The Paris Declaration goes beyond other agreements such as the consensus reached

at Rome in 2003 to what is now a practical blue print for donors and developing

countries to monitor each other’s progresses. It strongly commits donors to

increasing the impact of aid in reducing poverty, increasing growth, building

capacity and acceleration achievement of the MDGs. It is a donor driven approach

in development that is organized by the rich member countries of the OECD. It is

very much the focus of how development should be dealt with from a donor’s

perspective.

The commitment for aid effectiveness includes a call (World Bank, 2007) for

developing country partners to exercise effective leadership over their development

policies, strategies, and to coordinate development actions. Donor countries will

then plan their overall support after a recipient country’s endorsed the Paris

Declaration. A survey was later carried out early 2008 where only 56 countries

responded to be surveyed (OECD, 2008).

4.3. Vientiane Declaration and Country Action Plan (CAP)

The Vientiane Declaration (The National Round Table Process, 2007)

spelled out a local commitment and decentralization on localization of the actual

Paris Declaration. The government of Lao PDR and its donor partners in

development have taken actions to make aid more effective and assist the Lao

government in achieving the Millennium Development Goals. They have set long-

term development goal of exiting the status of least developed country by 2020. Laos signed this Vientiane Declaration on November 2006 during the 9th Round

Table Processing Lao PDR. There were 22 countries and organization partners and

afterwards two more countries joined the signatories (Thailand and the Philippines).

Lateral Country Action Plan (CAP) was prepared between February and May 2007

to accompany the Vientiane Declarations. The reason for the CAP is to detail

implementable actions for the six indicators to be approached data country level.

The Vientiane Declaration reflects a mutual accountability and respect for

the ambitious structure of the Paris Declaration. However the Declaration does not

constitute legally binding commitment between governments and agencies. They

are another step in making aid work at a country level which the Lao government

will make available appropriate resources, knowledge and capacity to make the

Declaration effective. The five indicators of Ownership Harmonization Alignment

Managing for Result and Accountability (OHARMA) aim to improve aid

effectiveness in five different areas:

1. Increased country Ownership over policy and development plan,

implementation and aid coordination. This is in hand with the National Growth and

Poverty Eradication Strategy (NGPES) 2006-2010 to integrate with official

development assistance main stream planning.

2. Better Alignment of Development Partner's support to national policies and

plans, and increased support to use the national systems. A single Project

Implementation Unit (PIUs) or Project Management Unit (PMUs) for day-to-day

management and implementation of aid-financed projects and programs. This will avoid

the creation of parallel structures so that it can be fully integrated with the government.

3. Harmonization involves taking simplification of development partner's

procedures and activities.

4. Managing for Results in order to ensure effective use of resources. The

DIC will monitor actions.

5. Implementation is a responsibility of all signatories, and Government and

Development Partners will be Mutually Accountable for reporting on progress.

4.4. The Round Table Meeting/Process (RTM/RTP)

The Round Table Meeting (Ministry of Foreign Affairs & UNDP, 2007) has

been in operation in Lao PDR since 1983 with the support of the United Nations

Development Program (UNDP). Until 1993 the meeting focused on donator-annual

meeting in Geneva and for the first time in 2000 and is now organized locally in the

country. Rather than a three year initiative the local government has made it a

continuing dynamic process. The Round Table Process (RTP) focuses on

strengthening national and sartorial aid coordination mechanisms. The actual Round

Table Meetings (RTM) themselves being one component of a comprehensive

approach to aid effectiveness.

The RTM objective is to facilitate the consolidation of the Round Table

Process so that effective forms of aid integration, coordination and management are

established. It also requires building sustainable technical capacities for aid

coordination, integration and management in the country. Through this, UNDP has

been supporting the Government in ensuring sufficient resource mobilization.

UNDP has been providing ongoing support to the RTM, because it relates

directly to the United Nations Development Assistance Frame work goals of

poverty eradication. This is one part of the UNDP project that aims to support the

national development goals including the Millennium Development Goals and the

National Growth and Poverty Eradication Strategy (NGPES). It helps the

formulations of the Vientiane Declaration and the Country Action Plan on aid

effectiveness as mentioned previously.

Below is an outline of the Round Table Process (Figure 4.1). The nature of

the RTM is to meet on a three year basis which is a high level forum where high

ranking government representatives gather to discuss development of Lao PDR. The

annual meeting was also organized to follow up with development communities on

implementation of development agendas and preparation of the next RTM forum.

RTM (3 year basis)

Annual Round Table Implementation Meetings

Sector Working Groups Meetings

Figure 4.1: The Round Table Meeting Structure [104]

4.5. Sector Working Groups (SWGs)

Under the RTM, Lao PDR currently has 8 Sector Working Groups that bring

together representatives from government and donor agencies, and NGOs. The SWGs

are forums to discuss and build consensus about development priorities, and to improve

sectorial aid coordination and effectiveness setting out the Vientiane Declaration and

the Country Action Plan. Under the common frame work of the Round Table Process,

these groups commit to Lao PDR's development efforts in the areas of their expertise

under the leadership of the Government of Lao PDR. These groups are similarly

known in broader term, Sector-Wide-Approach (SWP) which is implemented by sector

as the SWGs in the case for Laos. It is a program-based operating at the level of an

entire sector through sector strategy as listed in Table 4.1 [58].

