On

Lao PDR’s Energy Sector Assessment, Strategy, and Roadmap

Vientiane, 25 June 2020

Xaypaseuth Phomsoupha, Ph.D.

Managing Partner/Chief Legal Adviser

FACTS 

• The Asian Development Bank launched a report on the Lao PDR’s Energy Sector Assessment, Strategy, and Roadmap in November 2019 (the “Report”) covering various issues encompassing organization, operation, and management. The Report focusses on electricity generation and distribution.

• As Electricité du Laos has long served as the mainstay of the Lao public utilities dealing in the electricity business, the roles to exercise sovereign power, as cited in the Report published by ADB, are unprecedented.

• Page 14 of the Report stated:

• ADB also made its disclaimers:

• People in the public sector and private businesses in Laos have no idea whether ADB intends to use the Report as a regular working paper or apply its recommendations to heavily indebted EDL and Laos as a member country.

• The most recent EDL’s management reshuffle has given rise to speculation and near-real information on the responsibilities reallocation, which the business community needs to discern in advance to protect their interests.

• XX&YY, a licensed Lao law firm having long experience in Lao law issues and involved in various fields encompassing the Lao power sector, would like to provide comments on a legal perspective on the Report as below:

ANALYSIS

1. Electricité du Laos, named after the French legacy in former Indochina―Laos was part of the realm, was the only public utilities dealing in electricity in the country since its establishment in 1926 until early the 2000s’. Later, other state-run enterprises dealing with electricity generation, including Lao Holding State-Owned Enterprise (LSHE) and EDL-Generation (EDL-G), were segregated from EDL. Electrical Construction and Installation Corporation is the only state-owned company, which has completed with private companies in dealing with the electric infrastructure in the countries[1].  

2. After segregation[2]

[1] See National Power Development Plans-MIH/MEM (2006-2010), (2011-2015), (2016-2020).

[2] ibid (2006-2010), (2011-2015), (2016-2020).

a. Electricité du Laos (EDL) has maintained a branchoffice in everyprovince financially and administratively dependent on the headquarters seated at thecentralEDL is in charge of (a) buyingelectricitygenerated by differentpowerplantsand (b) supplyingelectricity to loaddemandcentresandhouseholdconsumptions. In principle, EDL is not mandated to invest in new electricity generation while leaving capital-intensive tasks for IPP owners, EDL-G, and LHSE
b. Electricité du Laos Generation (EDL-G) has its 25% interests listed in a local stock exchange. EDL-G also invests in private projects as a minority shareholder that supplies EDL grids and export electricity to the neighbouring countries. In general, public borrowing has played a crucial role in investment by EDL-G
c. Lao Holding State-owned Enterprise (LHSE) represents the Lao government holding shares in large-scale IPP projects, mainly for export. LHSE has been the recipient of G-to-G grants and loans tied to equity funding in its investment in different IPP projects. Private borrowing has made a considerable investment in the projects partaken by LHSE
d. Electric Construction and Installation Corporation (ECIC) specializes in infrastructure development and jointly develops small-scale power projects located across the country.

3. While the Ministry of Energy and Mines and its subordinate departments exercise sovereign power, all four state-run enterprises functioning on substantial public spendings have carried out business activities in electricity generation, and distribution[3]. The allocation of responsibilities, as articulated herein, can be found in public law and various government documents.

4. If the ADB’s statement: “Due to the recent restructuring, EDL now assumes responsibility for the negotiation and preparation of documents for concession agreements (mandatory for IPPs to develop, own, and operate generation assets), as well as power purchase agreements (PPAs) and credit facilities (formerly under the mandate of DEB),” emanated from a confirmed source, the MEM must have wrongfully conferred a right upon EDL. Under such circumstances, the MEM’s action falls under an event of change-in-law as defined in model agreements[4] that have applied to the business of the power sector to date.

