Laos’ National Power Development Plan (NPDP), published in 2020, marked a critical turning point in the country’s electricity sector planning process. Designed in response to the mounting debt of the state-owned power utility, Electricite du Laos (EDL) — which contributes significantly to the country’s approximately 40% share of publicly held debt owed to China — the NPDP largely aims to curtail excess generation capacity-building in the energy sector and encourage the buildout of transnational electricity transmission networks.

In many countries, an independent regulator would oversee this process, but in Laos, the NPDP has taken on a quasi regulatory role, shifting decision-making power from EDL to the Ministry of Energy and Mines (MEM). However, without enforceable mechanisms, the NPDP risks failing to address Laos’s growing debt. To ensure real reform in the long run, Laos must establish an independent regulatory body to manage investments and uphold sectoral plans.

Laos, a small country with a population of approximately 7.5 million, is a natural resource-rich landlocked country in Southeast Asia, sharing borders with Thailand, Cambodia, Vietnam, Myanmar and China. Though classified as a “Least Developed Country” (LDC) by the United Nations in 1971, starting from 1990, gross domestic product growth rates had reached between 5% and 8% until the COVID-19 pandemic. Currently, gross national income per capita exceeds $8,000, and the country is expected to graduate from the LDC list in 2026.

This economic growth has been boosted by the contribution from the power sector. According to the World Bank, power generation has been positioned as a national strategic sector that drives the country’s economic growth with its large economic spillover effects, including large-scale hydropower construction. Annual power generation currently stands at about 40,000 gigawatts — 80% of which is exported to Thailand.

While electricity exports have been a strong driver of the country’s economic growth, it is often noted that the resulting deficit has skyrocketed in recent years. The government has wanted to become the hydropower-driven “Battery of Southeast Asia” for decades, and new debt financing from China’s Belt and Road Initiative has supported Laos in achieving some aspects of this goal.

Since the mid-2010s, the ratio of government debt-to-GDP has increased rapidly, reaching 130% by 2022. While roughly half of the investment in Laos during this period came from China, the increase in the government debt balance is more pronounced than in its neighbor Cambodia, which also experienced an increase in Chinese investment. About half of this government debt is held by state-owned enterprises, and as much as 42% is in the power sector, mainly by EDL.

Laos’ debt crisis stems from a fundamental planning failure: overinvestment in hydropower projects without adequate planning for energy markets and transmission infrastructure. EDL’s ad hoc investment strategy, marked by a lack of coordination between generation and transmission projects, has exacerbated these challenges. Thus, written by MEM and approved by the National Assembly, the NPDP seeks to restructure this approach by prioritizing the build-out of new transmission projects and ensuring new generation investments have predetermined markets.

Historically, Laos has relied on five-year plans, modeled after Soviet-style central planning, to guide sectoral development. The NPDP, however, introduces a hierarchical approval process, involving the National Assembly to enforce compliance. This marks a departure from EDL’s internal Power Development Plan (PDP), which lacked external oversight and accountability. While the NPDP integrates recommendations from the Japan International Cooperation Agency’s “Study on Power Network System Master Plan in Lao PDR,” including adjustments to demand forecasts and alternative transmission pathways, its effectiveness hinges on enforceability — a recurring weak link in Laos’ governance.

The NPDP’s focus on transmission infrastructure and energy diversification signals a shift in investment priorities. Institutional restructuring, as reflected in the NPDP, demonstrates Laos’ intent to respond to debt challenges and global transitions, such as the clean energy shift and post-COVID recovery.

Yet, without plan enforcement, Laos risks falling into the same debt traps that hydropower investments originally created. Foreign investments in transmission and other energy projects can still lead to overinvestment and wealth consolidation without proper oversight. The existing Energy Law’s provision allowing projects of “national interest” to bypass the regulations even underscores the need for stronger regulatory frameworks. Furthermore, planning redundancy makes things complicated. To make matters worse, the redundancy is not just between NPDP and EDL’s PDP — there is also an uneasy overlap with a plan by EDL-Transmission, which is a joint venture between EDL and China Southern Power Grid, a Chinese state-owned enterprise.

Thus, planning alone will never be sufficient. An effective enforceable mechanism is needed to keep development on track. In the long run, independent regulatory bodies could eventually serve as models so that Laos avoids repeating past mistakes and successfully navigates the opportunities and challenges of global energy transitions.

Planning and its enforcement are crucial as a governing tool for any country seeking to pursue sustainability with finite resources. In Laos, however, there had been little necessity for planning regarding power development. This is because hydropower resources had never been scarce relative to electricity demand, including power exports to Thailand.

The situation has changed now that neighboring countries with rapidly growing economies are greedy for renewable energy sources toward net-zero greenhouse gas emissions.

Aiming to become the Battery of Southeast Asia, Laos now has an opportunity to promote the development of its clean and inexpensive hydropower. At the same time, it should recognize hydropower resources as finite against the backdrop of high demand.

Given the critical importance of this clean and affordable hydropower, the planning and its enforcement must be a challenge for sustainability not only for Laos, but also for the ASEAN region and beyond.