These groups were formed in June 2007 by the Ministry of Foreign Affairs at

the Round Table Information Meeting. The Department of International Cooperation

was located in the Ministry of Foreign Affairs which is currently the Committee for

Planning and Investment. It is the overall coordinating agency of the SWGs

mechanism. The current groups are illustrated in Figure 4.2 [104].

The RTM has always been a forum where government could call development

agencies to join and discuss development issues for Laos. The MDGs is another

component that is coordinated with in the RTM as well which discusses how the MDGs could be achieved through this high level forum. Since the Paris commitment it has been added in to the work of RTM and coordinated by the

government as one agenda, rather than having a separate operation although they are separate contracts. The MDGs and the Vientiane Declaration are components of the RTM but the differences between the Vientiane Declaration and the RTM is that the RTM acts as forum and it sets out criteria for ODA effectiveness. It is rather difficult processes in practice because it follows the objectives of RTM and donors do not always support the agenda.

Table 4.1: The Round Table Meeting Structure

Sector Working Group

Chairing Ministry and Co-Chairing Development Partner(s)

Health

Ministry of Health Japan WHO

Education

Ministry of Education Australia/Aus AID UNICEF

Infrastructure

Agriculture, Rural Development and Natural Resource Management

Ministry of Communication, Transport, Post and Construction Japan ADB Ministry of Agriculture and Forestry France/ADF Sweden/Sida ADB

Governance

Prime Minister’s Office (PACSA) Sweden/Sida UNDP

Macroeconomic Issues and Private Sector Development

Committee for Planning and Investment World Bank International Monetary Fund

Drug Prevention(Mini-Dublin)

Lao National Commission for Drug Control and Supervision Australia/Aus AID

[104]

Figure 4.2: RTM with Sectorial Working Groups (SWGs, 2007)

4.6. Critiques

There are many critiques around the Paris Declaration that focus on many

development practitioners, donors as well as recipients themselves. There are

several assumptions that the Declaration is fully designed to support the developed

country’s policy toward said distributions rather beneficiary countries. There has

been criticism that the Declaration is just another agreement that won’t fully support

aid just like the Rome Agreement, rather just another donor driven approach on the

development agenda.

It can be seen that the commitment to “country ownership” relies on donor

alignment with partner governments’ national development strategies. This

alignment is usually the result of highly unequal and donor-directed policy

dialogue, focusing on implementing World Bank/IMF-mandated Poverty Reduction

Strategy Papers (PRSPs). On the other hand the PRSP may be focused on the basis

of development policy that may not directly reflect the MDGs. Perhaps it is not

supposed to be looking at minor details of how it should be implemented. This

could be the reason why aid effectiveness effort is not entirely clear when it comes

down to localization at country level. In addition to the term country ownership can

refer to a number of dimensions of the multidimensional relationship of the

domestic party. It can be defined as ‘property of programs, process, plans, or

strategic involving both a ‘domestic party (generally nation state) and foreign party’

(Buiter, 2007 pg. 648). Due to this reason, the most important pillar of the

declaration has been misleading causing conflicting views and interests.

Although agreements or declarations in general are legally binding, they

lead to many delays obtaining the signatures to be committed. Implementation is

more difficult as more funds are needed to mobilize for this new agenda while the

MDGs budget can be short for some countries. It is advised to incorporate the aid

effectiveness agenda into the programs but in practice it is viewed as an

independent or a new program which runs parallels to development programs. The

process is timely and the development community does not fully understand.

The declaration assumes that its reforms in the delivery and management of

aid will improve aid effectiveness in reaching poor people and mobilizing them to

address their rights. Reform of current aid practices is vitally important. However,

the Declaration establishes no commitment to clear targets or mutually accountable

assessments of whether these specific reforms will result in sustained progress in

reducing poverty (The Reality of Aid, 2007). ‘Harmonization’ is another confusing

term in addition to ownership. Eyben (2007) refers to harmonization as a buzz word

in development industry. Donors try to have common programs and procedures, so

that the recipients need to communicate with only one single set of financing

agencies. This leads to a reduction in transaction costs for recipient organizations

because they deal with only a single inter locator, instead of having to report

separately to many different donors. However, while it is an attractive idea, as long

as donors do not recognize and address the issue of power in the aid relationship,

harmonization is likely to be counter-productive in promoting locally initiated

responses to development challenges. The new orthodoxy points out that although

the Paris Declaration has been agreed, donors will still go about behind closed

doors to agree what they want to play before going into official coordination

meetings. Harmonization is being practiced in aid-dependent countries that result

donors being a monopolistic supplier. In addition to the national poverty strategy,

behind this donors are still lining up to influence recipients and act on behalf of

representative civil society. Eyben simply summed up that harmonization becomes

a vice to donor’s habits of pretending that poverty is not about politics.

