India: Assam Power Sector Enhancement Investment Program - Tranche 1 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Adequate due diligence is crucial to mitigating the safeguards risks commonly obstructing or delaying the completion of power transmission projects.

This project was delayed for 4.8 years, primarily due to safeguard issues, resulting in resistance from some farmers and security concerns. Transmission lines needed to be realigned and the location of anchor towers changed due to right-of-way (ROW) issues or to avoid sensitive areas. The actual number of affected people was 1,452, way above the 22 estimated at appraisal, with the huge difference attributable to the prior non-inclusion of households affected by ROW along the transmission routes. In future, adequate due diligence on safeguard issues must be completed as part of project preparation. Environmental and social assessments, forming the cornerstone of such due diligence, must involve local communities and other key stakeholders and be supported by sufficient time and financial and human resources. An assessment of the safeguard management capacity of the executing and implementing agencies (EAs/IAs) should also be undertaken to underpin capacity development and the hiring of additional specialist project staff or consultants, as necessary.

Project Cycle Stage:

Preparation

Institutional measures to meet safeguard management requirements need to be completed as early as possible and be supported by continuous training, skills transfer, and other capacity development initiatives.

As agreed at appraisal, the EA for this project recruited independent safeguard consultants to prepare social and environmental safeguard assessments and plans and conduct related monitoring and reporting activities. However, due to the EA’s unfamiliarity with ADB safeguard requirements and lack of counterpart staff, inordinate delays were encountered in updating the environmental and social safeguard documents, affecting the entire project schedule. Safeguard monitoring and reporting also continued to be weak, and the EA did not act fully on the agreement to set up an environmental and social management unit within the project management unit, until followed up by an ADB safeguard review mission more than 5 years after loan effectiveness. In future, ADB should make sure that EAs/IAs undertake all the implementation arrangements identified at appraisal to address safeguard management capacity gaps soon after project startup. It should also ensure that the EA/IA core project staff receive the necessary technical knowledge and skills training, including consultant mentorship and other skill transfer activities, to develop the requisite in-house capacity in safeguard management throughout the project cycle.

Project Cycle Stage:

Preparation

Implementation

The processing of individual tranches in investments supported by a multitranche financing facility (MFF) need to be fully informed by the progress in other ongoing tranche projects, as well as lessons from both ongoing and already completed projects.

The MFF modality was demonstrated by this project to be advantageous for the entire investment program as well as the individual tranche projects. Use of the MFF facilitated adjustments in scope to ensure that there was no overlap or duplication between tranches while enabling the EAs/IAs to take advantage of economies of scale. It also provided flexibility to sequence transmission network investments in response to (i) additional power generation capacity; (ii) changes in load forecast; and (iii) upgrading of technical designs. In addition, it allowed for the provision of an additional tranche, the supplementary tranche 4, partly financed by the tranche 1 loan savings, which is expected to enhance the MFF outcome. Careful assessment and consideration of the status and performance of project 1 and incorporation of the lessons from the project in the preparation of the succeeding tranches proved as key to the efficient utilization of the tranche 1 savings and harmonization between the tranche projects. To maximize the advantages of the MFF, ongoing loan covenants related to safeguard and financial monitoring should be stringently monitored so that remedial actions, as necessary, can be built into the implementation of subsequent tranches. Capacity development, especially on safeguard management, should be continued in all the subsequent tranches.

Project Cycle Stage:

Preparation

Implementation

Beneficiary involvement in the preparation of capacity development programs is crucial to the uptake of such programs.

The attached technical assistance (TA) grant provided to, among other things, support the preparation and implementation of capacity development programs for the 3 successor companies of the original EA that was reorganized nearly 3 years after loan effectiveness was less than successful, as the companies did not adopt the agreed actions recommended by the TA. A needs-based approach to developing the programs, which hinges on the involvement of the intended beneficiaries, would have been the best option to ensure the usefulness of the programs and their subsequent uptake. Engaging capacity development consultants in each tranche project to provide dedicated assistance would have also been explored to address the need for sustained capacity enhancement.

