New Decree Points to Opportunities in Biofuels

Without any significant, identified fossil fuel resources, the Lao PDR is dependent on imports for 100% of its fossil fuel needs. Yet every year, the agriculture and forestry sectors of the Lao PDR produce large amounts of agricultural waste. As a result, there is significant untapped biofuel potential in the country that could reduce the nation’s dependence on fossil fuels.

With the passage of the Decree on Biofuels (No. 410/GO, 10 November2016) (the “Decree”) in November of 2016[1], the Government of the Lao PDR (the “Government”) has opened the door for biofuels investment in the Lao PDR. In order to facilitate such investment, the Decree sets out procedures for the production, storage and distribution of biofuels, as well as the procedures for importation of inputs and eventual export.

Legal overview

Chapter 2 of the Decree provides that investors in biofuel production must first prepare a detailed “Biofuel Development Plan” consisting of a strategic plan, together with short, medium and long term plans. The investment must be “environmentally sustainable” and “economically viable”. The Ministry of Energy and Mines is responsible for working with the investor to prepare a suitable Biofuel Development Plan to submit to the Government for approval.

As per Article 30 of the Decree, biofuel production is a concessionary business, requiring the investor to establish a project company in the Lao PDR and enter into a concession agreement for biofuel production with the Government. The project company must also obtain a specific operating license, to be issued by the Ministry of Energy and Mines. The Decree further sets out detailed requirements and timelines for project development, which will require careful attention to ensure regulatory compliance.

The approval to establish a project company is granted by the Government, pursuant to the Biofuel Development Plan and in accordance with the size of the proposed project. For large-scale investments in biofuels (production of more than 10,000 liters per day) approval is required from the Office of the Prime Minister. For medium-sized investments (producing between 100 and 10,000 liters per day) authority is required from the Provincial Governor where the facility is located. Small-scale investments of less than 100 liters per day can be approved by the District Governor or Head of Municipality where the production facility is located.

While it remains to be seen how best to commercialize these new opportunities, the Decree already pre-approves the use of oil palm, cassava, sugarcane and corn for biofuels. Under the Decree on the Implementation of the Law on Investment Promotion (№ 119/PM, 20 April 2011) (the “Investment Decree”), the development of agriculture plantations are already contemplated. Foreign investors have found commercial success in cassava, pulp wood and consumable agriculture products, so there is already precedent for the kind of large-scale agricultural production necessary to supply biofuel production.

However, as with any wholly-new business model, challenges remain. Pursuant to Article 1 of the Decision Regarding the Control of Business on Fuel Importation and Wholesale Services (№ 1785/MOIC, 07 September 2009) (“Fuel Decision”), the MOIC has the authority to make and change the structure of domestic fuel prices in the Lao PDR.  The Decree is notably silent on preferential pricing for biofuels. As a result, biofuels will be subject to the same set prices as other fuel sales in the Lao PDR. However, being exempt from import taxes may allow biofuels to compete with ordinary fuel imports. In addition, it may be possible to export biofuel to neighboring countries that have more advantageous pricing.

With no existing production capacity, limited fuel distribution infrastructure and limited local expertise, it is clear that the biofuel industry faces an uphill climb. However, with clear government support as represented by the Decree and lack of competition with domestic fuel, investors with the relevant expertise in this sector may find that the potential rewards significantly outweigh the risks.

Should you have any questions about the Decree or other renewable energy issues in the Lao PDR, please contact Audray Souche (audray.souche@dfdl.com) in Bangkok, Thailand, or Rutherford Hubbard (rutherford.hubbard@dfdl.com) in Vientiane, Lao PDR

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