A personal interview from a New Zealand NGO has brought several

additional points of criticism. An interview with Ms. Rae Julian (previously the

Director of Councilor International Development) highlighted several weaknesses of

the Paris Declaration. The Paris Declaration does not take into account the NGO’s

role within the aid effectiveness agenda. This involves taking little or no account of

the role of civil society in promoting aid effectiveness. Their role within sector

groups with donors and larger international agencies are minimal because they offer

smaller resources.

See further outlined more detailed critiques of the five pillars in the Paris

Declaration as follows:

1. Ownership: this is rather confusing term. Rather than just ‘ownership,’

the preference would be to change the principle to “democratic ownership”, which

would mean that development policies and strategies have been planned in a

participatory manner, in full consultation with all sectors. Although PRSPs are

drafted with national priorities, in practice there are still conditional ties applied.

2. Alignment: the support for direct funding to developing countries government

raises concerns that NGO’s role in development would soon be phased out.

3. Harmonization: this is the intention to reduce transaction costs. Once

again there are concerns of civil society having a minimal role when Sector

Working Groups are formed. There could be only donors groups working with

government and leaving out the civil society.

4. Managing for Results: here these are concerns with indicators being too

mechanistic rather than covering the core values and principles underlying aid.

5. Mutual Accountability: many NGOs are not technical organization and

hold contractual relationship in aid spending. There are also in equalities in donor

recipient relationships. Strengthening independent institutional monitoring of

donors against clear and enforceable benchmarks for donor performance is

essential.

Yet, despite this criticism the Paris Declaration has had much influence on

improving aid delivery in the health sector and provided lessons learned from the

implementation in human rights, environmental sustainability and gender quality

[41]. The harmonization brings together gender equality and human rights in to the

center of the Paris Declaration. The health sector has an enormous increase in aid

support becoming the major recipient in aid. Before the Paris Declaration, health

sector funds which target assistance on specific diseases or sub-sectors were not

well aligned with government priorities and holistic health systems’ approaches

were insufficiently funded.

Strategy review on effective aid management has been done to provide

lessons and achieve development results. Lessons at the level strategies are [60]: i)

To find the appropriate legal and political foundation that is to obtain the clarity at

the highest political level on the national aim aid program, due to involving multiple

relationships. ii) To manage competing national interests by avoiding short-term

pressures jeopardizing long-term common interest in effective development, such as

trade, political relationships or security. iii) To achieve greater policy coherence for

development by setting clear mandate and establish mechanisms to ensure policies

are assessed for their impact on poor countries. iv) Invest in delivering, measuring

and communicating results of aid-financed activity. v) Identify a leadership and

structure that works, hence countries do not have to follow same localization

structure of the Paris Declaration. vi) Rationalize bilateral aid structures to facilitate

coherent action at country level by dealing with institutional dispersion. vii)

Manage contributions to multilateral institutions and viii) decentralize management

to the field. Lessons concerning management of delivery are: ix) To manage the

scale-up of development aid. x) Maintain a focused approach towards countries and

sectors and xi) Emphasize performance-based management, evaluation and quality

control and lastly xii) Make human resource management priority.

Lao PDR has been dependent on ODA for many years, particularly in public

sector development. Since the open door policy on the market oriented economy,

Laos have been influenced by the outside world and development. Large amounts

of ODA have been received by Laos with many development projects now in

operation.

Over the past years, ODA had no coordination mechanism in Laos and

development agencies operated independently using their own guidelines, policies,

and practices. In cases where an agency that would like to have a project in Laos, it

would have to draft a proposal to the DIC office and agreements would be signed

by its representative and the government only then would a project be approved for

operation. There are cases where projects can start its’ operations without agreement

of the MOU being signed. This was because of inefficient and lengthy approval

processes.

Many development institutions would make their own plans and execute

their projects with joint government partnership. The monitoring and evaluations

are done by agencies themselves and reports are submitted to government for filing.

However this has led the development community to be lost in communications and

project duplications. This wasted time and resources which resulted in efficient use

of aid. Although DIC has the mandate to coordinate ODA movements, the

constraints are in internal funding to operate the coordination processes, let alone

the capacity of government officers.

There are incidences where active international development institutions

have brought the development community together to provide awareness of their

activities and share knowledge. Yet, the development industry is too large to control

let alone the issue of agencies’ interests. Aid coordination seemed to be wasting time

and development agencies have their own binding mandates. From personal

experiences, agencies like the UN have poor internal communication amongst

themselves.

For this reason, aid coordination is essential. This part will start with an

overview of how the ODA was implemented before the Paris Declaration, which

has been discussed above. The following section will introduce the current ODA

statistics and introduce the government policy on aid coordination status, followed

by the effort of the Lao government to aid coordination agenda. The fourth section

will cover how the aid coordination is done in practice from the field research,

covering aid coordination in practices. The fifth section will examine the SWGs that

is one component to the RTM and introduce the overall structure of the aid

coordination system in Lao PDR. This will document current results of how

coordination is adjusted from SWGs proposed structure for aid systems that need

improvement. Effective aid delivery and coordination are being implemented

through the SWGs. Later, a section on the evolution of current coordination system

and follow by a section on the OECDDAC survey. The international development

agencies section will yield results from the interviews gathered by many expatriates

working in Laos. Lastly, the conclusion section will summarize the current status of

the coordination agenda in Laos.