5. If consequences of the change-in-law event adversely impact the economic position of the ongoing agreement holders, the GOL will be obliged to take remedial action promptly[5]. If the

[3] See Law on Electricity (2017) and by-laws of state-owned enterprises. The principle of power allocation here can be found in various public laws, including Constitution (Recast – 2015), Law on Governance (Recast – 2016), Law on National Assembly (Recast – 2015)

[5] See the Change-in-Law clause of the IPP concession agreements

[5] See relevant Change-in-Law clause  of the template Concession Agreement

GOL fails to remedy the issues to the satisfaction of the parties to the GOL agreements[6] and their related contracts, such parties will be entitled to take legal action against the GOL in accordance with the provisions thereof.

The agreements include MOU, PDA, CA, EDLPPA, GOL Undertaking, Direct Lender’s Agreement.

6. If EDL performs functions in lieu of those of the DEB as advised by ADB in its Report, contradiction and conflict of interests will exist in the hierarchies and business undertaking, respectively. At law, EDL is not entitled to exercise sovereign power in acting as the negotiator making an offer and/or acceptance in respect of the concession agreements, to which sovereign governments are the parties. EDL may not address ethical issues under the circumstance of where it is mandated to determine the concessionaires’ financial interests while EDL sets electricity tariffs to be derived from the financial parameters thereof. A conflict of interests will indisputably de-incentivize business in the hands of EDL that is wrongfully allocated responsibilities.

7. If EDL negotiates concession agreements and other agreements to which the MPI is to the signatory, an offer and acceptance may not be exchanged directly between the parties to the contracts. Consequently, the parties will face difficulties in procuring the respective legal opinion, in which the legal counsel each opines that “consideration” in the contract should come from the parties thereto. Given the choice of law and choice of jurisdiction applied in various project agreements, including the Concession Agreement, the Power Purchase Agreement, and the credit facilities agreement, English law is eminent. Furthermore, the consideration coming from EDL for the amended Concession Agreement signed by the MPI will be repugnant to common law courts, should such courts entertain English law jurisdiction in the contract.    

8. When the MEM has exerted power and further confers a right upon EDL to discharge responsibilities outside the EDL’s mandates, the right conferment is, in turn,  detrimental to the interests of the public at large. The action taken by the MEM falls under an abuse of power and thereby shall be tortiously liable[7]. Conversely, if EDL discharges wrongful responsibilities conflicting with interests, whether public, societal, ethical, or legal,  EDL may not withdraw its action but shall be liable before the laws. Under the circumstances as 

[6] The agreements include MOU, PDA, CA, EDLPPA, GOL Undertaking, Direct Lender’s Agreement.

[7] See the Civil Code (2019), art 282

aforementioned, EDL may be prosecuted under the Civil Code[8]. Wrongful acts of both the right conferrer and recipient may concern the Penal Code, should such acts have remained unremedied[9].

9. Although the Government of Laos has maintained its membership with the ADB, the report as published or produced by the relevant departments thereunder may not be regarded as an international treaty. As such, the Report is by no means to prevail over the national laws of Lao PDR.

10. ADB should have consulted with GOL multidisciplinary stakeholders for feedback on various fields of knowledge, especially Lao law issues, before publishing the paper instead of utilizing the disclaimers to protect its carelessness.

11. However, if any investors want to follow the ADB’s recommendations in pursuing the amendment to the Concession Agreement, the investors should seek proper legal clearance. Otherwise, the investors may fall into a co-offense under the Civil Code and Penal Code as above-reflected.        

ARTICLE 482 DAMAGE DUE TO ABUSE OF POWER

Any person intentionally abuses power beyond his legitimate mandates, and such person shall be liable for the damage resulting from the abuse of power.

[8].See the Civil Code (2019), art 509

ARTICLE 509 DISCHARGING WRONGFUL RESPONSIBILITIES

Any person who discharges to another person wrongful responsibilities conflicting with interests, whether public, societal, ethical, or legal, may not withdraw his action, but shall be moreover liable before the laws.

[9] See the relevant provision of the Penal Code (2017). Prosecutors may investigate more counts and co-offenders during a court proceeding.

Article 299 Offence Against State Economic Management

Any person, who has abused power, duties, and positions or otherwise used the foregoing outside his legitimate mandates leading to premeditated mismanagement of the state economic management that results in quantifiable losses, such person shall be indicted for an offense subjected to a jail term for six months to three years, and pay 5,000,000.00 to 30,000,000.00 Kip fines.