ADB IED rates power transmission investment programme as successful plan
By: Tahir Amin
Published November 16, 2023
Published on: Business Recorder
ISLAMABAD: The Independent Evaluation Department (IED) of the Asian Development Bank (ADB) has rated “Pakistan: Power Transmission Enhancement Investment Program (Tranche 4 and Multi-tranche Financing Facility)” successful, relevant and likely sustainable.
The IED in its validation report stated that in 2006, ADB approved the Power Transmission Enhancement Investment Program, a multi-tranche financing facility (MFF), to partly finance an estimated $3.9 billion investment planned under the national transmission sector roadmap (2007–2017).
The maximum amount of the MFF was $800 million over a 10-year-period, with loans totaling $790 million for priority infrastructure subprojects under four tranches that represented 20 per cent of the needed investment, and another $10 million loan for the investment program support project (e.g., technical assistance project) implemented concurrently with the MFF.
The validation reports for the project completion reports of tranches 1, 2, and 3 have been disclosed. This validation report is for the facility completion report of the MFF including tranche 4.
The expected impact of the MFF was sustained economic growth and social development, and the expected outcome was reliable and quality power supplied, and service coverage expanded. The design and monitoring framework (DMF) indicated two expected MFF outputs: 500 kV and 220 kV transmission systems rehabilitated, augmented, and expanded, and NTDC become a true commercial entity.
The expected impact of tranche 4 was enhanced power transmission operations and management, and the expected outcome was expanded and reliable 500 kV and 220 kV transmission system. Its expected output was transmission lines and substations commissioned.
The program completion report (PCR) rated the MFF and tranche 4 relevant. The 2019 Sector Assistance Program Evaluation report recognised the long-term support extended to NTDC through the MFFs and also rated the support relevant. Increasing power transmission capacity was essential for matching the private sector investments in new power generation projects.
The MFF was aligned with the government’s strategic development priorities and ADB’s energy policy country partnership strategy 2009–2013 for Pakistan. It helped address transmission constraints and improve the efficiency and security of the electricity supply. The use of the MFF modality enabled flexibility in selecting subprojects according to readiness and shifting to a subsequent tranche in case of implementation delay.
Tranches 1 and 2 mostly comprised the expansion of existing substations and the new 220 kV transmission lines that were readily identified for mitigating transmission bottlenecks. Where land was available, new substation transformers were added. At several locations, existing transformers were replaced with higher-capacity transformers.
This lowered the resettlement costs of the MFF. More complex 500 kV transmission lines were implemented under tranches 3 and 4 using turnkey contracts to ensure project quality.
This validation assesses that a robust transmission system was essential for attracting private sector investments in power generation, efficiently utilising the power in major load centres of the country and maintaining stability and reliability of the power supply.
The MFF was aligned with the government’s development plan and ADB’s strategy and the design of its tranches (including tranche 4) was appropriate for achieving the outcome. This validation assesses the MFF and tranche 4 relevant.
The PCR rated the MFF and tranche 4 effective. The DMF of the MFF had identified four outcome indicators with targets, all were achieved but with significant delays.
The proposed infrastructure investments were expected to bring NTDC in full compliance with grid code and transmission license by 2009, additional 10.5 gigawatt-hour power was to be supplied through the grid by 2011, electricity outages were to be reduced by 30% by 2011, and grid connected customers were to increase to 70% of the population by 2011.
The 2020 annual report published by the National Electric Power Regulatory Authority (Nepra) indicated that the targets had been achieved but the delay was nearly 9 years. There were four MFF outputs that were targeted for 2006–2007; these were achieved but mostly by 2019. The project completion reports and its validation reports indicated tranche 1 was rated less than effective and tranches 2 and 3 effective.
The PCR rated the MFF and tranche 4 efficient. The recalculated economic internal rate of return (EIRR) of the MFF was 20.1 per cent against the estimated 25.9per cent at appraisal. The economic analyses of various tranches were presented in the respective project completion reports and the EIRR’s were recalculated as 21.5per cent for tranche 1, 13.9 per cent for tranche 2, 20.2per cent for tranche 3, and 24.8per cent for tranche 4. The EIRR for tranche 4 was recalculated in 2019 prices and Pakistan rupee.
The economic costs and benefits of subprojects were determined using shadow exchange rate factor of 0.91 and the financial cost of the subproject packages, less taxes, and duties. The operation and maintenance (O&M) cost of the transmission lines and substations was assumed to be 1.5 per cent of the capital cost. The economic benefits were based on the additional power transferred by tranche 4 subprojects and the reduction in transmission loss by 0.25per cent.
The PCR indicated that tariff growth and revision are mandatory and are regularly considered by the government to ensure viable operations. This validation found that the general approach and assumptions for recalculation of the FIRR to be reasonable.
The PCR rated the overall performance of NTDC, the executing agency, less than satisfactory. The NTDC was technically competent to plan, design, and implement power transmission projects.
However, the understanding of project management and financial reporting requirements of externally funded projects was weak.
The PMU was weak because of low capacity and limited staff. There were procurement delays because of the poor quality of the bid evaluation reports, bureaucratic procedures requiring several layers of approval, and a poor understanding of safeguard requirements.