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 [19]. 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 4.2 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 million US dollars. In 2011, the grant aids reached 464 million US Dollars and loan financing was US$177 millions. (see

Table 4.2).

Table 4.2: Public Expenditure, Public Investment Program and ODA: 2000 to 2011

US$ Mil.

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Item

354

Total Expenditure

341

406

330

438

514

682

822

1,133

1220

1668

1886

199

Current expenditure

106

162

138

167

248

362

577

679

805

867

986

155

Capital investment(PIP)

235

245

192

271

266

320

368

455

416

801

900

Of which:

- ODA

171

147

165

177

278

318

369

273

593

640

- Domestic

106

142

208

259

44%

PIP/Total expenditure

69%

60%

58%

62%

52%

47%

45%

40%

34%

48%

62%

ODA/PIP (%)

73%

60%

48%

61%

67%

87%

86%

81%

66%

74%

71%

27%

ODA/Total expenditure (%)

50%

36%

28%

38%

34%

41%

39%

33%

22%

36%

34%

Note: Exchange rate conversion 2006 to 2011 = 8000kip/1$; ODA in 2010 and 2011 include borrowing.

Source: [19].

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 4.3

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 4.4. 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 4.3: ODA Agreements Signed During Financial Year 2010/2011

US$ Million

Institutions

Grants

Loans

Total

Government Contribution Fund 1.732 0.04 0.09 0.39

83.6 63.32 15.77 6.55

58.04 0.00 0.00 0.00

143.37 63.36 15.86 6.94

22.75% 10.05% 2.52% 1.10%

0.00

36.51

0.00

36.51

1. International Financial Institutes 2. Multilateral 2.1. European Union (EU) 2.2. Mekong River Commission (MRC) 3. Non Governmental Organizations (NGOs)

5.79%

4. Bilateral

0.42

267.89

95.82

364.13

2.68

473.64

153.86

630.18

57.78% 100%

0.47%

75.16% 24.42%

100%

Total %

Source: (Committee for Planning and Investment, 2012)

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.

Table 4.4: Total ODA Disbursement by Sector, 2010-2011

Unit: Million US$

2010-2011

2011-2012 (Planned)

Poverty Eradication

37.72

6.01%

35.37

5.75%

Agriculture and Forestry

81.22 12.94%

64.65 10.51%

Industry and Commerce

45.10

7.19%

33.39

5.43%

Energy and Mines

54.53

8.69%

33.09

5.38%

Land Development

1.67

0.27%

2.87

0.47%

Public works and Transportation

111.48 17.77%

156.27 25.39%

Post--Telecommunication

0.06

0.01%

0.02

0.00%

Tourism

4.13

0.66%

2.56

0.42%

72.92 11.62%

65.70 10.68%

Education and Human Resource Development

Health

68.31 10.89%

45.92

7.46%

Labor and Social Welfare

25.51

4.07%

33.50

5.44%

Media and Culture

5.28

0.84%

2.74

0.45%

Gender Equality

2.42

0.39%

2.77

0.45%

Sports

0.07

0.01%

0.07

0.01%

Science and Technology

1.98

0.31%

1.74

0.28%

Unexploded Ordinance Clearance

2.05

0.33%

2.68

0.44%

32.23

5.14%

16.02

2.60%

Natural Resources and Environment Protection

Enterprise Development

2.12

0.34%

0.89

0.14%

Local and regional development

3.23

0.51%

2.27

0.37%

Governance

47.43

7.56%

42.58

6.92%

International and Regional Cooperation

4.37

0.70%

8.14

1.32%

Note: Data for some selected programs only (not all sectors)

Source: [20]

Table 4.5: Bilateral ODA Disbursement by Source (Country), 2010-2011

Country

Grants (Million US$)

130.68

48.78%

Japan

Thailand

9.33%

25.00

Australia

8.18%

21.92

Vietnam

6.38%

17.10

Luxembourg

5.70%

15.28

Switzerland

5.23%

14.00

Korea, Republic

3.57%

9.56

Germany

3.21%

8.61

China

2.84%

7.61

Finland

2.39%

6.40

France

2.32%

6.22

Sweden

1.34%

3.59

Norway

0.72%

1.92

New Zealand

0.00%

0.00

100%

Total

267.89

Source: [20]

It is important to improve aid because the Lao government has presented a range of

priorities in the NGPES, 2006 - 2010. It is intended to guide progress towards the

country’s development goals which takes a considerable amount of resources that the

government is able to mobilize. External assistance is a must both financially and

technically in order to achieve those set goals.

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.

The Round Table Process (RTP), or the Round Table Meetings (RTM) is a process

led by the Government of Lao PDR in the CPI which the Department of International

Cooperation coordinates the RTP. It receives guidance from the National Steering

Committee which is chaired by the Prime Minister. The RTP in partial supports

financially and technically by the UNDP (The National Round Table Process, 2007).

Although there are unclear policies on how to distribute aid, the government has based

their poverty reductions effort by using foreign aid, and setting the national priorities in

the National Growth and Poverty Eradication Strategy (NGPES). DIC uses tools for

guidance in the ODA coordination system that consists of: Part I the National Growth and

Poverty Eradication Strategy. The NGPES as mentioned earlier acts a strategy paper of the

government for the next 5 years plans with focus in poverty reduction. It became the focal

point of where ODA should be spent and how it can contribute to the overall government

national budgets. It outlined various parts. Part one focuses on the national growth and

poverty eradication strategy. Setting goals and priorities and enabling environment for

growth and development. This includes the role of government and governance issues.

The government focuses on the NGPES’ operational framework of: agriculture and

forestry development, education and health, infrastructure development, just to name a

few. Rural and poor district has been appointed to be focused by using the Thammasat

ways of development; this means the natural way of development without using too many

westernized concepts. Mobilization of resources will come from ODA and government

inputs.

Part II of NGPES overlooks at poverty assessment in Lao PDR. The NGPES also

assess the poverty situation of Laos in order to make plans to reduce it. Analysis of the

cause and the outcomes and possible effect it may have once development has been

implemented. Part III focuses on the strengthening in the overall environment for

sustainable growth and development. Part IV oversees the national sector plans to

promote sustainable growth and poverty eradication while part V is looking for ways to

mobilize and allocate resources to match with outlined priorities.

The second tool for ODA coordination use is the Data base system or called

ACMS. The monitoring system is managed by Monitoring and Evaluation Division of the

department in the DIC. The system is piloted into line ministries and two major provinces.

Although in theory it is piloted into the provinces, in practice it is still far from being

effective. The information is provided based upon project managers, which are

government officers. The project managers will need to complete two forms of: (a).

Project Work Plan (PWP) and (b) the Project Implementation Report (PIR). These are

developed into what is called the ACMS database system. The two tools for monitoring

information are also drawn from the PIP. PIP is government budget which represent

expenditure programme which ODA’s accumulates on average four-fifths of total national

expenditures. Table 4.1 shows enormous contributions and plays an important role in

relation overall public expenditures and PIP.

UNDP has been providing support in the terms of technical assistance and financial

resources through the RTM project to develop the ACMS database. The information on

agreements by the staff of this division. This information is kept in the ACSM database

system which is shared with other departments of General Planning in order to facilitate

the preparation of the Annual Plans and Budgets. Thus monitoring and evaluation on aid

effectiveness consists of total three different instruments mentioned above.

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 do 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):

1. Avian Influenza

2. Public Expenditure Management Strengthening Programme (PEMSP)

3. Poverty Reduction Support Operation (PRSO)

4. Three Sub Groups from the SWG of Agricultural, Rural Development &

Natural Resources Management

5. Mini – Dublin that stems from SWG’s Drug Prevention

6. 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:

1. Reinforcement of Ownership of SWGs.

2. Increase the ratio of technical to political level meetings.

3. Integrate other ad hoc groups (informal groups) and to strengthened SWGs

Mechanism.

4. 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.

5. 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.

6. 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.

7. 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 do for

the coming years and what they want to do 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 4 to 5 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 4.3, 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 2nd, 2005. Notice there are no direct linkages to the government

that is displayed on the right hand side of Figure 4.3.

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 3 tiers at the working level after Vientiane Declaration. The working level starts

at:

1. Secretariat – this group has the role in drafting official documents; composed by

UNDP, EC, DIC, CPI, and Ministry of Finance.

2. Task force – this group will technically discuss the draft and propose changes

(amendments) which was the government side, DIC, CPI and 4 ministries including all

Donors in practice Japan, WB, Australia, EC, France.

3. 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.

GOVERNMENT

Rome High Level Forum February 2003

CPI/Department International Corporations: (UN/Asia Pacific/European & America/Financial Institutions/Monitoring Section)

LuangPrabang Meeting Harmonization & Alignment February 2005

Tools: 1. NGPES 2. DATA BASE SYSTEM (instruments) (a) PWP (b) PIR (c) PIS

Paris Declaration 2nd March 2005

Round Table Meeting Aid Effectiveness Agenda is COORDINATED through the RTM process. UNDP has a mandate to support the government through the processes. 1. The secretariat 2. Task force 3. High level Forum

Vientiane Declaration 29th November 2006 (Instrument 1)

(RTM-Mandate to implement CAP)

Country Action Plan CAP February-May 2007 (Instrument 2)

Sector Working Groups: (SWG) Ministry of Health Ministry of Education Ministry of Agriculture Infrastructure Building Macro-Eco & Private Sector Development Governance Mines Action/UXO Drug Control Other informal groups, etc

Piloted 2 Provinces

OECD DAC Survey (Instrument 3)

Figure 4.3: Aid Coordination in Lao PDR

4.12. OECD DAC Survey

The OECD DAC Survey [64] forms parts of the monitoring tool for overall aid

effectiveness effort of the Paris Declaration. The Ministry of Foreign Affairs has

published a monitoring report that took a survey period of 12 months, October 2005-

September 2006. The purpose of this survey was to monitor aid effectiveness at local level

to reflect the global level on aid effectiveness progresses. This is different from the Lao

government monitoring system. The DIC was previously based in the Ministry of Foreign

Affair (MOFA) for the monitoring period however it was later relocated, and is now

currently back to the Committee for Planning and Investment (CPI). This caused much

needed information to be missing and results were not too impressive.

During the Survey, many of the respondents expressed their views on the different

questions and the difficulties they were experiencing in answering them. The main

concerns were:

1. Time consuming task: many development partners’ staff at country offices is

limited and specialized teams who were able to commit sufficient time and the survey was

not a priority. Furthermore, there was a lengthy progress in deriving data from

headquarters.

2. Ambiguity of several of the terms used in the survey questions.

3. Absence of data: results gathered from the survey are mostly estimates as many

agencies do not keep data filed. Such as missions to Laos.

4. Many agencies still use their own reporting system. Some partners emphasized

that many records are not very well kept in detail and resulted a rough estimation.

Many recommendations were provided

in order

to acquire good results

preparations for the next OECD DAC monitoring survey. However, because the process

became to be too complex and time consuming for development partners which involves

too many documents. There were many repeating questions to be answered from the

indicators questions of which some were already responded to from the Task Force

documents. There were many terminologies, confusion such as missions, technical

cooperation, country analytic work, etc. Therefore the interpretations became unclear

when translated in to the Lao language. Despite the low priority of the Survey many

indicators (monitoring indicators in the Survey) are used as several benchmarks for the aid

effectiveness Action Plan and will be a primary source to assess the targets. Very few

respondents provided qualitative comments and many did not respond to the Survey. This

would jeopardize the completeness and accuracy of the ODA picture in the country. After

the Paris Declaration, an effort was taken to localize at country level. The Vientiane

Declaration was born and the Country Action Plan was established between February and

March 2007. The odd thing about this was that the OECD DAC was carried out before the

actual process of localizing the Paris Declaration was finished. In addition to this, the

survey took one year to finish compilation, and the actual production of the report was

submitted in mid 2007.

4.13. International Development Agencies

The following field research interviews were held with numerous international

development agencies namely; UNDP, World Bank, bilateral donor such as Sida, NGO

(SNV), European Commission. The interview questions are drafted around the following

questions (see Appendix 3). 44 questions divided into 7 groups:

Section I: Overview about ODA Coordination System

Section 2: Purpose of Development Partner Coordination Units

Section 3: Roles and Responsibilities of Development Partner Coordination Units

Section 4: Organization of Development Partner Coordination Units

Section 5: Financing

Section 6: Strengths and Accomplishments

Section 7: Challenges

The field research provided a real and practical insight on how the aid effectiveness

agenda is organized in practice. Talking to people who are involved with this agenda

revealed interesting outcomes. Although there were challenges during field work, it was

politically sensitive and timing difficult. There were local festivals which were followed

by the national holiday and the Lao government was hosting FRACAPHONE Summit

which nearly paralyzed most of the activities. The government gave a lot of priority to

large events which triggers the closing of most working offices in Laos. Understanding the

local protocols is essential when working with a very conservative government and

mentalities.

Field research interviews with various international agencies held surprising

results. The interviewees were mostly with large international development organizations

based in Vientiane namely; The World Bank, UNDP and European Commission.

However there were other smaller informal meetings with old colleagues from local

NGOs such as SNV and donor country representatives from Sweden/Sida.

Aid effectiveness is rather a new agenda, as coordination of aid confuses the

development community. From what has been gathered during interviews with expatriates

working in Lao PDR, the expatriates seem to have a relative understanding of what the

components of aid coordination are, meaning what the government is trying to do. The

issues are not just what the government can do to coordinate aid, but what can

international development communities do to support those efforts. Although there are

already examples of combined effort and projects, the progress seems too slow and there

are always continuous concerns of whether the Lao government could meet several

deadlines that they signed up for, hence the MDGs and the Paris Declarations.

It is not just the matter of local government capacity, although UNDP has been

technically supporting the strengthening capacity of the Lao government. The problems

are also the international competency of international expertise. Most of the interviewees

were young expatriates who have direct delegations from the seniors or from their

headquarters. The EU representative explained that he agrees with the local government

and support government coordination effort. However, the field staffs still have to consult

with the headquarters let alone their policy for aid delivery for Lao PDR. They have to

work within guidelines that are sometimes not flexible and causes for process to slow

down. In December 2007, the EU held a workshop on aid effectiveness, a prospective

approach facilitated by a so called expert from the head quarter. A suggestion for the Lao

government to consider changing from the current system as the EU felt strongly that they

are proposing a better approach. This matter was later raised by other interviewees that it

caused so much more confusion. There is already big gap between the headquarters and

the field offices.

The EU representative later provided additional explanation of the workshop that it

wanted Laos to have additional forum so that development community can come together

to discuss, a more practical approach to aid coordination. Now a plan encouraging for

capacity development and have been trying to support forum meetings. The next step is to

expedite aid effectiveness project where there should be a forum where development

community can actually talk about actions plans and monitor and sharing what has been

done, who is doing what? Which targets could be achieved? What are good actions and

target? Currently there is no follow up and monitoring. The workshop eventually had little

value of importance and the government proceeded with the same plan. The WB

expressed their concerns for development agencies to not confuse the government more

with the system because it is already a difficult process.