Project Cycle Stage:

Preparation

Implementation

Background

Known for its large tea and petroleum industries, Assam has the largest economy in the northeastern region of India. However, the state has lagged behind the rest of India in terms of growth and investment climate, and its economic activities have been significantly constrained by inadequate power supply and limited access to electricity. One of the bottlenecks in Assam’s power sector was the limited capacity of its transmission and distribution (T&D) systems, which made it difficult to deliver reliable power to consumers.

To help address the situation, the Asian Development Bank (ADB) approved a multitranche financing facility (MFF), amounting to $200 million, for the Assam Power Sector Enhancement Investment Program in November 2009. The MFF was designed to specifically support the government’s T&D sector investment program, which aimed to (i) strengthen power transmission capacity to deliver reliable and affordable electricity, (ii) improve access to electricity, (iii) enhance efficiency and quality of power supply, (iv) fully operationalize unbundled utilities of the Assam State Electricity Board (ASEB), and (v) promote private sector participation through innovative distribution franchising models. It planned to provide a solid foundation for a sustainable state power sector with increased transmission and distribution capacity to support inclusive economic growth and was originally designed to have three tranches, but a fourth tranche was approved in November 2014.

Tranche 1 project, the focus of this report, was approved in November 2009 for a loan of $60.3 million. It comprised 6 physical investment subprojects involving capacity addition in transmission lines and transformation capacities, as well as a monitoring system. It also included technical assistance for institutional capacity development in business process reengineering, human resources management, financial management and audit, private sector participation, and renewable energy development. Its expected impact was a sustainable state power transmission sector to support inclusive economic growth. Its intended outcome was enhanced transmission capacity and quality with physical and institutional capacity development, which was to be achieved through 3 physical outputs and 4 nonphysical outputs.

At completion, the project delivered all its intended physical outputs. There was a slight reduction in the length of the 132-kilovolt transmission lines actually constructed because of optimization. To utilize loan savings, upgrading to optical pilot ground wire, originally planned under tranche 2, was completed under tranche 1 as an additional physical output. But the project’s accomplishments in relation to its intended nonphysical outputs fared differently: it was able to fully provide the necessary implementation support but only partially delivered those related to institutional capacity development, public-private partnership in distribution franchising, and renewable energy development.

Nonetheless, by fully delivering its planned physical outputs, the project contributed significantly to increasing transmission system capacity in Assam from 766 megawatts in 2008 to 1,960 megawatts in 2018, eased the transmission loading level from 95% in 2008 to 75%–80% in 2018, and reduced transmission losses from 6% to 3.55% during the same period. Other investments, including tranche 2, implemented during the same period, also contributed to the attainment of the project outcome. Partial attainment of the institutional capacity development targets had however taken its toll on the project. Safeguards related issues, due mainly to weak safeguard management capacity, significantly delayed project implementation, although they did not hamper the achievement of physical outputs and outcome targets.

The increased capacity and improved performance of the transmission system facilitated the installation of new connections mainly in the rural areas, where access to electricity jumped from 22% to 66% of the population. About 2.6 million households gained access to electricity over 2009–2019, resulting in increased economic activity and better living standards.

At appraisal, the government of Assam and the Assam Electricity Board (ASEB) were designated as executing agencies (EAs). But under the state power sector reform process, the government of Assam formally dissolved and reorganized the ASEB, and in March 2013, transferred ASEB’s functions to three entities: the Assam Power Distribution Corporation Limited, the Assam Electricity Grid Corporation Limited (AEGCL), and the Assam Power Generation Corporation Limited. Since then, the AEGCL had served as the EA. The project management unit under the erstwhile ASEB continued to function as the coordinating agency.

Project Information

Project Name:

Assam Power Sector Enhancement Investment Program - Tranche 1

Report Date:

September, 2020

Main Sector:

Energy

Country:

India

Project Number:

41614-023

Report Type: