Pakistan: Power Distribution Enhancement Investment Program - Tranche 2 | Lessons by Independent Evaluation, Asian Development Bank

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Lessons

Early implementation support, especially in situations where the executing agency (EA) is unfamiliar with the project delivery approach, is crucial to the timely implementation of projects.

The implementation arrangements for the entire investment program included hiring consulting services to assist in the preparation, implementation, and monitoring of subprojects and help address capacity issues in the EA and the implementing agencies (IAs). This was especially needed as the use of turnkey contracts was something new to the EA as well as IAs. After a delay of 18 months, the EA recruited a facility management consultant (FMC) firm in March 2010, but the contract was terminated after just 1 year because of poor performance. A second firm was recruited in June 2012 to resume the FMC activities and remained engaged until the program closure, carrying out consulting services for all four tranches of the program. The absence of an FMC for 17 months delayed the finalization of engineering designs and the completion of related safeguard documentation. Had experienced implementation support been available sooner, the time required to put in place the turnkey projects could have been reduced. A comprehensive capacity assessment of the EA and IAs, enabling the identification and subsequent implementation of capacity-related risk mitigation measures would have also helped reduce startup delays.

Project Cycle Stage:

Preparation

Implementation

The multitranche financing facility (MFF) modality has the flexibility to enable borrower governments and power sector companies to effectively respond to the multiple and ever-growing investment requirements in the energy sector.

The project midterm review revealed a 26% savings in the loan proceeds due to cost overestimations during project preparation, the downward slide in the prices of oil and metals following the 2008 global financial crisis, and the devaluation of the Pakistani rupee. Out of the $78.8 million savings, the borrower requested for the cancellation of $69.7 million and the utilization of the cancelled amount for tranche 4 of the MFF. This demonstrates the suitability of the MFF in financing the type of investments required by a distribution asset operator, which is often faced with the pressing need to finance multiple projects amid the increasing demand for electricity in most countries. The 10-year availability of the MFF allows for subprojects that become ready or more urgent to be picked up by earlier tranches. In some cases, delays caused by technical challenges can be remedied by transferring a subproject to subsequent tranches.

Project Cycle Stage:

Preparation

Project schedules need to be informed by the experience and capacity of executing and implementing agencies.

At appraisal, the physical completion of this project was expected in March 2015 and loan closing in September 2015. The loan closing was extended three times for a total of 33 months. The first two extensions were needed mainly to accommodate delays in procurement and the utilization of surplus proceeds for additional works and equipment. The final extension of 3 months was given to complete outstanding physical works because of unforeseen issues such as on right-of-way that led to design changes and the revision of some of the original transmission routes. This experience highlights the importance of having a realistic project schedule that takes into consideration EA/IA experience and existing capacity. Due diligence should be performed at appraisal to develop a realistic schedule, especially when the undertaking involves an EA with no experience in ADB-financed projects.

Project Cycle Stage:

Preparation

Background

At the request of the government of Pakistan, the Asian Development Bank (ADB) approved an $810 million multitranche financing facility (MFF) for the Power Distribution Enhancement Investment Program in September 2008. The approved MFF amount, to be provided in four tranches, represented 15.6% of the country’s total power distribution sector investment plan for 2008–2017. The investment plan focused on improving the secondary transmission grid (STG) and distribution system and reducing transmission and distribution losses to ensure adequate power supply to meet the 8% per annum economic growth targeted by the government under its Medium-Term Development Framework, 2005−2010.

Tranche 2 of the MFF, approved for a loan of $242 million in December 2010, was to finance physical investments mainly related to improving the STG through new or upgraded substations, new transmission lines, and additions or augmentations to transformers in existing substations. Ninety-four percent of the tranche was to support STG investments while the rest was to finance the installation of capacitor banks to reduce technical losses.

The tranche 2 project sought to improve power distribution infrastructure and management, as impact. Its intended outcome was removal of power system bottlenecks through distribution system rehabilitation, augmentation, and expansion, covering all eight distribution companies (DISCOs) of Pakistan. Its expected output was completion of subprojects adding 3,380 megavolt-amperes (MVA) of transformer capacity and 387 kilometers (km) of new secondary 132 kilovolt (kV) transmission lines.

At appraisal, the project comprised 131 subprojects, 122 of which were on STG. During implementation, the number of subprojects rose to 167 because the DISCOs proposed additional subprojects against procurement savings. The 32 additional subprojects, all on STG, added 1,166 MVA of transformer capacity at 132 kV and 404 MVA at 11 kV. By loan and MFF closing in June 2018, 164 of the subprojects had been completed, and those delayed by right-of-way and design-related issues were continued by the DISCOs using their own resources. Including the output from the 3 ongoing subprojects, which all involve transmission line construction, Pakistan will have an additional 580 km of transmission line because of the project. A total of 394.8 km of these lines had already been installed by 2018.

Because of overachievement in its output targets, the project attained its intended outcome and impact, mostly in excess of targets. The 5,340 MVA of 132 kV power transformers that were installed enhanced the energy transformation capacity of the DISCOs all over Pakistan, except Karachi. The additional transmission lines facilitated power evacuation and connectivity with newly constructed and existing grid stations. As a result, electricity sales went up by 24,341 gigawatt-hours (GWh) against the target of 12,000 GWh and village electrification reached 82% against the target of 78% in 2017.

However, lack of generation capacity during peak electricity demand and system constraints in the transmission network of the National Transmission and Despatch Company, which operates all the 220 KV and 500KV grid stations and transmission lines in the country, impeded the project from achieving its target of reducing electricity outages in the Pakistan Electric Power Company (PEPCO) system by 20%. The recorded outages at all voltage levels (132/66/11 kV) in the PEPCO system rose by just 1% between 2009 and 2017. Nevertheless, the outages for 132 kV feeders, which comprised 94% of the project scope, were cut by 19% during the same period.

The project had the PEPCO as executing agency and the DISCOs as implementing agencies.

Project Information

Project Name:

Power Distribution Enhancement Investment Program - Tranche 2

Report Date:

August, 2019

Main Sector:

Energy

Country:

Pakistan

Project Number:

38456-033