The EU interviewee further added that the aid effectiveness agenda has always

been viewed as separate program rather than incorporating within the program systems.

Moving from small projects to general budget supports funding directly to government

budget and involve into bigger sector working group has always been challenging.

The UN agency was rather different from the other interviews simply because of

their organizations operations is much larger and more complex. Due to large

organizational existence, UN agencies particularly have to coordinate within themselves

lead by the UNDP. The interviewee expressed her concerns over task allocations. There

seems to be too many rotations on jobs. From her position, there was a constant hand over

of jobs which handle the aid coordination support. This action has caused delays for new

staff to understand the entire picture of aid coordination in Laos for effective support

needed from DIC. This is one of the classic examples of poor decision making from

technical agencies.

The interviewees agreed that there are unclear approaches from the government in

having multiple meetings. This could be made easier if there is a centralized forum and

address issues once. This is to eliminate the separate discussions with different agencies

and donors and it will lower transaction cost for everyone. Interviewees further expressed

that the requirements to improve aid delivery starts from having more government

ownership by stepping down and setting clear priorities. The country budget had been

dependent on aid and experiencing a comfortable situation for partner agencies as well. It

was shown that it is much wiser to move quickly into projects that are multi donor

projects, so that government officers working in these projects could just harmonize by

not having multiple reporting systems to different donors. International development

community should support government requests to clearly indicate in transparent manners

from the unclear priorities. There are changes seen in the donor communities but it can be

seen that donors don’t entirely understand it. Both partners have limited capacity for the

agenda and need to improve on it.

Figure 4.4: Current Structure of the SWGs and Other Coordination Force (SWGs, 2007)

CHAPTER 5. POLICY IMPLICATIONS FOR POWER SECTOR DEVELOPMENT

5.1. Projection of Energy Demand in Lao PDR

The projection of energy consumption in the Lao PDR in this section is divided into

three regions: North, Central, and South. The Northern Region consists of Phongsaly,

Luangnamtha, Oudomxay, Bokeo, Luangprabang, Houaphan, Sayaboury, and

Xiengkhuang provinces. The central region consists of Vientiane Province, Vientiane

Capital City, and Borikhamxay Provinces.

The Southern Region consists of

Khammouan, Savannakhet, Salavanh, Xekong, Champasack and Attapeu Provinces.

5.1.1. Northern Region

The projection of Northern Region energy demand is calculated from the previous

energy consumption and projection of residents marginally increases. The non-

residential energy consumption includes the demand for rail road construction, the

operation of rail road after the construction completion, detail demand for mining

industry, and others. It is forecasted that the energy demand will increase by 21.9% per

year, and the peak load of 17.7% a year.

Table 5.1. Northern Region Electricity Demand Forecast

Growth Rate

Description

Unit

2010

2011

2015

2020

(%)

2010-

2015

2020

Electricity

GWh

246.9 890.1

2,505.2 1,826.6 58.9% 22.2%

demand

(excluding

system loss)

System Loss

GWh

37.1

129.6

322.8

230.2

13.1% 12.7%

11.4%

11.2%

Total Demand

GWh

284.0 1,019.7 2,828.0 2,056.8 58.4% 21.9%

(including

system loss)

Peak load

65.9

188.0

497.5

336.0

48.7% 17.7%

Load Factor

49.2% 61.9%

67.3%

69.9%

Figure 5.1. Energy demand in Northern Region

The chart above shows the peak load demand in the northern part of Laos from

2010-2020. The demand for residence constantly increases while the non-residential

electricity demand increases sharply during 2014 and 2016.

5.1.2. Central Region

The forecast of electricity demand in the central region is based on the constant gradual

increases of residence while the non-residence electricity demand is based on the railway

construction, railway operation, steel factory and additional cement factory in Vangvieng.

The detail is shown in the table below.

Table 5.2. Central Region Electricity Demand Forecast

Description

Unit

2010

2011

2015

2020

Growth Rate

(%)

2010- 2015

2010- 2020

GWh

1,413.9 1,721.2 4,360.0 6,307.5 25.3% 16.1%

Electricity demand (excluding system loss) System Loss

258.4 13.1%

549.5 11.2%

752.9 10%

GWh % GWh

220.8 13.5% 1,634.8 1979.6 4,909.5 7,060.4 24.6% 15.8%

MW %

321.7 58.0%

375.8 60.1%

884.2 63.4%

1,274.9 22.4% 14.8% 63.2%

Total Demand (including system loss) Peak load Load Factor

Figure 5.2. Central Region Electricity Demand Forecast

Residence;

Non-residence;

Total

The table and figure above show the electricity demand peak load in the central

region from between 2010 and 2020. The figure shows that the demand in residences

constantly increases while the non-residence demand increases rapidly from 2012 and

2018. 5.1.3. Southern Region

The demand forecast for electricity in the southern region is based on the previous

consumption as constantly increases while the non-residence demand refers to the

exploration and mining of aluminum factory of SLACO which needs approximately

900 MW in phase one, 1800 MW in phase two, and subsequently 3600 MW. The

demand is the most influential factor; therefore, the table below presented the demand

forecast in two scenarios: without SLACO and with phase one of SLACO. The result

of the forecast is shown in the table below.

