Lao State Fuel Company to Become Public-Private Joint Venture Amid Broader SOE Reforms

Government Initiates Major Restructuring for State Fuel Company

The government of the Lao People's Democratic Republic is proceeding with plans to transform the Lao State Fuel Company (LSFC) into a public-private joint venture. This significant restructuring was detailed in a report presented to the National Assembly on November 13, during its 10th Ordinary Session, which runs from November 10 to 21. The initiative is a key component of the government's broader strategy to overhaul major state-owned enterprises (SOEs) across the nation.

Rationale Behind the Reform

The decision to restructure LSFC stems from a governmental push to enhance operational efficiency, strengthen financial positions, and address persistent financial losses within state-owned entities. The move is also intended to alleviate the state's economic burden amidst ongoing macroeconomic challenges, including debt distress, currency depreciation, and high inflation. The government aims to improve management practices and attract private sector investment to foster greater stability and growth.

Proposed Structure and Implementation

Under the proposed joint venture model, the Lao government is committed to retaining at least a 51 percent stake in the LSFC, ensuring majority control and safeguarding national interests. The company is actively seeking partnerships with financially capable private investors. To facilitate a smooth transition, authorities are in the process of selecting a reputable international consulting firm, with potential candidates including KPMG, Deloitte, PwC, or EY, to provide expert advice on operational planning and asset valuation.

This restructuring of LSFC is not an isolated event but part of a comprehensive reform agenda. Other key state-owned enterprises slated for similar transformations include Electricité du Laos (EDL), Lao Airlines, and Nayoby Bank. Notably, China's Commercial Aircraft Corporation of China (COMAC) recently acquired a 49 percent stake in Lao Airlines, with the Lao government maintaining its 51 percent majority.

LSFC's Historical Role and Market Position

Established in 1976 as a wholly state-owned entity, the Lao State Fuel Company has historically played a crucial role in ensuring the stability of petroleum energy supply for the country's socio-economic development and security. LSFC has maintained a significant presence in the domestic fuel market, holding a market share of over 30 percent and operating 16 terminals with a storage capacity of 27,000 kiloliters. The company was also a 20 percent shareholder in the Lao-China Dongyan Petrochemical Co Ltd (LCPC), a joint venture responsible for the Laopec Oil Refinery in Vientiane, which commenced production in late 2020.

The government's commitment to public-private partnerships is further underscored by the introduction of the Decree on Public-Private Partnership (No. 624/GOV) in December 2020, designed to streamline regulations and encourage foreign investment in critical sectors.