Table 5.3. Southern Region Electricity Demand Forecast (without SLACO)

Rate

Description

Unit

2010

2011

2015

2020

Growth (%) 2010- 2015

2010- 2020

GWh

887.3

1,034.2 3,208.6 5,380.2 29.3% 19.7%

Electricity demand (excluding system loss) System Loss

493.0 13.3%

736.6 12.0%

185.2 15.2%

GWh % GWh

160.7 15.3% 1,048.0 1,219.4 3,701.5 6,116.8 28.7% 19.3%

Demand Total (including system loss) Peak load Load Factor

MW %

196.2 61.0%

222.6 62.5%

589.4 71.7%

977.5 71.4%

24.6% 17.4%

The table above shows that the demand of electricity in the southern region

increases at an average of 19.3% per year between 2010 and 2020, with the peak load

of approximately 17.4% per year.

Figure 5.3. Electricity demand forecast in southern region (excluding SLACO)

Residence;

Non-residence;

Total

The chart above shows the peak load of electricity demand in the southern region

from 2010 to 2020, which classifies the residential and non residential demand. The

non-residential demand includes the mining exploration and processing, hydropower

dam construction, and other industrial factories. The result of the forecast shows that

the demand for residence gradually increases while the demand for non-residence

sharply increases between 2014 and 2016, and remain relatively constant afterward.

This scenario excludes the demand of electricity by SLACO.

Table 5.4. Southern Region Electricity Demand Forecast (with SLACO phase one)

Description

Unit

2010

2011

2015

2020

Rate

Growth (%) 2010- 2015

2010- 2020

GWh

887.3

1,034.2 11,388.9 12,191.6 66.6% 30.0%

Electricity demand (excluding system loss) System Loss

1,472.9 10.8%

1,459.7 11.4%

185.2 15.2%

GWh % GWh

160.7 15.3% 1,048.0 1,219.4 12,848.6 13,664.5 65.1% 29.3%

55.0% 25.5%

1,757.3 83.5%

1,894.3 82.3%

196.2 61.0%

222.6 62.5%

MW %

Total Demand (including system loss) Peak load Load Factor The table shows that the demand of electricity in the southern region between 2010

and 2020 has an average growth of 29.2% per year and the peak load demand is

approximately 25.3%.

Figure 5.4. Electricity demand forecast in southern region (including

SLACO)

Residence;

Non-residence;

Total

The above figure shows the electricity demand in the southern region between

2010 and 2020, which includes the residence and non-residence. The non-residence

covers electricity demand in mining exploration and processing, hydropower

construction, and other industrial factories. The result of the analysis shows that the

residential demand gradually increases while the non-residential demand increases

sharply between 2014 and 2016. 5.1.4. Total Demand for the whole country

The projection of the demand for the whole country covers the result of the projection

in different parts of the country. Due to the analysis of the southern region is divided

into two scenarios, the projection for the total demand is also divided into two

scenarios.

Table 5.5. Whole Country Electricity Demand Forecast (without SLACO phase one) 2010

2011

2020

2015

Unit

Description

Rate

Growth (%) 2010- 2015

2010- 2020

GWh

2,548.1 3,645.5 10,073.7 13,514.3 28.9% 15.7%

Electricity demand (excluding system loss) System Loss

GWh %

418.6 14.1%

573.1 13.6%

1,365.3 11.9%

1,719.7 11.3%

GWh

2,966.8 4,218.6 11,439.0 15,234.0 28.3% 15.3%

25.5% 14.2%

1,953.0 66.9%

2,588.4 67.2%

583.8 58.0%

786.4 61.2%

MW %

Total Demand (including system loss) Peak load Load Factor The table shows the total electricity demand for the whole country from 2010 to 2020.

The total demand increases at an average of 17.8% per year and the peak load demand

is approximately 16.1% per annum or approximately 200 MW per year.

Figure 5.5. Electricity demand forecast in the whole country (excluding

SLACO)

Residence;

Non-residence;

Total

Table 5.6. Whole Country Electricity Demand Forecast (including SLACO phase one) Description

2011

2020

2010

2015

Rate

Unit

Growth (%) 2010- 2015

2010- 2020

GWh

2,548.1 3,645.5 18,543.3 20,663.7 48.7% 23.3%

Electricity demand (excluding system loss) System Loss

2,491.7 10.8%

2,359.5 11.3%

573.1 13.6%

GWh % GWh

418.6 14.1% 2,966.8 4,218.6 20,904.7 23,155.4 47.8% 22.8%

40.3% 19.8%

3,173.9 75.2%

3,561.8 74.2%

583.8 58.0%

786.4 61.2%

MW %

Total Demand (including system loss) Peak load Load Factor The above table shows the total demand for electricity from 2010 to 2020. The total

energy demand average increase is approximately 22.6% per year and the peak load

of approximately 19.6% per year or approximately 300 MW per year.

Figure 5.6. Southern Region Electricity Demand Forecast (including SLACO phase one)